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CIAR, JULIE ANNE PRINCESS - PAGE 1

Santos vs. Reyes, 368 SCRA 261(2001)


Remedial Law; Appeals; Factual findings of the Court of Appeals affirming those of the trial
court are binding and conclusive on the Supreme Court.Petitioner has utterly failed to
demonstrate why a review of these factual findings is warranted. Well-entrenched is the
basic rule that factual findings of the Court of Appeals affirming those of the trial court are
binding and conclusive on the Supreme Court. Although there are exceptions to this rule,
petitioner has not satisfactorily shown that any of them is applicable to this issue.
Same; Same; When the judgment of the Court of Appeals is premised on a
misapprehension of facts or a failure to notice certain relevant facts that would otherwise
justify a different conclusion, a review of its factual findings may be conducted.When the
judgment of the CA is premised on a misapprehension of facts or a failure to notice certain
relevant facts that would otherwise justify a different conclusion, as in this particular issue,
a review of its factual findings may be conducted, as an exception to the general rule
applied to the first two issues.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 135813
October 25, 2001
FERNANDO SANTOS, petitioner,
vs.
SPOUSES ARSENIO and NIEVES REYES, respondents.
PANGANIBAN, J.:
As a general rule, the factual findings of the Court of Appeals affirming those of the trial
court are binding on the Supreme Court. However, there are several exceptions to this
principle. In the present case, we find occasion to apply both the rule and one of the
exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997
Decision,1 as well as the August 17, 1998 and the October 9, 1998 Resolutions, 2 issued by
the Court of Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision disposed as
follows:
"WHEREFORE, the decision appealed from is AFFIRMED save as for the
counterclaim which is hereby DISMISSED. Costs against [petitioner]."3
Resolving respondent's Motion for Reconsideration, the August 17, 1998
Resolution ruled as follows:

"WHEREFORE, [respondents'] motion for reconsideration is GRANTED.


Accordingly, the court's decision dated November 28, 1997 is hereby MODIFIED in
that the decision appealed from is AFFIRMED in toto, with costs against
[petitioner]."4
The October 9, 1998 Resolution denied "for lack of merit" petitioner's Motion for
Reconsideration of the August 17, 1998 Resolution.5
The Facts
The events that led to this case are summarized by the CA as follows:
"Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves
Reyes were introduced to each other by one Meliton Zabat regarding a lending
business venture proposed by Nieves. It was verbally agreed that [petitioner
would] act as financier while [Nieves] and Zabat [would] take charge of solicitation
of members and collection of loan payments. The venture was launched on June
13, 1986, with the understanding that [petitioner] would receive 70% of the profits
while x x x Nieves and Zabat would earn 15% each.
"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as
chairman of the Monte Maria Development Corporation 6 (Monte Maria, for
brevity), sought short-term loans for members of the corporation. [Petitioner] and
Gragera executed an agreement providing funds for Monte Maria's members.
Under the agreement, Monte Maria, represented by Gragera, was entitled to P1.31
commission per thousand paid daily to [petitioner] (Exh. 'A')x x x . Nieves kept the
books as representative of [petitioner] while [Respondent] Arsenio, husband of
Nieves, acted as credit investigator.
"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the 'Article of
Agreement' which formalized their earlier verbal arrangement.
"[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the
same lending business in competition with their partnership[.] Zabat was thereby
expelled from the partnership. The operations with Monte Maria continued.
"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and
damages. [Petitioner] charged [respondents], allegedly in their capacities as
employees of [petitioner], with having misappropriated funds intended for Gragera
for the period July 8, 1986 up to March 31, 1987. Upon Gragera's complaint that
his commissions were inadequately remitted, [petitioner] entrusted P200,000.00
to x x x Nieves to be given to Gragerax x x . Nieves allegedly failed to account for
the amount. [Petitioner] asserted that after examination of the records, he found
that of the total amount of P4,623,201.90 entrusted to [respondents], only

CIAR, JULIE ANNE PRINCESS - PAGE 2

P3,068,133.20 was remitted to Gragera, thereby leaving the balance of


P1,555,065.70 unaccounted for.
"In their answer, [respondents] asserted that they were partners and not mere
employees of [petitioner]. The complaint, they alleged, was filed to preempt and
prevent them from claiming their rightful share to the profits of the partnership.

In its August 13, 1991 Decision, the trial court held that respondents were partners, not
mere employees, of petitioner. It further ruled that Gragera was only a commission agent
of petitioner, not his partner. Petitioner moreover failed to prove that he had entrusted any
money to Nieves. Thus, respondents' counterclaim for their share in the partnership and
for damages was granted. The trial court disposed as follows:

"x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat
after [petitioner] learned of Zabat's activities. Arsenio resigned from his job at the
Asian Development Bank to join the partnership.

"39.

WHEREFORE, the Court hereby renders judgment as follows:

"For her part, x x x Nieves claimed that she participated in the business as a
partner, as the lending activity with Monte Maria originated from her initiative.
Except for the limited period of July 8, 1986 through August 20, 1986, she did not
handle sums intended for Gragera. Collections were turned over to Gragera
because he guaranteed 100% payment of all sums loaned by Monte Maria. Entries
she made on worksheets were based on this assumptive 100% collection of all
loans. The loan releases were made less Gragera's agreed commission. Because of
this arrangement, she neither received payments from borrowers nor remitted any
amount to Gragera. Her job was merely to make worksheets (Exhs. '15' to '15DDDDDDDDDD') to convey to [petitioner] how much he would earn if all the
sums guaranteed by Gragera were collected.

39.1.

THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.

39.2.

The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent]


NIEVES S. REYES, the following:

39.2.1.

P3,064,428.00

39.2.2.

Six(6) percent of - As damages from August 3, 1987 until the P3,064,428.00 is


P3,064,428.00
fully paid.

39.2.3.

P50,000.00

- As moral damages

39.2.4.

P10,000.00

- As exemplary damages

39.3.

The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent]


ARSENIO REYES, the following:

39.3.1.

P2,899,739.50

"[Petitioner] on the other hand insisted that [respondents] were his mere
employees and not partners with respect to the agreement with Gragera. He
claimed that after he discovered Zabat's activities, he ceased infusing funds,
thereby causing the extinguishment of the partnership. The agreement with
Gragera was a distinct partnership [from] that of [respondent] and Zabat.
[Petitioner] asserted that [respondents] were hired as salaried employees with
respect to the partnership between [petitioner] and Gragera.
"[Petitioner] further asserted that in Nieves' capacity as bookkeeper, she received
all payments from which Nieves deducted Gragera's commission. The commission
would then be remitted to Gragera. She likewise determined loan releases.
"During the pre-trial, the parties narrowed the issues to the following points:
whether [respondents] were employees or partners of [petitioner], whether
[petitioner] entrusted money to [respondents] for delivery to Gragera, whether the
P1,555,068.70 claimed under the complaint was actually remitted to Gragera and
whether [respondents] were entitled to their counterclaim for share in the
profits."7
Ruling of the Trial Court

- The 15 percent share of the [respondent] NIEVES S. REYES


in the profits of her joint venture with the [petitioner].

- The balance of the 15 percent share of the [respondent]


ARSENIO REYES in the profits of his joint venture with the
[petitioner].

CIAR, JULIE ANNE PRINCESS - PAGE 3

Hence, this Petition.9


39.3.2.

Six(6) percent of - As damages from August 3, 1987 until the P2,899,739.50 is


P2,899,739.50
fully paid.

Issue
Petitioner asks this Court to rule on the following issues: 10

39.3.3.

P25,000.00

- As moral damages

39.3.4.

P10,000.00

- As exemplary damages

39.4.

39.4.1.

39.4.2.

The [petitioner] FERNANDO J. SANTOS is ordered to pay


the [respondents]:

P50,000.00

- As attorney's fees; and

The cost of the suit."

"Whether or not Respondent Court of Appeals acted with grave abuse of discretion
tantamount to excess or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers and not
employees of Santos in connection with the agreement between Santos and Monte
Maria/Gragera;
2. Affirming the findings of the trial court that the phrase 'Received by' on
documents signed by Nieves Reyes signified receipt of copies of the documents and
not of the sums shown thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a forgery;
4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes of
P200,000.00 for delivery to Gragera;
5 Affirming the dismissal of Santos' [Second] Amended Complaint;

Ruling of the Court of Appeals


On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents
was dismissed. Upon the latter's Motion for Reconsideration, however, the trial court's
Decision was reinstated in toto. Subsequently, petitioner's own Motion for Reconsideration
was denied in the CA Resolution of October 9, 1998.
The CA ruled that the following circumstances indicated the existence of a partnership
among the parties: (1) it was Nieves who broached to petitioner the idea of starting a
money-lending business and introduced him to Gragera; (2) Arsenio received "dividends"
or "profit-shares" covering the period July 15 to August 7, 1986 (Exh. "6"); and (3) the
partnership contract was executed after the Agreement with Gragera and petitioner and
thus showed the parties' intention to consider it as a transaction of the partnership. In their
common venture, petitioner invested capital while respondents contributed industry or
services, with the intention of sharing in the profits of the business.
The CA disbelieved petitioner's claim that Nieves had misappropriated a total of P200,000
which was supposed to be delivered to Gragera to cover unpaid commissions. It was his
task to collect the amounts due, while hers was merely to prepare the daily cash flow
reports (Exhs. "15-15DDDDDDDDDD") to keep track of his collections.

6. Affirming the decision of the trial court, upholding private respondents'


counterclaim;
7. Denying Santos' motion for reconsideration dated September 11, 1998."
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties'
relationship was one of partnership or of employer employee; (2) whether Nieves
misappropriated the sums of money allegedly entrusted to her for delivery to Gragera as
his commissions; and (3) whether respondents were entitled to the partnership profits as
determined by the trial court.
The Court's Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship

CIAR, JULIE ANNE PRINCESS - PAGE 4

Petitioner maintains that he employed the services of respondent spouses in the moneylending venture with Gragera, with Nieves as bookkeeper and Arsenio as credit
investigator. That Nieves introduced Gragera to Santos did not make her a partner. She
was only a witness to the Agreement between the two. Separate from the partnership
between petitioner and Gragera was that which existed among petitioner, Nieves and
Zabat, a partnership that was dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioner's contentions and
ruled that the business relationship was one of partnership. We quote from the CA
Decision, as follows:
"[Respondents] were industrial partners of [petitioner]x x x . Nieves herself
provided the initiative in the lending activities with Monte Maria. In consonance
with the agreement between appellant, Nieves and Zabat (later replaced by
Arsenio), [respondents] contributed industry to the common fund with the
intention of sharing in the profits of the partnership. [Respondents] provided
services without which the partnership would not have [had] the wherewithal to
carry on the purpose for which it was organized and as such [were] considered
industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
"While concededly, the partnership between [petitioner,] Nieves and Zabat was
technically dissolved by the expulsion of Zabat therefrom, the remaining partners
simply continued the business of the partnership without undergoing the
procedure relative to dissolution. Instead, they invited Arsenio to participate as a
partner in their operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and Arsenio simply took
over and continued the business of the former partnership with Zabat, one of the
incidents of which was the lending operations with Monte Maria.
xxx

xxx

xxx

"Gragera and [petitioner] were not partners. The money-lending activities


undertaken with Monte Maria was done in pursuit of the business for which the
partnership between [petitioner], Nieves and Zabat (later Arsenio) was organized.
Gragera who represented Monte Maria was merely paid commissions in exchange
for the collection of loans. The commissions were fixed on gross returns, regardless
of the expenses incurred in the operation of the business. The sharing of gross
returns does not in itself establish a partnership."11
We agree with both courts on this point. By the contract of partnership, two or more
persons bind themselves to contribute money, property or industry to a common fund,
with the intention of dividing the profits among themselves. 12 The "Articles of Agreement"
stipulated that the signatories shall share the profits of the business in a 70-15-15 manner,

with petitioner getting the lion's share.13 This stipulation clearly proved the establishment
of a partnership.
We find no cogent reason to disagree with the lower courts that the partnership continued
lending money to the members of the Monte Maria Community Development Group, Inc.,
which later on changed its business name to Private Association for Community
Development, Inc. (PACDI). Nieves was not merely petitioner's employee. She discharged
her bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement, which
states as follows:
"2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and
screening of prospective borrowers, and shall x x x each be responsible in handling
the collection of the loan payments of the borrowers that they each solicited.
"3. That the bookkeeping and daily balancing of account of the business operation
shall be handled by the SECOND PARTY."14
The "Second Party" named in the Agreement was none other than Nieves Reyes. On the
other hand, Arsenio's duties as credit investigator are subsumed under the phrase
"screening of prospective borrowers." Because of this Agreement and the disbursement of
monthly "allowances" and "profit shares" or "dividends" (Exh. "6") to Arsenio, we uphold
the factual finding of both courts that he replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-lending business, despite the
fact that it was formalized only after the Memorandum of Agreement had been signed by
petitioner and Gragera. Contrary to petitioner's contention, there is no evidence to show
that a different business venture is referred to in this Agreement, which was executed on
August 6, 1986, or about a month after the Memorandum had been signed by petitioner
and Gragera on July 14, 1986. The Agreement itself attests to this fact:
"WHEREAS, the parties have decided to formalize the terms of their business
relationship in order that their respective interests may be properly defined and
established for their mutual benefit and understanding."15
Second
No Proof of Misappropriation of Gragera's Unpaid Commission

Issue:

Petitioner faults the CA finding that Nieves did not misappropriate money intended for
Gragera's commission. According to him, Gragera remitted his daily collection to Nieves.
This is shown by Exhibit "B." (the "Schedule of Daily Payments"), which bears her
signature under the words "received by." For the period July 1986 to March 1987, Gragera
should have earned a total commission of P4,282,429.30. However, only P3,068,133.20
was received by him. Thus, petitioner infers that she misappropriated the difference of
P1,214,296.10, which represented the unpaid commissions. Exhibit "H." is an untitled

CIAR, JULIE ANNE PRINCESS - PAGE 5

tabulation which, according to him, shows that Gragera was also entitled to a commission
of P200,000, an amount that was never delivered by Nieves. 16
On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show that Nieves
received for delivery to Gragera any amount from which the P1,214,296.10 unpaid
commission was supposed to come, and that such exhibits were insufficient proof that she
had embezzled P200,000. Said the CA:
"The presentation of Exhibit "D" vaguely denominated as 'members ledger' does
not clearly establish that Nieves received amounts from Monte Maria's members.
The document does not clearly state what amounts the entries thereon represent.
More importantly, Nieves made the entries for the limited period of January 11,
1987 to February 17, 1987 only while the rest were made by Gragera's own staff.
"Neither can we give probative value to Exhibit 'E' which allegedly shows
acknowledgment of the remittance of commissions to Verona Gonzales. The
document is a private one and its due execution and authenticity have not been
duly proved as required in [S]ection 20, Rule 132 of the Rules of Court which
states:
'SECTION 20. Proof of Private Document Before any private document
offered as authentic is received in evidence, its due execution and
authenticity must be proved either:

xxx

xxx

xxx

"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and 'F') were
based on the predetermined 100% collection as guaranteed by Gragera is credible
and clearly in accord with the evidence. A perusal of Exhs. "B" and "F" as well as
Exhs. '15' to 15-DDDDDDDDDD' reveal that the entries were indeed based on the
100% assumptive collection guaranteed by Gragera. Thus, the total amount
recorded on Exh. 'B' is exactly the number of borrowers multiplied by the projected
collection of P150.00 per borrower. This holds true for Exh. 'F.'
"Corollarily, Nieves' explanation that the documents were pro forma and that she
signed them not to signify that she collected the amounts but that she received the
documents themselves is more believable than [petitioner's] assertion that she
actually handled the amounts.
"Contrary to [petitioner's] assertion, Exhibit 'H' does not unequivocally establish
that x x x Nieves received P200,000.00 as commission for Gragera. As correctly
stated by the court a quo, the document showed a liquidation of P240.000 00 and
not P200,000.00.
"Accordingly, we find Nieves' testimony that after August 20, 1986, all collections
were made by Gragera believable and worthy of credence. Since Gragera
guaranteed a daily 100% payment of the loans, he took charge of the collections. As
[petitioner's] representative,

(a) By anyone who saw the document executed or written; or


(b) By evidence of the genuineness of the signature or handwriting
of the maker.
'Any other private document need only be identified as that which it is
claimed to be.'
"The court a quo even ruled that the signature thereon was a forgery, as it found
that:
'x x x . But NIEVES denied that Exh. E-1 is her signature; she claimed that
it is a forgery. The initial stroke of Exh. E-1 starts from up and goes
downward. The initial stroke of the genuine signatures of NIEVES (Exhs.
A-3, B-1, F-1, among others) starts from below and goes upward. This
difference in the start of the initial stroke of the signatures Exhs. E-1 and of
the genuine signatures lends credence to Nieves' claim that the signature
Exh. E-1 is a forgery.'

Nieves merely prepared the daily cash flow reports (Exh. '15' to '15
DDDDDDDDDD') to enable [petitioner] to keep track of Gragera's operations.
Gragera on the other hand devised the schedule of daily payment (Exhs. 'B' and 'F')
to record the projected gross daily collections.
"As aptly observed by the court a quo:
'26.1. As between the versions of SANTOS and NIEVES on how the
commissions of GRAGERA [were] paid to him[,] that of NIEVES is more
logical and practical and therefore, more believable. SANTOS' version
would have given rise to this improbable situation: GRAGERA would
collect the daily amortizations and then give them to NIEVES; NIEVES
would get GRAGERA's commissions from the amortizations and then give
such commission to GRAGERA."'17
These findings are in harmony with the trial court's ruling, which we quote below:
"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received
P200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth column

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'ADDITIONAL CASH' that the additional cash was P240,000.00. If Exh. H were the
liquidation of the P200,000.00 as alleged by SANTOS, then his claim is not true. This is so
because it is a liquidation of the sum of P240,000.00.

income, her 15 percent share under the joint venture amounts to P3,064,428 (Exh. "10-I3"); and Arsenio's, P2,026,000 minus the P30,000 which was already advanced to him
(Petty Cash Vouchers, Exhs. "6, 6-A to 6-B").

"21.1. SANTOS claimed that he learned of NIEVES' failure to give the P200,000.00 to
GRAGERA when he received the latter's letter complaining of its delayed release. Assuming
as true SANTOS' claim that he gave P200,000.00 to GRAGERA, there is no competent
evidence that NIEVES did not give it to GRAGERA. The only proof that NIEVES did not give
it is the letter. But SANTOS did not even present the letter in evidence. He did not explain
why he did not.

The CA originally held that respondents' counterclaim was premature, pending an


accounting of the partnership. However, in its assailed Resolution of August 17, 1998, it
turned volte face. Affirming the trial court's ruling on the counterclaim, it held as follows:

"21.2. The evidence shows that all money transactions of the money-lending business of
SANTOS were covered by petty cash vouchers. It is therefore strange why SANTOS did not
present any voucher or receipt covering the P200,000.00." 18

In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70
from the partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted
his commissions before remitting his collections. Exhibits "B" and "F" are merely
computations of what Gragera should collect for the day; they do not show that Nieves
received the amounts stated therein. Neither is there sufficient proof that she
misappropriated P200,000, because Exhibit "H." does not indicate that such amount was
received by her; in fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is
warranted. Well-entrenched is the basic rule that factual findings of the Court of Appeals
affirming those of the trial court are binding and conclusive on the Supreme
Court.19 Although there are exceptions to this rule, petitioner has not satisfactorily shown
that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents' claims on the profits of the partnership. He
maintains that "both business propositions were flops," as his investments were
"consumed and eaten up by the commissions orchestrated to be due Gragera" a situation
that "could not have been rendered possible without complicity between Nieves and
Gragera."
Respondent spouses, on the other hand, postulate that petitioner instituted the action
below to avoid payment of the demands of Nieves, because sometime in March 1987, she
"signified to petitioner that it was about time to get her share of the profits which had
already accumulated to some P3 million." Respondents add that while the partnership has
not declared dividends or liquidated its earnings, the profits are already reflected on paper.
To prove the counterclaim of Nieves, the spouses show that from June 13, 1986 up to April
19, 1987, the profit totaled P20,429,520 (Exhs. "10" et seq. and "15" et seq.). Based on that

"We earlier ruled that there is still need for an accounting of the profits and losses
of the partnership before we can rule with certainty as to the respective shares of
the partners. Upon a further review of the records of this case, however, there
appears to be sufficient basis to determine the amount of shares of the parties and
damages incurred by [respondents]. The fact is that the court a quo already made
such a determination [in its] decision dated August 13, 1991 on the basis of the
facts on record."20
The trial court's ruling alluded to above is quoted below:
"27. The defendants' counterclaim for the payment of their share in the profits of their joint
venture with SANTOS is supported by the evidence.
"27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement
(Exhs. 5, 5-A and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I,
inclusive) which she prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow
reports of which Exh. 3 is a sample. The originals of the daily cash flow reports (Exhs. 3 and
15 to 15-D(10) were given to SANTOS. The joint venture had a net profit of P20,429,520.00
(Exh. 10-I-1), from its operations from June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had
a share of P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about P2,926,000.00, in the profits.
"27.1.1 SANTOS never denied NIEVES' testimony that the money-lending business he was
engaged in netted a profit and that the originals of the daily case flow reports were furnished
to him. SANTOS however alleged that the money-lending operation of his joint venture with
NIEVES and ZABAT resulted in a loss of about half a million pesos to him. But such loss,
even if true, does not negate NIEVES' claim that overall, the joint venture among them
SANTOS, NIEVES and ARSENIO netted a profit. There is no reason for the Court to
doubt the veracity of [the testimony of] NIEVES.
"27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6,
6-A and 6-B) should be deducted from his total share." 21

After a close examination of respondents' exhibits, we find reason to disagree with the CA.
Exhibit "10-I"22 shows that the partnership earned a "total income" of P20,429,520 for the
period June 13, 1986 until April 19, 1987. This entry is derived from the sum of the
amounts under the following column headings: "2-Day Advance Collection," "Service Fee,"
"Notarial Fee," "Application Fee," "Net Interest Income" and "Interest Income on

CIAR, JULIE ANNE PRINCESS - PAGE 7

Investment." Such entries represent the collections of the money-lending business or its
gross income.
The "total income" shown on Exhibit "10-I" did not consider the expenses sustained by the
partnership. For instance, it did not factor in the "gross loan releases" representing the
money loaned to clients. Since the business is money-lending, such releases are
comparable with the inventory or supplies in other business enterprises.
Noticeably missing from the computation of the "total income" is the deduction of the
weekly allowance disbursed to respondents. Exhibits "I" et seq. and "J" et seq. 23 show that
Arsenio received allowances from July 19, 1986 to March 27, 1987 in the aggregate amount
of P25,500; and Nieves, from July 12, 1986 to March 27, 1987, in the total amount of
P25,600. These allowances are different from the profit already received by Arsenio. They
represent expenses that should have been deducted from the business profits. The point is
that all expenses incurred by the money-lending enterprise of the parties must first be
deducted from the "total income" in order to arrive at the "net profit" of the partnership.
The share of each one of them should be based on this "net profit" and not from the "gross
income" or "total income" reflected in Exhibit "10-I," which the two courts invariably
referred to as "cash flow" sheets.
Similarly, Exhibits "15" et seq., which are the "Daily Cashflow Reports," do not reflect the
business expenses incurred by the parties, because they show only the daily cash
collections. Contrary to the rulings of both the trial and the appellate courts, respondents'
exhibits do not reflect the complete financial condition of the money-lending business. The
lower courts obviously labored over a mistaken notion that Exhibit " 10-I-1" represented
the "net profits" earned by the partnership.
24

For the purpose of determining the profit that should go to an industrial partner (who
shares in the profits but is not liable for the losses), the gross income from all the
transactions carried on by the firm must be added together, and from this sum must be
subtracted the expenses or the losses sustained in the business. Only in the difference
representing the net profits does the industrial partner share. But if, on the contrary, the
losses exceed the income, the industrial partner does not share in the losses. 25
When the judgment of the CA is premised on a misapprehension of facts or a failure to
notice certain relevant facts that would otherwise justify a different conclusion, as in this
particular issue, a review of its factual findings may be conducted, as an exception to the
general rule applied to the first two issues.26
The trial court has the advantage of observing the witnesses while they are testifying, an
opportunity not available to appellate courts. Thus, its assessment of the credibility of
witnesses and their testimonies are accorded great weight, even finality, when supported
by substantial evidence; more so when such assessment is affirmed by the CA. But when
the issue involves the evaluation of exhibits or documents that are attached to the case

records, as in the third issue, the rule may be relaxed. Under that situation, this Court has a
similar opportunity to inspect, examine and evaluate those records, independently of the
lower courts. Hence, we deem the award of the partnership share, as computed by the trial
court and adopted by the CA, to be incomplete and not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision
is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998
are REVERSED and SET ASIDE. No costs.

Heirs of Tan Eng Kee vs. Court of Appeals, 341 SCRA 740(2000)
Appeals; Evidence; Findings of facts of the Court of Appeals will not be disturbed on appeal
if such are supported by the evidence.As a premise, we reiterate the oft-repeated rule that
findings of facts of the Court of Appeals will not be disturbed on appeal if such are
supported by the evidence. Our jurisdiction, it must be emphasized, does not include
review of factual issues.
Same; Same; Exceptions.Admitted exceptions have been recognized, though, and when
present, may compel us to analyze the evidentiary basis on which the lower court rendered
judgment. Review of factual issues is therefore warranted: (1) when the factual findings of
the Court of Appeals and the trial court are contradictory; (2) when the findings are
grounded entirely on speculation, surmises, or conjectures; (3) when the inference made by
the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts; (5) when the
appellate court, in making its findings, goes beyond the issues of the case, and such
findings are contrary to the admissions of both appellant and appellee; (6) when the
judgment of the Court of Appeals is premised on a misapprehension of facts; (7) when the
Court of Appeals fails to notice certain relevant facts which, if properly considered, will
justify a different conclusion; (8) when the findings of fact are themselves conflicting; (9)
when the findings of fact are conclusions without citation of the specific evidence on which
they are based; and (10) when the findings of fact of the Court of Appeals are premised on
the absence of evidence but such findings are contradicted by the evidence on record.
Partnerships; Words and Phrases; In order to constitute a partnership, it must be
established that (1) two or more persons bound themselves to contribute money, property
or industry to a common fund, and (2) they intended to divide the profits among
themselves.The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were
partners in Benguet Lumber. A contract of partnership is defined by law as one where: x x x
two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves. Two or more
persons may also form a partnership for the exercise of a profession. Thus, in order to
constitute a partnership, it must be established that (1) two or more persons bound
themselves to contribute money, property, or industry to a common fund, and (2) they
intend to divide the profits among themselves. The agreement need not be formally

CIAR, JULIE ANNE PRINCESS - PAGE 8

reduced into writing, since statute allows the oral constitution of a partnership, save in two
instances: (1) when immovable property or real rights are contributed, and (2) when the
partnership has a capital of three thousand pesos or more. In both cases, a public
instrument is required. An inventory to be signed by the parties and attached to the public
instrument is also indispensable to the validity of the partnership whenever immovable
property is contributed to the partnership.
Same; Same; Joint Ventures; Partnership and Joint Venture, Distinguished.The trial
court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture,
which it said is akin to a particular partnership. A particular partnership is distinguished
from a joint adventure, to wit: (a) A joint adventure (an American concept similar to our
joint accounts ) is a sort of informal partnership, with no firm name and no legal
personality. In a joint account, the participating merchants can transact business under
their own name, and can be individually liable therefor, (b) Usually, but not necessarily a
joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing
to a successful termination may continue for a number of years; a partnership generally
relates to a continuing business of various transactions of a certain kind.
Same; Same; Same; Same; A joint venture may be likened to a particular partnership; The
legal concept of a joint venture is of common law origin and has no precise legal definition,
but it has been generally understood to mean an organization formed for some temporary
purpose.A joint venture presupposes generally a parity of standing between the joint coventures or partners, in which each party has an equal proprietary interest in the capital or
property contributed, and where each party exercises equal rights in the conduct of the
business. Nonetheless, in Aurbach, et al. v. Sanitary Wares Manufacturing Corporation, et
al., we expressed the view that a joint venture may be likened to a particular partnership,
thus: The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable
from the partnership, since their elements are similarcommunity of interest in the
business, sharing of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F. 2d. 498 [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley
v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited
by most opinions in common law jurisdiction is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann, 116
Cal. App. 170, 2 P.2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947];
Gates v. Megargel, 266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of partnerships. The Supreme Court
has however recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may however engage in
a joint venture with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and
Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Same; Co-Ownership; A co-ownership or co-possession is not an indicium of the existence


of a partnership.None of petitioners witnesses could suitably account for the beginnings
of Benguet Lumber Company, except perhaps for Dionisio Peralta whose deceased wife was
related to Matilde Abubo. He stated that when he met Tan Eng Kee after the liberation, the
latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned
by both brothers. Tan Eng Lay, however, denied knowledge of this meeting or of the
conversation between Peralta and his brother. Tan Eng Lay consistently testified that he
had his business and his brother had his, that it was only later on that his said brother, Tan
Eng Kee, came to work for him. Be that as it may, co-ownership or copossession
(specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership.
Same; The essence of a partnership is that the partners share in the profits and losses; A
demand for periodic accounting is evidence of a partnership.Besides, it is indeed odd, if
not unnatural, that despite the forty years the partnership was allegedly in existence, Tan
Eng Kee never asked for an accounting. The essence of a partnership is that the partners
share in the profits and losses. Each has the right to demand an accounting as long as the
partnership exists. We have allowed a scenario wherein [i]f excellent relations exist among
the partners at the start of the business and all the partners are more interested in seeing
the firm grow rather than get immediate returns, a deferment of sharing in the profits is
perfectly plausible. But in the situation in the case at bar, the deferment, if any, had gone
on too long to be plausible. A person is presumed to take ordinary care of his concerns, x x
x A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan
Eng Kee appeared never to have made any such demand for accounting from his brother,
Tang Eng Lay.
Same; Where circumstances taken singly may be inadequate to prove the intent to form a
partnership, nevertheless, the collective effect of these circumstances may be such as to
support a finding of the existence of the parties intent.In the instant case, we find private
respondents arguments to be well-taken. Where circumstances taken singly may be
inadequate to prove the intent to form a partnership, nevertheless, the collective effect of
these circumstances may be such as to support a finding of the existence of the parties
intent. Yet, in the case at bench, even the aforesaid circumstances when taken together are
not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was
involved in the operations of Benguet Lumber, but in what capacity is unclear. We cannot
discount the likelihood that as a member of the family, he occupied a niche above the rankand-file employees. He would have enjoyed liberties otherwise unavailable were he not kin,
such as his residence in the Benguet Lumber Company compound. He would have moral, if
not actual, superiority over his fellow employees, thereby entitling him to exercise powers
of supervision. It may even be that among his duties is to place orders with suppliers.
Again, the circumstances proffered by petitioners do not provide a logical nexus to the
conclusion desired; these are not inconsistent with the powers and duties of a manager,
even in a business organized and run as informally as Benguet Lumber Company.
Republic of the Philippines
SUPREME COURT

CIAR, JULIE ANNE PRINCESS - PAGE 9

SECOND DIVISION
G.R. No. 126881

October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,


vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY,respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the
Decision1 dated March 13, 1996 of the former Fifth Division 2 of the Court of Appeals in CAG.R. CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and
the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the commonlaw spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos,
Corazon and Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE,
filed suit against the decedent's brother TAN ENG LAY on February 19, 1990. The
complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio City
was for accounting, liquidation and winding up of the alleged partnership formed after
World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners
filed an amended complaint4 impleading private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the
trial court in its Order dated May 3, 1991.5
The amended complaint principally alleged that after the second World War, Tan Eng Kee
and Tan Eng Lay, pooling their resources and industry together, entered into a partnership
engaged in the business of selling lumber and hardware and construction supplies. They
named their enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's
death. Petitioners herein averred that the business prospered due to the hard work and
thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his
children caused the conversion of the partnership "Benguet Lumber" into a corporation
called "Benguet Lumber Company." The incorporation was purportedly a ruse to deprive

Tan Eng Kee and his heirs of their rightful participation in the profits of the business.
Petitioners prayed for accounting of the partnership assets, and the dissolution, winding up
and liquidation thereof, and the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on April 12,
1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a particular
partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers
and/or partners in a business venture and/or particular partnership called
Benguet Lumber and as such should share in the profits and/or losses of the
business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to
Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the
deceased Tan Eng Kee have a legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer
and/or as partner in a particular partnership have descended to the plaintiffs who
are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General
Manager of Benguet Lumber Company Inc. to render an accounting of all the
assets of Benguet Lumber Company, Inc. so the plaintiffs know their proper share
in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets
of Benguet Lumber Company, Inc. until such time that said corporation is finally
liquidated are directed to submit the name of any person they want to be
appointed as receiver failing in which this Court will appoint the Branch Clerk of
Court or another one who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the
expenses in filing the instant case.

