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SECOND DIVISION

[G.R. Nos. L-41182-3. April 15, 1988.]

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants, vs. THE COURT
OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S. CANILAO, and SEGUNDINA
NOGUERA, respondents-appellees.

Roman P. Mosqueda for petitioners-appellants.

Felipe Magat for respondents-appellees.

SYLLABUS

1. LABOR AND SOCIAL LEGISLATION; LABOR CODE; EMPLOYER-EMPLOYEE


RELATIONSHIP; TEST TO DETERMINE ITS EXISTENCE. In this jurisdiction, there has
been no uniform test to determine the existence of an employer-employee relation.
In general, we have relied on the so-called right of control test, "where the person
for whom the services are performed reserves a right to control not only the end to
be achieved but also the means to be used in reaching such end." Subsequently,
however, we have considered, in addition to the standard of right-of-control, the
existing economic conditions prevailing between the parties, like the inclusion of the
employee in the payrolls, in determining the existence of an employer-employee
relationship.

2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; CONSTRUED. When the


petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World
Service, Inc.'s Ermita office, she must have done so pursuant to a contract of
agency. It is the essence of this contract that the agent renders services "in
representation or on behalf of another."

3. ID.; ID.; ID.; CASE AT BAR. In the case at bar, Sevilla solicited airline fares, but
she did so for and on behalf of her principal, Tourist World Service, Inc. As
compensation, she received 4% of the proceeds in the concept of commissions. And
as we said, Sevilla herself, based on her letter of November 28, 1961, presumed her
principal's authority as owner of the business undertaking. We are convinced,
considering the circumstances and from the respondent Court's recital of facts, that
the parties had contemplated a principal-agent relationship, rather than a joint
management or a partnership.

4. ID.; ID.; ID.; CANNOT BE REVOKED AT WILL. The agency that we hereby declare
to be compatible with the intent of the parties, cannot be revoked at will. The
reason is that it is one coupled with an interest, the agency having been created for
the mutual interest of the agent and the principal.

5. CIVIL LAW; DAMAGES; AWARD THEREOF PROPER IN BREACH OF CONTRACT. We


rule that for its unwarranted revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under
the Civil Code, moral damages may be awarded for "breaches of contract where the
defendant acted . . . in bad faith." We likewise condemn Tourist World Service, Inc.
to pay further damages for the moral injury done to Lina Sevilla arising from its
brazen conduct subsequent to the cancellation of the power of attorney granted to
her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10)
thereof. The Court considers the sums of P25,000.00 as and for moral damages,
P10,000.00 as exemplary damages, and P5,000.00 as nominal and/or temperate
damages, to be just, fair, and reasonable under the circumstances.

DECISION

SARMIENTO, J p:

The petitioners invoke the provisions on human relations of the Civil Code in this
appeal by certiorari. The facts are beyond dispute:

xxx xxx xxx


On the strength of a contract (Exhibit A for the appellants Exhibit 2 for the
appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera,
party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo
Canilao as party of the second part, and hereinafter referred to as appellants, the
Tourist World Service, Inc. leased the premises belonging to the party of the first
part at Mabini St., Manila for the former's use as a branch office. In the said contract
the party of the third part held herself solidarily liable with the party of the second
part for the prompt payment of the monthly rental agreed on. When the branch
office was opened, the same was run by the herein appellant Lina O. Sevilla payable
to Tourist World Service Inc. by any airline for any fare brought in on the efforts of
Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the
Tourist World Service, Inc. Cdpr

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears
to have been informed that Lina Sevilla was connected with a rival firm, the
Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist
World Service considered closing down its office. This was firmed up by two
resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961
(Exhibits 12 and 13), the first abolishing the office of the manager and vice-
president of the Tourist World Service, Inc., Ermita Branch, and the second,
authorizing the corporate secretary to receive the properties of the Tourist World
Service then located at the said branch office. It further appears that on Jan. 3,
1962, the contract with the appellees for the use of the Branch Office premises was
terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no
longer used it. As a matter of fact appellants used it since Nov. 1961. Because of
this, and to comply with the mandate of the Tourist World Service, the corporate
secretary Gabino Canilao went over to the branch office, and, finding the premises
locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June
4, 1962 to protect the interests of the Tourist World Service. When neither the
appellant Lina Sevilla nor any of her employees could enter the locked premises, a
complaint was filed by the herein appellants against the appellees with a prayer for
the issuance of mandatory preliminary injunction. Both appellees answered with
counterclaims. For apparent lack of interest of the parties therein, the trial court
ordered the dismissal of the case without prejudice.

The appellee Segundina Noguera sought reconsideration of the order dismissing her
counterclaim which the court a quo, in an order dated June 8, 1963, granted
permitting her to present evidence in support of her counterclaim.
On June 17, 1963, appellant Lina Sevilla refiled her case against the herein
appellees and after the issues were joined, the reinstated counterclaim of
Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly
heard following which the court a quo ordered both cases dismissed for lack of
merit, on the basis of which was elevated the instant appeal on the following
assignment of errors:

"I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-
APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

"II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA O. SEVILLA'S
ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY
OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID
ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.

"III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O.
SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF
DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE
LATTER.

"IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO
EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING
THE LAW INTO THEIR OWN HANDS.

"V. THE LOWER COURT ERRED IN NOT CONSIDERING AT ALL APPELLEE NOGUERA'S
RESPONSIBILITY FOR APPELLANT MRS. LINA O. SEVILLA'S FORCIBLE DISPOSSESSION
OF THE A. MABINI PREMISES.

"VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT MRS. LINA O. SEVILLA
SIGNED MERELY AS GUARANTOR FOR RENTALS."

On the foregoing facts and in the light of the errors assigned the issues to be
resolved are:
1. Whether the appellee Tourist World Service unilaterally disconnected the
telephone line at the branch office on Ermita;

2. Whether or not the padlocking of the office by the Tourist World Service was
actionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee
Noguera was appellee TWS or TWS and the appellant. cdll

In this appeal, appellant Lina Sevilla claims that a joint business venture was
entered into by and between her and appellee TWS with offices at the Ermita
branch office and that she was not an employee of the TWS to the end that her
relationship with TWS was one of a joint business venture appellant made
declarations showing:

"1. Appellant Mrs. Lina O. Sevilla, a prominent social figure and wife of an eminent
eye, ear and nose specialist as well as a society columnist, had been in the travel
business prior to the establishment of the joint business venture with appellee
Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being the
godmother of one of his children, with her own clientele, coming mostly from her
own social circle (pp. 3-6 tsn. February 16, 1965).

"2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October
1960 (Exh. "A") covering the premises at A. Mabini St., she expressly warranting and
holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc. for the
prompt payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp.
14-15, tsn. Jan. 18, 1964).

"3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World
Service, Inc., which had its own separate office located at the Trade & Commerce
Building; nor was she an employee thereof, having no participation in nor
connection with said business at the Trade & Commerce Building (pp. 16-18 tsn. id.).
"4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own
bookings, her own business (and not for any of the business of appellee Tourist
World Service, Inc.) obtained from the airline companies. She shared the 7%
commissions given by the airline companies, giving appellee Tourist World Service,
Inc. 3% thereof and retaining 4% for herself (pp. 18 tsn. id.)

"5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A.
Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and other
sundry expenses, aside from designing the office furniture and supplying some
office furnishings (pp. 15, 18 tsn. April 6, 1965), appellee Tourist World Service, Inc.
shouldering the rental and other expenses in consideration for the 3% split in the
commissions procured by appellant Mrs. Sevilla (p. 35 tsn. Feb. 16, 1965).

"6. It was the understanding between them that appellant Mrs. Sevilla would be
given the title of branch manager for appearance's sake only (p. 31 tsn. id.),
appellee Eliseo Canilao admitting that it was just a title for dignity (p. 36 tsn June
18, 1965 - testimony of appellee Eliseo Canilao; pp. 38-39 tsn. April 6, 1966 -
testimony of corporate secretary Gabino Canilao)." (pp. 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of
the appellee Tourist World Service, Inc. and as such was designated manager." 1

xxx xxx xxx

The trial court 2 held for the private respondents on the premise that the private
respondent, Tourist World Service, Inc., being the true lessee, it was within its
prerogative to terminate the lease and padlock the premises. 3 It likewise found the
petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc.
and as such, she was bound by the acts of her employer. 4 The respondent Court of
Appeals 5 rendered an affirmance. prLL
The petitioners now claim that the respondent Court, in sustaining the lower court,
erred. Specifically, they state:

I.

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST
WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE
APPELLANT LINA SEVILLA . . . WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF
HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT
(SEVILLA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN
CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE
(ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMPT
TO AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND
THE TOURIST WORLD SERVICE . . . (DID NOT) ENTITLE THE LATTER TO THE RELIEF
OF DAMAGES" (ANNEX "A" PP. 7, 8 AND ANNEX "B" P. 2) - A DECISION AGAINST DUE
PROCESS WHICH ADHERES TO THE RULE OF LAW.

II.

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED
TO WITHDRAW HER COMPLAINT PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS
LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)

III.

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING - IN FACT NOT PASSING AND RESOLVING - APPELLANT
SEVILLA'S CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL
CODE ON HUMAN RELATIONS.

IV.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER
CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT
LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED
OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation
between Lina Sevilla and Tourist World Service, Inc. The respondent Court of
Appeals did not see fit to rule on the question, the crucial issue, in its opinion being
"whether or not the padlocking of the premises by the Tourist World Service, Inc.
without the knowledge and consent of the appellant Lina Sevilla entitled the latter
to the relief of damages prayed for and whether or not the evidence for the said
appellant supports the contention that the appellee Tourist World Service, Inc.
unilaterally and without the consent of the appellant disconnected the telephone
lines of the Ermita branch office of the appellee Tourist World Service, Inc." 7 Tourist
World Service, Inc., insists, on the other hand, that Lina Sevilla was a mere
employee, being "branch manager" of its Ermita "branch" office and that
inferentially, she had no say on the lease executed with the private respondent,
Segundina Noguera. The petitioners contend, however, that relation between the
parties was one of joint venture, but concede that "whatever might have been the
true relationship between Sevilla and Tourist World Service," the Rule of Law
enjoined Tourist World Service and Canilao from taking the law into their own
hands," 8 in reference to the padlocking now questioned. cdphil

The Court finds the resolution of the issue material, for if, as the private respondent,
Tourist World Service, Inc., maintains, that the relation between the parties was in
the character of employer and employee, the courts would have been without
jurisdiction to try the case, labor disputes being the exclusive domain of the Court of
Industrial Relations, later, the Bureau of Labor Relations, pursuant to statutes then
in force. 9

In this jurisdiction, there has been no uniform test to determine the existence of an
employer-employee relation. In general, we have relied on the so-called right of
control test, "where the person for whom the services are performed reserves a
right to control not only the end to be achieved but also the means to be used in
reaching such end." 10 Subsequently, however, we have considered, in addition to
the standard of right-of-control, the existing economic conditions prevailing between
the parties, like the inclusion of the employee in the payrolls, in determining the
existence of an employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control by
the private respondent Tourist World Service, Inc., either as to the result of the
enterprise or as to the means used in connection therewith. In the first place, under
the contract of lease covering the Tourist World's Ermita office, she had bound
herself in solidum as and for rental payments, an arrangement that would belie
claims of a master-servant relationship. True, the respondent Court would later
minimize her participation in the lease as one of mere guaranty, 12 that does not
make her an employee of Tourist World, since in any case, a true employee cannot
be made to part with his own money in pursuance of his employer's business, or
otherwise, assume any liability thereof. In that event, the parties must be bound by
some other relation, but certainly not employment.

In the second place, and as found by the Appellate Court, "[w]hen the branch office
was opened, the same was run by the herein appellant Lina O. Sevilla payable to
Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs.
Lina Sevilla." 13 Under these circumstances, it cannot be said that Sevilla was under
the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing
the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts,
she retained 4% in commissions from airline bookings, the remaining 3% going to
Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned
compensation in fluctuating amounts depending on her booking successes.

The fact that Sevilla had been designated "branch manager" does not make her,
ergo, Tourist World's employee. As we said, employment is determined by the right-
of-control test and certain economic parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a


consequence, accepting Lina Sevilla's own, that is, that the parties had embarked
on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did
not recognize the existence of such a relation. In her letter of November 28, 1961,
she expressly "concedes your [Tourist World Service, Inc.'s] right to stop the
operation of your branch office," 14 in effect, accepting Tourist World Service, Inc.'s
control over the manner in which the business was run. A joint venture, including a
partnership, presupposes generally a parity of standing between the joint co-
venturers or partners, in which each party has an equal proprietary interest in the
capital or property contributed 15 and where each party exercises equal rights in
the conduct of the business. 16 Furthermore, the parties did not hold themselves
out as partners, and the building itself was embellished with the electric sign
"Tourist World Service, Inc.," 17 in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to
(wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must
have done so pursuant to a contract of agency. It is the essence of this contract that
the agent renders services "in representation or on behalf of another." 18 In the
case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her
principal, Tourist World Service, Inc. As compensation, she received 4% of the
proceeds in the concept of commissions. And as we said, Sevilla herself, based on
her letter of November 28, 1961, presumed her principal's authority as owner of the
business undertaking. We are convinced, considering the circumstances and from
the respondent Court's recital of facts, that the parties had contemplated a
principal-agent relationship, rather than a joint management or a partnership.