CIAR, JULIE ANNE PRINCESS - PAGE 10

h) Dismissing the counter-claim of the defendant for lack of merit.


SO ORDERED.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS
WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE
EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP
DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION:

Private respondent sought relief before the Court of Appeals which, on March 13, 1996,
rendered the assailed decision reversing the judgment of the trial court. Petitioners' motion
for reconsideration7 was denied by the Court of Appeals in a Resolution 8 dated October 11,
1996.

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT
THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE
EMPLOYEES OF BENGUET LUMBER;

Hence, the present petition.


As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng
Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding.
Petitioners complained that Exhibits "4" to "4-U" offered by the defendants before the trial
court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet
Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also
filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo,
Jean, Mary and Willy, all surnamed Tan, for alleged falsification of commercial documents
by a private individual. On March 20, 1999, the Municipal Trial Court of Baguio City,
Branch 1, wherein the charges were filed, rendered judgment 9 dismissing the cases for
insufficiency of evidence.

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE
EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE
PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE
SUPPLIERS (PAGE 18, DECISION).
IV

In their assignment of errors, petitioners claim that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO


PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND
VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT
THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET
LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO


PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS
SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE
WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR
THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO


PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE
THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN
P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A
PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT
ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).

II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING
TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE
PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.
III

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of
Appeals will not be disturbed on appeal if such are supported by the evidence. 10 Our
jurisdiction, it must be emphasized, does not include review of factual issues. Thus:
Filing of petition with Supreme Court. A party desiring to appeal by certiorari
from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by
law, may file with the Supreme Court a verified petition for review on

CIAR, JULIE ANNE PRINCESS - PAGE 11

certiorari. The petition shall raise only questions of law which must be distinctly
set forth.11 [emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel us to
analyze the evidentiary basis on which the lower court rendered judgment. Review of
factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or conjectures;
(3) when the inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues of the case, and
such findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if properly
considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific evidence on
which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence but such findings are contradicted by the evidence on record. 12

In reversing the trial court, the Court of Appeals ruled, to wit:


We note that the Court a quo over extended the issue because while the plaintiffs
mentioned only the existence of a partnership, the Court in turn went beyond that
by justifying the existence of a joint venture.

When mention is made of a joint venture, it would presuppose parity of standing


between the parties, equal proprietary interest and the exercise by the parties
equally of the conduct of the business, thus:
xxx

xxx

xxx

We have the admission that the father of the plaintiffs was not a partner of the
Benguet Lumber before the war. The appellees however argued that (Rollo, p. 104;
Brief, p. 6) this is because during the war, the entire stocks of the pre-war Benguet
Lumber were confiscated if not burned by the Japanese. After the war, because of
the absence of capital to start a lumber and hardware business, Lay and Kee pooled
the proceeds of their individual businesses earned from buying and selling military
supplies, so that the common fund would be enough to form a partnership, both in
the lumber and hardware business. That Lay and Kee actually established the
Benguet Lumber in Baguio City, was even testified to by witnesses. Because of the
pooling of resources, the post-war Benguet Lumber was eventually established.
That the father of the plaintiffs and Lay were partners, is obvious from the fact
that: (1) they conducted the affairs of the business during Kee's lifetime, jointly, (2)
they were the ones giving orders to the employees, (3) they were the ones
preparing orders from the suppliers, (4) their families stayed together at the
Benguet Lumber compound, and (5) all their children were employed in the
business in different capacities.
xxx

xxx

xxx

It is obvious that there was no partnership whatsoever. Except for a firm name,
there was no firm account, no firm letterheads submitted as evidence, no
certificate of partnership, no agreement as to profits and losses, and no time fixed
for the duration of the partnership. There was even no attempt to submit an
accounting corresponding to the period after the war until Kee's death in 1984. It
had no business book, no written account nor any memorandum for that matter
and no license mentioning the existence of a partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The
certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the
only registered owner of the Benguet Lumber and Hardware. His application for
registration, effective 1954, in fact mentioned that his business started in 1945
until 1985 (thereafter, the incorporation). The deceased, Kee, on the other hand,
was merely an employee of the Benguet Lumber Company, on the basis of his SSS
coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4-U",

CIAR, JULIE ANNE PRINCESS - PAGE 12

inclusive, for the years 1982 to 1983, Kee was similarly listed only as an employee;
precisely, he was on the payroll listing. In the Termination Notice, Exhibit "5", Lay
was mentioned also as the proprietor.
xxx

xxx

having a proportionate share in the benefits; and 5) intention to divide the profits,
being the true test of the partnership. The intention to join in the business venture
for the purpose of obtaining profits thereafter to be divided, must be established.
We cannot see these elements from the testimonial evidence of the appellees.

xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be
constituted in any form, but when an immovable is constituted, the execution of a
public instrument becomes necessary. This is equally true if the capitalization
exceeds P3,000.00, in which case a public instrument is also necessary, and which
is to be recorded with the Securities and Exchange Commission. In this case at bar,
we can easily assume that the business establishment, which from the language of
the appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00,
in addition to the accumulation of real properties and to the fact that it is now a
compound. The execution of a public instrument, on the other hand, was never
established by the appellees.
And then in 1981, the business was incorporated and the incorporators were only
Lay and the members of his family. There is no proof either that the capital assets
of the partnership, assuming them to be in existence, were maliciously assigned or
transferred by Lay, supposedly to the corporation and since then have been treated
as a part of the latter's capital assets, contrary to the allegations in pars. 6, 7 and 8
of the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and then in a
room in the bunk house in Trinidad, but within the compound of the lumber
establishment, as testified to by Tandoc; 2) that both Lay and Kee were seated on a
table and were "commanding people" as testified to by the son, Elpidio Tan; 3) that
both were supervising the laborers, as testified to by Victoria Choi; and 4) that
Dionisio Peralta was supposedly being told by Kee that the proceeds of the 80
pieces of the G.I. sheets were added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a contract,
either oral or written. However, if it involves real property or where the capital is
P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of the
parties to execute the contract; 3) money property or industry contribution; 4)
community of funds and interest, mentioning equality of the partners or one

As can be seen, the appellate court disputed and differed from the trial court which had
adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint
venture. In this connection, we have held that whether a partnership exists is a factual
matter; consequently, since the appeal is brought to us under Rule 45, we cannot entertain
inquiries relative to the correctness of the assessment of the evidence by the court a
quo.13 Inasmuch as the Court of Appeals and the trial court had reached conflicting
conclusions, perforce we must examine the record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in
Benguet Lumber. A contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession. 14
Thus, in order to constitute a partnership, it must be established that (1) two or
more persons bound themselves to contribute money, property, or industry to a
common fund, and (2) they intend to divide the profits among themselves. 15 The
agreement need not be formally reduced into writing, since statute allows the oral
constitution of a partnership, save in two instances: (1) when immovable property
or real rights are contributed, 16 and (2) when the partnership has a capital of three
thousand pesos or more.17 In both cases, a public instrument is required.18 An
inventory to be signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever immovable property is
contributed to the partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint
venture, which it said is akin to a particular partnership. 20 A particular partnership is
distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort
of informal partnership, with no firm name and no legal personality. In a joint

CIAR, JULIE ANNE PRINCESS - PAGE 13

account, the participating merchants can transact business under their own name,
and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful termination
may continue for a number of years; a partnership generally relates to a continuing
business of various transactions of a certain kind.21
A joint venture "presupposes generally a parity of standing between the joint co-ventures
or partners, in which each party has an equal proprietary interest in the capital or property
contributed, and where each party exercises equal rights in the conduct of the
business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation,
et. al.,23 we expressed the view that a joint venture may be likened to a particular
partnership, thus:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed
for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly
distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual
right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12
289 P.2d. 242 [1955]). The main distinction cited by most opinions in common law
jurisdiction is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2
P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should thus be governed by the
law of partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however engage in a joint venture
with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and LopezCampos Comments, Notes and Selected Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself, or the
articles of partnership but there is none. The alleged partnership, though, was never

formally organized. In addition, petitioners point out that the New Civil Code was not yet
in effect when the partnership was allegedly formed sometime in 1945, although the
contrary may well be argued that nothing prevented the parties from complying with the
provisions of the New Civil Code when it took effect on August 30, 1950. But all that is in
the past. The net effect, however, is that we are asked to determine whether a partnership
existed based purely on circumstantial evidence. A review of the record persuades us that
the Court of Appeals correctly reversed the decision of the trial court. The evidence
presented by petitioners falls short of the quantum of proof required to establish a
partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng
Lay, could have expounded on the precise nature of the business relationship between
them. In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee
allegedly contributed his resources to a common fund for the purpose of establishing a
partnership. The testimonies to that effect of petitioners' witnesses is directly controverted
by Tan Eng Lay. It should be noted that it is not with the number of witnesses wherein
preponderance lies;24 the quality of their testimonies is to be considered. None of
petitioners' witnesses could suitably account for the beginnings of Benguet Lumber
Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde
Abubo.25 He stated that when he met Tan Eng Kee after the liberation, the latter asked the
former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers.26Tan Eng Lay, however, denied knowledge of this meeting or of the conversation
between Peralta and his brother. 27 Tan Eng Lay consistently testified that he had his
business and his brother had his, that it was only later on that his said brother, Tan Eng
Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically
here, of the G.I. sheets) is not an indicium of the existence of a partnership.28
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was
allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and losses. 29 Each has the right to
demand an accounting as long as the partnership exists. 30 We have allowed a scenario
wherein "[i]f excellent relations exist among the partners at the start of the business and all
the partners are more interested in seeing the firm grow rather than get immediate returns,
a deferment of sharing in the profits is perfectly plausible." 31 But in the situation in the case
at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to
take ordinary care of his concerns.32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 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 even demanded

CIAR, JULIE ANNE PRINCESS - PAGE 14

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
P3,000.00 a month, which cannot 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.33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership. 34 During his lifetime, Tan
Eng Kee appeared never to have made any such demand for accounting from his brother,
Tang Eng Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of
payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet
Lumber, as it was then called. The authenticity of these documents was questioned by
petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his wife
and children. As aforesaid, the criminal cases were dismissed for insufficiency of evidence.
Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as wages of an
employee. In connection therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each
other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits made by
the use of the property;

(a) As a debt by installment or otherwise;


(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an
employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would
still be back to square one, so to speak, since they did not present and offer evidence that
would show that Tan Eng Kee received amounts of money allegedly representing his share
in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng
Kee, received, if any, as his share in the profits of Benguet Lumber Company for any
particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended
to divide the profits of the business between themselves, which is one of the essential
features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a
partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were supervising the employees; that both were the
ones who determined the price at which the stocks were to be sold; and that both placed
orders to the suppliers of the Benguet Lumber Company. They also point out that the
families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber
Company compound, a privilege not extended to its ordinary employees.
However, private respondent counters that:

(3) The sharing of gross returns does not of itself establish a partnership, whether
or not the persons sharing them have a joint or common right or interest in any
property which the returns are derived;

Petitioners seem to have missed the point in asserting that the above enumerated
powers and privileges granted in favor of Tan Eng Kee, were indicative of his being
a partner in Benguet Lumber for the following reasons:

(4) The receipt by a person of a share of the profits of a business is a prima


facie evidence that he is a partner in the business, but no such inference shall be
drawn if such profits were received in payment:

(i) even a mere supervisor in a company, factory or store gives orders and
directions to his subordinates. So long, therefore, that an employee's position is
higher in rank, it is not unusual that he orders around those lower in rank.

CIAR, JULIE ANNE PRINCESS - PAGE 15

(ii) even a messenger or other trusted employee, over whom confidence is reposed
by the owner, can order materials from suppliers for and in behalf of Benguet
Lumber. Furthermore, even a partner does not necessarily have to perform this
particular task. It is, thus, not an indication that Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound
and this privilege was not accorded to other employees, the undisputed fact
remains that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal
relations existed between them. Whatever privileges Tan Eng Lay gave his brother,
and which were not given the other employees, only proves the kindness and
generosity of Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in
connection with the pricing of stocks, this does not adequately prove the existence
of a partnership relation between them. Even highly confidential employees and
the owners of a company sometimes argue with respect to certain matters which,
in no way indicates that they are partners as to each other. 35
In the instant case, we find private respondent's arguments to be well-taken. Where
circumstances taken singly may be inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may be such as to support a
finding of the existence of the parties' intent.36 Yet, in the case at bench, even the aforesaid
circumstances when taken together are not persuasive indicia of a partnership. They only
tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber, but in
what capacity is unclear. We cannot discount the likelihood that as a member of the family,
he occupied a niche above the rank-and-file employees. He would have enjoyed liberties
otherwise unavailable were he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual, superiority over his fellow
employees, thereby entitling him to exercise powers of supervision. It may even be that
among his duties is to place orders with suppliers. Again, the circumstances proffered by
petitioners do not provide a logical nexus to the conclusion desired; these are not
inconsistent with the powers and duties of a manager, even in a business organized and
run as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or
liquidation to speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of
Appeals is herebyAFFIRMED in toto. No pronouncement as to costs.

[Yulo vs. Yang Chiao Seng, 106 Phil. 110(1959)]


1. TRIAL; ABSENCE OF ONE PARTY PURSUANT TO AGREEMENT; EFFECT ON
JUDGMENT.If the parties to a case agreed to postpone the trial of the same in view of a
probable amicable settlement, neither of them can take advantage of the other's absence in
the hearing by appearing. therein and adducing evidence in his favor. The judgment
rendered by the Court based on such evidence should, in the interest of justice, be set aside.
2. CONTRACTS; LEASE; CIRCUMSTANCES THAT NEGATE PARTNERSHIP.Where
one of the parties to a contract does not contribute the capital he is supposed to contribute
to a common fund; does not furnish any help or intervention in the management of the
business subject of the contract; does not demand from the other party an accounting of
the expenses and earnings of the business; and is absolutely silent with respect to any of
the acts that a partner should have done, but, on the other hand, receives a fixed monthly
sum from the other party, there can be no other conclusion than that the contract between
the parties is one of lease and not of partnership.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-12541

August 28, 1959

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffsappellants,


vs.
YANG CHIAO SENG, defendant-appellee.
Punzalan, Yabut, Eusebio & Tiburcio for appellants.
Augusto Francisco and Julian T. Ocampo for appellee.
LABRADOR, J.:
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.

CIAR, JULIE ANNE PRINCESS - PAGE 16

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.
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").
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.
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.
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").
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.
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.

CIAR, JULIE ANNE PRINCESS - PAGE 17

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.
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.
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.

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

CIAR, JULIE ANNE PRINCESS - PAGE 18

Ortega vs. Court of Appeals, 245 SCRA 529(1995)


Commercial Law; Partnership; A partnership that does not fix its term is a partnership at
will.A partnership that does not fix its term is a partnership at will. That the law firm
Bito, Misa & Lozada, and now Bito, Lozada, Ortega and Castillo, is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the appellate
court, the findings and disquisition of respondent SEC on this matter.
Same; Same; The birth and life of a partnership at will is predicated on the mutual desire
and consent of the partners.The birth and life of a partnership at will is predicated on the
mutual desire and consent of the partners. The right to choose with whom a person wishes
to associate himself is the very foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that mutual resolve, along with each
partners capability to give it, and the absence of a cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad
faith can prevent the dissolution of the partnership but that it can result in a liability for
damages.
Same; Same; Neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any partnership
by an act or will of a partner.In passing, neither would the presence of a period for its
specific duration or the statement of a particular purpose for its creation prevent the
dissolution of any partnership by an act or will of a partner. Among partners, mutual
agency arises and the doctrine of delectus personae allows them to have the power,
although not necessarily the right, to dissolve the partnership. An unjustified dissolution by
the partner can subject him to a possible action for damages.
Same; Same; Upon its dissolution, the partnership continues and its legal personality is
retained until the complete winding up of its business culminating in its termination.The
dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business. Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination.
Same; Same; The liquidation of the assets of the partnership following its dissolution is
governed by various provisions of the Civil Code.The liquidation of the assets of the
partnership following its dissolution is governed by various provisions of the Civil Code;
however, an agreement of the partners, like any other contract, is binding among them and
normally takes precedence to the extent applicable over the Codes general provisions.

Same; Same; It would not be right to let any of the partners remain in the partnership
under such an atmosphere of animosity.On the third and final issue, we accord due
respect to the appellate court and respondent Commission on their common factual
finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by interpersonal conflict among the partners. It would
not be right, we agree, to let any of the partners remain in the partnership under such an
atmosphere of animosity; certainly, not against their will. Indeed, for as long as the reason
for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the
purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be
said to characterize the act. Bad faith, in the context here used, is no different from its
normal concept of a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 109248 July 3, 1995


GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION
and JOAQUIN L. MISA, respondents.

VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated
26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the
Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at
length by the appellate court in its decision, are hereunder restated.

CIAR, JULIE ANNE PRINCESS - PAGE 19

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted with the
Securities and Exchange Commission on 4 August 1948. The SEC records show
that there were several subsequent amendments to the articles of partnership on
18 September 1958, to change the firm [name] to ROSS, SELPH and
CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO,
BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June
1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa]
appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as
senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del
Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a
letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and
Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter
stating:
"Further to my letter to you today, I would like to have a meeting
with all of you with regard to the mechanics of liquidation, and
more particularly, my interest in the two floors of this building. I
would like to have this resolved soon because it has to do with my
own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another
letter stating:
"The partnership has ceased to be mutually satisfactory because of
the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level
of the pay scale of our employees have been thwarted by the other

partners. Not only have they refused to give meaningful increases


to the employees, even attorneys, are dressed down publicly in a
loud voice in a manner that deprived them of their self-respect.
The result of such policies is the formation of the union, including
the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation
and Clearing Department (SICD) a petition for dissolution and liquidation of
partnership, docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in
the partnership assets plus the profits, rent or interest attributable
to the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa &
Lozada in any of their correspondence, checks and pleadings and
to pay petitioners damages for the use thereof despite the
dissolution of the partnership in the amount of at least
P50,000.00;
"4. Order respondents jointly and severally to pay petitioner
attorney's fees and expense of litigation in such amounts as maybe
proven during the trial and which the Commission may deem just
and equitable under the premises but in no case less than ten
(10%) per cent of the value of the shares of petitioner or
P100,000.00;
"5. Order the respondents to pay petitioner moral damages with
the amount of P500,000.00 and exemplary damages in the
amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that
the Commission may deem just and equitable under the
premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.

CIAR, JULIE ANNE PRINCESS - PAGE 20

On 13 July 1988, petitioner filed his Reply to the Opposition.


On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada
did not dissolve the said law partnership. Accordingly, the
petitioner and respondents are hereby enjoined to abide by the
provisions of the Agreement relative to the matter governing the
liquidation of the shares of any retiring or withdrawing partner in
the partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa &
Lozada." The Commission ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to continue in the partnership
against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby
REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has
not been dissolved. The case is hereby REMANDED to the Hearing Officer for
determination of the respective rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition,
asked for an appointment of a receiver to take over the assets of the dissolved partnership
and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued
an order denying reconsideration, as well as rejecting the petition for receivership, and
reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638
and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21 December
1991. The death of the two partners, as well as the admission of new partners, in the law
firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No.
24648). He expressed concern over the need to preserve and care for the partnership
assets. The other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court
held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution of
the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation
should be to the extent of Attorney Misa's interest or participation in the partnership which
could be computed and paid in the manner stipulated in the partnership agreement; (d)
that the case should be remanded to the SEC Hearing Officer for the corresponding
determination of the value of Attorney Misa's share in the partnership assets; and (e) that
the appointment of a receiver was unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such danger of being lost, removed or
materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of
Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of
private respondent dissolved the partnership regardless of his good or bad faith;
and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito,
Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership
need not be unduly belabored. We quote, with approval, like did the appellate court, the
findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide
for a specified period or undertaking. The "DURATION" clause simply states:

CIAR, JULIE ANNE PRINCESS - PAGE 21

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


mutually satisfactory and upon the death or legal incapacity of one
of the partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to
act as legal adviser and representative of any individual, firm and
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons
and entities with respect to their legal and other affairs; and to
appear for and represent their principals and client in all courts of
justice and government departments and offices in the
Philippines, and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would all
be considered as partnerships for a definite undertaking. There would therefore be
no need to provide for articles on partnership at will as none would so exist.
Apparently what the law contemplates, is a specific undertaking or "project" which
has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent of
the partners. The right to choose with whom a person wishes to associate himself is the
very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability to
give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one
of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He
must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership 4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the statement
of a particular purpose for its creation prevent the dissolution of any partnership by an act
or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus
personae allows them to have the power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action
for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination. 9
The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; 10 however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners for
allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now
acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro
Street, Salcedo Village, Makati, Metro Manila, their true value at the time of such
death or retirement shall be determined by two (2) independent appraisers, one to
be appointed (by the partnership and the other by the) retiring partner or the heirs
of a deceased partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed by them whose
decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the
basis of the valuation above mentioned which shall be paid monthly within the first
ten (10) days of every month in installments of not less than P20,000.00 for the
Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and
P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense
to mean the dissociation by a partner, inclusive of resignation or withdrawal, from the
partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i.e., that Attorney Misa did not act in bad
faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal
conflict" among the partners. It would not be right, we agree, to let any of the partners
remain in the partnership under such an atmosphere of animosity; certainly, not against
their will. 12 Indeed, for as long as the reason for withdrawal of a partner is not contrary to

CIAR, JULIE ANNE PRINCESS - PAGE 22

the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage
upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the
context here used, is no different from its normal concept of a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.
Feliciano, Romero, Melo and Francisco, JJ., concur.
Tocao vs. Court of Appeals, 342 SCRA 20(2000)
Partnerships; Appeals; The issue of whether or not a partnership exists is a factual matter
which are within the exclusive domain of both the trial court and the Court of Appeals.
The issue of whether or not a partnership exists is a factual matter which are within the
exclusive domain of both the trial and appellate courts. This Court cannot set aside factual
findings of such courts absent any showing that there is no evidence to support the
conclusion drawn by the court a quo. In this case, both the trial court and the Court of
Appeals are one in ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
Same; Requisites for a Partnership to Have Juridical Personality; Since a contract of
partnership is consensual, an oral contract of partnership is as good as a written one;
Where no immovable property or real rights are involved, what matters is that the parties
have complied with the requisites of a partnership.To be considered a juridical
personality, a partnership must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a common fund; and (2) intention
on the part of the partners to divide the profits among themselves. It may be constituted in
any form; a public instrument is necessary only where immovable property or real rights
are contributed thereto. This implies that since a contract of partnership is consensual, an
oral contract of partnership is as good as a written one. Where no immovable property or
real rights are involved, what matters is that the parties have complied with the requisites
of a partnership. The fact that there appears to be no record in the Securities and Exchange
Commission of a public instrument embodying the partnership agreement pursuant to
Article 1772 of the Civil Code did not cause the nullification of the partnership. The
pertinent provision of the Civil Code on the matter states: Art. 1768. The partnership has a
juridical personality separate and distinct from that of each of the partners, even in case of
failure to comply with the requirements of article 1772, first paragraph.

Same; Guaranty; While Article 2055 of the Civil Code simply provides that guaranty must
be express, Article 1403, the Statute of Frauds, requires that a special promise to answer
for the debt, default or miscarriage of another be in writing.Petitioner Belos denial that
he financed the partnership rings hollow in the face of the established fact that he presided
over meetings regarding matters affecting the operation of the business. Moreover, his
having authorized in writing on October 7, 1987, on a stationery of his own business firm,
Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the
proceeds of her personal sales, could not be interpreted otherwise than that he had a
proprietary interest in the business. His claim that he was merely a guarantor is belied by
that personal act of proprietorship in the business. Moreover, if he was indeed a guarantor
of future debts of petitioner Tocao under Article 2053 of the Civil Code, he should have
presented documentary evidence therefor. While Article 2055 of the Civil Code simply
provides that guaranty must be express, Article 1403, the Statute of Frauds, requires that
a special promise to answer for the debt, default or miscarriage of another be in writing.
Same; Employer-Employee Relationship; While it is true that the receipt of a percentage of
net profits constitutes only prima facie evidence that the recipient is a partner in the
business, the evidence in the instant case at bar controverts an employer-employee
relationship between the parties.The business venture operated under Geminesse
Enterprise did not result in an employer-employee relationship between petitioners and
private respondent. While it is true that the receipt of a percentage of net profits constitutes
only prima facie evidence that the recipient is a partner in the business, the evidence in the
case at bar controverts an employer-employee relationship between the parties. In the first
place, private respondent had a voice in the management of the affairs of the cookware
distributorship, including selection of people who would constitute the administrative staff
and the sales force. Secondly, petitioner Tocaos admissions militate against an employeremployee relationship. She admitted that, like her who owned Geminesse Enterprise,
private respondent received only commissions and transportation and representation
allowances and not a fixed salary.
Same; Same; If indeed a person is employed by another, it is difficult to believe that the
former and the latter shall receive the same income in the business.If indeed petitioner
Tocao was private respondents employer, it is difficult to believe that they shall receive the
same income in the business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be liable for the losses. As
an industrial partner, private respondent had the right to demand for a formal accounting
of the business and to receive her share in the net profit.
Same; The best evidence of the existence of the partnership, which is not yet terminated
(though in the winding up stage), are the unsold goods and uncollected receivables.

CIAR, JULIE ANNE PRINCESS - PAGE 23

Petitioners underscore the fact that the Court of Appeals did not return the unaccounted
and unremitted stocks of Geminesse Enterprise amounting to P208,250.00. Obviously a
ploy to offset the damages awarded to private respondent, that claim, more than anything
else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this
Court said: The best evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold goods and uncollected
receivables, which were presented to the trial court. Since the partnership has not been
terminated, the petitioner and private complainant remained as co-partners. x x x.
Same; Dissolution of Partnerships; A mere falling out or misunderstanding between
partners does not convert the partnership into a sham organizationthe partnership exists
until dissolved under the law.Undoubtedly, petitioner Tocao unilaterally excluded private
respondent from the partnership to reap for herself and/or for petitioner Belo financial
gains resulting from private respondents efforts to make the business venture a success.
Thus, as petitioner Tocao became adept in the business operation, she started to assert
herself to the extent that she would even shout at private respondent in front of other
people. Her instruction to Lina Torda Cruz, marketing manager, not to allow private
respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her
perception that private respondent was no longer necessary in the business operation, and
resulted in a falling out between the two. However, a mere falling out or misunderstanding
between partners does not convert the partnership into a sham organization. The
partnership exists until dissolved under the law.
Same; Same; Any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will, though he must, however, act in good faith, not that the attendance of
bad faith can prevent the dissolution of the partnership but that it can result in a liability
for damages; An unjustified dissolution by a partner can subject him to action for damages.
Since the partnership created by petitioners and private respondent has no fixed term
and is therefore a partnership at will predicated on their mutual desire and consent, it may
be dissolved by the will of a partner. Thus: x x x. The right to choose with whom a person
wishes to associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve, along
with each partners capability to give it, and the absence of cause for dissolution provided
by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but that it can result
in a liability for damages. An unjustified dissolution by a partner can subject him to action
for damages because by the mutual agency that arises in a partnership, the doctrine of
delectus personae allows the partners to have the power, although not necessarily the right
to dissolve the partnership.

Same; Same; Even if one partner had effected her own withdrawal from the partnership
and considered herself as having ceased to be associated with the partnership in the
carrying on of the business, the partnership was not terminated therebyit continues until
the winding up of the business.Petitioner Tocaos unilateral exclusion of private
respondent from the partnership is shown by her memo to the Cubao office plainly stating
that private respondent was, as of October 9, 1987, no longer the vice-president for sales of
Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from
the partnership and considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of the business.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 127405

October 4, 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,


vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No.
41616,1 affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil
Case No. 88-509.2
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend Company,
a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted

CIAR, JULIE ANNE PRINCESS - PAGE 24

as capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and
sales force while Tocao hired and fired employees, determined commissions and/or
salaries of the employees, and assigned them to different branches. The parties agreed that
Belos name should not appear in any documents relating to their transactions with West
Bend Company. Instead, they agreed to use Anays name in securing distributorship of
cookware from that company. The parties agreed further that Anay would be entitled to: (1)
ten percent (10%) of the annual net profits of the business; (2) overriding commission of
six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she
would make; and (4) two percent (2%) for her demonstration services. The agreement was
not reduced to writing on the strength of Belos assurances that he was sincere, dependable
and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware business
took off successfully. They operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building,
Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay.
Thereafter, Roger Muencheberg of West Bend Company invited Anay to the
distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and
to the southwestern regional convention in Pismo Beach, California, U.S.A., from July 2526, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as
president and general manager of Geminesse Enterprise, even wrote a letter to the Visa
Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for
twenty (20) years now, acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of our
company, will attend in response to the invitation." (Italics supplied.) 3
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of
saving the business on account of the unsatisfactory sales record in the Makati and Cubao
offices. On August 31, 1987, she received a plaque of appreciation from the administrative
and sales people through Marjorie Tocao 4 for her excellent job performance. On October 7,
1987, in the presence of Anay, Belo signed a memo 5 entitling her to a thirty-seven percent
(37%) commission for her personal sales "up Dec 31/87." Belo explained to her that said
commission was apart from her ten percent (10%) share in the profits. On October 9, 1987,
Anay learned that Marjorie Tocao had signed a letter 6 addressed to the Cubao sales office to
the effect that she was no longer the vice-president of Geminesse Enterprise. The following
day, October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie

Tocao had barred her from holding office and conducting demonstrations in both Makati
and Cubao offices.7 Anay attempted to contact Belo. She wrote him twice to demand her
overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit
of the company to determine her share in the net profits. When her letters were not
answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was
not answered.
Anay still received her five percent (5%) overriding commission up to December 1987. The
following year, 1988, she did not receive the same commission although the company
netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money
with damages8 against Marjorie D. Tocao and William Belo before the Regional Trial Court
of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally,
the following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to
February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary
damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise
from the inception of its business operation until she was "illegally dismissed" to determine
her ten percent (10%) share in the net profits. She further prayed that she be paid the five
percent (5%) "overriding commission" on the remaining 150 West Bend cookware sets
before her "dismissal."
In their answer,9 Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay
that was "neither reduced in writing, nor ratified," was "either unenforceable or void or
inexistent." As far as Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely
acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration,
and her complaint referred to either her compensation or dismissal, such complaint should
have been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account of
"ill-will and resentment" because Marjorie Tocao did not allow her to "lord it over in the
Geminesse Enterprise." Anay had acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the ones who suffered actual damages
"including unreturned and unaccounted stocks of Geminesse Enterprise," and "serious
anxiety, besmirched reputation in the business world, and various damages not less than

CIAR, JULIE ANNE PRINCESS - PAGE 25

P500,000.00." They also alleged that, to "vindicate their names," they had to hire counsel
for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was
an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are
entitled to damages.10
In their defense, Belo denied that Anay was supposed to receive a share in the profit of the
business. He, however, admitted that the two had agreed that Anay would receive a three to
four percent (3-4%) share in the gross sales of the cookware. He denied contributing
capital to the business or receiving a share in its profits as he merely served as a guarantor
of Marjorie Tocao, who was new in the business. He attended and/or presided over
business meetings of the venture in his capacity as a guarantor but he never participated in
decision-making. He claimed that he wrote the memo granting the plaintiff thirty-seven
percent (37%) commission upon her dismissal from the business venture at the request of
Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement
with Anay. However, she admitted that Anay was an expert in the cookware business and
hence, they agreed to grant her the following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that
they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that
she got the capital for the business out of the sale of the sewing machines used in her
garments business and from Peter Lo, a Singaporean friend-financier who loaned her the
funds with interest. Because she treated Anay as her "co-equal," Marjorie received the same
amounts of commissions as her. However, Anay failed to account for stocks valued at
P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as
follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the partnership affairs
for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine
the ten percent (10%) share of plaintiff in the net profits of the cookware business;

2. Ordering defendants to pay five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition when plaintiff was
wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production
which for the period covering January 8, 1988 to February 5, 1988 amounted to
P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as
exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of
suit.
SO ORDERED."
The trial court held that there was indeed an "oral partnership agreement between the
plaintiff and the defendants," based on the following: (a) there was an intention to create a
partnership; (b) a common fund was established through contributions consisting of
money and industry, and (c) there was a joint interest in the profits. The testimony of
Elizabeth Bantilan, Anays cousin and the administrative officer of Geminesse Enterprise
from August 21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact
that a partnership existed between the parties. The letter of Roger Muencheberg of West
Bend Company stating that he awarded the distributorship to Anay and Marjorie Tocao
because he was convinced that with Marjories financial contribution and Anays
experience, the combination of the two would be invaluable to the partnership, also
supported that conclusion. Belos claim that he was merely a "guarantor" has no basis since
there was no written evidence thereof as required by Article 2055 of the Civil Code.
Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise
plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On
the contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the existence
of the partnership inasmuch as such practice is often resorted to in business circles as an
impetus to bigger sales volume. It did not matter that the agreement was not in writing
because Article 1771 of the Civil Code provides that a partnership may be "constituted in
any form." The fact that Geminesse Enterprise was registered in Marjorie Tocaos name is
not determinative of whether or not the business was managed and operated by a sole

CIAR, JULIE ANNE PRINCESS - PAGE 26

proprietor or a partnership. What was registered with the Bureau of Domestic Trade was
merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is
an innocent partner. Hence, the guilty partner must give him his due upon the dissolution
of the partnership as well as damages or share in the profits "realized from the
appropriation of the partnership business and goodwill." An innocent partner thus
possesses "pecuniary interest in every existing contract that was incomplete and in the
trade name of the co-partnership and assets at the time he was wrongfully expelled."
Petitioners appeal to the Court of Appeals was dismissed, but the amount of damages
awarded by the trial court were reduced to P50,000.00 for moral damages and P50,000.00
as exemplary damages. Their Motion for Reconsideration was denied by the Court of
Appeals for lack of merit.12 Petitioners Belo and Marjorie Tocao are now before this Court
on a petition for review on certiorari, asserting that there was no business partnership
between them and herein private respondent Nenita A. Anay who is, therefore, not entitled
to the damages awarded to her by the Court of Appeals.
11

Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise "came into being" exactly a year before the "alleged partnership" was formed,
and that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00
with petitioner Tocao contributing nothing, without any "memorandum whatsoever
regarding the alleged partnership."13
The issue of whether or not a partnership exists is a factual matter which are within the
exclusive domain of both the trial and appellate courts. This Court cannot set aside factual
findings of such courts absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.14 In this case, both the trial court and the Court of
Appeals are one in ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two
or more persons bind themselves to contribute money, property or industry to a common
fund; and (2) intention on the part of the partners to divide the profits among
themselves.15 It may be constituted in any form; a public instrument is necessary only
where immovable property or real rights are contributed thereto. 16 This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a written
one. Where no immovable property or real rights are involved, what matters is that the
parties have complied with the requisites of a partnership. The fact that there appears to be

no record in the Securities and Exchange Commission of a public instrument embodying


the partnership agreement pursuant to Article 1772 of the Civil Code 17 did not cause the
nullification of the partnership. The pertinent provision of the Civil Code on the matter
states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of
each of the partners, even in case of failure to comply with the requirements of article 1772,
first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It was
through her reputation with the West Bend Company that the partnership was able to open
the business of distributorship of that companys cookware products; it was through the
same efforts that the business was propelled to financial success. Petitioner Tocao herself
admitted private respondents indispensable role in putting up the business when, upon
being asked if private respondent held the positions of marketing manager and vicepresident for sales, she testified thus:
"A: No, sir at the start she was the marketing manager because there were no one to sell
yet, its only me there then her and then two (2) people, so about four (4). Now, after that
when she recruited already Oscar Abella and Lina Torda-Cruz these two (2) people were
given the designation of marketing managers of which definitely Nita as superior to them
would be the Vice President."18
By the set-up of the business, third persons were made to believe that a partnership had
indeed been forged between petitioners and private respondents. Thus, the communication
dated June 4, 1986 of Missy Jagler of West Bend Company to Roger Muencheberg of the
same company states:
"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the
operations. Marge does not have cookware experience. Nita Anay has started to gather
former managers, Lina Torda and Dory Vista. She has also gathered former demonstrators,
Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key
people and build up the organization. All they need is the finance and the products to
sell."19
On the other hand, petitioner Belos denial that he financed the partnership rings hollow in
the face of the established fact that he presided over meetings regarding matters affecting

CIAR, JULIE ANNE PRINCESS - PAGE 27

the operation of the business. Moreover, his having authorized in writing on October 7,
1987, on a stationery of his own business firm, Wilcon Builders Supply, that private
respondent should receive thirty-seven (37%) of the proceeds of her personal sales, could
not be interpreted otherwise than that he had a proprietary interest in the business. His
claim that he was merely a guarantor is belied by that personal act of proprietorship in the
business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under
Article 2053 of the Civil Code,20 he should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that guaranty must be "express,"
Article 1403, the Statute of Frauds, requires that "a special promise to answer for the debt,
default or miscarriage of another" be in writing.21

August 21, 1987, will you please go over this and tell the Honorable Court whether you ever
came across this document and know of your own knowledge the amount ---

Petitioner Tocao, a former ramp model, 22 was also a capitalist in the partnership. She
claimed that she herself financed the business. Her and petitioner Belos roles as both
capitalists to the partnership with private respondent are buttressed by petitioner Tocaos
admissions that petitioner Belo was her boyfriend and that the partnership was not their
only business venture together. They also established a firm that they called "Wiji," the
combination of petitioner Belos first name, William, and her nickname, Jiji. 23 The special
relationship between them dovetails with petitioner Belos claim that he was acting in
behalf of petitioner Tocao. Significantly, in the early stage of the business operation,
petitioners requested West Bend Company to allow them to "utilize their banking and
trading facilities in Singapore" in the matter of importation and payment of the cookware
products.24 The inevitable conclusion, therefore, was that petitioners merged their
respective capital and infused the amount into the partnership of distributing cookware
with private respondent as the managing partner.

Q: I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?

The business venture operated under Geminesse Enterprise did not result in an employeremployee relationship between petitioners and private respondent. While it is true that the
receipt of a percentage of net profits constitutes only prima facieevidence that the recipient
is a partner in the business, 25 the evidence in the case at bar controverts an employeremployee relationship between the parties. In the first place, private respondent had a
voice in the management of the affairs of the cookware distributorship, 26 including
selection of people who would constitute the administrative staff and the sales force.
Secondly, petitioner Tocaos admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse Enterprise, 27 private
respondent received only commissions and transportation and representation
allowances28 and not a fixed salary.29 Petitioner Tocao testified:
"Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X
and Y. Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending

A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain
percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote:
Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount?
A: Oh yes, sir.

A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the
same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a
sense because of her expertise in the business she is vital to my business. So, as part of the incentive
I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the
company P21,140.50 is your way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.

CIAR, JULIE ANNE PRINCESS - PAGE 28

Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount
there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she
received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir." (Italics supplied.)30

If indeed petitioner Tocao was private respondents employer, it is difficult to believe that
they shall receive the same income in the business. In a partnership, each partner must
share in the profits and losses of the venture, except that the industrial partner shall not be
liable for the losses. 31 As an industrial partner, private respondent had the right to demand
for a formal accounting of the business and to receive her share in the net profit. 32
The fact that the cookware distributorship was operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of
Domestic Trade on August 19, 1987 was merely the name of that enterprise. 33 While it is
true that in her undated application for renewal of registration of that firm name,
petitioner Tocao indicated that it would be engaged in retail of "kitchenwares, cookwares,
utensils, skillet,"34 she also admitted that the enterprise was only "60% to 70% for the
cookware business," while 20% to 30% of its business activity was devoted to the sale of
water sterilizer or purifier.35 Indubitably then, the business name Geminesse Enterprise
was used only for practical reasons - it was utilized as the common name for petitioner
Tocaos various business activities, which included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return the "unaccounted
and unremitted stocks of Geminesse Enterprise amounting to P208,250.00." 36 Obviously a
ploy to offset the damages awarded to private respondent, that claim, more than anything
else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this
Court said:
"The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected receivables, which
were presented to the trial court. Since the partnership has not been terminated, the
petitioner and private complainant remained as co-partners. x x x." 37
It is not surprising then that, even after private respondent had been unceremoniously
booted out of the partnership in October 1987, she still received her overriding commission
until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the
partnership to reap for herself and/or for petitioner Belo financial gains resulting from
private respondents efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert herself to the extent
that she would even shout at private respondent in front of other people. 38 Her instruction
to Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in
both the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation, 39 and resulted in a falling
out between the two. However, a mere falling out or misunderstanding between partners
does not convert the partnership into a sham organization. 40 The partnership exists until
dissolved under the law. Since the partnership created by petitioners and private
respondent has no fixed term and is therefore a partnership at will predicated on their
mutual desire and consent, it may be dissolved by the will of a partner. Thus:
"x x x. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn, dependent
on the constancy of that mutual resolve, along with each partners capability to give it, and
the absence of cause for dissolution provided by the law itself. Verily, any one of the
partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith can prevent the dissolution
of the partnership but that it can result in a liability for damages."41
An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personae allows the
partners to have the power, although not necessarily the right to dissolve the partnership.42

CIAR, JULIE ANNE PRINCESS - PAGE 29

In this case, petitioner Tocaos unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse
Enterprise.43 By that memo, petitioner Tocao effected her own withdrawal from the
partnership and considered herself as having ceased to be associated with the partnership
in the carrying on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.44
The winding up of partnership affairs has not yet been undertaken by the
partnership.1wphi1 This is manifest in petitioners claim for stocks that had been
entrusted to private respondent in the pursuit of the partnership business.

sets available for disposition since the time private respondent was wrongfully
excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent
overriding commission on the total production which, for the period covering
January 8, 1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral
damages in the amount of P50,000.00, exemplary damages in the amount of
P50,000.00 and attorneys fees in the amount of P25,000.00.
JG Summit Holdings, Inc. vs. Court of Appeals, 345 SCRA 143(2000)]

The determination of the amount of damages commensurate with the factual findings upon
which it is based is primarily the task of the trial court. 45 The Court of Appeals may modify
that amount only when its factual findings are diametrically opposed to that of the lower
court,46 or the award is palpably or scandalously and unreasonably excessive. 47 However,
exemplary damages that are awarded "by way of example or correction for the public
good,"48 should be reduced to P50,000.00, the amount correctly awarded by the Court of
Appeals. Concomitantly, the award of moral damages of P100,000.00 was excessive and
should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be granted
on account of the award of exemplary damages and petitioners evident bad faith in
refusing to satisfy private respondents plainly valid, just and demandable claims, 49 appear
to have been excessively granted by the trial court and should therefore be reduced to
P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership
among petitioners and private respondent is ordered dissolved, and the parties are ordered
to effect the winding up and liquidation of the partnership pursuant to the pertinent
provisions of the Civil Code. This case is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed decisions of the Regional Trial Court
and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows --1. Petitioners are ordered to submit to the Regional Trial Court a formal account of
the partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the
Civil Code, in order to determine private respondents ten percent (10%) share in
the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five
percent (5%) overriding commission for the one hundred and fifty (150) cookware

Remedial Law; Mandamus; Mandamus applies as a remedy only where petitioners right is
founded clearly in law and not when it is doubtful.With respect to the propriety of the
remedy availed by petitioner, the Court of Appeals correctly held that the special civil
action of mandamus is not the proper remedy to question the legality of the exercise of the
right to top by private respondent. It does not lie to compel the award of a contract subject
of bidding to an unsuccessful bidder. Mandamus applies as a remedy only where
petitioners right is founded clearly in law and not when it is doubtful.
Same; Same; Mandamus may not be availed to direct the exercise of judgment or discretion
in a particular way or to retract or reverse an action already taken in the exercise of either.
The Court of Appeals cannot dedare petitioner as the winning bidder in this case and
direct the COP/APT to award the sale to it without first determining the validity of the right
to top stipulated in the ASBR. Moreover, the sale of government share in PHILSECO is a
fait accompli, in view of the execution of the Stock Purchase Agreement between APT and
PHI. Mandamus may not be availed to direct the exercise of judgment or discretion in a
particular way or to retract or reverse an action already taken in the exercise of either.
Same; Certiorari; Petitioners failure to include certiorari in its caption should not negate
the fact that the petition charged public respondent with grave abuse of discretion in
awarding the sale to private respondent; It is not the caption of the pleading but the
allegations therein that determine the nature of the action and the Court shall grant relief
warranted by the allegations and the proof even if no such relief is prayed for.The
petition alleges that respondents COP and APT have committed such a grave abuse of
discretion tantamount to lack or excess of their jurisdiction in insisting on awarding the bid
to Philyards, for the various reasons stated herein, particularly since the right of first
refusal and the right to top the bid are unconstitutional, contrary to law and public policy.

CIAR, JULIE ANNE PRINCESS - PAGE 30

Petitioners failure to include certiorari in its caption should not negate the fact that the
petition charged public respondent with grave abuse of discretion in awarding the sale to
private respondent. Well-settled is the rule that it is not the caption of the pleading but the
allegations therein that determine the nature of the action and the Court shall grant relief
warranted by the allegations and the proof even if no such relief is prayed for.

J.G. SUMMIT HOLDINGS, INC., petitioner,


vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and
Members; ASSET PRIVATIZATION TRUST; and PHILYARDS HOLDINGS,
INC., respondents.

Contracts; Bids and Bidding; Comprehensive Meaning of Bidding.The word bidding in


its comprehensive sense means making an offer or an invitation to prospective contractors
whereby the government manifests its intention to make proposals for the purchase of
supplies, materials and equipment for official business or public use, or for public works or
repair. The three principles in public bidding are: the offer to the public; an opportunity for
competition; and a basis for exact comparison of bids. The distinctive character of the
system is destroyed and the purpose of its adoption is thwarted when a regulation thereon
excludes any of these principles. Public bidding of government contracts and for the
disposition of government assets should have the same principles and objectives. Their
only difference, if at all, is that in the public bidding for public contracts, the award is
generally given to the lowest bidder while in the disposition of government assets, the
award is to the highest bidder. The term public bidding imports a sale to the highest
bidder with absolute freedom for competitive bidding.

RESOLUTION

Same; Same; A public auction, which is the mode of divestment or disposal of government
property, shall adhere to established mechanics and procedures in public bidding.Under
Section 504 of the Government Auditing Rules and Regulations, a public auction, which is
the mode of divestment or disposal of government property, shall adhere to established
mechanics and procedures in public bidding. In such public auction sales, the presence of a
Commission on Audit (COA) representative who shall see to the proper observance of
auditing rules is imperative.

Republic of the Philippines


SUPREME COURT
Manila
SPECIAL FIRST DIVISION
G.R. No. 124293

January 31, 2005

PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit
Holdings, Inc. for reconsideration of our Resolution dated September 24, 2003 and to
elevate this case to the Court En Banc. The petitioner questions the Resolution which
reversed our Decision of November 20, 2000, which in turn reversed and set aside a
Decision of the Court of Appeals promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are
as follows:
On January 27, 1997, the National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and
management of the Subic National Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC
and KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the
proportion of 60%-40% respectively. One of its salient features is the grant to the parties of
the right of first refusal should either of them decide to sell, assign or transfer its
interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS
[PHILSECO] to any third party without giving the other under the same terms the right of
first refusal. This provision shall not apply if the transferee is a corporation owned or
controlled by the GOVERNMENT or by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to
the Philippine National Bank (PNB). Such interests were subsequently transferred to the
National Government pursuant to Administrative Order No. 14. On December 8, 1986,

CIAR, JULIE ANNE PRINCESS - PAGE 31

President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on


Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession
of, conserve, manage and dispose of non-performing assets of the National Government.
Thereafter, on February 27, 1987, a trust agreement was entered into between the National
Government and the APT wherein the latter was named the trustee of the National
Government's share in PHILSECO. In 1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to PNB, the National Government's shareholdings
in PHILSECO increased to 97.41% thereby reducing KAWASAKI's shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT deemed
it best to sell the National Government's share in PHILSECO to private entities. After a
series of negotiations between the APT and KAWASAKI, they agreed that the latter's right
of first refusal under the JVA be "exchanged" for the right to top by five percent (5%) the
highest bid for the said shares. They further agreed that KAWASAKI would be entitled to
name a company in which it was a stockholder, which could exercise the right to top. On
September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) 1 would
exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested bidders were given
copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules
(ASBR) drafted for the National Government's 87.6% equity share in PHILSECO. The
provisions of the ASBR were explained to the interested bidders who were notified that the
bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the
National Government's equity in PHILSECO consisting of 896,869,942 shares of stock
(representing 87.67% of PHILSECO's outstanding capital stock), which will be sold as a
whole block in accordance with the rules herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the
APT Board of Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price
set for the National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION
THREE HUNDRED MILLION (P1,300,000,000.00).

xxx xxx xxx


6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular
meeting following the bidding, for the purpose of determining whether or not it should be
endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The
APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS]
Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki
Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of
thirty (30) calendar days from the date of receipt of such advice from APT within which to
exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest
bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise
their "Option to Top the Highest Bid," they shall so notify the APT about such exercise of
their option and deposit with APT the amount equivalent to ten percent (10%) of the
highest bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in
paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc.
and/or [PHILYARDS] Holdings, Inc. declaring them as the preferred bidder and they shall
have a period of ninety (90) days from the receipt of the APT's notice within which to pay
the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to
exercise their "Option to Top the Highest Bid" within the thirty (30)-day period, APT will
declare the highest bidder as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care these rules,
the official bid forms, including any addenda or amendments thereto issued during the
bidding period. The bidder shall likewise be responsible for informing itself with respect to
any and all conditions concerning the PHILSECO Shares which may, in any manner, affect
the bidder's proposal. Failure on the part of the bidder to so examine and inform itself shall
be its sole risk and no relief for error or omission will be given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. 2 submitted a
bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgment
of KAWASAKI/[PHILYARDS'] right to top, viz:

CIAR, JULIE ANNE PRINCESS - PAGE 32

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days
to act on APT's recommendation based on the result of this bidding. Should the COP
approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its
nominee, [PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall
then have a period of thirty (30) calendar days from the date of receipt of such advice from
APT within which to exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on December 3,
1993 "subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc.
to top JGSMI's bid by 5% as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to
top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of
KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the
ASBR because the last four (4) companies were the losing bidders thereby circumventing
the law and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the
right to top; (c) giving the same option to top to PHI constituted unwarranted benefit to a
third party; (d) no right of first refusal can be exercised in a public bidding or auction sale;
and (e) the JG Summit consortium was not estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that
PHI had exercised its option to top the highest bid and that the COP had approved the
same on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock
Purchase Agreement. Consequently, petitioner filed with this Court a Petition for
Mandamus under G.R. No. 114057. On May 11, 1994, said petition was referred to the Court
of Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit. It
ruled that the petition for mandamus was not the proper remedy to question the
constitutionality or legality of the right of first refusal and the right to top that was
exercised by KAWASAKI/PHI, and that the matter must be brought "by the proper party in
the proper forum at the proper time and threshed out in a full blown trial." The Court of
Appeals further ruled that the right of first refusal and the right to top are prima facie legal
and that the petitioner, "by participating in the public bidding, with full knowledge of the
right to top granted to KAWASAKI/[PHILYARDS] isestopped from questioning the
validity of the award given to [PHILYARDS] after the latter exercised the right to top and
had paid in full the purchase price of the subject shares, pursuant to the ASBR." Petitioner
filed a Motion for Reconsideration of said Decision which was denied on March 15, 1996.

Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of
discretion on the part of the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that
the Court of Appeals erred when it dismissed the petition on the sole ground of the
impropriety of the special civil action of mandamus because the petition was also one of
certiorari. It further ruled that a shipyard like PHILSECO is a public utility whose
capitalization must be sixty percent (60%) Filipino-owned. Consequently, the right to top
granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale
of the 87.67% equity of the National Government in PHILSECO is illegal not only
because it violates the rules on competitive bidding but more so, because it allows
foreign corporations to own more than 40% equity in the shipyard. It also held that
"although the petitioner had the opportunity to examine the ASBR before it participated in
the bidding, it cannot be estopped from questioning the unconstitutional, illegal and
inequitable provisions thereof." Thus, this Court voided the transfer of the national
government's 87.67% share in PHILSECO to Philyard[s] Holdings, Inc., and upheld the
right of JG Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed
Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE.
Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos
(P2,030,000,000.00), less its bid deposit plus interests upon the finality of this Decision.
In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests
from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing
87.6% of PHILSECO's total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred
Thirty-One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.