But unlike simple grants of a power of attorney, the agency that we hereby declare
to be compatible with the intent of the parties, cannot be revoked at will. The
reason is that it is one coupled with an interest, the agency having been created for
the mutual interest of the agent and the principal. 19 It appears that Lina Sevilla is
a bona fide travel agent herself, and as such, she had acquired an interest in the
business entrusted to her. Moreover, she had assumed a personal obligation for the
operation thereof, holding herself solidarily liable for the payment of rentals. She
continued the business, using her own name, after Tourist World had stopped
further operations. Her interest, obviously, is not limited to the commissions she
earned as a result of her business transactions, but one that extends to the very
subject matter of the power of management delegated to her. It is an agency that,
as we said, cannot be revoked at the pleasure of the principal. Accordingly, the
revocation complained of should entitle the petitioner, Lina Sevilla, to damages. cdll

As we have stated, the respondent Court avoided this issue, confining itself to the
telephone disconnection and padlocking incidents. Anent the disconnection issue, it
is the holding of the Court of Appeals that there is "no evidence showing that the
Tourist World Service, Inc. disconnected the telephone lines at the branch office." 20
Yet, what cannot be denied is the fact that Tourist World Service, Inc. did not take
pains to have them reconnected. Assuming, therefore, that it had no hand in the
disconnection now complained of, it had clearly condoned it, and as owner of the
telephone lines, it must shoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the
padlocking incident. For the fact that Tourist World Service, Inc. was the lessee
named in the lease contract did not accord it any authority to terminate that
contract without notice to its actual occupant, and to padlock the premises in such
blitzkrieg fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a
personal stake in the business itself, and necessarily, in the equipment pertaining
thereto. Furthermore, Sevilla was not a stranger to that contract having been
explicitly named therein as a third party in charge of rental payments (solidarily
with Tourist World, Inc.). She could not be ousted from possession as summarily as
one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some
malevolent design to put the petitioner, Lina Sevilla, in a bad light following
disclosures that she had worked for a rival firm. To be sure, the respondent court
speaks of alleged business losses to justify the closure, 21 but there is no clear
showing that Tourist World Ermita Branch had in fact sustained such reverses, let
alone, the fact that Sevilla had moonlit for another company. What the evidence
discloses, on the other hand, is that following such an information (that Sevilla was
working for another company), Tourist World's board of directors adopted two
resolutions abolishing the office of "manager" and authorizing the corporate
secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office
properties. On January 3, 1962, the private respondents ended the lease over the
branch office premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita
office was padlocked, personally by the respondent Canilao, on the pretext that it
was necessary "to protect the interests of the Tourist World Service." 22 It is strange
indeed that Tourist World Service, Inc. did not find such a need when it cancelled the
lease five months earlier. While Tourist World Service, Inc. would not pretend that it
sought to locate Sevilla to inform her of the closure, but surely, it was aware that
after office hours, she could not have been anywhere near the premises. Capping
these series of "offensives," it cut the office's telephone lines, paralyzing completely
its business operations, and in the process, depriving Sevilla of her participation
therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to
punish Sevilla for what it had perceived to be disloyalty on her part. It is offensive,
in any event, to elementary norms of justice and fair play.

We rule, therefore, that for its unwarranted revocation of the contract of agency, the
private respondent, Tourist World Service, Inc., should be sentenced to pay
damages. Under the Civil Code, moral damages may be awarded for "breaches of
contract where the defendant acted . . . in bad faith." 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the
moral injury done to Lina Sevilla arising from its brazen conduct subsequent to the
cancellation of the power of attorney granted to her on the authority of Article 21 of
the Civil Code, in relation to Article 2219 (10) thereof:

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for
the damage. prcd

ART. 2219. Moral damages may be recovered in the following and analogous cases:

xxx xxx xxx

(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor, is likewise hereby ordered to


respond for the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, no


evidence has been shown that she had connived with Tourist World Service, Inc. in
the disconnection and padlocking incidents. She cannot therefore be held liable as a
co-tortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages, 24
P10,000.00 as exemplary damages, 25 and P5,000.00 as nominal 26 and/or
temperate 27 damages, to be just, fair, and reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the


Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby
REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and
Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina
Sevilla, the sum of P25,000.00 as and for moral damages, the sum of P10,000.00,
as and for exemplary damages, and the sum of P5,000.00, as and for nominal
and/or temperate damages. llcd

Costs against said private respondents.

SO ORDERED.

||| (Sevilla v. Court of Appeals, G.R. Nos. L-41182-3, [April 15, 1988], 243 PHIL 340-
354)

FIRST DIVISION

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

ELIGIO ESTANISLAO, JR., petitioner, vs. THE HONORABLE COURT OF APPEALS,


REMEDIOS ESTANISLAO, EMILIO and LEOCADIO SANTIAGO, respondents.

Agustin O. Benitez for petitioner.

Benjamin C. Yatco for private respondents.

SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; FORMED WHERE
MEMBERS OF THE SAME FAMILY BOUND THEMSELVES TO CONTRIBUTE MONEY TO A
COMMON FUND WITH THE INTENTION OF DIVIDING THE PROFITS AMONG
THEMSELVES. The Joint Affidavit of April 11, 1966 (Exhibit A), clearly stipulated by
the members of the same family that the P15,000.00 advance rental due to them
from SHELL shall augment their "capital investment" in the operation of the gasoline
station. Moreover other evidence in the record shows that there was in fact such
partnership agreement between the parties. This is attested by the testimonies of
private respondent Remedios Estanislao and Atty. Angeles. Petitioner submitted to
private respondents periodic accounting of the business. Petitioner gave a written
authority to private respondent Remedios Estanislao, his sister, to examine and
audit the books of their "common business" (aming negosyo). Respondent
Remedios assisted in the running of the business. There is no doubt that the parties
hereto formed a partnership when they bound themselves to contribute money to a
common fund with the intention of dividing the profits among themselves.

2. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF APPEALS,


GENERALLY CONCLUSIVE ON APPEAL. The findings of facts of the respondent
court are conclusive in this proceeding, and its conclusion based on the said facts
are in accordance with the applicable law.

DECISION

GANCAYCO, J p:

By this petition for certiorari the Court is asked to determine if a partnership exists
between members of the same family arising from their joint ownership of certain
properties.

Petitioner and private respondents are brothers and sisters who are co-owners of
certain lots at the corner of Annapolis and Aurora Blvd., Quezon City which were
then being leased to the Shell Company of the Philippines Limited (SHELL). They
agreed to open and operate a gas station thereat to be known as Estanislao Shell
Service Station with an initial investment of P15,000.00 to be taken from the
advance rentals due to them from SHELL for the occupancy of the said lots owned in
common by them. A joint affidavit was executed by them on April 11, 1966 which
was prepared by Atty. Democrito Angeles. 1 They agreed to help their brother,
petitioner herein, by allowing him to operate and manage the gasoline service
station of the family. They negotiated with SHELL. For practical purposes and in
order not to run counter to the company's policy of appointing only one dealer, it
was agreed that petitioner would apply for the dealership. Respondent Remedios
helped in co-managing the business with petitioner from May 3, 1966 up to
February 16, 1967.

On May 26, 1966, the parties herein entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P15,000.00 advance rental
shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with
a proviso that said agreement "cancels and supersedes the Joint Affidavit dated 11
April 1966 executed by the co-owners." 2

For sometime, the petitioner submitted financial statements regarding the operation
of the business to private respondents, but thereafter petitioner failed to render
subsequent accounting. Hence through Atty. Angeles, a demand was made on
petitioner to render an accounting of the profits.

The financial report of December 31, 1968 shows that the business was able to
make a profit of P87,293.79 and that by the year ending 1969, a profit of
P150,000.00 was realized. 3

Thus, on August 25, 1970 private respondents filed a complaint in the Court of First
Instance of Rizal against petitioner saying among others that the latter be ordered:

"1. to execute a public document embodying all the provisions of the partnership
agreement entered into between plaintiffs and defendants provided in Article 1771
of the New Civil Code;

"2. to render a formal accounting of the business operation covering the period from
May 6, 1966 up to December 21, 1968 and from January 1, 1969 up to the time the
order is issued and that the same be subject to proper audit;
"3. to pay the plaintiffs their lawful shares and participation in the net profits of the
business in an amount of no less than P150,000.00 with interest at the rate of 1%
per month from date of demand until full payment thereof for the entire duration of
the business; and

"4. to pay the plaintiffs the amount of P10,000.00 as attorney's fees and costs of the
suit." (pp. 13-14 Record on Appeal.)"

After trial on the merits, on October 15, 1975, Hon. Lino Anover, who was then the
temporary presiding judge of Branch IV of the trial court, rendered judgment
dismissing the complaint and counterclaim and ordering private respondents to pay
petitioner P3,000.00 attorney's fee and costs. Private respondent filed a motion for
reconsideration of the decision. On December 1, 1975, Hon. Ricardo Tensuan who
was the newly appointed presiding judge of the same branch, set aside the
aforesaid decision and rendered another decision in favor of said respondents. cdll

The dispositive part thereof reads as follows:

'WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby
reconsidered and a new judgment is hereby rendered in favor of the plaintiffs and as
against the defendant:

(1) Ordering the defendant to execute a public instrument embodying all the
provisions of the partnership agreement entered into between plaintiffs and
defendant as provided for in Article 1771, Civil Code of the Philippines;

(2) Ordering the defendant to render a formal accounting of the business operation
from April 1969 up to the time this order is issued, the same to be subject to
examination and audit by the plaintiff;

(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in
the net profits of the business in the amount of P150,000.00, with interest thereon
at the rate of One (1%) Per Cent per month from date of demand until full payment
thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P5,000.00 by way of
attorney's fees of plaintiffs' counsel; as well as the costs of suit." (pp. 161-162.
Record on Appeal)."

Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7)
errors allegedly committed by the trial court. In due course, a decision was rendered
by the Court of Appeals on November 28, 1978 affirming in toto the decision of the
lower court with costs against petitioner. *

A motion for reconsideration of said decision filed by petitioner was denied on


January 30, 1979. Not satisfied therewith, the petitioner now comes to this court by
way of this petition for certiorari alleging that the respondent court erred:

"1. In interpreting the legal import of the Joint Affidavit (Exh. "A") vis-a-vis the
Additional Cash Pledge Agreement (Exhs. "B-2," "6," and "L"); and

2. In declaring that a partnership was established by and among the petitioner and
the private respondents as regards the ownership and/or operation of the gasoline
service station business."

Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966
(Exhibit A) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6)
which are herein reproduced -

(a) The joint Affidavit of April 11, 1966, Exhibit A reads:

"(1) That we are the Lessors of two parcels of land fully described in Transfer
Certificates of Title Nos. 45071 and 71244 of the Register of Deeds of Quezon City,
in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED, a corporation
duly licensed to do business in the Philippines;
"(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINES LIMITED,
advanced rentals in the total amount of FIFTEEN THOUSAND PESOS (P15,000.00)
Philippine Currency, so that we can use the said amount to augment our capital
investment in the operation of that gasoline station constructed by the said
company on our two lots aforesaid by virtue of an outstanding Lease Agreement we
have entered into with the said company.

"(3) That the said SHELL COMPANY OF THE PHILIPPINES LIMITED out of its
benevolence and desire to help us in augmenting our capital investment in the
operation of the said gasoline station, has agreed to give us the said amount of
P15,000.00, which amount will partake the nature of ADVANCED RENTALS;

"(4) That we have freely and voluntarily agreed that upon receipt of the said amount
of FIFTEEN THOUSAND PESOS (P15,000,00) from the SHELL COMPANY OF THE
PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be applied as
monthly rentals for the said two lots under our Lease Agreement starting on the
25th of May, 1966 until such time that the said amount of P15,000.00 be applicable,
which time to our estimate will cover at four and one-half months from May 25,
1966 or until the 10th of October, 1966 more or less;

"(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF
THE PHILIPPINES LIMITED execute an instrument for us to sign embodying our
conformity that the said amount that it will generously grant us as requested be
applied as ADVANCED RENTALS; and

"(6) FURTHER AFFIANTS SAYETH NOT.'

(b) The Additional Cash Pledge Agreement of May 20, 1966, Exhibit 6, is as follows:

"WHEREAS, under the Lease Agreement dated 13th November, 1963 (identified as
doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & 111, Series of 1963 in the
Notarial Registers of Notaries Public Rosauro Marquez, and R.D. Liwanag,
respectively) executed in favour of SHELL by the herein CO-OWNERS and another
Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by
CO-OWNERS Remedios and MARIA ESTANISLAO for the lease of adjoining portions of
two parcels of land at Aurora Blvd./Annapolis, Quezon City, the CO-OWNERS
RECEIVE a total monthly rental of PESOS THREE THOUSAND THREE HUNDRED
EIGHTY TWO AND 29/100 (P3,382.29), Philippine Currency;

"WHEREAS, CO-OWNER Eligio Estanislao, Jr. is the Dealer of the Shell Station
constructed on the leased land, and as Dealer under the Cash Pledge Agreement
dated 11th May 1966, he deposited to SHELL in cash the amount of PESOS TEN
THOUSAND (P10,000), Philippine Currency, to secure his purchases on credit of Shell
petroleum products; . . . cdll

"WHEREAS, said DEALER, in his desire to be granted an increased credit limit up to


P25,000, has secured the conformity of his CO-OWNERS to waive and assign to
SHELL the total monthly rentals due to all of them to accumulate the equivalent
amount of P15,000, commencing 24th May 1966, this P15,000 shall be treated as
additional cash deposit to SHELL under the same terms and conditions of the
aforementioned Cash Pledge Agreement dated 11th May 1966.