CIAR, JULIE ANNE PRINCESS - PAGE 33

SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x
x resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA,
KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of
PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the principles
of competitive bidding.3 (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On
the first issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO)
is not a public utility, as by nature, a shipyard is not a public utility 4 and that no law
declares a shipyard to be a public utility. 5 On the second issue, we found nothing in the
1977 Joint Venture Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of
Kobe, Japan (KAWASAKI) from acquiring more than 40% of PHILSECOs total
capitalization.6 On the final issue, we held that the right to top granted to KAWASAKI in
exchange for its right of first refusal did not violate the principles of competitive bidding. 7
On October 20, 2003, the petitioner filed a Motion for Reconsideration 8 and a Motion to
Elevate This Case to the Court En Banc.9 Public respondents Committee on Privatization
(COP) and Asset Privatization Trust (APT), and private respondent Philyards Holdings,
Inc. (PHILYARDS) filed their Comments on J.G. Summit Holdings, Inc.s (JG Summits)
Motion for Reconsideration and Motion to Elevate This Case to the Court En Banc on
January 29, 2004 and February 3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are the
following:
1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.
2. Whether the motion for reconsideration raises any new matter or cogent reason
to warrant a reconsideration of this Courts Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc

The petitioner prays for the elevation of the case to the Court en banc on the following
grounds:
1. The main issue of the propriety of the bidding process involved in the present
case has been confused with the policy issue of the supposed fate of the shipping
industry which has never been an issue that is determinative of this case.10
2. The present case may be considered under the Supreme Court Resolution dated
February 23, 1984 which included among en banc cases those involving a novel
question of law and those where a doctrine or principle laid down by the Court en
banc or in division may be modified or reversed.11
3. There was clear executive interference in the judicial functions of the Court
when the Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to
Chief Justice Davide, a memorandum dated November 5, 2001, attaching a copy of
the Foreign Chambers Report dated October 17, 2001, which matter was placed in
the agenda of the Court and noted by it in a formal resolution dated November 28,
2001.12
Opposing J.G. Summits motion to elevate the case en banc, PHILYARDS points out the
petitioners inconsistency in previously opposing PHILYARDS Motion to Refer the Case
to the Court En Banc. PHILYARDS contends that J.G. Summit should now be estopped
from asking that the case be referred to the Court en banc. PHILYARDS further contends
that the Supreme Court en banc is not an appellate court to which decisions or resolutions
of its divisions may be appealed citing Supreme Court Circular No. 2-89 dated February 7,
1989.13 PHILYARDS also alleges that there is no novel question of law involved in the
present case as the assailed Resolution was based on well-settled jurisprudence. Likewise,
PHILYARDS stresses that the Resolution was merely an outcome of the motions for
reconsideration filed by it and the COP and APT and is "consistent with the inherent power
of courts to amend and control its process and orders so as to make them conformable to
law and justice. (Rule 135, sec. 5)"14 Private respondent belittles the petitioners allegations
regarding the change in ponente and the alleged executive interference as shown by former
Secretary of Finance Jose Isidro Camachos memorandum dated November 5, 2001
arguing that these do not justify a referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted,
J.G. Summit further argued that: its Opposition to the Office of the Solicitor Generals
Motion to Refer is different from its own Motion to Elevate; different grounds are invoked
by the two motions; there was unwarranted "executive interference"; and the change in

CIAR, JULIE ANNE PRINCESS - PAGE 34

ponente is merely noted in asserting that this case should be decided by the Court en
banc.15
We find no merit in petitioners contention that the propriety of the bidding process
involved in the present case has been confused with the policy issue of the fate of the
shipping industry which, petitioner maintains, has never been an issue that is
determinative of this case. The Courts Resolution of September 24, 2003 reveals a clear
and definitive ruling on the propriety of the bidding process. In discussing whether the
right to top granted to KAWASAKI in exchange for its right of first refusal violates the
principles of competitive bidding, we made an exhaustive discourse on the rules and
principles of public bidding and whether they were complied with in the case at bar. 16 This
Court categorically ruled on the petitioners argument that PHILSECO, as a shipyard, is a
public utility which should maintain a 60%-40% Filipino-foreign equity ratio, as it was a
pivotal issue. In doing so, we recognized the impact of our ruling on the shipbuilding
industry which was beyond avoidance.17
We reject petitioners argument that the present case may be considered under the
Supreme Court Resolution dated February 23, 1984 which included among en banc cases
those involving a novel question of law and those where a doctrine or principle laid down
by the court en banc or in division may be modified or reversed. The case was resolved
based on basic principles of the right of first refusal in commercial law and estoppel in civil
law. Contractual obligations arising from rights of first refusal are not new in this
jurisdiction and have been recognized in numerous cases. 18 Estoppel is too known a civil
law concept to require an elongated discussion. Fundamental principles on public bidding
were likewise used to resolve the issues raised by the petitioner. To be sure, petitioner leans
on the right to top in a public bidding in arguing that the case at bar involves a novel issue.
We are not swayed. The right to top was merely a condition or a reservation made in the
bidding rules which was fully disclosed to all bidding parties. In Bureau Veritas,
represented by Theodor H. Hunermann v. Office of the President, et al., 19 we
dealt with this conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L18751, 28 April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition
imposed upon the bidders to the effect that the bidding shall be subject to the
right of the government to reject any and all bids subject to its discretion. In
the case at bar, the government has made its choice and unless an unfairness
or injustice is shown, the losing bidders have no cause to complain nor right
to dispute that choice. This is a well-settled doctrine in this jurisdiction and
elsewhere."

The discretion to accept or reject a bid and award contracts is vested in the Government
agencies entrusted with that function. The discretion given to the authorities on this matter
is of such wide latitude that the Courts will not interfere therewith, unless it is apparent
that it is used as a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486
[1960]). x x x The exercise of this discretion is a policy decision that necessitates prior
inquiry, investigation, comparison, evaluation, and deliberation. This task can best be
discharged by the Government agencies concerned, not by the Courts. The role of the
Courts is to ascertain whether a branch or instrumentality of the Government has
transgressed its constitutional boundaries. But the Courts will not interfere with executive
or legislative discretion exercised within those boundaries. Otherwise, it strays into the
realm of policy decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the
award of a contract made by a government entity. Grave abuse of discretion implies a
capricious, arbitrary and whimsical exercise of power (Filinvest Credit Corp. v.
Intermediate Appellate Court, No. 65935, 30 September 1988, 166 SCRA 155). The abuse of
discretion must be so patent and gross as to amount to an evasion of positive duty or to a
virtual refusal to perform a duty enjoined by law, as to act at all in contemplation of law,
where the power is exercised in an arbitrary and despotic manner by reason of passion or
hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July 1988, 163
SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on the part of
public respondents when they awarded the CISS contract to Respondent SGS. In the
"Invitation to Prequalify and Bid" (Annex "C," supra), the CISS Committee made an
express reservation of the right of the Government to "reject any or all bids or
any part thereof or waive any defects contained thereon and accept an offer
most advantageous to the Government." It is a well-settled rule that where
such reservation is made in an Invitation to Bid, the highest or lowest bidder,
as the case may be, is not entitled to an award as a matter of right (C & C
Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the lowest
Bid or any Bid may be rejected or, in the exercise of sound discretion, the award may be
made to another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43
Am. Jur., 788). (emphases supplied)1awphi1.nt
Like the condition in the Bureau Veritas case, the right to top was a condition imposed
by the government in the bidding rules which was made known to all parties. It was a
condition imposed on all bidders equally, based on the APTs exercise of its
discretion in deciding on how best to privatize the governments shares in
PHILSECO. It was not a whimsical or arbitrary condition plucked from the ether and

CIAR, JULIE ANNE PRINCESS - PAGE 35

inserted in the bidding rules but a condition which the APT approved as the best way the
government could comply with its contractual obligations to KAWASAKI under the JVA
and its mandate of getting the most advantageous deal for the government. The right to top
had its history in the mutual right of first refusal in the JVA and was reached by agreement
of the government and KAWASAKI.
Further, there is no "executive interference" in the functions of this Court by the mere filing
of a memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was
merely "noted" to acknowledge its filing. It had no further legal significance. Notably too,
the assailed Resolution dated September 24, 2003 was decided unanimously
by the Special First Division in favor of the respondents.
Again, we emphasize that a decision or resolution of a Division is that of the Supreme
Court20 and the Court en banc is not an appellate court to which decisions or resolutions of
a Division may be appealed.21
For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioners Motion for Reconsideration.
First, that a fair resolution of the case should be based on contract law, not on policy
considerations; the contracts do not authorize the right to top to be derived from the right
of first refusal.22 Second, that neither the right of first refusal nor the right to top can be
legally exercised by the consortium which is not the proper party granted such right under
either the JVA or the Asset Specific Bidding Rules (ASBR).23 Third, that the maintenance of
the 60%-40% relationship between the National Investment and Development Corporation
(NIDC) and KAWASAKI arises from contract and from the Constitution because
PHILSECO is a landholding corporation and need not be a public utility to be bound by the
60%-40% constitutional limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been
able to show compelling reasons to warrant a reconsideration of the Decision of the
Court.25 PHILYARDS denies that the Decision is based mainly on policy considerations and
points out that it is premised on principles governing obligations and contracts and
corporate law such as the rule requiring respect for contractual stipulations, upholding
rights of first refusal, and recognizing the assignable nature of contracts rights. 26 Also, the
ruling that shipyards are not public utilities relies on established case law and fundamental
rules of statutory construction. PHILYARDS stresses that KAWASAKIs right of first

refusal or even the right to top is not limited to the 40% equity of the latter. 27 On the
landholding issue raised by J.G. Summit, PHILYARDS emphasizes that this is a non-issue
and even involves a question of fact. Even assuming that this Court can take cognizance of
such question of fact even without the benefit of a trial, PHILYARDS opines that
landholding by PHILSECO at the time of the bidding is irrelevant because what is essential
is that ultimately a qualified entity would eventually hold PHILSECOs real estate
properties.28 Further, given the assignable nature of the right of first refusal, any applicable
nationality restrictions, including landholding limitations, would not affect the right of first
refusal itself, but only the manner of its exercise. 29 Also, PHILYARDS argues that if this
Court takes cognizance of J.G. Summits allegations of fact regarding PHILSECOs
landholding, it must also recognize PHILYARDS assertions that PHILSECOs landholdings
were sold to another corporation. 30 As regards the right of first refusal, private respondent
explains that KAWASAKIs reduced shareholdings (from 40% to 2.59%) did not translate
to a deprivation or loss of its contractually granted right of first refusal. 31 Also, the bidding
was valid because PHILYARDS exercised the right to top and it was of no moment that
losing bidders later joined PHILYARDS in raising the purchase price. 32
In cadence with the private respondent PHILYARDS, public respondents COP and APT
contend:
1. The conversion of the right of first refusal into a right to top by 5% does not
violate any provision in the JVA between NIDC and KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by the
constitutional restriction on foreign ownership.
3. The petitioner is legally estopped from assailing the validity of the proceedings
of the public bidding as it voluntarily submitted itself to the terms of the ASBR
which included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI
and the fact that PHILYARDS formed a consortium to raise the required amount to
exercise the right to top the highest bid by 5% does not violate the JVA or the
ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of
lands does not apply to PHILSECO because as admitted by petitioner itself,
PHILSECO no longer owns real property.

CIAR, JULIE ANNE PRINCESS - PAGE 36

6. Petitioners motion to elevate the case to the Court en banc is baseless and would
only delay the termination of this case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments
of the public and private respondents in this wise:

a. Estoppel is unavailing as it would stamp validity to an act that is


prohibited by law or against public policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.

1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with


losing bidders through the exercise of a right to top, which is contrary to law and
the constitution is null and void for being violative of substantive due process and
the abuse of right provision in the Civil Code.
a. The bidders[] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a
genuine competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this case but
is shamelessly ignored by the respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of first refusal was
agreed upon and at the time of the bidding are most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent right of first
refusal to the right to top.
a. The history behind the birth of the right to top shows fraud and bad
faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in this case.

J.G. Summits insistence that the right to top cannot be sourced from the right of first
refusal is not new and we have already ruled on the issue in our Resolution of September
24, 2003. We upheld the mutual right of first refusal in the JVA. 34 We also ruled that
nothing in the JVA prevents KAWASAKI from acquiring more than 40% of PHILSECOs
total capitalization.35 Likewise, nothing in the JVA or ASBR bars the conversion of the right
of first refusal to the right to top. In sum, nothing new and of significance in the
petitioners pleading warrants a reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first refusal nor the
right to top can legally be exercised by the consortium which is not the proper party
granted such right under either the JVA or the ASBR. Thus, we held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group,
Insular Life Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to
raise P2.131 billion necessary in exercising the right to top is not contrary to law, public
policy or public morals. There is nothing in the ASBR that bars the losing bidders from
joining either the winning bidder (should the right to top is not exercised) or
KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase price.
The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent.
Absent any proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate in
a free enterprise system. The appellate court is thus correct in holding the petitioner
estopped from questioning the validity of the transfer of the National Government's shares
in PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS act in seeking funding from parties
who were losing bidders. This is a purely commercial decision over which the State should
not interfere absent any legal infirmity. It is emphasized that the case at bar involves the
disposition of shares in a corporation which the government sought to privatize. As such,
the persons with whom PHILYARDS desired to enter into business with in order to raise
funds to purchase the shares are basically its business. This is in contrast to a case
involving a contract for the operation of or construction of a government infrastructure

CIAR, JULIE ANNE PRINCESS - PAGE 37

where the identity of the buyer/bidder or financier constitutes an important consideration.


In such cases, the government would have to take utmost precaution to protect public
interest by ensuring that the parties with which it is contracting have the ability to
satisfactorily construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding
company, KAWASAKI could exercise its right of first refusal only up to 40% of the shares
of PHILSECO due to the constitutional prohibition on landholding by corporations with
more than 40% foreign-owned equity. It further argues that since KAWASAKI already held
at least 40% equity in PHILSECO, the right of first refusal was inutile and as such, could
not subsequently be converted into the right to top. 37 Petitioner also asserts that, at
present, PHILSECO continues to violate the constitutional provision on landholdings as its
shares are more than 40% foreign-owned.38 PHILYARDS admits that it may have
previously held land but had already divested such landholdings. 39 It contends, however,
that even if PHILSECO owned land, this would not affect the right of first refusal but only
the exercise thereof. If the land is retained, the right of first refusal, being a property right,
could be assigned to a qualified party. In the alternative, the land could be divested before
the exercise of the right of first refusal. In the case at bar, respondents assert that since the
right of first refusal was validly converted into a right to top, which was exercised not by
KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e., 60% of its shares are
owned by Filipinos), then there is no violation of the Constitution. 40 At first, it would seem
that questions of fact beyond cognizance by this Court were involved in the issue. However,
the records show that PHILYARDS admits it had owned land up until the time of
the bidding.41 Hence, the only issue is whether KAWASAKI had a valid right of
first refusal over PHILSECO shares under the JVA considering that
PHILSECO owned land until the time of the bidding and KAWASAKI already
held 40% of PHILSECOs equity.
We uphold the validity of the mutual rights of first refusal under the JVA between
KAWASAKI and NIDC. First of all, the right of first refusal is a property right of PHILSECO
shareholders, KAWASAKI and NIDC, under the terms of their JVA. This right allows them
to purchase the shares of their co-shareholder before they are offered to a third party. The
agreement of co-shareholders to mutually grant this right to each other, by
itself, does not constitute a violation of the provisions of the Constitution
limiting land ownership to Filipinos and Filipino corporations. As PHILYARDS
correctly puts it, if PHILSECO still owns land, the right of first refusal can be validly
assigned to a qualified Filipino entity in order to maintain the 60%-40% ratio. This
transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of
any fraudulent intent. The transfer could be made either to a nominee or such other party
which the holder of the right of first refusal feels it can comfortably do business with.

Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in


exercising its right of first refusal, can exceed 40% of PHILSECOs equity. In fact, it can
even be said that if the foreign shareholdings of a landholding corporation
exceeds 40%, it is not the foreign stockholders ownership of the shares which
is adversely affected but the capacity of the corporation to own land that is,
the corporation becomes disqualified to own land. This finds support under the basic
corporate law principle that the corporation and its stockholders are separate juridical
entities. In this vein, the right of first refusal over shares pertains to the shareholders
whereas the capacity to own land pertains to the corporation. Hence, the fact that
PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law
disqualifies a person from purchasing shares in a landholding corporation
even if the latter will exceed the allowed foreign equity, what the law
disqualifies is the corporation from owning land. This is the clear import of the
following provisions in the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may enter
into co-production, joint venture, or production-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such terms
and conditions as may be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power, beneficial
use may be the measure and limit of the grant.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands shall be
transferred or conveyed except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain.42 (emphases supplied)
The petitioner further argues that "an option to buy land is void in itself (Philippine
Banking Corporation v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to
KAWASAKI, a Japanese corporation, is similarly void. Hence, the right to top, sourced
from the right of first refusal, is also void." 43 Contrary to the contention of petitioner, the

CIAR, JULIE ANNE PRINCESS - PAGE 38

case of Lui She did not that say "an option to buy land is void in itself," for we ruled as
follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an
option giving an alien the right to buy real property on condition that he is
granted Philippine citizenship. As this Court said in Krivenko vs. Register of
Deeds:
[A]liens are not completely excluded by the Constitution from the use of lands for
residential purposes. Since their residence in the Philippines is temporary, they may be
granted temporary rights such as a lease contract which is not forbidden by the
Constitution. Should they desire to remain here forever and share our fortunes and
misfortunes, Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of
land, by virtue of which the Filipino owner cannot sell or otherwise dispose of
his property, this to last for 50 years, then it becomes clear that the
arrangement is a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land (jus possidendi, jus
utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus
disponendi) rights the sum total of which make up ownership. It is just as if
today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is
made up are consolidated in an alien. And yet this is just exactly what the parties in this
case did within this pace of one year, with the result that Justina Santos'[s] ownership of
her property was reduced to a hollow concept. If this can be done, then the Constitutional
ban against alien landholding in the Philippines, as announced in Krivenko vs. Register
of Deeds, is indeed in grave peril.44 (emphases supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of
ownership as the owner could not sell or dispose of his properties. The contract in Lui She
prohibited the owner of the land from selling, donating, mortgaging, or encumbering the
property during the 50-year period of the option to buy. This is not so in the case at bar
where the mutual right of first refusal in favor of NIDC and KAWASAKI does not amount
to a virtual transfer of land to a non-Filipino. In fact, the case at bar involves a right of
first refusal over shares of stock while the Lui She case involves an option to buy
the land itself. As discussed earlier, there is a distinction between the shareholders
ownership of shares and the corporations ownership of land arising from the separate
juridical personalities of the corporation and its shareholders.

We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO
continues to violate the Constitution as its foreign equity is above 40% and yet owns
long-term leasehold rights which are real rights.45 It cites Article 415 of the Civil
Code which includes in the definition of immovable property, "contracts for public works,
and servitudes and other real rights over immovable property." 46 Any existing landholding,
however, is denied by PHILYARDS citing its recent financial statements. 47 First, these are
questions of fact, the veracity of which would require introduction of evidence. The Court
needs to validate these factual allegations based on competent and reliable evidence. As
such, the Court cannot resolve the questions they pose. Second, J.G. Summit misreads the
provisions of the Constitution cited in its own pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past that private respondent is not a
60%-40% corporation, and this violates the Constitution x x x The violation continues to
this day because under the law, it continues to own real property
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973
Constitution (the JVA was signed in 1977), provided:
"Save in cases of hereditary succession, no private lands shall be transferred or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands of the
public domain."
32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the
public domain are corporations at least 60% of which is owned by Filipino citizens (Sec.
22, Commonwealth Act 141, as amended). (emphases supplied)
As correctly observed by the public respondents, the prohibition in the Constitution applies
only to ownership of land.48 It does not extend to immovable or real property as
defined under Article 415 of the Civil Code. Otherwise, we would have a strange
situation where the ownership of immovable property such as trees, plants and growing
fruit attached to the land49 would be limited to Filipinos and Filipino corporations only.
III.

CIAR, JULIE ANNE PRINCESS - PAGE 39

WHEREFORE, in view of the foregoing, the petitioners Motion for Reconsideration is


DENIED WITH FINALITY and the decision appealed from is AFFIRMED. The Motion to
Elevate This Case to the Court En Banc is likewise DENIED for lack of merit.
Pacific Commercial Co. vs. Aboitiz & Martinez, 48 Phil. 841(1926)
1. PARTNERSHIP; PERSONAL LIABILITY OF PARTNERS FOR PARTNERSHIP DEBTS.
The members of a general mercantile copartnership, whether managing partners or not,
are liable in solidum for the debts and obligations to third parties resulting from the duly
authorized transactions made in the name and for the account of the partnership.
2. ID.; ID.Article 141 of the Code of Commerce relates merely to the distribution of
losses among the partners themselves in the settlement of the partnership affairs and has
no reference to partnership obligations to third parties.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-25007

March 2, 1926

PACIFIC COMMERCIAL COMPANY, plaintiff-appellee,


vs.
ABOITIZ & MARTINEZ, ET AL., defendants.
JOSE MARTINEZ, defendant-appellant.
Espina & Espina for appellant.
Block, Johnston & Greenbaum for appellee.
OSTRAND, J.:
In April, 1919 Arnaldo F. de Silva, Guillermo Aboitiz, Vidal Aboitiz and Jose Martinez
formed a "regular, collective, merchantile partnership" with a capital of P40,000 of which
each of the partners Aboitiz and De Silva furnished one-third. The partner Jose Martinez
was an industrial partner and furnished no capital; it was provided in the partnership
article that he was to receive 30 per cent of the profits and that his responsibility for losses
should not exceed the amount of the profits received by him.

On April 27, 1922, the partnership, through its duly authorized representative, Guillermo
Aboitiz, executed a promissory note in favor of the plaintiff the Pacific Commercial
Company for the sum of P23,168.71, with interest at 12 per cent per annum until fully paid
as additional sum of 10 per cent as attorney's fees and costs of collection in the event it
became necessary to resort to judicial proceedings. As security for the payment of the note,
the partnership executed a chattel mortgage in favor of the plaintiff on certain personal
property therein described.
For failure of the partnership to pay the debt the chattel mortgage was foreclosed the
mortgages property sold and the proceeds of the sale, P2,000 was paid over to the plaintiff
on December 28, 1923. No further payment on the note appears to have been made and
January 4, 1924, the present action was brought for the recovery of the unpaid balance with
interest. Upon trial the court below rendered judgment in favor of the plaintiff and against
the partnership for the sum of P27,951.68 and for the payment of interest on the capital of
P21,168.71 at the rate of 10 per cent per annum from the 31st October, 1924, until paid,
together with 10 per cent on the amount due for fees for collection in accordance with the
terms of the aforesaid note. The judgment further provided that execution should first
issue against the property of the partnership should first issue against the insolvency of the
partnership, it might issue against the property of the partners De Silva and Aboitiz and in
the event of their insolvency, then against the property of the industrial partner Jose
Martinez. From this judgment Martinez appealed to this court and here maintains that
under article 141 of the Code of Commerce he, as a mere industrial partner, cannot be held
responsible for the partnership's debt.
The case is practically identical with that of the Compania Maritima vs. Munoz (9 Phil.,
326), in which this court held the industrial partners secondarily liable for the debts of the
partnership but on the strength of the vigorous dissenting opinion of Chief Justice Arellano
in that case, that appellant argues that the decision therein was erroneous and should now
be overruled. With all due respect for the legal acumen of the first Chief Justice of this
Court, we are still of the opinion that the case was correctly decided. Article 127 of the Code
of Commerce reads as follows:
All the members of the general copartnership, be they or be they not managing
partners of the same are liable personally and in solidum with all their property for
the results of the transaction made in the name and for the account of the
partnership, under the signature of the later, and by a person authorized to make
use thereof.
The language of this article is clear and specific that all the members of a general
copartnership are liable with all their property for the results of the duly authorized

CIAR, JULIE ANNE PRINCESS - PAGE 40

transactions made in the name and for the account of the partnership. On the other hand,
article 141, upon which the appellants relies and which provides that "losses shall be
computed in the same proportion among the capitalist partners without including the
industrial partners, unless by special agreement the latter have been constituted as
participants therein," is susceptible of two different interpretations of which that given it in
the Compania Maritima case, supra, i. e., that it relates merely to the distribution of losses
among the partners themselves in the settlement of the partnership affairs and has no
reference to partnership obligations to third parties, appears to us to be the more logical.
There is a marked distinction between a liability and a loss and the inability of a
partnership to pay a debt to a third party at a particular time does not necessarily mean
that the partnership business as a whole, has been operated at a loss. The partnership may
have outstanding credits which for the moment may have be unavailable for the payment of
debts, but which eventually may be realized upon and yield profits more than sufficient to
cover all losses. Bearing this in mind it will be found that there in reality is no conflict
between the two articles quoted; one speaks of liabilities, the other of losses.
The judgment appealed from is affirmed with the costs against the appellant. So ordered.
Island Sales, Inc. vs. United Pioneers Gen. Const. Co., 65 SCRA 554(1975)
Civil law; Partnership; Condonation by creditor of share in partnerships debt of one
partner does not increase pro rata liability of other partners.In the instant case, there
were five general partners when the promissory note in question was executed for and in
behalf of the partnerships. Since the liability of the partners in pro rata, the liability of the
appellant Benjamin C. Daco shall be limited to only 1/5 of the obligations of the defendant
company. The fact that the complaint against the defendant Romulo B. Lumauig was
dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general
partner in the defendant company. In so moving to dismiss the complaint, the plaintiff
merely condoned Lumauigs individual liability to the plaintiff.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION

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,

CIAR, JULIE ANNE PRINCESS - PAGE 41

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.

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.

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 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.
concur.

Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ.,

CIAR, JULIE ANNE PRINCESS - PAGE 42

Muasque vs. Court of Appeals, 139 SCRA 533(1985)


Civil Law; Partnership; Fact that there was a misunderstanding between the partners does
not convert the partnership into a sham organization.There is nothing in the records to
indicate that the partnership organized by the two men was not a genuine one. If there was
a falling out or misunderstanding between the partners, such does not convert the
partnership into a sham organization.
Same; Same; Payments made to the partnership, valid where the recipient made it appear
that he and another were true partners in the partnership.Likewise, when Muasque
received the first payment of Tropical in the amount of P7,000.00 with a check made out in
his name, he indorsed the check in favor of Galan. Respondent Tropical therefore, had
every right to presume that the petitioner and Galan were true partners. If they were not
partners as petitioner claims, then he has only himself to blame for making the relationship
appear otherwise, not only to Tropical but to their other creditors as well. The payments
made to the partnership were, therefore, valid payments.
Same; Same; Liability of partners to third persons who extended credit to the partnership.
No error was committed by the appellate court in holding that the payment made by
Tropical to Galan was a good payment which binds both Galan and the petitioner. Since the
two were partners when the debts were incurred, they are also both liable to third persons
who extended credit to their partnership.
Same; Same, Remedial Law; Civil Procedure; Pre-trial; Delimitation of issues during the
pre-trial agreed upon by one party binds said party to the delimitation.The petitioner,
therefore, should be bound by the delimitation of the issues during the pre-trial because he
himself agreed to the same.
Same; Same; Liability of partners to third persons for contracts executed in connection
with the partnership business is pro-rata.We, however, take exception to the ruling of the
appellate court that the trial court's ordering petitioner and Galan to pay the credits of Blue
Diamond and Cebu Southern Hardware "jointly and severally" is plain error since the
liability of partners under the law to third persons for contracts executed in connection
with partnership business is only pro rata under Art. 1816, of the Civil Code.
Same; Same; Same; While the liability of partners are merely joint in transactions entered
into by the partnership, the partners are liable to third persons solidarily for the whole
obligation if the case involves loss or injury caused to any person not a partner in the
partnership, and misapplication of money or property of a third person received by a
partner or the partnership.While it is true that under Article 1816 of the Civil Code, "AII

partners, including industrial ones, shall be liable pro rata with all their property and after
all the partnership assets have been exhausted, for the contracts which may be entered into
the name and for the account of the partnership, under its signature and by a person
authorized to act for the partnership. x x x", this provision should be construed together
with Article 1824 which provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under Articles 1822 and 1823." In
short, while the liability of the partners are merely joint in transactions entered into by the
partnership, a third person who transacted with said partnership can hold the partners
solidarily liable for the whole obligation if the case of the third person falls under Articles
1822 or 1823.
Same; Same; Same: Same; Solidary obligation of partners to third persons; Rationale.The
obligation is solidary because the law protects him, who in good faith relied upon the
authority of a partner, whether such authority is real or apparent. That is why under Article
1824 of the Civil Code all partners, whether innocent or guilty, as well as the legal entity
which is the partnership, are solidarily liable.
Same; Same; Same; Same; Solidary liability of all partners and the partnership as a whole
for the consequences of any wrongful act committed by any of the partners.ln the case at
bar the respondent Tropical had every reason to believe that a partnership existed between
the petitioner and Galan and no fault or error can be imputed against it for making
payments to "Galan and Associates" and delivering the same to Galan because as far as it
was concerned, Galan was a true partner with real authority to transact on behalf of the
partnership with which it was dealing. This is even more true in the cases of Cebu Southern
Hardware and Blue Diamond Glass Palace who supplied materials on credit to the
partnership. Thus, it is but fair that the consequences of any wrongful act committed by
any of the partners therein should be answered solidarily by all the partners and the
partnership as a whole.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-39780 November 11, 1985
ELMO MUASQUE, petitioner,
vs.

CIAR, JULIE ANNE PRINCESS - PAGE 43

COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL


COMPANY and RAMON PONS, respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.
Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

from Elmo Muasque to Galan and Associates, thus enabling Galan to cash the same at the
Cebu Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the
petitioner in great financial difficulty in his construction business and subjecting him to
demands of creditors to pay' for construction materials, the payment of which should have
been made from the P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16, 1967 deadline;that
because of the unauthorized disbursement by respondents Tropical and Pons of the sum of
P13,000.00 to Galan petitioner demanded that said amount be paid to him by respondents
under the terms of the written contract between the petitioner and respondent company.
The respondents answered the complaint by denying some and admitting some of the
material averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed that the issues to
be resolved are:

GUTTIERREZ, JR., J.:


In this petition for certiorari, the petitioner seeks to annul and set added the decision of the
Court of Appeals affirming the existence of a partnership between petitioner and one of the
respondents, Celestino Galan and holding both of them liable to the two intervenors which
extended credit to their partnership. The petitioner wants to be excluded from the
liabilities of the partnership.
Petitioner Elmo Muasque filed a complaint for payment of sum of money and damages
against respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon
Pons, alleging that the petitioner entered into a contract with respondent Tropical through
its Cebu Branch Manager Pons for remodelling a portion of its building without exchanging
or expecting any consideration from Galan although the latter was casually named as
partner in the contract; that by virtue of his having introduced the petitioner to the
employing company (Tropical). Galan would receive some kind of compensation in the
form of some percentages or commission; that Tropical, under the terms of the contract,
agreed to give petitioner the amount of P7,000.00 soon after the construction began and
thereafter, the amount of P6,000.00 every fifteen (15) days during the construction to
make a total sum of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a
check for P7,000.00 not to the plaintiff but to a stranger to the contract, Galan, who
succeeded in getting petitioner's indorsement on the same check persuading the latter that
the same be deposited in a joint account; that on January 26, 1967 when the second check
for P6,000.00 was due, petitioner refused to indorse said cheek presented to him by Galan
but through later manipulations, respondent Pons succeeded in changing the payee's name

(1) Whether or not there existed a partners between Celestino Galan and
Elmo Muasque; and
(2) Whether or not there existed a justifiable cause on the part of
respondent Tropical to disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace
were allowed to intervene, both having legal interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive portion of which states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to pay jointly and
severally the intervenors Cebu and Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51,
respectively;
(2) absolving the defendants Tropical Commercial Company and Ramon
Pons from any liability,
No damages awarded whatsoever.

CIAR, JULIE ANNE PRINCESS - PAGE 44

The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed
motions for reconsideration.

signing of the contract and the balance thereof divided into three equal installments at the
lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.

On January 15, 197 1, the trial court issued 'another order amending its judgment to make
it read as follows:

The first payment made by respondent Tropical was in the form of a check for P7,000.00
in the name of the petitioner.Petitioner, however, indorsed the check in favor of
respondent Galan to enable the latter to deposit it in the bank and pay for the materials
and labor used in the project.

IN VIEW WHEREOF, Judgment is hereby rendered:


(1) ordering plaintiff Muasque and defendant Galan to pay jointly and
severally the intervenors Cebu Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51,
respectively,
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu
Southern Hardware Company and Tan Siu jointly and severally interest at
12% per annum of the sum of P6,229.34 until the amount is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00 representing
attorney's fees jointly and severally to Intervenor Cebu Southern Hardware
Company:
(4) absolving the defendants Tropical Commercial Company and Ramon
Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole
modification that the liability imposed in the dispositive part of the decision on the credit
of Cebu Southern Hardware and Blue Diamond Glass Palace was changed from "jointly and
severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf of the partnership of
"Galan and Muasque" as Contractor entered into a written contract with respondent
Tropical for remodelling the respondent's Cebu branch building. A total amount of
P25,000.00 was to be paid under the contract for the entire services of the Contractor. The
terms of payment were as follows: thirty percent (30%) of the whole amount upon the

Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so
that when the second check in the amount of P6,000.00 came and Galan asked the
petitioner to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan informed the Cebu branch of
Tropical that there was a"misunderstanding" between him and petitioner, respondent
Tropical changed the name of the payee in the second check from Muasque to "Galan and
Associates" which was the duly registered name of the partnership between Galan and
petitioner and under which name a permit to do construction business was issued by the
mayor of Cebu City. This enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued through his sole
efforts. He stated that he borrowed some P12,000.00 from his friend, Mr. Espina and
although the expenses had reached the amount of P29,000.00 because of the failure of
Galan to pay what was partly due the laborers and partly due for the materials, the
construction work was finished ahead of schedule with the total expenditure reaching
P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were subsequently given to
the petitioner alone with the last check being given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of money and
damages against the respondents,seeking to recover the following: the amounts covered by
the first and second checks which fell into the hands of respondent Galan, the additional
expenses that the petitioner incurred in the construction, moral and exemplary damages,
and attorney's fees.
Both the trial and appellate courts not only absolved respondents Tropical and its Cebu
Manager, Pons, from any liability but they also held the petitioner together with
respondent Galan, hable to the intervenors Cebu Southern Hardware Company and Blue

CIAR, JULIE ANNE PRINCESS - PAGE 45

Diamond Glass Palace for the credit which the intervenors extended to the partnership of
petitioner and Galan

other creditors as well. The payments made to the partnership were, therefore, valid
payments.

In this petition the legal questions raised by the petitioner are as follows: (1) Whether or
not the appellate court erred in holding that a partnership existed between petitioner and
respondent Galan. (2) Assuming that there was such a partnership, whether or not the
court erred in not finding Galan guilty of malversing the P13,000.00 covered by the first
and second checks and therefore, accountable to the petitioner for the said amount; and (3)
Whether or not the court committed grave abuse of discretion in holding that the payment
made by Tropical through its manager Pons to Galan was "good payment, "

In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:

Petitioner contends that the appellate court erred in holding that he and respondent Galan
were partners, the truth being that Galan was a sham and a perfidious partner who
misappropriated the amount of P13,000.00 due to the petitioner.Petitioner also contends
that the appellate court committed grave abuse of discretion in holding that the payment
made by Tropical to Galan was "good" payment when the same gave occasion for the latter
to misappropriate the proceeds of such payment.

No error was committed by the appellate court in holding that the payment made by
Tropical to Galan was a good payment which binds both Galan and the petitioner. Since the
two were partners when the debts were incurred, they, are also both liable to third persons
who extended credit to their partnership. In the case of George Litton v. Hill and Ceron, et
al, (67 Phil. 513, 514), we ruled:

The contentions are without merit.


The records will show that the petitioner entered into a con-tract with Tropical for the
renovation of the latter's building on behalf of the partnership of "Galan and Muasque."
This is readily seen in the first paragraph of the contract where it states:
This agreement made this 20th day of December in the year 1966 by Galan
and Muasque hereinafter called the Contractor, and Tropical Commercial
Co., Inc., hereinafter called the owner do hereby for and in consideration
agree on the following: ... .
There is nothing in the records to indicate that the partner-ship organized by the two men
was not a genuine one. If there was a falling out or misunderstanding between the partners,
such does not convert the partnership into a sham organization.
Likewise, when Muasque received the first payment of Tropical in the amount of
P7,000.00 with a check made out in his name, he indorsed the check in favor of Galan.
Respondent Tropical therefore, had every right to presume that the petitioner and Galan
were true partners. If they were not partners as petitioner claims, then he has only himself
to blame for making the relationship appear otherwise, not only to Tropical but to their

Although it may be presumed that Margarita G. Saldajeno had acted in


good faith, the appellees also acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the
consequences.

There is a general presumption that each individual partner is an


authorized agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions. (Mills vs. Riggle,112 Pan, 617).
The presumption is sufficient to permit third persons to hold the firm
liable on transactions entered into by one of members of the firm acting
apparently in its behalf and within the scope of his authority. (Le Roy vs.
Johnson, 7 U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court committed grave abuse of discretion in
not holding Galan liable for the amounts which he "malversed" to the prejudice of the
petitioner. He adds that although this was not one of the issues agreed upon by the parties
during the pretrial, he, nevertheless, alleged the same in his amended complaint which
was, duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose of impleading
Ramon Pons in his personal capacity. Although the petitioner made allegations as to the
alleged malversations of Galan, these were the same allegations in his original complaint.
The malversation by one partner was not an issue actually raised in the amended complaint
but the alleged connivance of Pons with Galan as a means to serve the latter's personal
purposes.

CIAR, JULIE ANNE PRINCESS - PAGE 46

The petitioner, therefore, should be bound by the delimitation of the issues during the pretrial because he himself agreed to the same. In Permanent Concrete Products, Inc. v.
Teodoro, (26 SCRA 336), we ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the issues contained in the
trial court's order issued on the very day the pre-trial conference was held.
Such an order controls the subsequent course of the action, unless
modified before trial to prevent manifest injustice.In the case at bar,
modification of the pre-trial order was never sought at the instance of any
party.
Petitioner could have asked at least for a modification of the issues if he really wanted to
include the determination of Galan's personal liability to their partnership but he chose not
to do so, as he vehemently denied the existence of the partnership. At any rate, the issue
raised in this petition is the contention of Muasque that the amounts payable to the
intervenors should be shouldered exclusively by Galan. We note that the petitioner is not
solely burdened by the obligations of their illstarred partnership. The records show that
there is an existing judgment against respondent Galan, holding him liable for the total
amount of P7,000.00 in favor of Eden Hardware which extended credit to the partnership
aside from the P2, 000. 00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the trial court's
ordering petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern
Hardware"jointly and severally" is plain error since the liability of partners under the law
to third persons for contracts executed inconnection with partnership business is only pro
rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners, including industrial
ones, shall be liable prorate with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into the name and fm the account
cd the partnership, under its signature and by a person authorized to act for the partnership. ...". this provision should be construed together with Article 1824 which provides
that: "All partners are liable solidarily with the partnership for everything chargeable to the
partnership under Articles 1822 and 1823." In short, while the liability of the partners are
merely joint in transactions entered into by the partnership, a third person who transacted
with said partnership can hold the partners solidarily liable for the whole obligation if the
case of the third person falls under Articles 1822 or 1823.

Articles 1822 and 1823 of the Civil Code provide:


Art. 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partner-ship or with the
authority of his co-partners, loss or injury is caused to any person, not
being a partner in the partnership or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so acting or
omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or
property of a third person and t he money or property so received is
misapplied by any partner while it is in the custody of the partnership.
The obligation is solidary, because the law protects him, who in good faith relied upon the
authority of a partner, whether such authority is real or apparent. That is why under Article
1824 of the Civil Code all partners, whether innocent or guilty, as well as the legal entity
which is the partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to believe that a partnership
existed between the petitioner and Galan and no fault or error can be imputed against it for
making payments to "Galan and Associates" and delivering the same to Galan because as
far as it was concerned, Galan was a true partner with real authority to transact on behalf
of the partnership with which it was dealing. This is even more true in the cases of Cebu
Southern Hardware and Blue Diamond Glass Palace who supplied materials on credit to
the partnership. Thus, it is but fair that the consequences of any wrongful act committed by
any of the partners therein should be answered solidarily by all the partners and the
partnership as a whole
However. as between the partners Muasque and Galan,justice also dictates that
Muasque be reimbursed by Galan for the payments made by the former representing the
liability of their partnership to herein intervenors, as it was satisfactorily established that
Galan acted in bad faith in his dealings with Muasque as a partner.

CIAR, JULIE ANNE PRINCESS - PAGE 47

WHEREFORE, the decision appealed from is hereby AFFIRMED with the


MODIFICATION that the liability of petitioner and respondent Galan to intervenors Blue
Diamond Glass and Cebu Southern Hardware is declared to be joint and solidary.
Petitioner may recover from respondent Galan any amount that he pays, in his capacity as
a partner, to the above intervenors,
SO ORDERED.
Liwanag and Reyes vs. Workmen's Compensation Commission, et al., 105 Phil.
741(1959)
WORKMEN'S COMPENSATION; SOLIDARY LIABILITY OF BUSINESS PARTNERS.
Although the Workmen's Compensation Act does not contain any provision expressly
declaring that the obligation of business partners arising from compensable injury or death
of an employee should be solidary, however, there are other provisions of law from which it
could be gathered that their liability must be solidary. Arts. 1711 and 1712 of the New Civil
Code and Section 2 of the Workmen's Compensation Act, reasonably indicate that in
compensation cases, the liability of business partners should be solidary. If the
responsibility of the partners were to be merely joint and not solidary, and one of them
happens to be insolvent, the amount awarded to the dependents of the deceased employee
would only be partially satisfied, which is evidently contrary to the intent and purpose of
the law to give full protection to the employee.
2. STATUTORY CONSTRUCTION; LIBERAL CONSTRUCTION OF WORKMEN'S
COMPENSATION LAWS.Workmen's Compensation laws should be construed fairly,
reasonably and liberally in favor of and for the benefit of the employee and his dependents.
All doubts as to right of compensation should be resolved in his favor, and the law should
be interpreted to promote its purpose.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-12164
May 22, 1959
BENITO LIWANAG and MARIA LIWANAG REYES, petitioners-appellants,
vs.
WORKMEN'S COMPENSATION COMMISSION, ET AL., respondents-appellees.
J. de Guia for appellants.
Estanislao R. Bayot for appellees.

ENDENCIA, J.:
Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto
Supply, a commercial guard who while in line of duty, was skilled by criminal hands. His
widow Ciriaca Vda. de Balderama and minor children Genara, Carlos and Leogardo, all
surnamed Balderama, in due time filed a claim for compensation with the Workmen's
Compensation Commission, which was granted in an award worded as follows:
WHEREFORE, the order of the referee under consideration should be, as it is
hereby, affirmed and respondents Benito Liwanag and Maria Liwanag Reyes,
ordered.
1. To pay jointly and severally the amount of three thousand Four Hundred Ninety
Four and 40/100 (P3,494.40) Pesos to the claimants in lump sum; and
To pay to the Workmen's Compensation Funds the sum of P4.00 (including P5.00
for this review) as fees, pursuant to Section 55 of the Act.
In appealing the case to this Tribunal, appellants do not question the right of appellees to
compensation nor the amount awarded. They only claim that, under the Workmen's
Compensation Act, the compensation is divisible, hence the commission erred in ordering
appellants to pay jointly and severally the amount awarded. They argue that there is
nothing in the compensation Act which provides that the obligation of an employer arising
from compensable injury or death of an employee should be solidary obligation, the same
should have been specifically provided, and that, in absence of such clear provision, the
responsibility of appellants should not be solidary but merely joint.
At first blush appellants' contention would seem to be well, for ordinarily, the liability of
the partners in a partnership is not solidary; but the law governing the liability of partners
is not applicable to the case at bar wherein a claim for compensation by dependents of an
employee who died in line of duty is involved. And although the Workmen's Compensation
Act does not contain any provision expressly declaring solidary obligation of business
partners like the herein appellants, there are other provisions of law from which it could be
gathered that their liability must be solidary. Arts. 1711 and 1712 of the new Civil Code
provide:
ART. 1711. Owners of enterprises and other employers are obliged to pay
compensation for the death of or injuries to their laborers, workmen, mechanics or
other employees, even though the event may have been purely accidental or
entirely due to a fortuitous cause, if the death or personal injury arose out of and in
the course of the employment. . . . .
ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the
latter and the employer shall be solidarily liable for compensation. . . . .

CIAR, JULIE ANNE PRINCESS - PAGE 48

And section 2 of the Workmen's Compensation Act, as amended reads in part as follows:
. . . The right to compensation as provided in this Act shall not be defeated or
impaired on the ground that the death, injury or disease was due to the negligence
of a fellow servant or employee, without prejudice to the right of the employer to
proceed against the negligence party.
The provisions of the new Civil Code above quoted taken together with those of Section 2 of
the Workmen's Compensation Act, reasonably indicate that in compensation cases, the
liability of business partners, like appellants, should be solidary; otherwise, the right of the
employee may be defeated, or at least crippled. If the responsibility of appellants were to be
merely joint and solidary, and one of them happens to be insolvent, the amount awarded to
the appellees would only be partially satisfied, which is evidently contrary to the intent and
purposes of the Act. In the previous cases we have already held that the Workmen's
Compensation Act should be construed fairly, reasonably and liberally in favor of and for
the benefit of the employee and his dependents; that all doubts as to the right of
compensation resolved in his favor; and that it should be interpreted to promote its
purpose. Accordingly, the present controversy should be decided in favor of the appellees.
Moreover, Art. 1207 of the new Civil Code provides:
. . . . There is solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.
Since the Workmen's Compensation Act was enacted to give full protection to the
employee, reason demands that the nature of the obligation of the employers to pay
compensation to the heirs of their employee who died in line of duty, should be solidary;
otherwise, the purpose of the law could not be attained.
Wherefore, finding no error in the award appealed from, the same is hereby affirmed, with
costs against appellants.
Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, and Concepcion,
JJ., concur.
Separate Opinions
REYES, A., J., dissenting:
Whether the defendants herein be regarded as co-partners or as mere co-owners, their
liability for the indemnity due their deceased employee would not be solidary but only pro
rata (Arts. 485 and 1815, new Civil Code). The Workmen's Compensation Act does not
change the nature of that liability either expressly or by intendment. To hold that it does, is

to read into the Act something that is not there. For this Court, therefore, to declare that
under the said Act the defendants herein are liable solidarily is to play the role of legislator.
The injustice of the rule sought to be established in the majority opinion may readily be
made obvious with an example. Suppose that one of two co-partners or co-owners owns 99
percent of the business while his co-partner or co-owners own only 1 percent. To hold that
in such case the latter's liability may run up to 100 percent although his interest is only 1
percent would not only be illogical but also inequitable.
For the foregoing reasons, I have no choice but to dissent.
Sy vs. Court of Appeals, 313 SCRA 328(1999)]
Partnerships; Dissolutions; Words and Phrases; Dissolution of a partnership is the change
in the relation of the parties caused by any partner ceasing to be associated in the carrying
on, as might be distinguished from the winding up, of its business.The contentions are
untenable. Petitioners fail to recognize the basic distinctions underlying the principles of
dissolution, winding up and partition or distribution. The dissolution of a partnership is
the change in the relation of the parties caused by any partner ceasing to be associated in
the carrying on, as might be distinguished from the winding up, of its business. Upon its
dissolution, the partnership continues and its legal personality is retained until the
complete winding up of its business culminating in its termination.
Same; Same; The partnership, although dissolved, continues to exist until its termination,
at which time the winding up of its affairs should have been completed and the net
partnership assets are partitioned and distributed to the partners.The dissolution of the
partnership did not mean that the juridical entity was immediately terminated and that the
distribution of the assets to its partners should perfunctorily follow. On the contrary, the
dissolution simply effected a change in the relationship among the partners. The
partnership, although dissolved, continues to exist until its termination, at which time the
winding up of its affairs should have been completed and the net partnership assets are
partitioned and distributed to the partners.
Same; Same; Securities and Exchange Commission; Jurisdiction; From the time a
dissolution is ordered until the actual termination of the partnership, the Securities and
Exchange Commission retains jurisdiction to adjudicate all incidents relative thereto; Like
the appointment of a manager in charge of the winding up of the affairs of the partnership,
the appointment of a receiver during the pendency of the dissolution is interlocutory in
nature, well within the jurisdiction of the Securities and Exchange Commission.The
error, therefore, ascribed to the Court of Appeals is devoid of any sustainable basis. The
Abello Decision though, indeed, final and executory, did not pose any obstacle to the
Hearing Officer to issue orders not inconsistent therewith. From the time a dissolution is
ordered until the actual termination of the partnership, the SEC retained jurisdiction to
adjudicate all incidents relative thereto. Thus, the disputed order placing the partnership

CIAR, JULIE ANNE PRINCESS - PAGE 49

under a receivership committee cannot be said to have varied the final order of dissolution.
Neither did it suspend the dissolution of the partnership. If at all, it only suspended the
partition and distribution of the partnership assets pending disposition of Civil Case No.
903 on the basis of the agreement by the parties and under the circumstances of the case. It
bears stressing that, like the appointment of a manager in charge of the winding up of the
affairs of the partnership, said appointment of a receiver during the pendency of the
dissolution is interlocutory in nature, well within the jurisdiction of the SEC.
Same; Same; Receivership; Receivership, which is admittedly a harsh remedy, should be
granted with extreme caution, such as when properties of a partnership are in danger of
being damaged or lost on account of certain acts of the appointed manager in liquidation.
Receivership, which is admittedly a harsh remedy, should be granted with extreme caution.
Sound bases therefor must appear on record, and there should be a clear showing of its
necessity. The need for a receivership in the case under consideration can be gleaned from
the aforecited disquisition by the Court of Appeals finding that the properties of the
partnership were in danger of being damaged or lost on account of certain acts of the
appointed manager in liquidation.
Same; Same; Same; Protection of the parties rights and preservation of the properties
involved are best left to a receivership committee in which the opposing parties are
represented.Moreover, it has been held by this Court that an order placing the
partnership under receivership so as to wind up its affairs in an orderly manner and to
protect the interest of the plaintiff (herein private respondent) was not tainted with grave
abuse of discretion. The allegation that re-spondents rights are adequately protected by
the notices of lis pen-dens in Civil Case 903 is inaccurate. As pointed out in their Comment
to the Petition, the private respondents claim that the partnership assets include the
income and fruits thereof. Therefore, protection of such rights and preservation of the
properties involved are best left to a receivership committee in which the opposing parties
are represented.
Same; Same; Same; The power to appoint a receiver pendente lite is discretionary with the
judge, and once the discretion is exercised, the appellate court will not interfere, except in a
clear case of abuse thereof, or an extra limitation of jurisdiction.What is more, as held in
Go Tecson vs. Macadaeg: The power to appoint a receiver pendente lite is discretionary
with the judge of the court of first instance; and once the discretion is exercised, the
appellate court will not interfere, except in a clear case of abuse thereof, or an extra
limitation of jurisdiction.
Due Process; The procedural aspect of due process is just as important as its substantive
aspect, if the constitutional injunction against deprivation of property without due process
is to be observed.In opposing the petition, respondent intestate estate anchors its stance
on the existence of violations of pertinent provisions of the aforesaid Code. As regards due
process, however, a distinction must be made between matters of substance. In essence,
procedural due process refers to the method or manner by which the law is enforced,
while substantive due process requires that the law itself, not merely the procedure by

which the law would be enforced, is fair, reasonable, and just. Although private
respondent upholds the substantive aspect of due process, it, in the same breath, brushes
aside its procedural aspect, which is just as important, if the constitutional injunction
against deprivation of property without due process is to be observed.
Same; Settled is the rule that the essence of due process is the opportunity to be heard.
Settled is the rule that the essence of due process is the opportunity to be heard. Thus, in
Legarda vs. Court of Appeals, et al.,the Court held that as long as a party was given the
opportunity to defend her interest in due course, he cannot be said to have been denied due
process of law.
Same; The violation of a substantive law should not be confused with punishment of the
violator for such violationthe former merely gives rise to a cause of action while the latter
is its effect, after compliance with the requirements of due process.To be sure, the
petitioners are indispensable parties in Civil Case No. 5326, which sought to close subject
building. Such being the case, no final determination of the claims thereover could be had.
That the petition for mandamus with a prayer for the issuance of a writ of preliminary
mandatory injunction was only directed against the City Engineer is of no moment. No
matter how private respondent justifies its failure to implead the petitioners, the alleged
violation of the provisions of the Building Code relative to the reconstruction of the
building in question, by petitioners, did not warrant an ex parte and summary resolution of
the petition. The violation of a substantive law should not be confused with punishment of
the violator for such violation. The former merely gives rise to a cause of action while the
latter is its effect, after compliance with the requirements of due process.
Same; Building Code; The property rights of the owners of the building and the lessees
thereon cannot be arbitrarily interfered with without running afoul with the due process
rule enshrined in the Bill of Rights.The trial court failed to give petitioners their day in
court to be heard before they were condemned for the alleged violation of certain
provisions of the Building Code. Being the owner of the building in question and lessees
thereon, petitioners possess property rights entitled to be protected by law. Their property
rights cannot be arbitrarily interfered with without running afoul with the due process rule
enshrined in the Bill of Rights.
Same; Judgments; No man shall be affected by any proceeding to which he is a stranger,
and strangers to a case are not bound by a judgment rendered by the court.For failure to
observe due process, the herein respondent court acted without jurisdiction. As a result,
petitioners cannot be bound by its orders. Generally accepted is the principle that no man
shall be affected by any proceeding to which he is a stranger, and strangers to a case are not
bound by judgment rendered by the court.
Actions; Injunctions; Building Code; For the issuance of the writ of preliminary injunction
to be proper, it must be shown that the invasion of the right sought to be protected is clear
and unmistakable and that there is an urgent and paramount necessity for the writ to
prevent serious damage.Parenthetically, the trial court, in issuing the questioned order,

CIAR, JULIE ANNE PRINCESS - PAGE 50

ignored established principles relative to the issuance of a Writ of Preliminary Injunction.


For the issuance of the writ of preliminary injunction to be proper, it must be shown that
the invasion of the right sought to be protected is material and substantial, that the right of
complainant is clear and unmistakable and that there is an urgent and paramount
necessity for the writ to prevent serious damage.
Same; Same; Same; The Court is at a loss as to the basis of the issuance of a writ of
preliminary injunction where the complainant only made general allegations of hazard and
serious damage to the public due to violations of various provisions of the Building Code,
but did not show any grave damage or injury that it was bound to suffer should the writ not
issue.In light of the allegations supporting the prayer for the issuance of a writ of
preliminary injunction, the Court is at a loss as to the basis of the respondent judge in
issuing the same. What is clear is that complainant (now private respondent) therein,
which happens to be a juridical person (Estate of Sy Yong Hu), made general allegations of
hazard and serious damage to the public due to violations of various provisions of the
Building Code, but without any showing of any grave damage or injury it was bound to
suffer should the writ not issue.
Same; Same; Courts should avoid issuing a writ of preliminary injunction which in effect
disposes of the main case without trial.Finally, the Court notes, with disapproval, what
the respondent court did in ordering the ejectment of the lawful owner and the occupants
of the building, and disposed of the case before him even before it was heard on the merits
by the simple expedient of issuing the said writ of preliminary injunction. In Ortigas &
Company Limited Partnership vs. Court of Appeals, et al. this Court held that courts should
avoid issuing a writ of preliminary injunction which in effect disposes of the main case
without trial.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 94285
August 31, 1999
JESUS SY, JAIME SY, ESTATE OF JOSE SY, ESTATE OF VICENTE SY,
HEIR OF MARCIANO SY represented by JUSTINA VDA. DE SY and WILLIE
SY, petitioners,
vs.
THE COURT OF APPEALS, INTESTATE ESTATE OF SY YONG HU,
SEC. HEARING OFFICER FELIPE TONGCO, SECURITIES AND EXCHANGE
COMMISSION, respondents.
----------------------------G.R. No. 100313
August 31, 1999
SY YONG HU & SONS, JOHN TAN, BACOLOD CANVAS AND UPHOLSTERY
SUPPLY CO., AND NEGROS ISUZU SALES, petitioners,
vs.
HONORABLE COURT OF APPEALS (11th Division),

INTESTATE ESTATE OF THE LATE SY YONG HU, JOSE FALSIS, JR., AND
HON. BETHEL KATALBAS-MOSCARDON, RTC OF NEGROS OCCIDENTAL,
Branch 51, respondents.
PURISIMA, J.:
At bar are two consolidated petitions for review on certiorari under Rule 45 of the Revised
Rules of Court, docketed as G.R. Nos. 94285 and G.R. No. 100313, respectively, seeking to
reinstate the Resolution of the Court of Appeals in CA-G.R. SP No. 17070 and its Decision
in CA-G.R. SP No. 24189.
In G.R. No. 94285, the petitioners assail the Resolution 1 dated June 27, 1990 of the Court
of Appeals granting the Motion for Reconsideration interposed by the petitioners (now the
private respondents) of its Decision 2, promulgated on January 15, 1990, which affirmed the
Order3 issued on January 16, 1989 by the Securities and Exchange Commission (SEC) en
banc and the Order4 of SEC Hearing Officer Felipe Tongco, dated October 5, 1988.
The facts that matter are as follows:
Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose Sy, Jayme Sy,
Marciano Sy, Willie Sy, Vicente Sy, and Jesus Sy, registered with the SEC on March 29,
1962, with Jose Sy as managing partner. The partners and their respective shares are
reflected in the Amended Articles of Partnership5 as follows:
NAMES

AMOUNT
CONTRIBUTED

SY YONG HU

P 31,000.00

JOSE S. SY

205,000.00

JAYME S. SY

112,000.00

MARCIANO S. SY

143,000.00

WILLIE S. SY

85,000.00

VICENTE SY

85,000.00

JESUS SY

88,000.00

Partners Sy Yong Hu, Jose Sy, Vicente Sy, and Marciano Sy died on May 18, 1978, August
12, 1978, December 30, 1979 and August 7, 1987, respectively. 6 At present, the partnership
has valuable assets such as tracts of lands planted to sugar cane and commercial lots in the
business district of Bacolod City.

CIAR, JULIE ANNE PRINCESS - PAGE 51

Sometime in September, 1977, during the lifetime of all the partners, Keng Sian brought an
action,7 docketed as Civil Case No. 13388 before the then Court of First Instance of Negros
Occidental, against the partnership as well as against the individual partners for
accounting of all the properties allegedly owned in common by Sy Yong Hu and the
plaintiff (Keng Sian), and for the delivery or reconveyance of her one-half (1/2) share in
said properties and in the fruits thereof. Keng Sian averred that she was the common law
wife of partner Sy Yong Hu, that Sy Yong Hu, together with his children, 8 who were
partners in the partnership, connived to deprive her of her share in the properties acquired
during her cohabitation with Sy Yong Hu, by diverting such properties to the partnership. 9
In their answer dated November 3, 1977, the defendants, including Sy Yong Hu himself,
countered that Keng Sian is only a house helper of Sy Yong Hu and his wife, subject
properties "are exclusively owned by defendant partnership, and plaintiff has absolutely no
right to or interest therein."10
On September 20, 1978, during the pendency of said civil case, Marciano Sy filed a petition
for declaratory relief against partners Vicente Sy, Jesus Sy and Jayme Sy, docketed as SEC
Case No. 1648, praying that he be appointed managing partner of the partnership, to
replace Jose Sy who died on August 12, 1978. Answering the petition, Vicente Sy, Jesus Sy
and Jaime Sy, who claim to represent the majority interest in the partnership, sought the
dissolution of the partnership and the appointment of Vicente Sy as managing partner. In
due time, Hearing Officer Emmanuel Sison came out with a decision 11 (Sison Decision)
dismissing the petition, dissolving the partnership and naming Jesus Sy, in lieu of Vicente
Sy who had died earlier, as the managing partner in charge of winding the affairs of the
partnership.
The Sison decision was affirmed in toto by the SEC en banc in a decision12 (Abello decision)
dated June 8, 1982, disposing thus:
WHEREFORE, the Commission en banc affirms the dispositive portion of the
decision of the Hearing Officer, but clarifies that: (1) the partnership was dissolved
by express will of the majority and not ipso facto because of the death of any
partner in view of the stipulation of Articles of Partnership and the provisions of
the New Civil Code particularly Art. 1837 [2] and Art. 1841. (2) The Managing
Partner designated by the majority, namely Jesus Sy, vice Vicente Sy (deceased)
shall only act as a manager in liquidation and he shall submit to the Hearing
Officer an accounting and a project of partition, within 90 days from receipt of this
decision. (3) The petitioner is also required within the same period to submit his
counter-project of partition, from date of receipt of the Managing Partner's project
of partition. (4) The case is remanded to the Hearing Officer for evaluation and
approval of the accounting and project of partition.
On the basis of the above decision of the SEC en banc, Hearing Officer Sison approved a
partial partition of certain partnership assets in an order 13 dated December 2, 1986.
Therefrom, respondents seasonably appealed.