NOW, THEREFORE, for and in consideration of the foregoing premises, and the
mutual covenants among the CO-OWNERS herein and SHELL, said parties have
agreed and hereby agree as follows:

"1. The CO-OWNERS do hereby waive in favour of DEALER the monthly rentals due
to all CO-OWNERS, collectively, under the above described two Lease Agreements,
one dated 13th November 1963 and the other dated 19th March 1964 to enable
DEALER to increase his existing cash deposit to SHELL, from P10,000 to P25,000, for
such purpose, the SHELL, CO-OWNERS and DEALER hereby irrevocably assign to
SHELL the monthly rental of P3,382.29 payable to them respectively as they fall
due, monthly, commencing 24th May 1966, until such time that the monthly rentals
accumulated, shall be equal to P15,000.

"2. The above stated monthly rentals accumulated shall be treated as additional
cash deposit by DEALER to SHELL, thereby increasing his credit limit from P10,000
to P25,000. This agreement, therefore, cancels and supersedes the Joint Affidavit
dated 11 April 1966 executed by the CO-OWNERS.
"3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to
purchase from SHELL petroleum products, on credit, up to the amount of P25,000.

"4. This increase in the credit limit shall also be subject to the same terms and
conditions of the above-mentioned Cash Pledge Agreement dated 11th May 1966."
(Exhs. "B-2," "L," and "6"; emphasis supplied)

In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by
the parties that the P15,000.00 advance rental due to them from SHELL shall
augment their "capital investment" in the operation of the gasoline station, which
advance rentals shall be credited as rentals from May 25, 1966 up to four and one-
half months or until 10 October 1966, more or less covering said P15,000.00.

In the subsequent document entitled `Additional Cash Pledge Agreement" above


reproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL
the monthly rentals due them commencing the 24th of May 1966 until such time
that the monthly rentals accumulated equal P15,000.00 which private respondents
agree to be a cash deposit of petitioner in favor of SHELL to increase his credit limit
as dealer. As above-stated it provided therein that "This agreement, therefore,
cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-
OWNERS."

Petitioner contends that because of the said stipulation cancelling and superseding
that previous Joint Affidavit, whatever partnership agreement there was in said
previous agreement had thereby been abrogated. We find no merit in this
argument. Said cancelling provision was necessary for the Joint Affidavit speaks of
P15,000.00 advance rentals starting May 25, 1966 while the latter agreement also
refers to advance rentals of the same amount starting May 24, 1966. There is,
therefore, a duplication of reference to the P15,000.00 hence the need to provide in
the subsequent document that it "cancels and supersedes" the previous one. True it
is that in the latter document, it is silent as to the statement in the Joint Affidavit
that the P15,000.00 represents the "capital investment" of the parties in the
gasoline station business and it speaks of petitioner as the sole dealer, but this is as
it should be for in the latter document SHELL was a signatory and it would be
against its policy if in the agreement it should be stated that the business is a
partnership with private respondents and not a sole proprietorship of petitioner.
LibLex
Moreover other evidence in the record shows that there was in fact such partnership
agreement between the parties. This is attested by the testimonies of private
respondent Remedios Estanislao and Atty. Angeles. Petitioner submitted to private
respondents periodic accounting of the business. 4 Petitioner gave a written
authority to private respondent Remedios Estanislao, his sister, to examine and
audit the books of their "common business" (aming negosyo). 5 Respondent
Remedios assisted in the running of the business. There is no doubt that the parties
hereto formed a partnership when they bound themselves to contribute money to a
common fund with the intention of dividing the profits among themselves. 6 The
sole dealership by the petitioner and the issuance of all government permits and
licenses in the name of petitioner was in compliance with the afore-stated policy of
SHELL and the understanding of the parties of having only one dealer of the SHELL
products.

Further, the findings of facts of the respondent court are conclusive in this
proceeding, and its conclusion based on the said facts are in accordance with the
applicable law.

WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against
petitioner. This decision is immediately executory and no motion for extension of
time to file a motion for reconsideration shall be entertained.

SO ORDERED.

Narvasa, Cruz and Grio-Aquino, JJ., concur.

||| (Estanislao, Jr. v. Court of Appeals, G.R. No. L-49982, [April 27, 1988], 243 PHIL
974-982)

THIRD DIVISION

[G.R. No. 70926. January 31, 1989.]

DAN FUE LEUNG, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and LEUNG
YIU, respondents.
John L. Uy for petitioner.

Edgardo F. Sundiam for private respondent.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; CAUSE OF ACTION; NATURE OF


ACTION IS DETERMINED BY THE FACTS CONSTITUTING THE CAUSE OF ACTION.
The well-settled doctrine is that the ". . . nature of the action filed in court is
determined by the facts alleged in the complaint as constituting the cause of
action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger
Electric, Inc. v. Court of Appeals, 135 SCRA 37).

2. CIVIL LAW; SPECIAL CONTRACTS; PARTNERSHIP; REQUISITES. The requisites of


a partnership which are 1) two or more persons bind themselves to contribute
money, property, or industry to a common fund; and 2) intention on the part of the
partners to divide the profits among themselves (Article 1767, Civil Code; Yulo v.
Yang Chiao Cheng, 106 Phil. 110)

3. ID.; ID.; ID.; OBLIGATIONS OF PARTNERS; RIGHT TO DEMAND AN ACCOUNTING


EXISTS AS LONG AS PARTNERSHIP EXISTS; PRESCRIPTION BEGINS TO RUN ONLY
UPON DISSOLUTION OF PARTNERSHIP WHEN FINAL ACCOUNTING IS DONE.
Regarding the prescriptive period within which the private respondent may demand
an accounting, Articles 1806, 1807, and 1809 show that the right to demand an
accounting exists as long as the partnership exists. Prescription begins to run only
upon the dissolution of the partnership when the final accounting is done.

4. ID.; ID.; ID.; DISSOLUTION AND WINDING UP; LIQUIDATION AND WINDING UP OF
PARTNERSHIP AFFAIRS, RETURN OF CAPITAL AND OTHER INCIDENTS OF
DISSOLUTION PROPER BECAUSE CONTINUATION OF PARTNERSHIP HAS BECOME
INEQUITABLE. There shall be a liquidation and winding up of partnership affairs,
return of capital, and other incidents of dissolution because the continuation of the
partnership has become inequitable.
DECISION

GUTIERREZ, JR., J p:

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

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

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

The private respondent's evidence is summarized as follows:

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

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

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

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

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

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

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

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

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

"WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against
the defendant, ordering the latter to pay the former the sum equivalent to 22% of
the net profit of P8,000.00 per day from the time of judicial demand, until fully paid,
plus the sum of P5,000.00 as and for attorney's fees and costs of suit." (p. 150,
Rollo)
The petitioner appealed the trial court's amended decision to the then Intermediate
Appellate Court. The questioned decision was further modified by the appellate
court. The dispositive portion of the appellate court's decision reads:

"WHEREFORE, the decision appealed from is modified, the dispositive portion


thereof reading as follows:

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

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

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

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

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

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

WHEREFORE, judgment is rendered in favor of the plaintiff and against the


defendant, ordering the latter to pay to the former the sum equivalent to 22% of the
net profit of P8,000.00 per day from the time of judicial demand, until fully 'paid,
plus the sum of P5,000.00 as and for attorney's fees and costs of suit'.
is hereby retained in full and affirmed in toto it being understood that the date of
judicial demand is July 13, 1978." (pp. 105-106, Rollo).

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

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

The pertinent portions of the complaint state:

xxx xxx xxx

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

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

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

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

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

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

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

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

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

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

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

Art. 1144. The following actions must be brought within ten years from the time the
right of section accrues:
"(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment."

in relation to Article 1155 thereof which provides:

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

The argument is not well-taken.

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

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which
is applicable. Article 1842 states:
"The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the
absence or any agreement to the contrary."

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

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

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

Mrs. Licup stated:

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

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

"A Yes, sir.


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

"A Yes.

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

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

"ATTY. HIPOLITO:

I see.

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

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

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

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

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

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

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

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

"Q How much is that?

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

"Q Per service?

"A Per service, Per catering.

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

"A Yes.

"Q And ten thousand pesos during pay day?

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

xxx xxx xxx


"COURT:

Any cross?

"ATTY. UY (counsel for defendant):

No cross-examination, Your Honor. (TSN. p. 65, November 15, 1978)." (Rollo, pp.
127-128)

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

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

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

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

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

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

The resolution of the Intermediate Appellate Court ordering the payment of the
petitioner's obligation shows that the same continues until fully paid. The question
now arises as to whether or not the payment of a share of profits shall continue into
the future with no fixed ending date. LLpr

Considering the facts of this case, the Court may decree a dissolution of the
partnership under Article 1831 of the Civil Code which, in part, provides:

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

xxx xxx xxx

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

"(4) A partner willfully or persistently commits a breach of the partnership


agreement, or otherwise so conducts himself in matters relating to the partnership
business that it is not reasonably practicable to carry on the business in partnership
with him;

xxx xxx xxx

"(6) Other circumstances render a dissolution equitable."


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

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

SO ORDERED.

Fernan, (C.J., Chairman), Feliciano, Bidin and Cortes, JJ., concur.

||| (Dan Fue Leung v. Intermediate Appellate Court, G.R. No. 70926, [January 31,
1989], 251 PHIL 681-695)

THIRD DIVISION

[G.R. No. 135813. October 25, 2001.]

FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES REYES,


respondents.

Pacifico M. Lontok and Arcangelita M. Romilla-Lontok for petitioner.

Benito P. Fabie for private respondents.

SYNOPSIS

On June 13, 1986, petitioner Fernando Santos, respondent Nieves Reyes and Meliton
Zabat launched a lending business venture. It was agreed that the petitioner as
financier will receive 70% of the profit while Nieves and Zabat as industrial partner
will receive 15% each. Later, it was discovered that Zabat engaged in the same
lending business in competition with their partnership, thus, he was expelled from
the partnership. Arsenio, Nieves' husband, replaced Zabat. On June 5, 1987,
petitioner filed a complaint for recovery of sum of money claiming that Spouses
Arsenio and Nieves Reyes in their capacities as employees misappropriated funds
intended for Cesar Gragera. In their answer, spouses Reyes asserted that they were
partners and not mere employees of petitioner. The complaint was filed to preempt
and prevent them from claiming their rightful share to the profits of the partnership.
After trial, the court a quo ruled in favor of spouses Reyes. It further ruled that
petitioner failed to prove that he had entrusted any money to Nieves. Thus, it
granted spouses Reyes' counterclaim for their share in the partnership and for
damages. On appeal, the decision of the trial court was affirmed by the Court of
Appeals (CA). Hence, this petition for review.

The Court ruled that by the contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves. 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. This stipulation clearly proved the
establishment of a partnership. However, after a close examination of respondent's
exhibits, the Court found a reason to disagree with the CA. Exhibit "10-I" showed
that the partnership earned a "total income" of P20,429,520 for the period June 13,
1986 until April 19, 1987. It did not consider the expenses sustained by the
partnership. 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." Contrary to the rulings of both the trial and the appellate courts,
respondents' exhibits did 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.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; DEFINED. 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.

2. ID.; ID.; ID.; ESTABLISHED IN CASE AT BAR. 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. This stipulation clearly proved the
establishment of a partnership. . . . Nieves was not merely petitioner's employee.
She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of
the Agreement . . . . 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.

3. REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; 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.

4. ID.; ID.; ID.; ID.; THE RULE MAY BE RELAXED WHEN THE ISSUE INVOLVES THE
EVALUATION OF EXHIBITS OR DOCUMENTS THAT ARE ATTACHED TO THE CASE
RECORDS. 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.

5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; TOTAL INCOME;


ELUCIDATED. Exhibit "10-I" 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 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.

6. ID.; ID.; ID.; SHARE OF EACH PARTNER SHOULD BE BASED ON THE NET PROFIT.
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.
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.

7. ID.; ID.; ID.; ID.; INDUSTRIAL PARTNER'S SHARE MUST COME FROM THE NET
PROFITS; INDUSTRIAL PARTNER DOES NOT SHARE IN THE LOSSES IF LATTER
EXCEEDS THE INCOME. 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. DEcTCa

DECISION

PANGANIBAN, J p:
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 . . . Nieves and Zabat would earn 15% each.

"In July, 1986, . . . 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'). . . . Nieves kept the books as
representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted
as credit investigator.

"On August 6, 1986, [petitioner], . . . [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 . . .
Nieves to be given to Gragera. . . . 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 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.

". . . 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.