In 1982, the children of Keng Sian with Sy Yong Hu, namely, John Keng Seng, Carlos Keng
Seng, Tita Sy, Yolanda Sy and Lolita Sy, filed a petition, docketed as SEC Case No. 2338, to
revoke the certificate of registration of Sy Yong Hu & Sons, and to have its assets reverted
to the estate of the late Sy Yong Hu. After hearings, the petition was dismissed by Hearing
Officer Bernardo T. Espejo in an Order, dated January 11, 1984, which Order became final
since no appeal was taken therefrom.14
After the dismissal of SEC Case No. 2338, the children of Keng Sian sought to intervene in
SEC Case No. 1648 but their motion to so intervene was denied in an Order dated May 9,
1985. There was no appeal from said order.15
In the meantime, Branch 43 of the Regional Trial Court of Negros Occidental appointed
one Felix Ferrer as a Special Administrator for the Intestate Estate of Sy Yong Hu in Civil
Case No. 13388. Then, on August 30, 1985, Alex Ferrer moved to intervene in the
proceedings in SEC Case No. 1648, for the partition and distribution of the partnership
assets, on behalf of the respondent Intestate Estate.16
It appears that sometime in December, 1985, Special Administrator Ferrer filed an
Amended Complaint on behalf of respondent Intestate Estate in Civil Case No. 13388,
wherein he joined Keng Sian as plaintiff and thereby withdrew as defendant in the case.
Special Administrator Ferrer adopted the theory of Keng Sian that the assets of the
partnership belong to Keng Sian and Sy Yong Hu (now represented by the Estate of Sy
Yong Hu) in co-ownership, which assets were wrongfully diverted in favor of the
defendants.17
The motion to intervene in SEC Case No. 1648, filed by Special Administrator Alex Ferrer
on behalf of the respondent Estate, was denied in the order issued on May 9, 1986 by
Hearing Officer Sison. With the denial of the motion for reconsideration, private
respondent Intestate Estate of Sy Yong Hu appealed to the Commission en banc.
In its decision (Sulit decision) on the aforesaid appeal from the Order dated May 9, 1986,
and the Order dated December 2, 1986, the SEC en banc18 ruled:
WHEREFORE, in the interest of Justice and equity, substantive rights of due
process being paramount over the rules of procedure, and in order to avoid
multiplicity of suits; the order of the hearing officer below dated May 9, 1986
denying the motion to intervene in SEC Case No. 1648 of appellant herein as well
as the order dated December 2, 198619 denying the motion for reconsideration are
hereby reversed and the motion to intervene given due course. The instant case is
hereby remanded to the hearing officer below for further proceeding on the aspect
of partition and/or distribution of partnership assets. The urgent motion for the
issuance of a restraining order is likewise hereby remanded to the hearing officer
below for appropriate action.20

CIAR, JULIE ANNE PRINCESS - PAGE 52

The said decision of the SEC en banc reiterated that the Abello decision of June 8, 1982,
which upheld the order of dissolution of the partnership, had long become final and
executory. No further appeal was taken from the Sulit Decision.
During the continuation of the proceedings in SEC Case No. 1648, now presided over by
Hearing Officer Felipe S. Tongco who had substituted Hearing Officer Sison, the propriety
of placing the Partnership under receivership was taken up. The parties brought to the
attention of the Hearing Officer the fact of existence of Civil Case No. 903 (formerly Civil
Case No. 13388) pending before the Regional Trial Court of Negros Occidental. They also
agreed that during the pendency of the aforesaid court case, there will be no disposition of
the partnership assets.21 On October 5, 1988, Hearing Officer Tongco came out with an
Order22 (Tongco Order) incorporating the above submissions of the parties and placing 23
the partnership under a receivership committee, explaining that "it is the most equitable
fair and just manner to preserve the assets of the partnership during the pendency of the
civil case in the Regional Trial Court of Bacolod City."
On October 22, 1988, a joint Notice of Appeal to the SEC en banc was filed by herein
petitioners Jayme Sy, Jesus Sy, Estate of Jose Sy, Estate of Vicente Sy, Heirs of Marciano
Sy (represented by Justina Vda. de Sy), and Willie Sy, against the Intervenor (now private
respondent). In an order (Lopez Order) dated January 16, 1989, the SEC en banc24 affirmed
the Tongco Order.
With the denial of their Motion for Reconsideration, 25 petitioners filed a special civil action
for certiorari with the Court of Appeals.
On January 15, 1990, the Court of Appeals granted the petition and set aside the Tongco
and Lopez Orders, and remanded the case for further execution of the 1982 Abello and
1988 Sulit Decisions, ordering the partition and distribution of the partnership
properties.26
Private respondent seasonably interposed a motion for reconsideration of such decision of
the Court of Appeals.
Acting thereupon on June 27, 1990, the Court of Appeals issued its assailed Resolution,
reversing its Decision of January 15, 1990, and remanding the case to the SEC for the
formation of a receivership committee, as envisioned in the Tongco Order.1wphi1.nt
G.R. No. 100313 came about in view of the dismissal by the Court of Appeals 27 of the
Petition for Certiorari with a Prayer for Preliminary Injunction, docketed as CA-G.R. SP
No. 24189, seeking to annul and set aside the orders, dated January 24, 1991 and April 19,
1989, respectively, in Civil Case No. 5326 before the Regional Trial Court of Bacolod City.
The antecedent facts are as follows:

Sometime in June of 1988, petitioner Sy Yong Hu & Sons through its Managing Partner,
Jesus Sy, applied for a building permit to reconstruct its building called Sy Yong Hu & Sons
Building, located in the central business district of Bacolod City, which had been destroyed
by fire in the late 70's. On July 5, 1988, respondent City Engineer issued Building Permit
No. 4936 for the reconstruction of the first two floors of the building. Soon thereafter,
reconstruction work began. In January, 1989, upon completion of its reconstruction, the
building was occupied by the herein petitioners, Bacolod and Upholstery Supply Company
and Negros Isuzu Sales, which businesses are owned by successors-in-interest of the
deceased partners Jose Sy and Vicente Sy. Petitioner John Tan, who is also an occupant of
the reconstructed building, is the brother-in-law of deceased partner Marciano Sy. 28
From the records on hand, it can be gleaned that the Tongco Order 29, dated October 5,
1988, in SEC Case No. 1648, had, among others, denied a similar petition of the
intervenors therein (now private respondents) for a restraining order and/or injunction to
enjoin the reconstruction of the same building. However, on October 10, 1988, respondent
Intestate Estate sent a letter to the City Engineer claiming that Jesus Sy is not authorized to
act for petitioners Sy Yong Hu & Sons with respect to the reconstruction or renovation of
the property of the partnership. This was followed by a letter dated November 11, 1988,
requesting the revocation of Building Permit No. 4936.
Respondent City Engineer inquired30 later from Jesus Sy for an "authority to sign for and
on behalf of Sy Yong Hu & Sons" to justify the latter's signature in the application for the
building permit, informing him that absent any proof of his authority, he would not be
issued an occupancy permit.31 On December 27, 1988, respondent Intestate Estate
reiterated its objection to the authority of Jesus Sy to apply for a building permit and
pointing out that in view of the creation of a receivership committee, Jesus Sy no longer
had any authority to act for the partnership.32
In reply, Jesus Sy informed the City Engineer that the Tongco Order had been elevated to
the SEC en banc, making him still the authorized manager of the partnership. He then
requested that an occupancy permit be issued as Sy Yong Hu & Sons had complied with the
requirements of the City Engineer's Office and the National Building Code. 33
Unable to convince the respondent City Engineer to revoke subject building permit,
respondent Intestate Estate brought a "Petition for Mandamus with prayer for a Writ of
Preliminary Injunction," docketed as Civil Case No. 5326 before the Regional Trial Court of
Bacolod City and entitled "Intestate Estate of the Late Sy Yong Hu vs. Engineer Jose P.
Falsis, Jr."34 The Complaint concluded with the following prayer:
WHEREFORE PREMISES CONSIDERED, it is respectfully prayed of the
Honorable Court that:
1. A writ of Preliminary Injunction be issued to the respondent, after preliminary
hearing is had, compelling his office to padlock the premises occupied, without the

CIAR, JULIE ANNE PRINCESS - PAGE 53

requisite Certificate of Occupancy; to stop all construction activities, and barricade


the same premises so that the unwary public will not be subject to undue hazards
due to lack of requisite safety precaution;
2. The Respondent be ordered to enforce without exemption every requisite
provision of the Building Code as so mandated by it."35
Petitioners Sy Yong Hu & Sons, the owners of the building sought to be padlocked were not
impleaded as party to the petition dated February 22, 1989. Neither were the lesseesoccupants thereon so impleaded. Thus, they were not notified of the hearing scheduled for
April 5, 1989, on which date the Petition was heard. Subsequently, however, the Regional
Trial Court issued an order dated April 19, 1989 for the issuance of a Writ of Preliminary
Mandatory Injunction ordering the City Engineer to padlock the building. 36
On May 9, 1989, upon learning of the issuance of the Writ of Preliminary Injunction, dated
May 4, 1989, 0petitioners immediately filed the: (1) Motion for Intervention; (2) Answer in
Intervention; and (3) Motion to set aside order of mandatory injunction. In its order dated
June 22, 1989, the Motion for Intervention was granted by the lower court through Acting
Presiding Judge Porfirio A. Parian.
On August 3, 1989, respondent Intestate Estate presented a Motion to cite Engineer Jose
Falsis, Jr. in contempt of court for failure to implement the injunctive relief.
On August 15, 1989, petitioners submitted an "Amended Answer in Intervention". Reacting
thereto, respondent Intestate Estate filed a "Motion to Strike or Expunge from the Record"
the Amended Answer in Intervention.37
On January 25, 1990, petitioner Sy Yong Hu & Sons again wrote the respondent City
Engineer to reiterate its request for the immediate issuance of a certificate of occupancy,
alleging that the Court of Appeals in its Decision of January 15, 1990 in CA-G.R. No. 17070
had reversed the SEC decision which approved the appointment of a receivership
committee. However, the City Engineer refused to issue the Occupancy Permit without the
conformity of the respondent Intestate Estate and one John Keng Seng who claims to be an
Illegitimate son of the Late Sy Yong Hu.38
In an order issued on January 24, 1991 upon an "Ex Parte Motion to Have All Pending
Incidents Resolved" filed by respondent Intestate Estate, Judge Bethel KatalbasMoscardon issued an order modifying the Writ of Preliminary Mandatory Injunction, and
directing the respondent City Engineer to:
. . . immediately order stoppage of any work affecting the construction of the said
building under Lot 259-A-2 located at Gonzaga Street adjacent to the present
Banco de Oro Building, BACOLOD City, to cancel or cause to be cancelled the
Building Permit it had issued; to order the discontinuance of the occupancy or use

of said building or structure or portion thereof found to be occupied or used, the


same being contrary and violative of the provisions of the Code; and to desist from
issuing any certificate of Occupancy until the merits of this case can finally be
resolved by this Court. . . .
Again, it is emphasized that the issue involved is solely question of law and the
Court cannot see any logical reason that the intervenors should be allowed to
intervene as earlier granted in the Order of the then Presiding Judge Porfirio A.
Parian, of June 22, 1989. Much less the said intervenors to move for presentation
of additional parties, only on the argument of Intervenors that any restraining
order to be issued by this Court upon the respondent would prejudice their present
occupancy which is self serving, whimsical and in fact immoral. It is axiomatic that
the means would not justify the end nor the end justify the means. Assuming
damage to the present occupants will occur and assuming further that they are
entitled, the same should be ventilated in a different action against the lessor or
landlord, and the present petition cannot be the proper forum, otherwise, while it
maybe argued that there is a multiplicity of suit which actually is groundless, on
the other hand, there will be only confusion of the issues to be resolved by the
Court. Well valid enough is to reiterate that the present petition is not the proper
forum for the intervenors to shop for whatever relief.
In view of the above, the Order allowing the intervenors in this case is likewise
hereby withdrawn for the purposes above discussed. Consequently, the Motion to
present additional parties is deemed denied, and the Motion to Strike Or Expunge
From The Records the Amended Answer In Intervention is deemed granted as in
fact the same become moot and academic with the elimination of the Intervenors
in this case.39
Pursuant to the above Order of January 24, 1991, respondent City Engineer served a notice
upon petitioners revoking Building Permit No. 4936, ordering the stoppage of all
construction work on the building, and commanding discontinuance of the occupancy
thereof.
On February 15, 1991, the aggrieved petitioners filed a Petition for Certiorari with Prayer
for Preliminary Injunction with the Court of Appeals, docketed as CA-G.R. SP No. 24189.
On February 27, 1991, the Court of Appeals issued a Temporary Restraining Order
enjoining the respondent Judge from implementing the questioned orders dated January
24, 1991 and April 19, 1989.40
After the respondents had sent in their answer, petitioners filed a Reply with a prayer for
the issuance of a writ of mandamus directing the respondent City Engineer to reissue the
building permit previously issued in favor of petitioner Sy Yong Hu & Sons, and to issue a

CIAR, JULIE ANNE PRINCESS - PAGE 54

certificate of occupancy on the basis of the admission by respondent City Engineer that
petitioner had complied with the provisions of the National Building Code. 41
On May 31, 1991, the Court of Appeals rendered its questioned decision denying the
petition.42
From the Resolution of the Court of Appeals granting the motion for reconsideration in
CA-G.R. SP No. 17070 and the Decision in CA-G.R. SP No. 24189, petitioners have come to
this Court for relief.

III
THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING AND ORDERING THE
IMPLEMENTATION OF THE WRIT OF PRELIMINARY MANDATORY INJUNCTION DESPITE THE ABSENCE
OR LACK OF AN INJUNCTION BOND.45

On the two (2) issues raised in G.R. No. 94285, the Court rules for respondents.

Petitioners fault the Court of Appeals for affirming the 1989 Decision of the SEC which
approved the appointment of a receivership committee as ordered by Hearing Officer
Felipe Tongco. They theorize that the 1988 Tongco Decision varied the 1982 Abello
Decision affirming the dissolution of the partnership, contrary to the final and executory
tenor of the said judgment. To buttress their theory, petitioners offer the 1988 Sulit
Decision which, among others, expressly confirmed the finality of the Abello Decision.

RESPONDENT COURT OF APPEALS ERRED IN REVERSING ITS MAIN DECISION IN


CA-G.R. No. 17070, WHICH DECISION HAD REMANDED TO THE SEC THE CASE FOR
THE PROPER IMPLEMENTATION OF THE 1982 ABELLO AND 1988 SULIT DECISIONS
WHICH IN TURN ORDERED THE DISTRIBUTION AND PARTITION OF THE
PARTNERSHIP PROPERTIES.

On the same premise, petitioners aver that when Hearing Officer Tongco took over from
Hearing Officer Sison, he was left with no course of action as far as the proceedings in the
SEC Case were concerned other than to continue with the partition and distribution of the
partnership assets. Thus, the Order placing the partnership under a receivership
committee was erroneous and tainted with excess of jurisdiction.

II

The contentions are untenable. Petitioners fail to recognize the basic distinctions
underlying the principles of dissolution, winding up and partition or distribution. The
dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up, of its business. Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination.46

In G.R. No. 94285, petitioners contend by way of assignment of errors, 43 that:

RESPONDENT COURT OF APPEALS ERRED IN REINSTATING THE TONGCO ORDER,


WHICH HAD SUSPENDED THE DISSOLUTION OF THE PARTNERSHIP AND THE
DISTRIBUTION OF ITS ASSETS, AND IN PLACING THE PARTNERSHIP PROPERTIES
UNDER RECEIVERSHIP PENDING THE RESOLUTION OF CIVIL CASE NO. 903
(13388), ON A GROUND NOT MADE THE BASIS OF THE SEC RESOLUTION UNDER
REVIEW, I.E., THE DISPOSITION BY A PARTNER OF SMALL PROPERTIES ALREADY
ADJUDICATED TO HIM BY A FINAL SEC ORDER DATED DECEMBER 2, 1986 AND
MADE LONG BEFORE THE AGREEMENT OF JUNE 28, 1988 OF THE PETITIONERS
NOT TO DISPOSE OF THE PARTNERSHIP ASSETS.
In G.R. No. 100313, Petitioners assign as errors, that:44
I
THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN HOLDING THAT RESPONDENT
JUDGE DID NOT ACT WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF JURISDICTION IN ISSUING
THE WRIT OF PRELIMINARY MANDATORY INJUNCTION.
II
THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN HOLDING THAT THE
RESPONDENT JUDGE DID NOT ACT WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF
DISCRETION IN DISALLOWING THE INTERVENTION OF PETITIONERS IN CIVIL CASE NO. 5326.

The dissolution of the partnership did not mean that the juridical entity was immediately
terminated and that the distribution of the assets to its partners should perfunctorily
follow. On the contrary, the dissolution simply effected a change in the relationship among
the partners. The partnership, although dissolved, continues to exist until its termination,
at which time the winding up of its affairs should have been completed and the net
partnership assets are partitioned and distributed to the partners. 47
The error, therefore, ascribed to the Court of Appeals is devoid of any sustainable basis.
The Abello Decision though, indeed, final and executory, did not pose any obstacle to the
Hearing Officer to issue orders not inconsistent therewith. From the time a dissolution is
ordered until the actual termination of the partnership, the SEC retained jurisdiction to
adjudicate all incidents relative thereto. Thus, the disputed order placing the partnership
under a receivership committee cannot be said to have varied the final order of dissolution.
Neither did it suspend the dissolution of the partnership. If at all, it only suspended the
partition and distribution of the partnership assets pending disposition of Civil Case No.
903 on the basis of the agreement by the parties and under the circumstances of the case. It

CIAR, JULIE ANNE PRINCESS - PAGE 55

bears stressing that, like the appointment of a manager in charge of the winding up of the
affairs of the partnership, said appointment of a receiver during the pendency of the
dissolution is interlocutory in nature, well within the jurisdiction of the SEC.

This Court notes with special attention the order dated June 28, 1988 issued by
Hearing Officer Felipe S. Tongco in SEC Case No. 1648 (Annex to Manifestation,
June 16, 1990) wherein all the parties agreed on the following:

Furthermore, having agreed with the respondents not to dispose of the partnership assets,
petitioners effectively consented to the suspension of the winding up or, more specifically,
the partition and distribution of subject assets. Petitioners are now estopped from
questioning the order of the Hearing Officer issued in accordance with the said
agreement.48

1. That there is a pending case in court wherein the plaintiffs are claiming
in their complaint that all the assets of the partnership belong to Sy Yong
Hu;

Petitioners also assail the propriety of the receivership theorizing that there was no
necessity therefor, and that such remedy should be granted only in extreme cases, with
respondent being duty-bound to adduce evidence of the grave and irremediable loss or
damage which it would suffer if the same was not granted. It is further theorized that, at
any rate, the rights of respondent Intestate Estate are adequately protected since notices of
lis pendens of the aforesaid civil case have been annotated on the real properties of the
partnership.49
To bolster petitioners' contention, they maintain that they are the majority partners of the
partnership Sy Yong Hu & Sons controlling Ninety Six per cent (96%) of its equity. As such,
they have the greatest interest in preserving the partnership properties for themselves, 50
and therefore, keeping the said properties in their possession will not bring about any
feared damage or dissipation of such properties, petitioner's stressed.
Sec. (6) of Presidential Decree No. 902-A, as amended, reads:
Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall
possess the following powers:
xxx

xxx

xxx

(c) To appoint one or more receivers of the property, real or personal,


which is the subject of the action pending before the commission in
accordance with the pertinent provisions of the Rules of Court, and in such
other cases, whenever necessary in order to preserve the rights of partieslitigants and/or protect the interest of the investing public and creditors; . .
..
The findings of the Court of Appeals accord with existing rules and jurisprudence on
receivership. Conformably, it stated that:51
. . . From a reexamination of the issues and the evidences involved, We find merit
in respondent's motion for reconsideration.

2. That the parties likewise agreed that during the pendency of the court
case, there will be no disposition of the partnership assets and further
hearing is suspended. . . .
As observed by the SEC Commission (sic) in its Order dated January 16, 1989:
Ordinarily, appellants' contention would be correct, except that the en banc order
of April 29th appears to have been overtaken, and accordingly, rendered
inappropriate, by subsequent developments in SEC Case No. 1648, particularly the
entry in that proceedings, as of April 29, 1988, of an intervenor who claims a
superior and exclusive ownership right to all the partnership assets and property.
This claim of superior ownership right is presently pending adjudication before the
Regional Trial Court of Negros Occidental, And precisely because if this
supervening development, it would appear that the parties in SEC Case No. 1648
agreed among themselves, as of June 28, 1988, that during the pendency of the
Negros Occidental case just mentioned, there should be no disposition of
partnership assets or property, and further, that the proceedings in SEC Case No.
1648 should be suspended in the meantime (p. 2, Order; p. 12, Rollo).
As alleged by the respondents and as shown by the records there is now pending civil case
entitled "Keng Sian and Intestate of Sy Yong Hu vs. Jayme Sy, Jesus Sy, Marciano Sy, Willy
Sy, Intestate of Jose Sy, Intestate of Vicente Sy, Sy Yong Hu & co and Sy Yong Hu & Sons"
denominated as Civil Case No. 903 before Branch 50 of the Regional Trial Court of Bacolod
City.
Moreover, a review of the records reveal that certain properties in question have already
been sold as of 1987, as evidenced by deeds of absolute sale executed by Jesus in favor of
Reynaldo Navarro (p. 331, Rollo), among others.
To ensure that no further disposition shall be made of the questioned assets and in view of
the pending civil case in the lower court, there is a compelling necessity to place all these
properties and assets under the management of a receivership committee. The receivership
committee, which will provide active participation, through a designated representative, on
the part of all interested parties, can best protect the properties involved and assure
fairness and equity for all.

CIAR, JULIE ANNE PRINCESS - PAGE 56

Receivership, which is admittedly a harsh remedy, should be granted with extreme


caution.52 Sound bases therefor must appear on record, and there should be a clear
showing of its necessity.53 The need for a receivership in the case under consideration can
be gleaned from the aforecited disquisition by the Court of Appeals finding that the
properties of the partnership were in danger of being damaged or lost on account of certain
acts of the appointed manager in liquidation.
The dispositions of certain properties by the said manager, on the basis of an order of
partial partition, dated December 2, 1986, by Hearing Officer Sison, which was not yet final
and executory, indicated that the feared irreparable injury to the properties of the
partnership might happen again. So also, the failure of the manager in liquidation to
submit to the SEC an accounting of all the partnership assets as required in its order of
April 29, 1988, justified the SEC in placing the subject assets under receivership.

Commenting on the Petition, private respondents maintain that the only issue in the
present case is whether or not there was a violation of the Building Code. They contend
that after due and proper hearing before the lower court, it was fully established that the
provisions of the said Code had been violated, warranting issuance of the Writ of
Preliminary Injunction dated April 19, 1989. They further asseverate that the petitioners,
who are the owner and lessees in the building under controversy, have nothing to do with
the case for mandamus since it is directed against the respondent building official to
perform a specific duty mandated by the provisions of the Building Code.
In his Comment, the respondent City Engineer, relying on the validity of the order of the
trial court to padlock the building, denied any impropriety in his compliance with the said
order.
After a careful examination of the records on hand, the Court finds merit in the petition.

Moreover, it has been held by this Court that an order placing the partnership under
receivership so as to wind up its affairs in an orderly manner and to protect the interest of
the plaintiff (herein private respondent) was not tainted with grave abuse of discretion. 54
The allegation that respondents' rights are adequately protected by the notices of lis
pendens in Civil Case 903 is inaccurate. As pointed out in their Comment to the Petition,
the private respondents claim that the partnership assets include the income and fruits
thereof. Therefore, protection of such rights and preservation of the properties involved are
best left to a receivership committee in which the opposing parties are represented.
What is more, as held in Go Tecson vs. Macaraig:55

In opposing the petition, respondent intestate estate anchors its stance on the existence of
violations of pertinent provisions of the aforesaid Code. As regards due process, however, a
distinction must be made between matters of substance. 57 In essence, procedural due
process "refers to the method or manner by which the law is enforced," while substantive
due process "requires that the law itself, not merely the procedure by which the law would
be enforced, is fair, reasonable, and just".58 Although private respondent upholds the
substantive aspect of due process, it, in the same breath, brushes aside its procedural
aspect, which is just as important, if the constitutional injunction against deprivation of
property without due process is to be observed.

The power to appoint a receiver pendente lite is discretionary with the


judge of the court of first instance; and once the discretion is exercised, the
appellate court will not interfere, except in a clear case of abuse thereof, or
an extra limitation of jurisdiction.

Settled is the rule that the essence of due process is the opportunity to be heard. Thus, in
Legarda vs. Court of Appeals et al.,59 the Court held that as long as a party was given the
opportunity to defend her interest in due course, he cannot be said to have been denied due
process of law.

Here, no clear abuse of discretion in the appointment of a receiver in the case


under consideration can be discerned.

Contrary to these basic tenets, the trial court gave due course to the petition for
mandamus, and granted the prayer for the issuance of a writ of preliminary injunction on
May 4, 1989, notwithstanding the fact that the owner (herein petitioner Sy Yong Hu) of the
building and its occupants60 were not impleaded as parties in the case. Affirming the same,
the Court of Appeals acknowledged that the lower court came out with the said order upon
the testimony of the lone witness for the respondent, in the person of the City Engineer,
whose testimony was not effectively traversed by the petitioners. This conclusion arrived at
by the Court of Appeals is erroneous in the face of the irrefutable fact that the herein
petitioners were not made parties in the said case and, consequently, had absolutely no
opportunity to cross examine the witness of private respondent and to present
contradicting evidence.

With respect to G.R. No. 100313.56


Petitioners argue in this case that the failure of the private respondents to implead them in
Civil Case No. 5326 constituted a violation of due process. It is their submission that the ex
parte grant of said petition by the trial court worked to their prejudice as they were
deprived of an opportunity to be heard on the allegations of the petition concerning subject
property and assets. The recall of the order granting their Motion to Intervene was done
without the observance of due process and consequently without jurisdiction on the part of
the lower court.

To be sure, the petitioners are indispensable parties in Civil Case No. 5326, which sought to
close subject building. Such being the case, no final determination of the claims thereover

CIAR, JULIE ANNE PRINCESS - PAGE 57

could be had.61 That the petition for mandamus with a prayer for the issuance of a writ of
preliminary mandatory injunction was only directed against the City Engineer is of no
moment. No matter how private respondent justifies its failure to implead the petitioners,
the alleged violation of the provisions of the Building Code relative to the reconstruction of
the building in question, by petitioners, did not warrant an ex parte and summary
resolution of the petition. The violation of a substantive law should not be confused with
punishment of the violator for such violation. The former merely gives rise to a cause of
action while the latter is its effect, after compliance with the requirements of due process.
The trial court failed to give petitioners their day in court to be heard before they were
condemned for the alleged violation of certain provisions of the Building Code. Being the
owner of the building in question and lessees thereon, petitioners possess property rights
entitled to be protected by law. Their property rights cannot be arbitrarily interfered with
without running afoul with the due process rule enshrined in the Bill of Rights.
For failure to observe due process, the herein respondent court acted without jurisdiction.
As a result, petitioners cannot be bound by its orders. Generally accepted is the principle
that no man shall be affected by any proceeding to which he is a stranger, and strangers to
a case are not bound by judgment rendered by the court.62
In similar fashion, the respondent court acted with grave abuse of discretion when it
disallowed the intervention of petitioners in Civil Case No. 5326. As it was, the issuance of
the Writ of Preliminary Injunction directing the padlocking of the building was improper
for non-conformity with the rudiments of due process.
Parenthetically, the trial court, in issuing the questioned order, ignored established
principles relative to the issuance of a Writ of Preliminary Injunction. For the issuance of
the writ of preliminary injunction to be proper, it must be shown that the invasion of the
right sought to be protected is material and substantial, that the right of complainant is
clear and unmistakable and that there is an urgent and paramount necessity for the writ to
prevent serious damage.63
In light of the allegations supporting the prayer for the issuance of a writ of preliminary
injunction, the Court is at a loss as to the basis of the respondent judge in issuing the same.
What is clear is that complainant (now private respondent) therein, which happens to be a
juridical person (Estate of Sy Yong Hu), made general allegations of hazard and serious
damage to the public due to violations of various provisions of the Building Code, but
without any showing of any grave damage or injury it was bound to suffer should the writ
not issue.

Finally, the Court notes, with disapproval, what the respondent court did in ordering the
ejectment of the lawful owner and the occupants of the building, and disposed of the case
before him even before it was heard on the merits by the simple expedient of issuing the
said writ of preliminary injunction. In Ortigas & Company Limited Partnership vs. Court
of Appeals et al. this Court held that courts should avoid issuing a writ of preliminary
injunction which in effect disposes of the main case without trial.64
Resolution of the third issue has become moot and academic in view of the Court's finding
of grave abuse of discretion tainting the issuance of the Writ of Preliminary Injunction in
question.
WHEREFORE, the Resolution of the Court of Appeals in CA-G.R. No. 17070 is AFFIRMED
and its Decision in CA-G.R. No. 24189 REVERSED. No pronouncement as to
costs.1wphi1.nt
SO ORDERED.
Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

CIAR, JULIE ANNE PRINCESS - PAGE 58

Rojas vs. Maglana, 192 SCRA 110(1990)]


Partnership; Withdrawing partner is liable for damages if the cause of withdrawal is not
justified or no cause was given but in no case can he be compelled to be in the firm.Under
Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can
cause its dissolution by expressly withdrawing even before the expiration of the period,
with or without justifiable cause. Of course, if the cause is not justified or no cause was
given, the withdrawing partner is liable for damages but in no case can he be compelled to
remain in the firm. With his withdrawal, the number of members is decreased, hence, the
dissolution. And in whatever way we may view the situation, the conclusion is inevitable
that Rojas and Maglana shall be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of
the partnership shall be divided "share and share alike" between the partners.
Same; Same; A party who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he promised to contribute.On the basis
of the Commissioners' Report, the corresponding contribution of the partners from
19561961 are as follows: Eufracio Rojas who should have contributed P158,158.00,
contributed only P18,750.00 while Maglana who should have contributed P160,984.00,
contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a partner who
has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to contribute (Article 1786, Civil Code)
and for interests and damages from the time he should have complied with his obligation
(Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a
contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership (Ibid., p. 95).
SECOND DIVISION
[G.R. No. 30616 : December 10, 1990.]
192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA,
Defendant-Appellee.
DECISION
PARAS, J.:
This is a direct appeal to this Court from a decision ** of the then Court of First Instance of
Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's
complaint.
As found by the trial court, the antecedent facts of the case are as follows:

On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit
"A") called Eastcoast Development Enterprises (EDE) with only the two of them as
partners. The partnership EDE with an indefinite term of existence was duly registered on
January 21, 1955 with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber
and/or minor forests products licenses and concessions over public and/or private forest
lands and to operate, develop and promote such forests rights and concessions." (Rollo, p.
114).
A duly registered Articles of Co-Partnership was filed together with an application for a
timber concession covering the area located at Cateel and Baganga, Davao with the Bureau
of Forestry which was approved and Timber License No. 35-56 was duly issued and became
the basis of subsequent renewals made for and in behalf of the duly registered partnership
EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business
affairs of the partnership, including marketing and handling of cash and is authorized to
sign all papers and instruments relating to the partnership, while appellant Rojas shall be
the logging superintendent and shall manage the logging operations of the partnership. It
is also provided in the said articles of co-partnership that all profits and losses of the
partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said
partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services
of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of CoPartnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST
DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose of
the second partnership which is to hold and secure renewal of timber license instead of to
secure the license as in the first partnership and the term of the second partnership is fixed
to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1,
1956, and was able to ship logs and realize profits. An income was derived from the
proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled
"CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST
DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves that
Maglana and Rojas shall purchase the interest, share and participation in the Partnership
of Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said
instrument that after payment of the sum of P31,501.12 to Pahamotang including the
amount of loan secured by Pahamotang in favor of the partnership, the two (Maglana and
Rojas) shall become the owners of all equipment contributed by Pahamotang and the

CIAR, JULIE ANNE PRINCESS - PAGE 59

EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second


partnership, be dissolved. Pahamotang was paid in fun on August 31, 1957. No other rights
and obligations accrued in the name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas
without the benefit of any written agreement or reconstitution of their written Articles of
Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with another logging
enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A.
947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the
newly acquired area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and
was transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to
contribute, either in cash or in equipment, to the capital investments of the partnership as
well as his obligation to perform his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with
the promised contributions and he will not work as logging superintendent. Maglana then
told Rojas that the latter's share will just be 20% of the net profits. Such was the sharing
from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).: nad
Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a
letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the
partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against
Maglana for the recovery of properties, accounting, receivership and damages, docketed as
Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to
examine the long and voluminous accounts of the Eastcoast Development Enterprises
(Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114)
was denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required
the inclusion of the entire year 1961 in the report to be submitted by the commissioners
(Ibid., pp. 138-143). Accordingly, the commissioners started examining the records and
supporting papers of the partnership as well as the information furnished them by the
parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with
counterclaim, attaching thereto the amended answer (Ibid., pp. 26-336), which was
granted on May 22, 1964 (Ibid., p. 336).

On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid.,
p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27,
1964 approving the report of the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues
were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the
dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and
share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the
partnership (Decision, R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion
of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby
rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after
Pahamotang retired from the second partnership, that is, after August 31, 1957,
when Pahamotang was finally paid his share the partnership of the defendant
and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of
computation, that is the ratio and proportion of their respective contributions, or
on the basis of share and share alike this covered by actual contributions of the
plaintiff and the defendant and by their verbal agreement; that the sharing of
profits and losses is on the basis of actual contributions; that from 1957 to 1959,
the sharing is on the basis of 80% for the defendant and 20% for the plaintiff of the
profits, but from 1960 to the date of dissolution, February 23, 1961, the plaintiff's
share will be on the basis of his actual contribution and, considering his
indebtedness to the partnership, the plaintiff is not entitled to any share in the
profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in
his or in his wife's name were acquired with partnership funds or with funds of the
defendant and the Court declares that there is no evidence that these properties
were acquired by the partnership funds, and therefore the same should not belong
to the partnership;

CIAR, JULIE ANNE PRINCESS - PAGE 60

"4. As to whether damages were suffered and, if so, how much, and who caused
them and who should be liable for them the Court declares that neither parties is
entitled to damages, for as already stated above it is not a wise policy to place a
price on the right of a person to litigate and/or to come to Court for the assertion of
the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated
February 23, 1961; did it dissolve the partnership or not the Court declares that
the letter of the defendant to the plaintiff dated February 23, 1961, in effect
dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and
other merchandise to the laborers and employees of the Eastcoast Development
Enterprises, the COURT DECLARES THE SAME AS NOT BELONGING TO
THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo
Angeles David is VALID AND BINDING UPON THE PARTIES AND SHOULD
BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE
PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the
partnership the amount of P69,000.00 the profits he received from the CMS
Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of
P85,000.00 which according to him he is still entitled to receive from the CMS
Estate, Inc. is hereby denied considering that it has not yet been actually received,
and further the receipt is merely based upon an expectancy and/or still
speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19
his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he
should have received as logging superintendent, and which was not paid to him,
and this should be considered as part of Maglana's contribution likewise to the
partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the
Maglana-Rojas after Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that
when the second partnership was dissolved there was no written contract of copartnership; there was no reconstitution as provided for in the Maglana, Rojas and

Pahamotang partnership contract. Hence, the partnership which was carried on by Rojas
and Maglana after the dissolution of the second partnership was a de facto partnership and
at will. It was considered as a partnership at will because there was no term, express or
implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of
Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership
dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or dissolved by
the unregistered articles of co-partnership among appellant Rojas, appellee Maglana and
Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms and
stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the
relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from the
unregistered partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit
"A") continues to govern the relations between them and it was legal error to consider a de
facto partnership between said two partners or a partnership at will. Hence, the letter of
appellee Maglana dated February 23, 1961, did not legally dissolve the registered
partnership between them, being in contravention of the partnership agreement agreed
upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is
entitled to the rights enumerated in Article 1837 of the Civil Code and to the sharing profits
between them of "share and share alike" as stipulated in the registered Articles of CoPartnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana,
it appears evident that it was not the intention of the partners to dissolve the first
partnership, upon the constitution of the second one, which they unmistakably called an
"Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except
for the fact that they took in one industrial partner; gave him an equal share in the profits
and fixed the term of the second partnership to thirty (30) years, everything else was the
same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES,
they pursued the same purposes and the capital contributions of Rojas and Maglana as
stipulated in both partnerships call for the same amounts. Just as important is the fact that
all subsequent renewals of Timber License No. 35-36 were secured in favor of the First
Partnership, the original licensee. To all intents and purposes therefore, the First Articles
of Partnership were only amended, in the form of Supplementary Articles of CoPartnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5).
Otherwise stated, even during the existence of the second partnership, all business
transactions were carried out under the duly registered articles. As found by the trial court,
it is an admitted fact that even up to now, there are still subsisting obligations and
contracts of the latter (Decision, R.A. pp. 950-957). No rights and obligations accrued in
the name of the second partnership except in favor of Pahamotang which was fully paid by
the duly registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by
common consent. Said dissolution did not affect the first partnership which continued to
exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and
participation in the second partnership of Pahamotang and that thereafter, the two
(Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even

CIAR, JULIE ANNE PRINCESS - PAGE 61

more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the
latter of his obligation to contribute either in cash or in equipment, to the capital
investment of the partnership as well as his obligation to perform his duties as logging
superintendent. This reminder cannot refer to any other but to the provisions of the duly
registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be
able to comply with the promised contributions and he will not work as logging
superintendent. By such statements, it is obvious that Roxas understood what Maglana was
referring to and left no room for doubt that both considered themselves governed by the
articles of the duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of
Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at
Will, for as stressed, there is an existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in
the case at bar, the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the
partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner
can cause its dissolution by expressly withdrawing even before the expiration of the period,
with or without justifiable cause. Of course, if the cause is not justified or no cause was
given, the withdrawing partner is liable for damages but in no case can he be compelled to
remain in the firm. With his withdrawal, the number of members is decreased, hence, the
dissolution. And in whatever way he may view the situation, the conclusion is inevitable
that Rojas and Maglana shall be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of
the partnership shall be divided "share and share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and
accomplished by the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners
from 1956-1961 are as follows: Eufracio Rojas who should have contributed P158,158.00,
contributed only P18,750.00 while Maglana who should have contributed P160,984.00,
contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a partner who
has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to contribute (Article 1786, Civil Code)
and for interests and damages from the time he should have complied with his obligation
(Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a
contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In
their voluminous reports which was approved by the trial court, they showed that on 5050% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable
for P40,092.96 and finally on the basis of actual capital contribution, he will be liable for
P52,040.31.

Consequently, except as to the legal relationship of the partners after the withdrawal of
Pahamotang which is unquestionably a continuation of the duly registered partnership and
the sharing of profits and losses which should be on the basis of share and share alike as
provided for in the duly registered Articles of Co-Partnership, no plausible reason could be
found to disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it will be recalled
that after the withdrawal of Pahamotang, Rojas entered into a management contract with
another logging enterprise, the CMS Estate, Inc., a company engaged in the same business
as the partnership. He withdrew his equipment, refused to contribute either in cash or in
equipment to the capital investment and to perform his duties as logging superintendent,
as stipulated in their partnership agreement. The records also show that Rojas not only
abandoned the partnership but also took funds in an amount more than his contribution
(Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for
damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao,
Branch III, is hereby MODIFIED in the sense that the duly registered partnership of
Eastcoast Development Enterprises continued to exist until liquidated and that the sharing
basis of the partners should be on share and share alike as provided for in its Articles of
Partnership, in accordance with the computation of the commissioners. We also hereby
AFFIRM the decision of the trial court in all other respects.: nad
SO ORDERED.
Melencio-Herrera, Sarmiento and Regalado, JJ., concur.
Padilla, J., took no part.

Aldecoa & Co. vs. Wsarner, Barnes & Co., 16 Phil. 423(1910)
1. PARTNERSHIP; ACCOUNTING; DUTY OF BUSINESS MANAGER.It is a general
rule of law that he who takes charge of the management of another's property is bound
immediately thereafter to render accounts of his transactions; and that it is always to be
understood that all accounts must be duly supported by proofs.
2. ID. ; ID, ; ID.The acceptance and approval of any account rendered from a certain
date does not excuse nor relieve the manager of a joint-account partnership from
complying with the unquestionable duty of rendering accounts covering a period of time
prior to the said date. They must be rendered from the time the partnership was actually
formed and its business actually commenced.

CIAR, JULIE ANNE PRINCESS - PAGE 62

3. ID.; ID.; ID.; REVISION OF ACCOUNTS.Once certain accounts have been approved,
which were duly rendered by the manager of a joint-account partnership, the member of
the entity not vested with the character of manager is not entitled afterwards to claim the
revision of the accounts already approved, unless it shall be proved satisfactorily, by the
production of evidence, that there was fraud, deceit, error, or mistake in the approval of the
said accounts. (Arts. 1265, 1266, Civil Code, and law 30, title 11, 5th Partida.)
4. ID.; ID.; ID.One of the duties of the manager of a joint-account partnership is that of
liquidating the assets of the common ownership and to state the result obtained therefrom
in the final rendering of accounts which he is to present at the conclusion of the
partnership, as no person should enrich himself unjustly at the expense of another. (Art.
243, Code of Commerce, and decision in cassation given on July 1, 1870, by the supreme
court of Spain.)

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-5242

August 6, 1910

ALDECOA & CO., plaintiff-appellant,


vs.
WARNER, BARNES & CO., LTD., defendant-appellee.
Rosado, Sanz and Opisso, for appellant.
Haussermann, Ortigas, Cohn and Fisher, for appellee.
TORRES, J.:
By a complaint filed on September 26, 1907, the legal representative of Aldecoa and Co., in
liquidation, filed suit in the Court of First Instance of Manila against Warner, Barnes and
Co., Ltd., alleging in the first three paragraphs of their complaint, as a cause of action, that
the plaintiff is a regular collective mercantile association organized in accordance with the
laws of these islands, duly registered in the mercantile registry, and at present in
liquidation; that the defendant is a joint stock mercantile firm organized in accordance
with the laws of England, registered in the mercantile registry of Manila, and has done and
is still doing business in these Islands under the name of Warner, Barnes and Co., Ltd.,

which required the business that was conducted in these Islands by Warner, Barnes and
Co., the assets, liabilities, and all the obligations of which were assumed by the defendant.
In other paragraphs of the complaint, from the fourth to the twelfth, the plaintiff set forth
that, prior to December 1, 1898, Warner, Barnes and Co. were conducting a business in
Albay, the principal object of which was the purchase of hemp in the pueblos of Legaspi
and Tobacco for the purpose of bringing it to Manila, here to sell if for exportation, and
that on the said date of December 1, 1898, the plaintiff company became interested in the
said business of Warner, Barnes and Co., in Albay and formed therewith a joint-account
partnership whereby Aldecoa and Co., were to share equally in the gains and losses of the
business in Albay; that the defendant is the successor to all the rights and obligations of
Warner, Barnes and Co., among which is that of being manager of the said joint-account
partnership with Aldecoa and Co.; that the defendant acted, and continues to act as such
manager, and is obliged to render accounts supported by proofs, and to liquidate the
business, which defendant not only has not done, in spite of the demand made upon it, but
it has expressly denied the right of plaintiff to examine the vouchers, contenting itself with
forwarding copies of the entries in its books, which entries contain errors and omissions
that hereinafter will be mentioned.
Said entries moreover, whereas its operations should have commenced and did commence
on December 1, 1898, on which date the joint-account partnership commenced; that, with
respect to the liquidation of the business, the operations having been closed on December
31, 1903, Warner, Barnes and Co., Ltd., the defendant, has not realized upon the assets of
the firm by selling the property which constitutes its capital; that the persons who were the
managers and general partners of Warner, Barnes and Co., Ltd., and are the managers and
directors of that firm in the Philippine Islands and are the ones who, under the previous
firm name of Warner, Barnes and Co., admitted Aldecoa and Co. as a participant in onehalf of the said business, on the 1st day of December, 1898; that the said directors of the
defendant company, unlawfully, maliciously, and criminally conspired with the persons
who were managing the commercial firm of Aldecoa and Co. during the years 1899, 1900,
1901, 1902, and 1903, to defraud the latter of its interest in the said joint-account
partnership, buying the silence of the said managers with respect to the operations of the
joint-account partnership during the time comprised between the 1st of December, 1898,
and the 30th of June, 1899, and also with respect to the errors and omission in the
accounts relating to the second semester of 1899, and those relating to 1900, 1901, 1902,
and 1903.
That the said fraudulent acts were not known to the partners of the plaintiff firm until the
managers, in collusion with the managers of the defendant firm to defraud and injure the
plaintiff firm, had ceased to hold their positions, to wit, until after the 31st of December,

CIAR, JULIE ANNE PRINCESS - PAGE 63

1906, and that by reason of this conspiracy to defraud the plaintiffs, the defendants have
been benefited; that the errors and omissions found in the entries of the books kept by the
defendant firm as manager of the joint-account partnership are those expressed in details
here below:
(a) It appears that between the 10th of July and the 26th of December, 1899, 43,934 piculs
of hemp arrived in Manila for the joint-account partnership, which were purchased in
Legaspi and Tobacco at 13 pesos per picul, and, after charging against this hemp excessive
expenses for collection, storage, freight, fire, marine, and war insurance, personnel, etc.,
the defendants, Warner, Barnes and Co., as managers of the joint-account partnership and
commission agents of their joint-account partners, claim that they purchased the said
hemp for themselves, but do not give the price received from the sale thereof and merely
credit it at 13 pesos a picul, when the average market price at that time was 16.50 pesos a
picul; said defendants thereby injuring plaintiffs to the amount of P76,884.50.
(b) Striking a balance from the amount of hemp debited and that credited, there results a
difference of 4,332.96 piculs not credited which, at 24 pesos a picul, the market price at the
time, represents an injury to plaintiffs to the extent of P51,995.52, the said deficit, with
respect to the hemp, pertaining to the period beginning with December 31, 1899, in the
manner shown by the following table:
Invoices & Cr. Dr.
Piculs Piculs
1899 Dec. 31 ....................................... 86,534.18 43,934
1900 Apr. 30 ...................................... 13,069.97 50,261.78

(c) In 1900, on April 30, Messrs. Warner, Barnes and Co. Ltd., give credit for 5,485 piculs
of hemp, at 16 pesos a picul, when the market price at that time, according to themselves,
was P23.78; thereby injuring plaintiffs in the sum of P21,350.36.
(d) In 1901, on the date of January 31, Messrs. Warner, Barnes and Co., Ltd give credit for
4,600 piculs of hemp, at 8.93 pesos a picul, when, according to themselves, the market
price at that time was 11.50 pesos a picul; thereby injuring plaintiffs in the sum of P5,911.
(e) One of the sources of profit of the joint-account partnership between Aldecoa and Co.
and Warner, Barnes and Co., Ltd., was from the pressing of hemp, which profit is to be
credited to the partnership joint-accounts, when the hemp is realized in Manila, and from
this source there are due to the plaintiffs P149,084.12, in which sum they have been injured
by the defendants. The said credit for pressing is omitted from the books of Warner, Barnes
and Co., Ltd., and should be entered as follows:
1899 ............................................. 21,968 bales, at P1.25 .................................
P27,460
1900
to
April
30
.........................
25,130
bales,
at
P1.25 ................................. 31,412.50 1900 May 10 to Dec. 31 ............ 35,639 bales,
at P1.25 ................................. 44,548.75 1901.............................................. 50,151
bales, at P1.25 ................................. 62,688.75 1902 to July 31 ...........................
26,825
bales,
at
P1.25
.................................
33,531.25
Aug. 1 to Dec. 31 ............. 20,314 bales, at P1.75 ................................. 35,549.50
1903 ............................................. 34,440 bales, at P1.75 .................................
60,270
214,467 bales ................................................. 295,460.75
2,166 bales, lacking, at P1.25 2,707.50

1900 Dec. 31 ...................................... 67,892.56 71,277


1901 Dec. 31 ...................................... 101,253.31 100,342
1902 Dec. 31 ...................................... 98,074.52 94,279.20
1903 Dec. 31 ...................................... 66,482.49 68,880.09
433,307.03
428,974.07
4,332.96

Lacking .............................................. 433,307.03 433,307.03

216,633 bales .................................................. 298,168.25 20


loose.

216,653 bales.
(f) Another error found in the books of Warner, Barnes, and Co., Ltd., is in connection with
the outstanding accounts, which are debited in the sum of P52,510.36, while only
P2,769.24 are credited in the manner set out in the following statement:

CIAR, JULIE ANNE PRINCESS - PAGE 64

DR.
1899 July 31. W.B. and Co., Tobacco, transferred to net

Half of this sum, P435.37, must be credited to the plaintiffs.

account their account sale 92.25 piculs hides


by Kongsee ............................................................................. P1,149.46
1899 Dec. 31. For transfer account to cover business this
semester without statement .................................................. 16,100.57

(h) On the date of December 26, 1899, Messrs. Warner, Barnes and Co., Ltd., deduct from
the profits which they show as belonging to Aldecoa and Co., the sum of P7,400, under the
appearance of the insurance premium, and they delivered that sum to the plaintiffs'
managers with whom they conspired, for the purposes of the collusion alleged in Paragraph
VII of the complaint, in the manner failing to observe the truth in their statement of the
facts. Aldecoa and Co., therefore, claim for themselves this amount, P7,400.

1900 Feb. 28. As transferred account items noted page


114 day-book .......................................................................... 18,635.08
1900 Feb. 28. To cover war insurance, January ................................................. 4,000
1900 Feb. 28. To cover outstanding accounts ................................................... 2,625.25
52,510.36
CR.
1900 Feb. 28. As transferred account items noted page
113 day-book .......................................................................... 2,769.24
There remain, therefore ......................................................... 49,741.12 of which
one-half, that is ...................................................... 24,870.56 belongs to the plaintiffs.

(g) In 1900, there is unduly included an item of net account which should be stricken out,
as it does not pertain to this business. This item is the following:
1900
June 30. To Miguel Estela. For transfer made to his account
of 5 per cent commission on his hemp, which should
not be paid according to agreement ..................................... P870.75

(i) On December 31, 1903, on a capital of P50,000 brought in by Aldecoa and Co., and to
whom it should bear 5 per cent interest from the 8th of June, 1900, the interest is unduly
credited to the joint-account, thereby injuring the plaintiffs in the sum of P8,750.
(j) On December 31, 1902, Aldecoa and Co. are charged with six months' interest,
amounting to P736.46, on a balance debited against them for alleged losses, and on June
30, 1903, they are charged with P1,818.58 for a like reason. These two items should be
stricken out, because the accounts when correctly made to show no losses, but profits. By
such debits the plaintiffs have been injured in the sum of P1,277.52.
(k) In the entries corresponding to the years 1902 and 1903, Warner, Barnes and Co., Ltd.,
give the price of "corriente buena" (currect good), to the grade which, according to the
mark, was classified as "abaca superior" (superior hemp); the price of "corriente
ordinario" (current ordinary), to the hemp marked under the classification of "corriente
buena" (current good); the price of "segunda superior" (second superior), to what is
"corriente" or "current," and so on successively; whence results a difference of price to the
value of P233,102.18, in 1902, and P74,274.90, in 1903, one-half of which differences
should be credited to Aldecoa and Co., that is P153,688.54.
(l) The value of the properties brought in by Warner, Barnes and Co., Ltd., to the jointaccount, instead of cash capital, is omitted from the accounts. These properties are the
following:
Those purchased from Mariano Roisa, consisting of one galvanized-iron-roofed warehouse,
with hemp press; one house of strong materials and the lot on which it stands, in Tobacco,
P12,000.

CIAR, JULIE ANNE PRINCESS - PAGE 65

That purchased from Juana Roisa, which is one small warehouse of strong materials, in
Tobacco, worth about P2,500.

suit, and plaintiff be granted such other and further relief as may be found just and
equitable.

Those purchased from D. Manuel Zalvidea situated in Tobacco, which are: One warehouse
of strong materials, with press; another warehouse of strong materials; and two houses of
strong materials, together with the lots on which they are built, P22,000.

On November 11, 1907, the defendant filed a written answer an counterclaim against the
defendant, and, notwithstanding the overruling of the demurrer filed by the latter to the
counterclaim, the court by writ of December 4, 1907, ordered that the defendant should,
within a period of five days, make its allegations more specific with respect to certain
particulars mentioned in the order of the court, and both parties being notified thereof, the
defendant, on January 24, 1908 prayed the court to authorize it to file the attached
amended answer instead of the original one.

Those purchased from D. Marcos Zubeldia, in Legaspi, which are: Four warehouses with
three hemp presses, and one house of strong materials, with their corresponding lots,
P50,000.
Total cost, P86,500.
The complaint further sets forth that if the entries made by the defendant in its books show
in themselves the foregoing errors and omissions, the plaintiff has good grounds for
believing that, if the vouchers were examined, still greater errors would be found, as to
which the plaintiff can not formulate its claims with exactness until the defendant renders
it an account, accompanied by vouchers; that the defendant, as manager of the jointaccount partnership with Alcodea & Co., neglected to comply with what is especially
prescribed in article 243 of the Code of Commerce, as a duty to inherent to its position as
manager of the joint-account partnership, which is that of rendering an account with
vouchers, and that of liquidating the said business, for it refuses to furnish the plaintiff the
documents required for their examination and verification, and also refuses to realize the
firm assets by selling the warehouses, houses, and other property which constitute the
capital; that, as the defendant refuses to do the things above related, the plaintiff has no
other easy, expeditious and suitable remedy than to petition the court for a writ of
mandamus, wherefore it prays the court to protect it in its rights and to issue the said
mandamus against the defendant, ordering it, within a date set for this purpose, to render
to the court an account, accompanied by invoices, receipts, and vouchers of the Albay
business, beginning the said account as of December 1, 1898, the date on which the
partnership was formed, and correcting in it errors and omissions related in paragraph 9 of
this complaint; that the defendant credit and pay to the plaintiff the sums alleged in that
paragraph to be due to the plaintiff, with interest at the legal rate upon the sums of omitted
for the difference between the amounts incorrectly debited and credited, from the
respective dates on which they should appear, if correctly entered; that after the said
accounts have been rendered and discussed, judgment be entered for any balance which
may appear in favor of the plaintiff, including the sums claimed, and legal interest thereon.
The plaintiff also prays that the writ of mandamus fix a term within which the defendant is
to liquidate the business, selling the properties aforementioned and distributing the
proceeds between both the litigants, and that the defendant be adjudged liable for costs of

In the said amended answer the firm of Warner, Barnes & Co. Ltd., the defendant, states
that it denies each and every one of the allegations of the complaint, with the exception of
those which are expressly admitted in its answer, and admit the allegations of paragraphs
1, 2, and 3 of the complaint. In answer to the allegations of paragraphs 4 to 12 of the
complaint, it admits that on June 30, 1899, a joint-account partnership was formed
between the plaintiff and the defendant transactions of which were the purchase of hemp
in Legaspi and Tobacco, of which business one-half of the results, whether losses or gains,
appertained to the plaintiff. Defendant also admits that the said business continued under
the management of the defendant company, as manager of the said joint-account
partnership, until December 31, 1903; but it denies all the other allegations contained in
the said paragraphs. For its first special defense, the defendant alleges that during the
period that the said joint-account partnership existed, the manager thereof, the defendant,
rendered to the plaintiff just and true accounts of its transaction as manager of the said
partnership, which accounts have been approved by the plaintiff, with the exception of
those relating to the year 1903, and as to the latter, that the same were objected to by
plaintiff firm solely upon the grounds mentioned in clause (k) of paragraph 9 of the
complaint, which objections are wholly unfounded. As its second special defense, the
defendant alleges that more than four years have expired between the time the alleged right
of action accrued to the plaintiff and the date of the filing of the complaint. For all the
reasons set forth in this amended answer, the defendant prayed that it be absolved from
the complaint, with the costs against the plaintiff.
On the subsequent to the 14th of August, 1908, the trial of this cause was held and oral
evidence was introduced by the plaintiff, but no witnesses were offered by the defendant,
which finally moved for a dismissal of the case, and the court, on December 26 of the same
year, 1908, rendered judgment, dismissing the complaint with respect to the petition for
the rendering of an account, verified by invoices, receipts and vouchers, of the said Albay
business, pertaining to the period comprised from the beginning of the business to the 31st
of December, 1902, inclusive, assessing the costs against the plaintiff, and opening the