"For her part, . . . 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 '15-
DDDDDDDDDD') to convey to [petitioner] how much he would earn if all the sums
guaranteed by Gragera were collected.

"[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

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:

"39. WHEREFORE, the Court hereby renders judgment as follows:

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 The 15 percent share of the

[respondent] NIEVES S. REYES

in the profits of her joint venture

with the [petitioner].

39.2.2. Six (6) percent of As damages from August 3,

P3,064,428.00 1987 until the P3,064,428.00

is 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 The balance of the 15 percent

share of the [respondent]

ARSENIO REYES in the profits

of his joint venture with the

[petitioner].

39.3.2. Six (6) percent of As damages from August 3,

P2,899,739.50 1987 until the P2,899,739.50 is

fully paid.

39.3.3. P25,000.00 As moral damages

39.3.4. P10,000.00 As exemplary damages

39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:

39.4.1. P50,000.00 As attorney's fees; and

39.4.2 The cost of the suit." 8


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.

Hence, this Petition. 9

Issue

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

"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;

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

Petitioner maintains that he employed the services of respondent spouses in the


money-lending 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]. . . . 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 . . . 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 Issue:

No Proof of Misappropriation of

Gragera's Unpaid Commission

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 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:

(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:

'. . . . 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.'

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 . . . 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, 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
'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.

"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.

"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 income, her 15
percent share under the joint venture amounts to P3,064,428 (Exh. "10-I-3"); 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").

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:
"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 Investment." Such entries represent the collections of the
money-lending business or its gross income. SEACTH

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., 24 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.

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.

SO ORDERED.

Melo and Sandoval-Gutierrez, JJ., concur.

Vitug, J., is on official leave.

||| (Santos v. Sps. Reyes, G.R. No. 135813, [October 25, 2001], 420 PHIL 313-332)

HIRD DIVISION

[G.R. No. 143340. August 15, 2001.]


LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T. CHUA,
respondent.

Manuel T. Chan for petitioners.

Pacatang Law Office for respondent.

SYNOPSIS

On June 22, 1992, respondent filed a complaint against petitioner Lilibeth Sunga
Chan and Cecilia Sunga, daughter and wife, respectively of the deceased Jacinto L.
Sunga, for "Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of
Shares and Damages with Writ of Preliminary Attachment" with the Regional Trial
Court of Sindangan, Zamboanga del Norte. Respondent claimed that he verbally
entered into a partnership with Jacinto. The partnership allegedly had Jacinto as
manager, assisted by Josephine Sy, a sister of the wife of the respondent. Upon
Jacinto's death, petitioners took over the operations of the business without
respondent's consent. Despite respondent's repeated demands upon petitioners for
accounting, inventory, appraisal, winding up and restitution of his net shares in the
partnership, petitioners failed to comply.

Petitioners filed a Motion to Dismiss on the ground of lack of jurisdiction. The trial
court denied the motion to dismiss. Petitioners then filed their Answer with
Compulsory Counterclaim denying any liability. Petitioners' second Motion to
Dismiss was likewise denied. Petitioners' Petition for Certiorari, Prohibition and
Mandamus filed with the Court of Appeals was also denied by the appellate court.
HaTISE

Respondent presented documentary and testimonial evidence to prove the


partnership. He offered the testimony of Josephine to establish the existence of a
partnership between him and Jacinto. The trial court eventually rendered a
judgment in favor of respondent. Petitioners' appeal and motion for reconsideration
were dismissed by the Court of Appeals. Petitioners sought recourse before the
Supreme Court.
Invoking the "Dead Man's Statute" or "Survivorship Rule", petitioners contended
that the testimonies of respondent and that of his witness, Josephine, were
inadmissible to prove certain claims against Jacinto, a deceased person.

In denying the petition, the Court held that the "Dead Man's Statute" was
inapplicable to this case. Petitioners' filing of a compulsory claim and counterclaim
effectively removed this case from the ambit of the "Dead Man's Statute". Well
entrenched is the rule that when it is the executor or administrator or
representatives of the estate that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of the deceased to defeat
the counterclaim. Moreover, as defendant in the counterclaim, respondent was not
disqualified from testifying as to matters of fact occurring before the death of the
deceased, said action not having been brought against but by the estate or
representatives of the deceased. Moreover, the testimony of Josephine was not
covered by the "Dead Man's Statute" because she was not "a party or assignor of a
party to a case or persons in whose behalf a case is prosecuted." Josephine was
merely a witness of respondent, the latter being the party plaintiff. Moreover,
petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim
cannot prevail over the factual findings of the trial court and the Court of Appeals
that a partnership was established between respondent and Jacinto.

SYLLABUS

1. CIVIL LAW; PARTNERSHIP; MAY BE CONSTITUTED IN ANY FORM; EXCEPTION;


REQUISITES TO PROVE EXISTENCE OF PARTNERSHIP. A partnership may be
constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary. Hence,
based on the intention of the parties, as gathered from the facts and ascertained
from their language and conduct, a verbal contract of partnership may arise. The
essential points that must be proven to show that a partnership was agreed upon
are (1) mutual contribution to a common stock, and (2) a joint interest in the profits.
Understandably so, in view of the absence of a written contract of partnership
between respondent and Jacinto, respondent resorted to the introduction of
documentary and testimonial evidence to prove said partnership.

2. ID.; ID.; ACTION FOR ACCOUNTING; PRESCRIPTION. With regard to petitioners'


insistence that laches and/or prescription should have extinguished respondent's
claim, we agree with the trial court and the Court of Appeals that the action for
accounting filed by respondent three (3) years after Jacinto's death was well within
the prescribed period. The Civil Code provides that an action to enforce an oral
contract prescribes in six (6) years while the right to demand an accounting for a
partner's interest as against the person continuing the business accrues at the date
of dissolution, in the absence of any contrary agreement. Considering that the
death of a partner results in the dissolution of the partnership, in this case, it was
after Jacinto's death that respondent as the surviving partner had the right to an
account of his interest as against petitioners. It bears stressing that while Jacinto's
death dissolved the partnership, the dissolution did not immediately terminate the
partnership. The Civil Code expressly provides that upon dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its
business, culminating in its termination.

3. ID.; ID.; REGISTRATION REQUIREMENT IS NOT MANDATORY; NON-REGISTRATION


OF THE CONTRACT OF PARTNERSHIP DOES NOT INVALIDATE THE PARTNERSHIP;
CASE AT BAR. In a desperate bid to cast doubt on the validity of the oral
partnership between respondent and Jacinto, petitioners maintain that said
partnership that had an initial capital of P200,000.00 should have been registered
with the Securities and Exchange Commission (SEC) since registration is mandated
by the Civil Code. True, Article 1772 of the Civil Code requires that partnerships with
a capital of P3,000.00 or more must register with the SEC, however, this registration
requirement is not mandatory. Article 1768 of the Civil Code explicitly provides that
the partnership retains its juridical personality even if it fails to register. The failure
to register the contract of partnership does not invalidate the same as among the
partners, so long as the contract has the essential requisites, because the main
purpose of registration is to give notice to third parties, and it can be assumed that
the members themselves knew of the contents of their contract. In the case at bar,
non-compliance with this directory provision of the law will not invalidate the
partnership considering that the totality of the evidence proves that respondent and
Jacinto indeed forged the partnership in question.

4. REMEDIAL LAW; EVIDENCE; DEAD MAN'S STATUTE; APPLICABILITY. The "Dead


Man's Statute" provides that if one party to the alleged transaction is precluded
from testifying by death, insanity, or other mental disabilities, the surviving party is
not entitled to the undue advantage of giving his own uncontradicted and
unexplained account of the transaction. But before this rule can be successfully
invoked to bar the introduction of testimonial evidence, it is necessary that: "1. The
witness is a party or assignor of a party to a case or persons in whose behalf a case
is prosecuted. 2. The action is against an executor or administrator or other
representative of a deceased person or a person of unsound mind; 3. The subject-
matter of the action is a claim or demand against the estate of such deceased
person or against person of unsound mind; 4. His testimony refers to any matter of
fact which occurred before the death of such deceased person or before such
person became of unsound mind."

5. ID.; ID.; ID.; NOT APPLICABLE IN CASE AT BAR. Two reasons forestall the
application of the "Dead Man's Statute" to this case. First, petitioners filed a
compulsory counterclaim against respondent in their answer before the trial court,
and with the filing of their counterclaim, petitioners themselves effectively removed
this case from the ambit of the "Dead Man's Statute." Well entrenched is the rule
that when it is the executor or administrator or representatives of the estate that
sets up the counterclaim, the plaintiff, herein respondent, may testify to
occurrences before the death of the deceased to defeat the counterclaim. Moreover,
as defendant in the counterclaim, respondent is not disqualified from testifying as to
matters of fact occurring before the death of the deceased, said action not having
been brought against but by the estate or representatives of the deceased. Second,
the testimony of Josephine is not covered by the "Dead Man's Statute" for the
simple reason that she is not "a party or assignor of a party to a case or persons in
whose behalf a case is prosecuted." Records show that respondent offered the
testimony of Josephine to establish the existence of the partnership between
respondent and Jacinto. Petitioners' insistence that Josephine is the alter ego of
respondent does not make her an assignor because the term "assignor" of a party
means "assignor of a cause of action which has arisen, and not the assignor of a
right assigned before any cause of action has arisen." Plainly then, Josephine is
merely a witness of respondent, the latter being the party plaintiff.

6. ID.; ID.; CREDIBILITY OF WITNESSES; NOT AFFECTED BY RELATIONSHIP PER SE.


We are not convinced by petitioners' allegation that Josephine's testimony lacks
probative value because she was allegedly coerced by respondent, her brother-in-
law, to testify in his favor. Josephine merely declared in court that she was
requested by respondent to testify and that if she were not requested to do so she
would not have testified. We fail to see how we can conclude from this candid
admission that Josephine's testimony is involuntary when she did not in any way
categorically say that she was forced to be a witness of respondent. Also, the fact
that Josephine is the sister of the wife of respondent does not diminish the value of
her testimony since relationship per se, without more, does not affect the credibility
of witnesses. DcCITS
7. ID.; ID.; FACTUAL FINDINGS OF TRIAL COURT AND COURT OF APPEALS OF THE
EXISTENCE OF PARTNERSHIP, CANNOT BE INQUIRED INTO BY THE SUPREME COURT
ON REVIEW. Petitioners' reliance alone on the "Dead Man's Statute" to defeat
respondent's claim cannot prevail over the factual findings of the trial court and the
Court of Appeals that a partnership was established between respondent and
Jacinto. Based not only on the testimonial evidence, but the documentary evidence
as well, the trial court and the Court of Appeals considered the evidence for
respondent as sufficient to prove the formation of a partnership, albeit an informal
one. Notably, petitioners did not present any evidence in their favor during trial. By
the weight of judicial precedents, a factual matter like the finding of the existence of
a partnership between respondent and Jacinto cannot be inquired into by this Court
on review. This Court can no longer be tasked to go over the proofs presented by
the parties and analyze, assess and weigh them to ascertain if the trial court and
the appellate court were correct in according superior credit to this or that piece of
evidence of one party or the other. It must be also pointed out that petitioners failed
to attend the presentation of evidence of respondent. Petitioners cannot now turn to
this Court to question the admissibility and authenticity of the documentary
evidence of respondent when petitioners failed to object to the admissibility of the
evidence at the time that such evidence was offered.

DECISION

GONZAGA-REYES, J p:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of
the Decision 1 of the Court of Appeals dated January 31, 2000 in the case entitled
"Lamberto T. Chua vs. Lilibeth Sunga Chan and Cecilia Sunga" and of the Resolution
dated May 23, 2000 denying the motion for reconsideration of herein petitioners
Lilibeth Sunga Chan and Cecilia Sunga (hereafter collectively referred to as
petitioners).

The pertinent facts of this case are as follows:

On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint


against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga
(hereafter petitioner Cecilia), daughter and wife, respectively of the deceased
Jacinto L. Sunga (hereafter Jacinto), for "Winding Up of Partnership Affairs,
Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary
Attachment" with the Regional Trial Court, Branch 11, Sindangan, Zamboanga del
Norte.

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto
in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to register the business name
of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under
the name of Jacinto as a sole proprietorship. Respondent allegedly delivered his
initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced
P100,000.00 as his counterpart contribution, with the intention that the profits
would be equally divided between them. The partnership allegedly had Jacinto as
manager, assisted by Josephine Sy (hereafter Josephine), a sister of the wife of
respondent, Erlinda Sy. As compensation, Jacinto would receive a manager's fee or
remuneration of 10% of the gross profit and Josephine would receive 10% of the net
profits, in addition to her wages and other remuneration from the business.

Allegedly, from the time that Shellite opened for business on July 8, 1977, its
business operation went quite well and was profitable. Respondent claimed that he
could attest to the success of their business because of the volume of orders and
deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum
Corporation. While Jacinto furnished respondent with the merchandise inventories,
balance sheets and net worth of Shellite from 1977 to 1989, respondent however
suspected that the amount indicated in these documents were understated and
undervalued by Jacinto and Josephine for their own selfish reasons and for tax
avoidance. aEAcHI

Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia
and particularly his daughter, petitioner Lilibeth, took over the operations, control,
custody, disposition and management of Shellite without respondent's consent.
Despite respondent's repeated demands upon petitioners for accounting, inventory,
appraisal, winding up and restitution of his net shares in the partnership, petitioners
failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite,
converting to her own use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis
and reasons to evade respondent's demands, she disbursed out of the partnership
funds the amount of P200,000.00 and partially paid the same to respondent.
Petitioner Lilibeth allegedly informed respondent that the P200,000.00 represented
partial payment of the latter's share in the partnership, with a promise that the
former would make the complete inventory and winding up of the properties of the
business establishment. Despite such commitment, petitioners allegedly failed to
comply with their duty to account, and continued to benefit from the assets and
income of Shellite to the damage and prejudice of respondent.

On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the
Securities and Exchange Commission (SEC) in Manila, not the Regional Trial Court in
Zamboanga del Norte had jurisdiction over the action. Respondent opposed the
motion to dismiss.

On January 12, 1993, the trial court finding the complaint sufficient in form and
substance denied the motion to dismiss.

On January 30, 1993, petitioners filed their Answer with Compulsory Counterclaims,
contending that they are not liable for partnership shares, unreceived
income/profits, interests, damages and attorney's fees, that respondent does not
have a cause of action against them, and that the trial court has no jurisdiction over
the nature of the action, the SEC being the agency that has original and exclusive
jurisdiction over the case. As counterclaim, petitioner sought attorney's fees and
expenses of litigation.

On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the
ground that the claim for winding up of partnership affairs, accounting and recovery
of shares in partnership affairs, accounting and recovery of shares in partnership
assets/properties should be dismissed and prosecuted against the estate of
deceased Jacinto in a probate or intestate proceeding.

On August 16, 1993, the trial court denied the second motion to dismiss for lack of
merit. HIcTDE
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and
Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning
the denial of the motion to dismiss.

On November 29, 1993, petitioners filed with the trial court a Motion to Suspend
Pre-trial Conference.

On December 13, 1993, the trial court granted the motion to suspend pre-trial
conference.

On November 15, 1994, the Court of Appeals denied the petition for lack of merit.

On January 16, 1995, this Court denied the petition for review on certiorari filed by
petitioner, "as petitioners failed to show that a reversible error was committed by
the appellate court." 2

On February 20, 1995, entry of judgment was made by the Clerk of Court and the
case was remanded to the trial court on April 26, 1995. DSTCIa

On September 25, 1995, the trial court terminated the pre-trial conference and set
the hearing of the case on January 17, 1996. Respondent presented his evidence
while petitioners were considered to have waived their right to present evidence for
their failure to attend the scheduled date for reception of evidence despite notice.

On October 7, 1997, the trial court rendered its Decision ruling for respondent. The
dispositive portion of the Decision reads:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable form under accounting
procedures and standards of the properties, assets, income and profits of the
Shellite Gas Appliance Center since the time of death of Jacinto L. Sunga, from
whom they continued the business operations including all businesses derived from
the Shellite Gas Appliance Center; submit an inventory, and appraisal of all these
properties, assets, income, profits, etc. to the Court and to plaintiff for approval or
disapproval;

(2) ORDERING them to return and restitute to the partnership any and all properties,
assets, income and profits they misapplied and converted to their own use and
advantage that legally pertain to the plaintiff and account for the properties
mentioned in pars. A and B on pages 4-5 of this petition as basis;

(3) DIRECTING them to restitute and pay to the plaintiff 1/2 shares and interest of
the plaintiff in the partnership of the listed properties, assets and good will (sic) in
schedules A, B and C, on pages 4-5 of the petition;

(4) ORDERING them to pay the plaintiff earned but unreceived income and profits
from the partnership from 1988 to May 30, 1992, when the plaintiff learned of the
closure of the store the sum of P35,000.00 per month, with legal rate of interest
until fully paid;

(5) ORDERING them to wind up the affairs of the partnership and terminate its
business activities pursuant to law, after delivering to the plaintiff all the 1/2
interest, shares, participation and equity in the partnership, or the value thereof in
money or money's worth, if the properties are not physically divisible; HEScID

(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad
faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and
exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney's (sic)
and P25,00.00 as litigation expenses.

NO special pronouncements as to COSTS.

SO ORDERED." 3

On October 28, 1997, petitioners filed a Notice of Appeal with the trial court,
appealing the case to the Court of Appeals. TSIDEa

On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive
portion of the Decision reads:

"WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED


in all respects." 4

On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed
by petitioner.

Hence, this petition wherein petitioner relies upon the following grounds:

"1. The Court of Appeals erred in making a legal conclusion that there existed a
partnership between respondent Lamberto T. Chua and the late Jacinto L. Sunga
upon the latter's invitation and offer and that upon his death the partnership assets
and business were taken over by petitioners.

2. The Court of Appeals erred in making the legal conclusion that laches and/or
prescription did not apply in the instant case.
3. The Court of Appeals erred in making the legal conclusion that there was
competent and credible evidence to warrant the finding of a partnership, and
assuming arguendo that indeed there was a partnership, the finding of highly
exaggerated amounts or values in the partnership assets and profits." 5

Petitioners question the correctness of the finding of the trial court and the Court of
Appeals that a partnership existed between respondent and Jacinto from 1977 until
Jacinto's death. In the absence of any written document to show such partnership
between respondent and Jacinto, petitioners argue that these courts were
proscribed from hearing the testimonies of respondent and his witness, Josephine,
to prove the alleged partnership three years after Jacinto's death. To support this
argument, petitioners invoke the "Dead Man's Statute" or "Survivorship Rule" under
Section 23, Rule 130 of the Rules of Court that provides:

"SECTION 23. Disqualification by reason of death or insanity of adverse party.


Parties or assignors of parties to a case, or persons in whose behalf a case is
prosecuted, against an executor or administrator or other representative of a
deceased person, or against a person of unsound mind, upon a claim or demand
against the estate of such deceased person, or against such person of unsound
mind, cannot testify as to any matter of fact occurring before the death of such
deceased person or before such person became of unsound mind."

Petitioners thus implore this Court to rule that the testimonies of respondent and his
alter ego, Josephine, should not have been admitted to prove certain claims against
a deceased person (Jacinto), now represented by petitioners.

We are not persuaded.

A partnership may be constituted in any form, except where immovable property or


real rights are contributed thereto, in which case a public instrument shall be
necessary. 6 Hence, based on the intention of the parties, as gathered from the
facts and ascertained from their language and conduct, a verbal contract of
partnership may arise. 7 The essential points that must be proven to show that a
partnership was agreed upon are (1) mutual contribution to a common stock, and
(2) a joint interest in the profits. 8 Understandably so, in view of the absence of a
written contract of partnership between respondent and Jacinto, respondent
resorted to the introduction of documentary and testimonial evidence to prove said
partnership. The crucial issue to settle then is whether or not the "Dead Man's
Statute" applies to this case so as to render inadmissible respondent's testimony
and that of his witness, Josephine.

The "Dead Man's Statute" provides that if one party to the alleged transaction is
precluded from testifying by death, insanity, or other mental disabilities, the
surviving party is not entitled to the undue advantage of giving his own
uncontradicted and unexplained account of the transaction. 9 But before this rule
can be successfully invoked to bar the introduction of testimonial evidence, it is
necessary that:

"1. The witness is a party or assignor of a party to a case or persons in whose behalf
a case is prosecuted. EDCIcH

2. The action is against an executor or administrator or other representative of a


deceased person or a person of unsound mind;

3. The subject-matter of the action is a claim or demand against the estate of such
deceased person or against person of unsound mind;

4. His testimony refers to any matter of fact which occurred before the death of
such deceased person or before such person became of unsound mind." 10

Two reasons forestall the application of the "Dead Man's Statute" to this case.

First, petitioners filed a compulsory counterclaim 11 against respondent in their


answer before the trial court, and with the filing of their counterclaim, petitioners
themselves effectively removed this case from the ambit of the "Dead Man's
Statute". 12 Well entrenched is the rule that when it is the executor or administrator
or representatives of the estate that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of the deceased to defeat
the counterclaim. 13 Moreover, as defendant in the counterclaim, respondent is not
disqualified from testifying as to matters of fact occurring before the death of the
deceased, said action not having been brought against but by the estate or
representatives of the deceased. 14

Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for
the simple reason that she is not "a party or assignor of a party to a case or persons
in whose behalf a case is prosecuted". Records show that respondent offered the
testimony of Josephine to establish the existence of the partnership between
respondent and Jacinto. Petitioners' insistence that Josephine is the alter ego of
respondent does not make her an assignor because the term "assignor" of a party
means "assignor of a cause of action which has arisen, and not the assignor of a
right assigned before any cause of action has arisen." 15 Plainly then, Josephine is
merely a witness of respondent, the latter being the party plaintiff.

We are not convinced by petitioners' allegation that Josephine's testimony lacks


probative value because she was allegedly coerced by respondent, her brother-in-
law, to testify in his favor. Josephine merely declared in court that she was
requested by respondent to testify and that if she were not requested to do so she
would not have testified. We fail to see how we can conclude from this candid
admission that Josephine's testimony is involuntary when she did not in any way
categorically say that she was forced to be a witness of respondent. Also, the fact
that Josephine is the sister of the wife of respondent does not diminish the value of
her testimony since relationship per se, without more, does not affect the credibility
of witnesses. 16

Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim
cannot prevail over the factual findings of the trial court and the Court of Appeals
that a partnership was established between respondent and Jacinto. Based not only
on the testimonial evidence, but the documentary evidence as well, the trial court
and the Court of Appeals considered the evidence for respondent as sufficient to
prove the formation of a partnership, albeit an informal one.

Notably, petitioners did not present any evidence in their favor during trial. By the
weight of judicial precedents, a factual matter like the finding of the existence of a
partnership between respondent and Jacinto cannot be inquired into by this Court
on review. 17 This Court can no longer be tasked to go over the proofs presented by
the parties and analyze, assess and weigh them to ascertain if the trial court and
the appellate court were correct in according superior credit to this or that piece of
evidence of one party or the other. 18 It must be also pointed out that petitioners
failed to attend the presentation of evidence of respondent. Petitioners cannot now
turn to this Court to question the admissibility and authenticity of the documentary
evidence of respondent when petitioners failed to object to the admissibility of the
evidence at the time that such evidence was offered. 19

With regard to petitioners' insistence that laches and/or prescription should have
extinguished respondent's claim, we agree with the trial court and the Court of
Appeals that the action for accounting filed by respondent three (3) years after
Jacinto's death was well within the prescribed period. The Civil Code provides that
an action to enforce an oral contract prescribes in six (6) years 20 while the right to
demand an accounting for a partner's interest as against the person continuing the
business accrues at the date of dissolution, in the absence of any contrary
agreement. 21 Considering that the death of a partner results in the dissolution of
the partnership 22 , in this case, it was after Jacinto's death that respondent as the
surviving partner had the right to an account of his interest as against petitioners. It
bears stressing that while Jacinto's death dissolved the partnership, the dissolution
did not immediately terminate the partnership. The Civil Code 23 expressly provides
that upon dissolution, the partnership continues and its legal personality is retained
until the complete winding up of its business, culminating in its termination. 24

In a desperate bid to cast doubt on the validity of the oral partnership between
respondent and Jacinto, petitioners maintain that said partnership that had an initial
capital of P200,000.00 should have been registered with the Securities and
Exchange Commission (SEC) since registration is mandated by the Civil Code. True,
Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00
or more must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code 25 explicitly provides that the partnership
retains its juridical personality even if it fails to register. The failure to register the
contract of partnership does not invalidate the same as among the partners, so long
as the contract has the essential requisites, because the main purpose of
registration is to give notice to third parties, and it can be assumed that the
members themselves knew of the contents of their contract. 26 In the case at bar,
non-compliance with this directory provision of the law will not invalidate the
partnership considering that the totality of the evidence proves that respondent and
Jacinto indeed forged the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed
decision is AFFIRMED.

SO ORDERED.

Melo, Vitug, Panganiban and Sandoval-Gutierrez, JJ., concur.

||| (Sunga-Chan v. Chua, G.R. No. 143340, [August 15, 2001], 415 PHIL 477-492)

EN BANC

[G.R. No. L-14441. December 17, 1966.]

PEDRO R. PALTING, petitioner, vs. SAN JOSE PETROLEUM INCORPORATED,


respondent.

SYLLABUS

1. CORPORATION; REGISTRATION AND SALE OF SECURITIES; RIGHT TO FILE AN


OPPOSITION TO APPEAL FROM AN ADVERSE RULING OF THE SECURITIES AND
EXCHANGE COMMISSION; PURPOSES OF BLUE SKY LAWS. The right to file an
opposition to the registration of securities for sale in the Philippines, and, in case of
an adverse order, ruling or decision by the Securities and Exchange Commission, to
appeal to the Supreme Court, is not limited to issues, dealers or salesmen of
securities. This is in consonance with the generally accepted principle that BLUE Sky
Laws are enacted to protect investors and prospective purchasers and to prevent
fraud and preclude the sale of securities which are worthless or worth substantially
less than the asking price. Moreover, petitioner in the case at bar became to all
intents and purposes a party to the proceedings. And under the New Rules of Court,
which can be applied here pursuant to Rule 144, he can appeal from a final order,
ruling or decision of the Securities and Exchange Commission.
2. ID.; ID., ID.; WHEN SECURITIES ARE DEEMED REGISTERED. The order under
review allowing the registration and sale of respondent's securities is a final order
that is appealable. This is so because the securities are deemed registered seven
days after publication of the order (Section 7, Commonwealth Act 83, as amended).
The mere fact that the authority may be later suspended or revoked, depending on
future developments, does not give it the character of an interlocutory or
provisional ruling.