CIAR, JULIE ANNE PRINCESS - PAGE 66

second period of the trial with respect to the account for the whole year 1903, in
accordance with the ruling of the court made at the commencement of the hearing. The
plaintiff on being notified of this judgment filed a written exception thereto and announced
his intention to forward through regular channels a bill of exceptions, and by another
writing moved for a new trial on the ground that the evidence did not justify the judgment
rendered, which it alleged it was openly and manifestly contrary to the weight of the
evidence and to law. This motion being denied, to which exception was taken by the
plaintiff, the latter duly filed a proper bill of exceptions which was certified to and
forwarded to this court, together with all the documentary and oral evidence produced at
the trial.
This litigation concerns the rendering of accounts pertaining to the management of the
business of a joint-account partnership formed between the two litigants companies.
Both the plaintiff and the defendant are in accord that, through verbal agreement, the said
partnership was established, whereby they should share equally the profits and losses of
the business of gathering and storing hemp in Albay and selling it in Manila for
exportation, and that the commercial firm of Warner, Barnes and Co., Ltd., was the
manager of the said joint-account partnership.
The disagreement between the parties consists in the following points: First, as to the date
when the partnership was formed and began business in the province mentioned; second,
whether the managing firm did render accounts, duly verified by vouchers, of its
management from the date of the organization of the partnership; third, whether errors
and omission, prejudicial to the plaintiff, Aldecoa and Co., exist in the partnership books
and in its accounts, and whether, in the management of the said business, fraudulent acts
were committed also to the plaintiff's injury; and, fourth, whether the partnership property
should be included in the liquidation of the said business and in the accounts appertaining
to the year 1903, when the existence of the partnership came to an end.
With respect to the date on which the said partnership began, the plaintiff, Aldecoa and
Co., submitted evidence unrebutted by that of the defendant, Warner, Barnes and Co., Ltd.,
and although the latter averred that the joint-account partnership began on June 30, 1899,
denying that it was commenced, or was formed, on December 1, 1898, as the plaintiff says
that it was, it is certain that the defendant has not proved its averment; and if, on the
opening of this case de novo it shall not have done so within such period as the court may
see fit to determine, it will be proper to find in accordance with the value of the evidence
adduced by the plaintiff and to advise the defendant to render, within a fixed period,
accounts, verified by vouchers, of the management of the partnership business and
pertaining to the seven months from December 1, 1898, to June 29, 1899; and, in view of

the evidence adduced by the plaintiff in proof of the aforesaid first point, if the defendant
does not produce other evidence in rebuttal, they must, for some reason, be expressly
rejected in the judgment, if they are not to be taken into account in reaching the
conclusions or in considering the case upon the merits.
As regards the second point, we agree with the opinion expressed by the lower court and
find that the firm of Warner, Barnes and Co., Ltd., did render accounts from June 30, 1899,
to December 31, 1902, inasmuch as the very evidence introduced by the plaintiff showed
that the said accounts had been rendered and were approved by it, according to the context
of its own letters of the dates of July 27, 1907, and February 19, 1903. Therefore, the
plaintiff is in nowise entitled, and has no right of action to compel the defendant to render
the accounts pertaining to that period, they having already been rendered and duly
approved.
It is a rule of law generally observed that he who takes charge of the management of
another's property is bound immediately thereafter to render accounts covering his
transactions; and that it is always to be understood that all accounts rendered must be duly
substantiated by vouchers.
It is a fact admitted by both litigating parties that Warner, Barnes and Co., Ltd., was the
manager of the business of the joint-account partnership formed between it and Aldecoa
and Co., it is unquestionable that it was and is the defendant's duty to render accounts of
the management of the business, as it partially has done. Although the defendant has not
proved, as it should have done, that it complied with its duty of rendering accounts of its
management, since the letters themselves exhibited by the plaintiff, and duly authenticated
as being written by the latter, prove that the defendant did render accounts from June 30,
1899, to December 31, 1902, no legal reason whatever exists for not accepting the finding of
the lower court which decided that it had been proved that accounts were rendered
pertaining to the period mentioned and that the said accounts were approved by the
plaintiff.
The procedure of the plaintiff is truly inexplicable in accepting and approving accounts that
were rendered to it, and which only begin with June 30, 1899, inasmuch as such approval
would appear to indicate that it agreed to the claim made by the defendant that the
partnership commenced on the said date; but even so, once that it is proved that the actual
date on which the partnership was formed was December 1, 1898, and that it is not shown
that the defendant has rendered accounts corresponding to the seven months subsequent
to the said date of December 1, the acceptation and approval of accounts rendered since the
30th of June 1899, does not excuse nor release the manager of the partnership, the
defendant, from complying with its unquestionable duty of rendering accounts covering

CIAR, JULIE ANNE PRINCESS - PAGE 67

the aforesaid seven months. The presumption must be sustained until proof to the contrary
is presented.
Moreover, the approval of accounts corresponding to the years from June 30, 1899, to
December 31, 1902, does not imply that the said approved accounts comprise those
pertaining that the seven months mentioned, December 1, 1899, to June 29, 1899, because
the defendant, the accountant, denied that the partnership commenced on the aforesaid
date of December 1st, asserting it began on June 30, 1899; wherefore, on defendant's
rendering those accounts, it is to be presumed that it did so from the date which it avers
was that of the information of the partnership and the beginning of the business, and it is
therefore evident that it has not rendered accounts pertaining to the seven months
mentioned.
With respect to the third point relative to whether errors and omissions prejudicial to the
plaintiff, Aldecoa & Co., exist in the partnership books and in its accounts, and whether, in
the management of the said business, fraudulent acts were committed to plaintiff's injury,
it must be borne in mind that once accounts have been approved which were rendered by
the managing firm of Warner, Barnes & Co., Ltd., the plaintiff, Aldecoa & Co., is not
entitled afterwards to claim a revision of the same, unless it shows that there was fraud,
deceit, error, or mistake in the approval of the said accounts.
Under these hypothesis, Alcodea & Co. are strictly obliged to prove the errors, omissions,
and fraudulent acts attributed to the defendant, in connection with the accounts already
rendered, and approved by them, in order that the same may be revised in accordance with
law and the jurisprudence of the courts. (Pastor vs. Nicasio, 6 Phil. Rep., 152.)
The approval of an account does not prevent its subsequent revision, or at least its
correction, if it is proved in a satisfactory manner that there was deceit and fraud or error
and omission in it. (Arts. 1265, 1266, Civil Code.)
Law 30, title 11, 5th Partida, provides, among other things, the following:
That is precisely what we say should be observed, in all other accounts that men
make among themselves, in connection with the things which belong to them.
Notwithstanding that they may acknowledge the settlement of the accounts
between them and promise never to bring them up again, if it had be known in
truth that he who gave the account or had the things in his keeping, concealed
anything deceitfully, or committed other fraud against those who have a share in
such thing, then neither the suit, nor such previous status and promise shall avail;

on the contrary, we say that they may sue him to compel him to remedy the deceit
he committed against them, and to pay all the damages and losses that have
accrued to them by reason thereof; provided, however, he especially shall not have
repaired the deceit that he committed.
So that it does not matter that the accounts pertaining to the years comprised between the
30th of June, 1899, and the 31st of December, 1902, may have been approved by Aldecoa &
Co. Whenever this firm shall succeed in proving that there was error, omission, fraud, or
deceit in these accounts, they may be duly revised, according to the law.
With regard to the last point in controversy, the defendant agrees that the plaintiff has not
yet approved the accounts that the former rendered, pertaining to 1903, the last years of
the existence of the joint-account partnership; and, for this reason, it was provided in the
judgment appealed from that the trial should continue with respect to the said accounts
corresponding to the year 1903, in order that the plaintiff might take such objections and
statements in regard to the same as he deemed proper, and adduce the evidence conducive
to prove his claim, in accordance with law.
It is one of the duties of the manager of a joint-account partnership, to liquidate the assets
that form the common property, and to state the result obtained therefrom in the final
rendering of the accounts which he is to present at the conclusion of the partnership.
Article 243 of the Code of Commerce says;
The liquidation shall be effected by the manager, and after the transactions have
been concluded he shall render a proper account of its results.
It is a recognized fact, and one admitted by both parties that the partnership herein
concerned concluded its transactions on December 31, 1903; wherefore the firm of Warner,
Barnes & Co. Ltd., the manager of the partnership, in declaring the latter's transactions
concluded and in rendering duly verified accounts of its results, owes the duty to include
therein the property and effects belonging to the partnership in common. This rule was
established by the supreme court of Spain in applying a similar precept of the mercantile
code, in its decision on an appeal in causation of the 1st of July, 1870, setting up the
following doctrine:
In case of the liquidation of a company of this kind (denominated joint-account
partnership), inasmuch as the sale of the firm assets is necessarily uncertain and
eventual, considering the greater or lesser selling price that may be obtained from

CIAR, JULIE ANNE PRINCESS - PAGE 68

the property and effects which comprise such assets, the price received should be
alloted in the same proportion as that fixed in the contract for the division of the
profits and losses, for otherwise one of the partners would be benefited to the
detriment and loss of his copartners.
This doctrine is perfectly legal and in accord with justice, as no person should enrich
himself wrongfully at the expense of another; and, in the case under review, should it be
duly and fully proved that the managing firm acquired realty in the name and at the
expense of the joint-account partnership with the plaintiff firm, it is just that, in liquidating
the property of common ownership, such realty should be divided between the partners in
the same manner as were the profits and losses during the existence of the business, from
the beginning of the partnership to the date of its dissolution.
By the facts herein above set forth, it has been shown that in the present state of this cause
resulting from the rendering of the judgment appealed from, it has not been possible to
decide in a final manner the various issues brought up and controverted by the litigants,
for, though it be granted as proved that the defendant firm, the manager of the said
partnership, has in fact rendered accounts pertaining to the years from June 30, 1899, to
December 31, 1902, as found in the said judgment, there still remain to be decided the four
points or questions of fact before specified. Wherefore, and in accordance with section 496
of the Code of Civil Procedure, a new trial should be held For the purpose of a final decision
of all the questions involved in this litigation, and accordingly the judgment appealed from
is set aside and this cause shall be returned to the court below, accompanied by a certified
copy of this decision, for the holding of a new trial, for which purpose, first, the defendant
shall be advised that it must, within a fixed period, render an account, verified by vouchers,
of its management of the business of the joint-account partnership with the plaintiff,
pertaining to the months from December 1, 1898, to June 29, 1899, and to the twelve
months of the year 1903, unless it shall prove in a satisfactory manner that the said
partnership began on June 30, 1899, contrary to the averment of the plaintiff supported by
evidence that it commenced on December 1, 1898, in which case the said rendering of
account shall be restricted to the twelve months of the year 1903, in the accounts of which
last period must be included all the property that is found to belong to the said
partnership; second, in the examination of the accounts that may be found to have been
rendered, the parties may allege and prove facts conducive to their revision or approval
besides availing themselves of the evidence already adduced at trial; and, third, with
respect to the accounts corresponding to the period from June 30, 1899, to December 31,
1902, already approved, the trial court shall be proceed in accordance with law, duly
considering the errors, omissions, mistakes and fraudulent or deceitful acts that have been
alleged or may specifically be alleged in rejecting the said approved accounts, as well as the
evidence introduced by both parties, and it shall be careful to decide in its final judgment

all the issues raised between the parties in the course of this litigation and to provide such
remedies as are proper in regard to their respective claims. So ordered.
Johnson, Moreland and Trent, JJ., concur.
Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 172(1922)
1. PARTNERSHIP; LIABILITY OF MANAGER TO ACCOUNT; LIQUIDATION. Though
the manager of a mercantile partnership which has ceased to do business is accountable to
his associates for any assets of the concern in his hands, judgment cannot be rendered
against him for the proportionate share of the capital claimed by one of the partners in an
action brought by such partner alone, where the concern has not been liquidated and there
is no proof showing the existence of assets applicable to capital account.
2. ID.; ID.; ACTION BY SINGLE PARTNER.Where the only assets in the hands of the
manager of a defunct partnership consists of shares in other companies, the true value of
which is not proved, it is error, in an action for an accounting brought against him by one
of the partners, to give judgment in favor of the plaintiff for a sum of money equivalent to
his aliquot part of the par value of such shares. A single partner cannot recover from
another, without process of liquidation or division, a part of the undivided property of the
partnership.
3. ID.; LIQUIDATION; SURVIVING MEMBER.When the manager of a mercantile
partnership dies the duty of liquidating it devolves upon the surviving member, or
members, of the firm and not upon the legal representative of the deceased member.
4. ID.; ID.; CLAIM FOR DAMAGES AGAINST MANAGER.When the manager of a
mercantile partnership who is charged with the duty of liquidating the same dies, his
associates should take the proper steps to settle its affairs; and any claim against him, or
his estate, for damages incident to the misappropriation of its funds by him or for damage
resulting from his wrongful acts as manager, in excess of his interest in the firm assets,
should be prosecuted against his estate in administration in the manner provided by law.
5. EXECUTORS AND ADMINISTRATORS; PARTNERSHIP; ACCOUNTING;
DlSCONTINUANCE OF ACTION.When the manager of a defunct partnership who is
named defendant in an action for an accounting of its affairs and against whom judgment
is sought for mismanagement or misappropriation of its funds dies, the action should be
discontinued, upon motion to that effect by his personal representative, and the claim for
damages should be presented to the committee on claims in the administration of his

CIAR, JULIE ANNE PRINCESS - PAGE 69

estate. It is error to prosecute such an action to judgment over the objection of the
administrator.

The decision made on this occasion takes as its basis the fact stated by the court in its
earlier decision of July 1, 1921, which may be briefly set fourth as follows:lawphil.net

Republic of the Philippines


SUPREME COURT
Manila

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

EN BANC
G.R. No. L-18707 December 9, 1922
PO YENG CHEO, plaintiff-appellee,
vs.
LIM KA YAM, defendant-appellant.
STREET, J.: By the amended complaint in this action, the present plaintiff, Po Yeng
Cheo, alleged sole owner of a business formerly conducted in the City of Manila under the
style of Kwong Cheong, as managing partner in said business and to recover from him its
properties and assets. The defendant having died during the pendency of the cause in the
court below and the death suggested of record, his administrator, one Lim Yock Tock, was
required to appear and make defense.
In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court below,
found that the plaintiff was entitled to an accounting from Lim Ka Yam, the original
defendant, as manager of the business already reffered to, and he accordingly required Lim
Yock Tock, as administrator, to present a liquidation of said business within a stated time.
This order bore no substantial fruit, for the reason that Lim Yock Tock personally knew
nothing about the aforesaid business (which had ceased operation more than ten years
previously) and was apparently unable to find any books or documents that could shed any
real light on its transaction. However, he did submit to the court a paper written by Lim Ka
Yam in life purporting to give, with vague and uncertain details, a history of the formation
of the Kwong Cheong Tay and some account of its disruption and cessation from business
in 1910. To this narrative was appended a statement of assets and liabilities, purporting to
show that after the business was liquidate, it was actually debtor to Lim Ka Yam to the
extent of several thousand pesos. Appreciating the worthlessness of this so-called
statement, and all parties apparently realizing that nothing more was likely to be
discovered by further insisting on an accounting, the court proceeded, on December 27,
1921, to render final judgment in favor of the plaintiff.

Among the properties pertaining to Kwong Cheong Tay and consisting part of its assets
were ten shares of a total par value of P10,000 in an enterprise conducted under the name
of Yut Siong Chyip Konski and certain shares to the among of P1,000 in the Manila Electric
Railroad and Light Company, of Manila.
In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business, owing
principally to the fact that the plaintiff ceased at that time to transmit merchandise from
Hongkong, where he then resided. Lim Ka Yam appears at no time to have submitted to the
partners any formal liquidation of the business, though repeated demands to that effect
have been made upon him by the plaintiff.
In view of the facts above stated, the trial judge rendered judgment in favor of the plaintiff,
Po Yeng Cheo, to recover of the defendant Lim Yock Tock, as administrator of Lim Ka Yam,
the sum of sixty thousand pesos (P60,000), constituting the interest of the plaintiff in the
capital of Kwong Cheong Tay, plus the plaintiff's proportional interest in shares of the Yut
Siong Chyip Konski and Manila Electric Railroad and Light Company, estimated at
P11,000, together with the costs. From this judgment the defendant appealed.
In beginning our comment on the case, it is to be observed that this court finds itself
strictly circumscribed so far as our power of review is concerned, to the facts found by the
trial judge, for the plaintiff did not appeal from the decision of the court below in so far as
it was unfavorable to him, and the defendant, as appellant, has not caused a great part of
the oral testimony to be brought up. It results, as stated, that we must accept the facts as
found by the trial judge; and our review must be limited to the error, or errors, if any,

CIAR, JULIE ANNE PRINCESS - PAGE 70

which may be apparent upon the face of the appealed decision, in relation with the
pleadings of record.
Proceeding then to consider the appealed decision in relation with the facts therein stated
and other facts appearing in the orders and proceedings in the cause, it is quite apparent
that the judgment cannot be sustained. In the first place, it was erroneous in any event to
give judgment in favor of the plaintiff to the extent of his share of the capital of Kwong
Cheong Tay. The managing partner of a mercantile enterprise is not a debtor to the
shareholders for the capital embarked by them in the business; and he can only be made
liable for the capital when, upon liquidation of the business, there are found to be assets in
his hands applicable to capital account. That the sum of one hundred and sixty thousand
pesos (P160,000) was embarked in this business many years ago reveals nothing as to the
condition of the capital account at the time the concern ceased to do business; and even
supposing--as the court possibly did--that the capital was intact in 1908, this would not
prove it was intact in 1910 when the business ceased to be a going concern; for in that
precise interval of time the capital may have been diminished or dissipated from causes in
no wise chargeable to the negligence or misfeasance of the manager.
Again, so far as appears from the appealed decision, the only property pertaining to Kwong
Cheong Tay at the time this action was brought consisted of shares in the two concerns
already mentioned of the total par value of P11,000. Of course, if these shares had been
sold and converted into money, the proceeds, if not needed to pay debts, would have been
distributable among the various persons in interest, that is, among the various
shareholders, in their respective proportions. But under the circumstances revealed in this
case, it was erroneous to give judgment in favor of the plaintiff for his aliquot part of the
par value of said shares. It is elementary that one partner, suing alone, cannot recover of
the managing partner the value of such partner's individual interest; and a liquidation of
the business is an essential prerequisite. It is true that in Lichauco vs. Lichauco (33 Phil.,
350), this court permitted one partner to recover of the manager the plaintiff's aliquot part
of the proceeds of the business, then long since closed; but in that case the affairs of the
defunct concern had been actually liquidate by the manager to the extent that he had
apparently converted all its properties into money and had pocketed the same--which was
admitted;--and nothing remained to be done except to compel him to pay over the money
to the persons in interest. In the present case, the shares referred to--constituting the only
assets of Kwong Cheong Tay--have not been converted into ready money and doubtless still
remain in the name of Kwong Cheong Tay as owner. Under these circumstances it is
impossible to sustain a judgment in favor of the plaintiff for his aliquot part of the par value
of said shares, which would be equivalent to allowing one of several coowners to recover
from another, without process of division, a part of an undivided property.

Another condition will be noted as present in this case which in our opinion is fatal to the
maintenance of the appealed judgment. This is that, after the death of the original
defendant, Lim Ka Yam, the trial court allowed the action to proceed against Lim Yock
Tock, as his administrator, and entered judgment for a sum of money against said
administrator as the accounting party,--notwithstanding the insistence of the attorneys for
the latter that the action should be discontinued in the form in which it was then being
prosecuted. The error of the trial court in so doing can be readily demonstrated from more
than one point of view.
In the first place, it is well settled that when a member of a mercantile partnership dies, the
duty of liquidating its affair devolves upon the surviving member, or members, of the firm,
not upon the legal representative of the deceased partner. (Wahl vs. Donaldson Sim & Co.,
5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744) And the same rule must be equally
applicable to a civil partnership clothed with the form of a commercial association (art.
1670, Civil Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon the death of Lim Ka Yam it
therefore became the duty of his surviving associates to take the proper steps to settle the
affairs of the firm, and any claim against him, or his estate, for a sum of money due to the
partnership by reason of any misappropriation of its funds by him, or for damages
resulting from his wrongful acts as manager, should be prosecuted against his estate in
administration in the manner pointed out in sections 686 to 701, inclusive, of the Code of
Civil Procedure. Moreover, when it appears, as here, that the property pertaining to Kwong
Cheong Tay, like the shares in the Yut Siong Chyip Konski and the Manila Electric Railroad
and Light Company, are in the possession of the deceased partner, the proper step for the
surviving associates to take would be to make application to the court having charge to the
administration to require the administrator to surrender such property.
But, in the second place, as already indicated, the proceedings in this cause, considered in
the character of an action for an accounting, were futile; and the court, abandoning entirely
the effort to obtain an accounting, gave judgment against the administrator upon the
supposed liability of his intestate to respond for the plaintiff's proportionate share of the
capital and assets. But of course the action was not maintainable in this aspect after the
death of the defendant; and the motion to discontinue the action as against the
administrator should have been granted.
The judgment must be reversed, and the defendant will be absolved from the complaint;
but it will be understood that this order is without prejudice to any proceeding which may
be undertaken by the proper person or persons in interest to settle the affairs of Kwong
Cheong Tay and in connection therewith to recover from the administrator of Lim Ka Yam
the shares in the two concerns mentioned above. No special pronouncement will be made
as to costs of either. So ordered.

CIAR, JULIE ANNE PRINCESS - PAGE 71

Guidote vs. Borja, 53 Phil. 900(1928)


PARTNERSHIPS, DISSOLUTION OF; LIQUIDATION.The death of one of the partners
dissolves the partnership, but the liquidation of its affairs is by law intrusted to the
surviving partners, or to liquidators appointed by them, and not to the executors of the
deceased partner. (Wahl vs. Donaldson Sim & Co., 5 Phil., 11.)
2. ID.; ID.; DECEASED PARTNER; SURVIVING PARTNERS TRUSTEES.In equity,
surviving partners are treated as trustees of the representatives of the deceased partner in
regard to his interest in the firm and are held to that strictness of accountability required of
an incident to the position of one occupying a confidential relation.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-28920
October 24, 1928
MAXIMO GUIDOTE, plaintiff-appellant,
vs.
ROMANA BORJA, as administratrix of the estate of Narciso Santos, deceased,
defendant-appellee.
Francisco, Lualhati and Lopez for appellant.
M. G. Goyena for appellee.
OSTRAND, J.:
On March 4, 1921, the plaintiff brought an action against the administratrix of the estate of
Narciso Santos, deceased, to recover the sum of P9,534.14, a part of which was alleged to
be the net profits due the plaintiff in a partnership business conducted under the name of
"Taller Sinukuan," in which the deceased was the capitalist partner and the plaintiff the
industrial partner, the rest of the sum consisting of advances alleged to have been made to
said partnership by the plaintiff. The defendant in her answer admitted the existence of the
partnership and in a cross-complaint and counter-claim prayed that the plaintiff be
ordered to render an accounting of the partnership business and to pay to the estate of the
deceased the sum of P25,000 as net profits, credits, and property pertaining to said
deceased.
In the first trial of the case the plaintiff called several witnesses and introduced a so-called
accounting and a mass of documentary evidence consisting of books, bills, and alleged
vouchers, which documentary evidence was so hopelessly and inextricably confused that
the court, as stated in its decision, could not consider it of much probative value. It was,
however, fund as facts that the aforesaid partnership had been formed, on or about June

15, 1918; that Narciso Santos died on April 6, 1920, leaving the plaintiff as the surviving
partner; and that plaintiff failed to liquidate the affairs of the partnership and to render an
account thereof to the administratrix of Santos' estate. The court, therefore, dismissed the
plaintiff's complaint and absolved the defendant therefrom, and ordered the plaintiff to
render a full and complete accounting, verified by vouchers, of the partnership business
from June 15, 1918, until September 1, 1922. To this decision and order the plaintiff duly
excepted.
The plaintiff thereupon rendered an account prepared by one Tomas Alfonso, a public
accountant. Numerous objections to said account were presented by the defendant, and the
court, upon hearing, disapproved the account and ordered that the defendant submit to the
court an accounting of the partnership business from the date of the commencement of the
partnership, June 15, 1918, up to the time the business was closed. 1awph!l.net
On January 25, 1924, the defendant presented an account and liquidation prepared by a
public accountant, Santiago A. Lindaya, showing a balance of P29,088.95 in favor of the
defendant. The account was set down for hearing upon the question of its approval or
disapproval by the court, at which hearing the defendant introduced the public accountant
Jose Turiano Santiago to testify as to the results of an audit made by him of the accounts of
the partnership. Santiago testified that he had been a public accountant for over 20 years,
having appeared in court as such on several occasions; that he had examined the exhibits
offered in evidence of the case by both parties; that he had prepared a separate accounting
or liquidation similar in results to that prepared by Lindaya, but with a few differences in
the sums total; and that according to his examination, the financial status of the
partnership was as follows:
Narciso Santos is a creditor of the Taller
<br<
Sinukuan in the sum of P26,020.89 consisting
td=""></br<>
as follows:
For his capital ..................................

P12,588.53

For his credit ...................................

10,348.30

For his share of the profits ............

3,068.06

Total ...................................................

26,020.89

Maximo Guidote is a debtor to the Taller


Sinukuan in the sum of P20,020.89, consisting
as follows:
For his debt (debito) .........................

P29,088.95

Less his share of the profits ...........

3,068.06

CIAR, JULIE ANNE PRINCESS - PAGE 72

Total balance ......................................

26.020.89

In order to contradict the conclusions of Lindaya and Jose Turiano Santiago, the plaintiff
presented Tomas Alfonso and the bookkeeper, Pio Gaudier, as witnesses in his favor. In
regard to the character of the testimony of these witnesses, His Honor, the trial judge, says:
The testimony of these two witnesses is so unreliable that the court can place no
reliance thereon. Mr. Tomas Alfonso is the same public accountant who filed the
liquidation Exhibit O on behalf of the plaintiff, in relation to the partnership
business, which liquidation was disapproved by this court in its decision of August
20, 1923. It is also to be noted that Mr. Alfonso would have this court believe the
proposition that the plaintiff, a mere industrial partner, notwithstanding his
having received the sum of P21,649.61 on the various jobs and contracts of the
"Taller Sinukuan," had actually expended and paid out the sum of P63,360.27, of
P44,710.66 in excess of the gross receipts of the business. This proposition is not
only improbable on its face, but it materially contradicts the allegations of
plaintiff's complaint to the effect that the advances made by the plaintiff only the
amount to P2,017.50.
Mr. Pio Gaudier is the same bookkeeper who prepared three entirely separate and
distinct liquidation for the same partnership business all of which were repeated by
the court in its decisions of September 1, 1922 and the court finds that the
testimony given by him at the last hearing is confusing, contradictory and
unreliable.1awph!l.net
As to the other witnesses for the plaintiff His Honor further says:
The testimony of the other witnesses for the plaintiff deserves but scant
consideration as evidence to overcome the testimony of Mr. Santiago, as a whole
particularly that of the witness Chua Chak, who, after identifying and testifying as
to a certain exhibit shown him by counsel for plaintiff, showed that he could
neither read nor write English, Spanish, or Tagalog, and that of the witness Mr.
Claro Reyes, who, after positively assuring the court that a certain exhibit tendered
him for identification was an original document, was forced to admit that it was
but a mere copy.
The court therefore, found that the conclusions reached by Santiago A. Lindaya as modified
by Jose Turinao Santiago were just and correct and ordered the plaintiff to pay the
defendant the sum of P26,020.89, Philippine currency, with legal interest thereon from
April 2, 1921, the date of the defendant's answer, and to pay the costs. From this judgment
the plaintiff appealed to this court and presents the following assignments of error:

(1) That the court erred in dismissing the plaintiff's complaint and ordering him to
present a liquidation of the operations and accounts of the partnership formed
with the deceased Narciso Santos, from the beginning of the partnership until
September 1, 1922.
(2) That the court erred in approving the liquidation made by the public
accountant Santiago A. Lindaya, with the modification introduced by the witness
Jose Turiano Santiago.
(3) That the court erred in ordering the plaintiff and appellant to pay to the
defendant and appellee the sum of P26,020.89.
As to the first assignment of error there may be some merit in the appellant's contention
that the dismissal of his complaint was premature. The better practise would, perhaps,
have been to let the complaint stand until the result of the liquidation of the partnership
affairs was known. But under the circumstances of this case no harm was done by the
dismissal of the complaint, and the error, if any there be, is not reversible.
Under the same assignment of error the plaintiff argues that as the deceased up to the time
of his death generally took care of the payments and collections of the partnership, his legal
representatives were under the obligation to render accounts of the operations of the
partnership, notwithstanding the fact that the plaintiff was in charge of the business
subsequent to the death of Santos. This argument is without merit. In the case of Wahl vs.
Donaldson Sim & Co. (5 Phil., 11, 14), it was held that the death of one of the partners
dissolves the partnership, but that the liquidation of its affairs is by law intrusted, not to
the executors of the deceased partner, but to the surviving partners or the liquidators
appointed by them (citing article 229 of the Code of Commerce and secs. 664 and 665 of
the Code of Civil Procedure). The same rule is laid down by the Supreme Court of Spain in
sentence of October 12, 1870.
The other assignments of error have reference only to questions of fact in regard to which
the findings of the court below seem to be as nearly correct as possible upon the evidence
presented. There may be errors in the interpretation of the accounts, and it is possible that
the amount of P26,020.89 charged against the plaintiff is excessive, but the evidence
presented by him is so confusing and unreliable as to be practically of no weight and
cannot serve as a basis for a readjustment of the accounts prepared by the accountant
Lindaya and the apparently reliable witness, Jose Turiano Santiago.
We should, perhaps, have been more inclined to question the conclusions of Lindaya and
Santiago if the plaintiff had shown a disposition to render an honest account of the
business and to effect a fair liquidation of the partnership but instead of doing so, he has by
means of very questionable, and apparently false, evidence sought to mulct his deceased
partner's estate to the extent of over P9,000. The rule for the conduct of a surviving partner
is thus stated in 20 R. C. L., 1003:

CIAR, JULIE ANNE PRINCESS - PAGE 73

In equity surviving partners are treated as trustees of the representatives of the


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

The appellant has completely failed to observe the rule quoted, and he is not in position to
complain if his testimony and that of his witnesses is discredited.
The appealed judgment is affirmed with the costs against the appellant. So ordered.
Avancea, C. J., Johnson, Street, Malcolm, Villamor, Romualdez, and Villa-Real, JJ.,
concur.