3. ID.; ID.; WHEN INQUIRY AS TO THE WORTH OR LEGALITY OF SECURITIES CAN BE


MADE. Where the securities are outstanding and are placed in the channels of
trade and commerce, members of the investing public are entitled to have the
question of the worth or legality of the securities resolved one way or another. The
purpose of the inquiry on the matter is not fully served just because the securities
has passed out of the hands of the issuers and its dealers.

4. CONSTITUTIONAL LAW; UTILIZATION, EXPLOITATION AND DEVELOPMENT OF


NATURAL RESOURCES; PERSONS WHO CAN EXERCISE THE PRIVILEGE. The
privilege to utilize, exploit and develop the natural resources of the Philippines was
granted by Article XIII of the Constitution, to Filipino citizens or to corporations or
associations 60% of the capital of which is owned by such citizens. With the Parity
Amendment to the Constitution, the same right was extended to citizens of the
United States and business enterprise owned or controlled, directly or indirectly, by
citizens of the United States. There can be no serious doubt as to the meaning of
the word "citizens" used in the aforementioned provisions of the Constitution. The
right was granted to two types of persons; natural persons (Filipino or American
citizen) and juridical persons (corporations 60% of which capital is owned by
Filipinos and business enterprises owned or controlled directly or indirectly by
citizens of the United States).

5. ID.; ID.; ID.; SAN JOSE PETROLEUM INCORPORATED NOT AUTHORIZED TO


EXERCISE PARITY PRIVILEGES. San Jose Petroleum Incorporated is not owned or
controlled directly by citizens of the United States, because it is owned and
controlled by Oil Investments, Inc., another foreign (Panamanian) corporation.
Neither is it indirectly owned or controlled by American citizens through Oil
Investments, Inc., which is owned and controlled, not by citizens of the United
States, but by two foreign (Venezuelan) corporations. There is no showing that the
stockholders in these two corporations are citizens of the United States. But even
granting that they are, it is still necessary to establish that the different states of
which they are citizens allow Filipino citizens or corporations or associations owned
or controlled by Filipino citizens to engage in the exploitation, etc. of the natural
resources of these states (par. 3, Art. VI of the Laurel-Langley Agreement). And even
if these requirements are satisfied, to hold that the set-up disclosed in the present
case, with a long chain of intervening foreign corporations, comes within the
purview of the Parity Amendment regarding business enterprises indirectly owned
or controlled by citizens of the United States, is to unduly stretch and strain the
language and intent of the law. Hence, San Jose Petroleum. Incorporated as
presently constituted, is not a business enterprise that is authorized to exercise the
parity privilege under the Parity Ordinance, the Laurel-Langley Agreement and the
Petroleum Law. Its tie-up with San Jose Oil Company, Inc. is consequently, illegal.

DECISION

BARRERA, J p:

This is a petition for review of the order of August 29, 1958, later supplemented and
amplified by another dated September 9, 1958, of the Securities and Exchange
Commissioner denying the opposition to, and instead, granting the registration, and
licensing the sale in the Philippines, of 5,000.000 shares of the capital stock of the
respondent-appellee San Jose Petroleum, Inc. (hereafter referred to as SAN JOSE
PETROLEUM), a corporation organized and existing in the Republic of Panama.

On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities
and Exchange Commission a sworn registration statement, for the registration and
licensing for sale in the Philippines Voting Trust Certificates representing 2,000,000
shares of its capital stock with a par value of $0.35 a share, at P1.00 per share. It
was alleged that the entire proceeds of the sale of said securities will be devoted or
used exclusively to finance the operations of San Jose Oil Company, Inc. (a domestic
mining corporation hereafter to be referred to as SAN JOSE OIL) which has 14
petroleum exploration concessions covering an area of a little less than 1,000,000
hectares, located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La Union,
Iloilo, Cotabato, Davao and Agusan. It was the express condition of the sale that
every purchaser of the securities shall not receive a stock certificate, but a
registered or bearer-voting-trust certificate from the voting trustees named therein
James L. Buckley and Austin G. E. Taylor, the first residing in Connecticut, U. S. A.,
and the second in New York City. While this application for registration was pending
consideration by the Securities and Exchange Commission, SAN JOSE PETROLEUM
filed an amended Statement on June 20, 1958, for registration of the sale in the
Philippines of its shares of capital stock, which was increased from 2,000,000 to
5,000,000, at a reduced offering price of from P1.00 to P.70 per share. At this time
the par value of the shares has also been reduced from $.35 to $.01 per share.1

Pedro R. Palting and others, allegedly prospective investors in the shares of SAN
JOSE PETROLEUM, filed with the Securities and Exchange Commission an opposition
to the registration and licensing of the securities on the grounds that (1) the tie-up
between the issuer, SAN JOSE PETROLEUM, a Panamanian corporation, and SAN
JOSE OIL, a domestic corporation, violates the Constitution of the Philippines, the
Corporation Law and the Petroleum Act of 1949; (2) the issuer has not been licensed
to transact business in the Philippines; (3) the sale of the share of the issuer is
fraudulent, and works or tends to work a fraud upon Philippine purchasers; and (4)
the issuer as an enterprise, as well as its business, is based upon unsound business
principles. Answering the foregoing opposition of Palting, et al., the registrant SAN
JOSE PETROLEUM claimed that it was a "business enterprise" enjoying parity rights
under the ordinance appended to the Constitution, which parity right, with respect
to mineral resources in the Philippines, may be exercised, pursuant to the Laurel-
Langley Agreement, only through the medium of a corporation organized under the
laws of the Philippines. Thus, registrant which is allegedly qualified to exercise rights
under the Parity Amendment, had to do so through the medium of a domestic
corporation, which is the SAN JOSE OIL. It refuted the contention that the
Corporation Law was being violated, by alleging that Section 13 thereof applies only
to foreign corporations doing business in the Philippines, and registrant was not
doing business here. The mere fact that it was a holding company of SAN JOSE OIL
and that registrant undertook the financing of and giving technical assistance to
said corporation did not constitute transaction of business in the Philippines.
Registrant also denied that the offering for sale in the Philippines of its shares of
capital stock was fraudulent or would work or tend to work fraud on the investors.
On August 29, 1958, and on September 9, 1958 the Securities and Exchange
Commissioner issued the orders object of the present appeal.

The issues raised by the parties in this appeal are as follows:

1. Whether or not petitioner Pedro R. Palting, as a "prospective investor" in


respondent's securities, has personality to file the present petition for review of the
order of the Securities and Exchange Commissioner;

2. Whether or not the issue raised herein is already moot and academic;
3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a
foreign corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining
corporation, is violative of the Constitution, the Laurel-Langley Agreement, the
Petroleum Act of 1949, and the Corporation Law; and

4. Whether or not the sale of respondent's securities is fraudulent or would work or


tend to work fraud to purchasers of such securities in the Philippines.

1. In answer to the notice and order of the Securities and Exchange Commissioner,
published in 2 newspapers of general circulation in the Philippines, for "any person
who is opposed" to the petition for registration and licensing of respondent's
securities, to file his opposition in 7 days, herein petitioner so filed an opposition.
And, the Commissioner, having denied his opposition and instead, directed the
registration of the securities to be offered for sale, oppositor Palting instituted the
present proceeding for review of said order.

Respondent raises the question of the personality of petitioner to bring this appeal,
contending that as a mere "prospective investor", he is not an "aggrieved" or
"interested" person who may properly maintain the suit. Citing a 1931 ruling of Utah
State supreme court,2 it is claimed that the phrase "party aggrieved" used in the
Securities Acts3 and the Rules of Court4 as having the right to appeal should refer
only to issuers, dealers and salesmen of securities.

It is true that in the cited case, it was ruled that the phrase "person aggrieved" is
that party "aggrieved by the judgment or decree where it operates on his rights of
property or bears directly upon his interest", that the word "aggrieved" refers to "a
substantial grievance, a denial of some personal property right or the imposition
upon a party of a burden or obligation." But a careful reading of the case would
show that the appeal therein was dismissed because the court held that an order of
registration was not final and therefore not appealable. The foregoing
pronouncement relied upon by herein respondent was made in construing the
provision regarding an order of revocation which the court held was the one
appealable. And since the law provides that in revoking the registration of any
security, only the issuer and every registered dealer of the security are notified,
excluding any person or group of persons having no such interest in the securities,
said court concluded that the phrase "interested person" refers only to issuers,
dealers or salesmen of securities.

We cannot consider the foregoing ruling by the Utah State Court as controlling on
the issue in this case. Our Securities Act in Section 7(c) thereof, requires the
publication and notice of the registration statement. Pursuant thereto, the Securities
and Exchange commissioner caused the publication of an order in part reading as
follows:

". . . Any person who is opposed with this petition must file his written opposition
with this Commission within said period (2 weeks) . . ."

In other words, as construed by the administrative office entrusted with the


enforcement of the Securities Act, any person (who may not be "aggrieved" or "
interested" within the legal acceptation of the word) is allowed or permitted to file
an opposition to the registration of securities for sale in the Philippines. And this is
in consonance with the generally accepted principle that Blue Sky Laws are enacted
to protect investors and prospective purchasers and to prevent fraud and preclude
the sale of securities which are in fact worthless or worth substantially less than the
asking price. It is for this purpose that herein petitioner duly filed his opposition
giving grounds therefor. Respondent SAN JOSE PETROLEUM was required to reply to
the opposition. Subsequently, both the petition and the opposition were set for
hearing during which the petitioner was allowed to actively participate and did so by
cross-examining the respondent's witnesses and filing his memorandum in support
of his opposition. He therefore to all intents and purposes became a party to the
proceedings. And under the New Rules of Court,5 such a party can appeal from a
final order, ruling or decision of the Securities and Exchange Commission. This new
Rule eliminating the word "aggrieved" appearing in the old Rule, being procedural in
nature,6 and in view of the express provision of Rule 144 that the new rules made
effective on January 1, 1964 shall govern not only cases brought after they took
effect but all further proceedings in cases then pending, except to the extent that in
the opinion of the Court their application would not be feasible or would work
injustice, in which event the former procedure shall apply, we hold that the present
appeal is properly within the appellate jurisdiction of this Court.

The order allowing the registration and sale of respondent's securities is clearly a
final order that is appealable. The mere fact that such authority may be later
suspended or revoked, depending on future developments, does not give it the
character of an interlocutory or provisional ruling. And the fact that seven days after
the publication of the order, the securities are deemed registered (Sec. 7, Com. Act
83, as amended), points to the finality of the order. Rights and obligations
necessarily arise therefrom if not reviewed on appeal.

Our position on this procedural matter that the order is appealable and the
appeal taken here is proper is strengthened by the intervention of the Solicitor
General, under Section 23 of Rule 3 of the Rules of Court, as the constitutional
issues herein presented affect the validity of Section 13 of the Corporation Law,
which, according to the respondent, conflicts with the Parity Ordinance and the
Laurel-Langley Agreement recognizing, it is claimed, its right to exploit our
petroleum resources notwithstanding said provisions of the Corporation Law.

2. Respondent likewise contends that since the order of Registration/Licensing dated


September 9, 1958 took effect 30 days from September 3, 1958, and since no stay
order has been issued by the Supreme Court, respondent's shares became
registered and licensed under the law as of October 3, 1958. Consequently, it is
asserted, the present appeal has become academic. Frankly, we are unable to
follow respondent's argumentation. First it claims that the orders of August 29 and
that of September 9, 1958 are not final orders and therefore are not appealable.
Then when these orders, according to its theory, became final and were
implemented, it argues that the orders can no longer be appealed as the question of
registration and licensing became moot and academic.

But the fact is that because of the authority to sell, the securities are, in all
probabilities, still being traded in the open market. Consequently, the issue is much
alive as to whether respondent's securities should continue to be the subject of
sale. The purpose of the inquiry on this matter is not fully served just because the
securities had passed out of the hands of the issuer and its dealers. Obviously, so
long as the securities are outstanding and are placed in the channels of trade and
commerce, members of the investing public are entitled to have the question of the
worth or legality of the securities resolved one way or another.

But more fundamental than this consideration, we agree with the late Senator Claro
M. Recto, who appeared as amicus curiae in this case, that while apparently the
immediate issue in this appeal is the right of respondent SAN JOSE PETROLEUM to
dispose of and sell its securities to the Filipino public, the real and ultimate
controversy here would actually call for the construction of the constitutional
provisions governing the disposition, utilization, exploitation and development of
our natural resources. And certainly this is neither moot nor academic.

3. We now come to the meat of the controversy the "tie-up" between SAN JOSE
OIL on the one hand, and the respondent SAN JOSE PETROLEUM and its associates,
on the other. The relationship of these corporations involved or affected in this case
is admitted and established through the papers and documents which are parts of
the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding
capital stock of which is owned by respondent SAN JOSE PETROLEUM, a foreign
(Panamanian) corporation, the majority interest of which is owned by OIL
INVESTMENTS, INC., another foreign (Panamanian) company. This latter corporation
in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C. A., and PANCOASTAL
PETROLEUM COMPANY, C. A., both organized and existing under the laws of
Venezuela. As of September 30, 1956, there were 9,979 stockholders of
PANCOASTAL PETROLEUM found in 49 American states and U.S. territories, holding
3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL
COMPANY was said to have 3,077,916 shares held by 12,373 stockholders scattered
in 49 American states. In the two list of stockholders, there is no indication of the
citizenship of these stockholders,7 or of the total number of authorized stocks of
each corporation for the purpose of determining the corresponding percentage of
these listed stockholders in relation to the respective capital stock of said
corporation.

Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the
relationship between herein respondent SAN JOSE PETROLEUM and its subsidiary,
SAN JOSE OIL, violates the Petroleum Law of 1949, the Philippine Constitution, and
Section 13 of the Corporation Law, which inhibits a mining corporation from
acquiring an interest in another mining corporation. It is respondent's theory, on the
other hand, that far from violating the Constitution, such relationship between the
two corporations is in accordance with the Laurel-Langley Agreement which
implemented the Ordinance Appended to the Constitution, and that Section 13 of
the Corporation Law is not applicable because respondent is not licensed to do
business, as it is not doing business, in the Philippines.

Article XIII, Section 1 of the Philippine Constitution provides:

"Sec. 1. All agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and
other natural resources of the Philippines belong to the State, and their disposition,
exploitation, development, or utilization shall be limited to citizens of the Philippines
or to corporations or associations of least sixty per centum of the capital of which is
owned by such citizens, subject to any existing right, grant, lease or concession at
the time of the inauguration of this Government established under this
Constitution . . ." (Emphasis supplied)

In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit
our natural resources) was extended to citizens of the United States, thus:

"Notwithstanding the provisions of Section one, Article Thirteen, and section eight,
Article Fourteen, of the foregoing Constitution, during the effectivity of the
Executive Agreement entered into by the President of the Philippines with the
President of the United States on the fourth of July, nineteen hundred and forty-six,
pursuant to the provisions of Commonwealth Act numbered Seven hundred and
Thirty-Three, but in no case to extend beyond the third of July, nineteen hundred
and seventy-four, the disposition, exploitation, development, and utilization of all
agricultural, timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all sources of potential energy, and other natural
resources of the Philippines, and the operation of public utilities shall, if open to any
person, be open to citizens of the United States, and to all forms of business
enterprise owned or controlled, directly or indirectly, by citizens of the United States
in the same manner as to, and under the same conditions imposed upon citizens of
the Philippines or Corporations or associations owned or controlled by citizens of the
Philippines (Emphasis Supplied.)

In the 1954 Revised Trade Agreement concluded between the United States and the
Philippines, also known as the Laurel-Langley Agreement, embodied in Republic Act
1355, the following provisions appear:

"ARTICLE VI

"1. The disposition, exploitation, development and utilization of all agricultural,


timber, and mineral lands of the public domain, waters, minerals, coal, petroleum
and other mineral oils, all forces and of sources of potential energy, and other
natural resources of either Party, and the operation of public utilities, shall, if open
to any person, be open to citizens of the other Party and to all forms of business
enterprise owned or controlled directly or indirectly, by citizens of such other Party
in the same manner as to and under the same conditions imposed upon citizens or
corporations or associations owned or controlled by citizens of the Party granting
the right.

"2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of
citizens of the United States, with respect to natural resources in the public domain
in the Philippines, only through the medium of a corporation organized under the
laws of the Philippines and at least 60% of the capital stock of which is owned and
controlled by citizens of the United States . . .

"3. The United States of America reserves the rights of the several States of the
United States to limit the extent to which citizens or corporations or associations
owned or controlled by citizens of the Philippines may engage in the activities
specified in this article. The Republic of the Philippines reserves the power to deny
and of the rights specified in this Article to citizens of the United States who are
citizens of States, or to corporations or associations at least 60% of whose capital
stock or capital is owned or controlled by citizens of States, which deny like rights to
citizens of the Philippines, or to corporations or associations which ore owned or
controlled by citizens of the Philippines . . ." (Emphasis supplied.)

Re-stated, the privilege to utilize, exploit, and develop the natural resources of this
country was granted, by Article III of the Constitution, to Filipino citizens or to
corporations or associations 60% of the capital of which is owned by such citizens.
With the Parity Amendment to the Constitution, the same right was extended to
citizens of the United States and business enterprises owned or controlled, directly
or indirectly, by citizens of the United States.

There could be no serious doubt as to the meaning of the word "citizens" used in
the aforementioned provisions of the Constitution. The right was granted to 2 types
of persons: natural persons (Filipino or American citizens) and juridical persons
(corporations 60% of which capital is owned by Filipinos and business enterprises
owned or controlled directly or indirectly, by citizens of the United States). In
American law, "citizen" has been defined as "one who, under the constitution and
laws of the United States, has a right to vote for representatives in congress and
other public officers, and who is qualified to fill offices in the gift of the people." (1
Bouvier's Law Dictionary, p. 490.) A citizen is

"One of the sovereign people. A constituent member of the sovereignty,


synonymous with the people." (Scott vs. Sandford, 19 Ho. [U.S.]404, 15 L. Ed. 691.)

"A member of the civil state entitled to all its privileges. (Cooley, Const. Lim. 77. See
U.S. vs. Cruikshank, 92 U.S. 542, 23 L. Ed. 588; Minor vs. Happersett, 21 Wall.
[U.S.]162, 22 L. Ed. 627.)

These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American


business enterprise entitled to parity rights in the Philippines? The answer must be
in the negative for the following reasons:

Firstly It is not owned or controlled directly by citizens of the United States,


because it is owned and controlled by a corporation, the OIL INVESTMENTS, another
foreign (Panamanian) corporation.

Secondly Neither can it be said that it is indirectly owned and controlled by


American citizens through the OIL INVESTMENTS, for this latter corporation is in turn
owned and controlled, not by citizens of the United States, but still by two foreign
(Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL
PETROLEUM.

Thirdly Although it is claimed that these two last corporations are owned and
controlled respectively by 12,373 and 9,979 stockholders residing in the different
American states, there is no showing in the certification furnished by respondent
that the stockholders of PANCOASTAL or those of them holding the controlling stock,
are citizens of the United States.

Fourthly Granting that these individual stockholders are American citizens, it is


yet necessary to establish that the different states of which they are citizens, allow
Filipino citizens or corporations or associations owned or controlled by Filipino
citizens, to engage in the exploitation, etc. of the natural resources of those states
(see paragraph 3, Article VI of the Laurel-Langley Agreement, supra.). Respondent
has presented no proof to this effect.

Fifthly But even if the requirements mentioned in the two immediately preceding
paragraphs are satisfied, nevertheless to hold that the set-up disclosed in this case,
with a long chain of intervening foreign corporations, comes within the purview of
the Parity Amendment regarding business enterprises indirectly owned or controlled
by citizens of the United States, is to unduly stretch and strain the language and
intent of the law. For, to what extent must the word "indirectly" be carried? Must we
trace the ownership or control of these various corporations ad infinitum for the
purpose of determining whether the American ownership control-requirement is
satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC
and PANCOASTAL which are allegedly owned or controlled directly by citizens of the
United States, are traded in the stock exchange in New York, and you have a
situation where it becomes a practical impossibility to determine at any given time,
the citizenship of the controlling stock required by the law. In the circumstances, we
have to hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is
not a business enterprise that is authorized to exercise the parity privileges under
the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law. Its tie-
up with SAN JOSE OIL is, consequently, illegal.

What, then, would be the status of SAN JOSE OIL, about 90% of whose stock is
owned by SAN JOSE PETROLEUM? This is a query which we need not resolve in this
case as SAN JOSE OIL is not a party and it is not necessary to do so to dispose of the
present controversy. But it is a matter that probably the Solicitor General would
want to look into.

There is another issue which has been discussed extensively by the parties. This is
whether or not an American mining corporation may lawfully "be in any wise
interested in any other corporation (domestic or foreign) organized for the purpose
of engaging in agriculture or in mining," in the Philippines or whether an American
citizen owning stock in more than one corporation organized for the purpose of
engaging in agriculture, or in mining, may own more than 15% of the capital stock
then outstanding and entitled to vote, of each of such corporations, in view of the
express prohibition contained in Section 13 of the Philippine Corporation Law. The
petitioner in this case contends that provisions of the Corporation Law must be
applied to American citizens and business enterprise otherwise entitled to exercise
the parity privileges, because both the Laurel-Langley Agreement (Art. VI, par. 1)
and the Petroleum Act of 1949 (Art. 31), specifically provide that the enjoyment by
them of the same rights and obligations granted under the provisions of both laws
shall be "in the same manner as to, and under the same conditions imposed upon,
citizens of the Philippines or corporations or associations owned or controlled by
citizens of the Philippines." The petitioner further contends that, as the enjoyment
of the privilege of exploiting mineral resources in the Philippines by Filipino citizens
or corporations owned or controlled by citizens of the Philippines (which corporation
must necessarily be organized under the Corporation Law), is made subject to the
limitations provided in Section 13 of the Corporation Law, so necessarily the
exercise of the parity rights by citizens of the United States or business enterprise
owned or controlled, directly or indirectly, by citizens of the United States, must
equally be subject to the same limitations contained in the aforesaid Section 13 of
the Corporation Law.

In view of the conclusions we have already arrived at, we deem it not indispensable
for us to pass upon this legal question, especially taking into account the statement
of the respondent (SAN JOSE PETROLEUM) that it is essentially a holding company,
and as found by the Securities and Exchange Commissioner, its principal activity is
limited to the financing and giving technical assistance to SAN JOSE OIL.

4. Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed


registration for sale in the Philippines, was incorporated under the laws of Panama
in April, 1956, with an authorized capital of $500,000.00, American currency,
divided into 50,000,000 shares at par value of $0.01 per share. By virtue of a 3-
party Agreement of June 14, 1956, respondent was supposed to have received from
OIL INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE OIL (at par
value of $0.01 per share), plus a note for $250,000.00 due in 6 months, for which
respondent issued in favor of OIL INVESTMENTS 16,000,000 shares of its capital
stock, at $0.01 per share or with a value of $160,000.00 plus a note for $230,297.97
maturing in 2 years at 6% per annum interest,9 and the assumption of payment of
the unpaid price of 7,500,000 (of the 8,000,000 shares of SAN JOSE OIL.

On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from
$500,000.00 to $17,500,000.00 by increasing the par value of the same 50,000,000
shares, from $0.01 to $0.35. Without any additional consideration, the 16,000,000
shares of $0.01 previously issued at OIL INVESTMENTS with a total value of
$160,000.00 were changed with 16,000,000 shares of the recapitalized stock, at
$0.35 per share, or valued at $5,600,000.00. And, to make it appear that cash was
received for these re-issued 16,000,000 shares, the board of directors of respondent
corporation placed a valuation of $5,900,000.00 on the 8,000,000 shares of SAN
JOSE OIL (still having par value of $0.10 per share) which were received from OIL
INVESTMENTS as part-consideration for the 16,000,000 shares at $.01 per share.

In the Balance Sheet of respondent, dated July 12, 1956, from the $5,900,000.00,
supposedly the value of the 8,000,000 shares of SAN JOSE OIL, the sum of
$5,100,000.00 was deducted, corresponding to the alleged difference between the
"value" of the said shares and the subscription price thereof which is $800,000.00
(at $0.10 per share). From this $800,000.00, the subscription price of the SAN JOSE
OIL shares, the amount of $319,702.03 was deducted, as allegedly unpaid
subscription price, thereby giving a difference of $480,297.97, which was placed the
amount allegedly paid in on the subscription price of the 8,000,000 SAN JOSE OIL-
shares. Then, by adding thereto the note receivable from OIL INVESTMENTS, for
$250,000.00 (part-consideration for the 16,000,000 SAN JOSE PETROLEUM shares)
and the sum of $6,516.21, as deferred expenses SAN JOSE PETROLEUM appeared to
have assets in the sum of $736,814.18.

These figures are highly questionable. Take the item $5,900,000.00 the valuation
placed on the 8,000,000 shares of SAN JOSE OIL. There appears no basis for such
valuation other than belief by the board of directors of respondent that "should San
Jose Oil Company be granted the bulk of the concessions applied for upon
reasonable terms, that it would have a reasonable value of approximately
$10,000,000." 10 Then, of this amount, the subscription price of $800,000.00 was
deducted and called it "difference between the (above) valuation and the
subscription price for the 8,000,000 shares." Of this $800,000.00 subscription price,
they deducted the sum of $488,297.97 and the difference was placed as the unpaid
portion of the subscription price. In other words, it was made to appear that they
paid in $480,297.97 for the 8,000,000 shares of SAN JOSE OIL. This amount
($480,297.97) was supposedly that $250,000.00 paid by OIL INVESTMENTS for
7,500,000 shares of SAN JOSE OIL, embodied in the June 14-Agreement, and a sum
of $230,297.97 the amount expended or advanced by OIL INVESTMENTS to SAN
JOSE OIL. And yet, there is still an item among respondent's liabilities, for
$230,297.97 appearing as note payable to Oil Investments, maturing in 2 years at
6% interest per annum. 11 As far as it appears from the records, for the 16,000,000
shares at $0.35 per share issued to OIL INVESTMENTS, respondent SAN JOSE
PETROLEUM received from OIL INVESTMENTS only the note for $250,000.00 plus
8,000,000 shares of SAN JOSE OIL, with par value of $0.10 per share or a total of
$1,050,000.00 - the only assets of the corporation. In other words, respondent
actually lost $4,550,000.00, which was received by OIL INVESTMENTS.
But this is not all. Some of the provisions of the Articles of Incorporation of
respondent SAN JOSE PETROLEUM are noteworthy; viz:

(1) the director of the Company need not be share-holders;

(2) that in the meeting of the board of directors, any director may be represented
and may vote through a proxy who also need not be a director or stockholder; and

(3) that no contract or transaction between the corporation and any other
association or partnership will be affected, except in case of fraud, by the fact that
any of the directors or officers of the corporation is interested in, or is a director or
officer of, such other association or partnership, and that no such contract or
transaction of the corporation with any other person or persons, firm, association or
partnership shall be affected by the fact that any director or officer of the
corporation is a party to or has an interest in, such contract or transaction, or has in
anyway connection with such other person or persons, firm, association or
partnership; and finally, that all and any of the persons who may become director or
officer of the corporation shall be relieved from all responsibility for which they may
otherwise be liable by reason of any contract entered into with the corporation,
whether it be for his benefit or for the benefit of any other person, firm, association
or partnership in which he may be interested.

These provisions are in direct opposition to our corporation law and corporate
practices in this country. These provisions alone would outlaw any corporation
locally organized or doing business in this jurisdiction. Consider the unique and
unusual provision that no contract or transaction between the company and any
other association or corporation shall be affected except in case of fraud, by the fact
that any of the directors or officers of the company may be interested in or are
directors or officers of such other association or corporation; and that none of such
contracts or transactions of this company with any person or persons, firms,
associations or corporations shall be affected by the fact that any director or officer
of this company is a party to or has an interest in such contract or transaction or
has any connection with such person or persons, firms, associations or corporations:
and that any and all persons who may become directors or officers of this company
are hereby relieved of all responsibility which they would otherwise incur by reason
of any contract entered into which this company either for their own benefit, or for
the benefit of any person, firm, association or corporation in which they may be
interested.

The impact of these provisions upon the traditional judiciary* relationship between
the directors and the stockholders of a corporation is too obvious to escape notice
by those who are called upon to protect the interest of investors. The directors and
officers of the company can do anything, short of actual fraud, with the affairs of the
corporation even to benefit themselves directly or other persons or entities in which
they are interested, and with immunity because of the advance condonation or
relief from responsibility by reason of such acts. This and the other provision which
authorize the election of non-stockholders as directors, completely disassociate the
stockholders from the government and management of the business in which they
have invested.

To cap it all on April 17, 1957, admittedly to assure continuity of the management
and stability of SAN JOSE PETROLEUM, OIL INVESTMENTS, as holder of the only
subscribed stock of the former corporation and acting "on behalf of All future
holders of voting trust certificates", entered into a voting trust agreement 12 with
James L. Buckley and Austin E. Taylor whereby said Trustees were given authority to
vote the shares represented by the outstanding trust certificate (including those
that may henceforth be issued) in the following manner:

(a) At all elections of directors, the Trustees will designate a suitable proxy or
proxies 'to vote for the election of directors designated by the Trustees in their own
discretion, having in mind the best interests of the holders of the voting trust
certificates, it being understood that any and all of the Trustees shall be eligible for
election as directors;

(b) On any proposition for removal of a director, the Trustees shall designate a
suitable proxy or proxies to vote for or against such proposition as the Trustees their
own discretion may determine, having in mind the best interest of the holders of the
voting trust certificates;

(c) With respect to all other matters arising at any meeting of stockholders, the
Trustees will instruct such proxy or proxies attending each meetings to vote the
shares of stock held by the Trustee in accordance with the written instructions of
each holder of voting trust certificates. (Emphasis supplied.)
It was also therein provided that the said Agreement shall be binding upon the
parties thereto, their successors, and upon all holders of voting trust certificates.

And these are the voting trust certificates that are offered to investors as authorized
by the Security and Exchange Commissioner. It can not be doubted that the sale of
respondent's securities would, to say the least, work or tend to work fraud to
Philippine investors.

FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss


this appeal, is denied, and the orders of the Securities and Exchange Commissioner,
allowing the registration of Respondent's securities and licensing their sale in the
Philippines are hereby set aside. The case is remanded to the Securities and
Exchange Commission for appropriate action in consonance with this decision. With
costs. Let a copy of this decision be furnished the Solicitor General for whatever
action he may deem advisable to take in the premises. So ordered.

||| (Palting v. San Jose Petroleoum Inc., G.R. No. L-14441, [December 17, 1966], 125
PHIL 5-26)

EN BANC

[G.R. No. 35840. March 31, 1933.]

FRANCISCO BASTIDA, plaintiff-appellee, vs. MENZI & CO., INC., J. M. MENZI and P. C.
SCHLOBOHM, defendants. MENZI & CO., INC., appellant.

Romualdez Brothers and Harvey & O'Brien, for appellant.

Jose M. Casal, Alberto Barretto and Gibbs & McDonough, for appellee.

SYLLABUS
1. CONTRACT OF EMPLOYMENT; RELATIONSHIP BETWEEN EMPLOYER AND
EMPLOYEE; COPARTNERSHIP. The relationship established between the defendant
corporation and the plaintiff by their contract was not that of partners, but that of
employer and employee, whereby the plaintiff was to receive 35 per cent of the net
profits of the fertilizer business of the defendant corporation in compensation for his
services of supervising the mixing of the fertilizers. Neither the provisions of the
contract nor the conduct of the parties prior or subsequent to its execution justified
the finding that it was a contract of copartnership.

2. ID.; ID.; ID. The trial court relied on article 116 of the Code of Commerce, which
provides that articles of association by which two or more persons obligate
themselves to place in a common fund any property, industry, or any of these
things, in order to obtain profit, shall be commercial, no matter what its class may
be, provided it has been established in accordance with the provisions of that Code;
but in the case at bar there was no common fund, that is, a fund belonging to the
parties as joint owners or partners. Instead of receiving a fixed salary or a fixed
salary and a small percentage of the net profits, the plaintiff was to receive 35 per
cent of the net profits as compensation for his services. It is now well settled that
the old rule that sharing profits as profits made one a partner is overthrown.
(Mechem, second edition, p. 89.)

3. ID.; ID.; ID. It is nowhere stated in Exhibit A that the parties were establishing a
partnership or intended to become partners. Great stress is laid by the trial judge
and plaintiff's attorneys on the fact that in the sixth paragraph of said exhibit the
phrase "en sociedad con" is used in providing that defendant corporation shall not
engage in the business of prepared fertilizers except in association with the plaintiff
(en sociedad con). The fact is that en sociedad con, as there used, merely means en
reunion con or in association with, and does not carry the meaning of "in
partnership with". Although the word "associated" may be related etymologically to
the Spanish word "socio", meaning partner, it does not in its common acceptation
imply any partnership relation.

4. PLEADINGS; ADMISSIBILITY AS EVIDENCE. "Where amended pleadings have


been filed, allegations in the original pleadings are held admissible, but in such case
the original pleadings can have no effect, unless formally offered in evidence."
(Jones on Evidence, sec. 273; Lucido vs. Calupitan, 27 Phil., 148.)

DECISION
VICKERS, J p:

This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision of the
Court of First Instance of Manila. The case was tried on the amended complaint
dated May 26, 1928 and defendants' amended answer thereto of September 1,
1928. For the sake of clearness, we shall incorporate herein the principal allegations
of the parties.

FIRST CAUSE OF ACTION

Plaintiff alleged:

That the defendant J. M. Menzi, together with his wife and daughter, owns ninety-
nine per cent (99%) of the capital stock of the defendant Menzi & Co., Inc., that the
plaintiff has been informed and therefore believes that the defendant J. M. Menzi,
his wife and daughter, together with the defendant P. C. Schlobohm and one Juan
Seiboth, constitute the board of directors of the defendant, Menzi & Co., Inc.;

II

That on April 27, 1922, the defendant Menzi & Co., Inc., through its president and
general manager, J. M. Menzi, under the authority of the board of directors, entered
into a contract with the plaintiff to engage in the business of exploiting prepared
fertilizers, as evidenced by the contract marked Exhibit A, attached to the original
complaint as a part thereof, and likewise made a part of the amended complaint, as
if it were here copied verbatim;

III
That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc., began
to manufacture prepared fertilizers, the former superintending the work of actual
preparation, and the latter, through defendants J. M. Menzi and P. C. Schlobohm,
managing the business and opening an account entitled "FERTILIZERS" on the books
of the defendant Menzi & Co., Inc., where all the accounts of the partnership
business were supposed to be kept; the plaintiff had no participation in the making
of these entries, which where wholly in the defendants' charge, under whose orders
every entry was made;

IV

That according to paragraph 7 of the contract Exhibit A, the defendant Menzi & Co.,
Inc., was obliged to render annual balance sheets to the plaintiff upon the 30th day
of June of each year; that the plaintiff had no intervention in the preparation of
these yearly balances, nor was he permitted to have any access to the books of
account; and when the balance sheets were shown him, he, believing in good faith
that they contained the true statement of the partner ship business, and relying
upon the good faith of the defendants, Menzi & Co., Inc., J. M. Menzi, and P. C.
Schlobohm, accepted and signed them, the last balance sheet having been
rendered in the year 1926;

That by reason of the foregoing facts and especially those set forth in the preceding
paragraph, the plaintiff was kept in ignorance of the defendants' acts relating to the
management of the partnership funds, and the keeping of accounts, until he was
informed and so believes and alleges, that the defendants had conspired to conceal
from him the true status of the business, and to his damage and prejudice made
false entries in the books of account and in the yearly balance sheets, the exact
nature and amount of which it is impossible to ascertain, even after the examination
of the books of the business, due to the defendants' refusal to furnish all the books
and data required for the purpose, and the constant obstacles they have placed in
the way of the examination of the books of account and vouchers;

VI
That when the plaintiff received the information mentioned in the preceding
paragraph, he demanded that the defendants permit him to examine the books and
vouchers of the business, which were in their possession, in order to ascertain the
truth of the alleged false entries in the books and balance sheets submitted for his
approval, but the defendants refused, and did not consent to the examination until
after the original complaint was filed in this case; but up to this time they have
refused to furnish all the books, data, and vouchers necessary for a complete and
accurate examination of all the partnership's accounts; and

VII

That as a result of the partial examination of the books of account of the business,
the plaintiff has, through his accountants, discovered that the defendants,
conspiring and confederating together, presented to the plaintiff during the period
covered by the partnership contract false and incorrect accounts,

(a) For having included therein undue interest;

(b) For having entered, as a charge to fertilizers, salaries and wages which should
have been paid and were in fact paid by the defendant Menzi & Co., Inc.;

(c) For having collected from the partnership the income tax which should have
been paid for its own account by Menzi & Co., Inc.;

(d) For having collected, to the damage and prejudice of the plaintiff, commissions
on the purchase of materials for the manufacture of fertilizers;

(e) For having appropriated, to the damage and prejudice of the plaintiff, the profits
obtained from the sale of fertilizers belonging to the partnership and bought with its
own funds; and
(f) For having appropriated to themselves all rebates for freight insurance, taxes,
etc., upon materials for fertilizer bought abroad, no entries of said rebates having
been made on the books to the credit of the partnership.

Upon the strength of the facts set out in this first cause of action, the plaintiff prays
the court:

1. To prohibit the defendants, each and every one of them, from destroying and
concealing the books and papers of the partnership constituted between the
defendant Menzi & Co., Inc., and the plaintiff.

2. To summon each and every defendant to appear and give a true account of all
facts relating to the partnership between the plaintiff and the defendant Menzi &
Co., Inc., and of each and every act and transaction connected with the business of
said partnership from the beginning to April 27, 1927, and a true statement of all
merchandise of whatever description, purchased for said partnership, and of all the
expenditures and sales of every kind, together with the true amount thereof,
besides the sums received by the partnership from every source together with their
exact nature, and a true and complete account of the vouchers for all sums paid by
the partnership, and of the salaries paid to its employees;

3. To declare null and void the yearly balances submitted by the defendants to the
plaintiff from 1922 to 1926, both inclusive;

4. To order the defendants to give a true statement of all receipts and


disbursements of the partnership during the period of its existence, besides
granting the plaintiff any other remedy that the court may deem just and equitable.

EXHIBIT A

"CONTRATO
que se celebra entre los Sres. Menzi y Compaa, de Manila, como Primera Parte, y
D. Francisco Bastida, tambin de Manila, como Segunda Parte, bajo las siguientes

"CONDICIONES

"1.a El objeto de este contrato es la explotacion del negocio de Abonos e


Fertilizantes Preparados, para diversas aplicaciones agrcolas;

"2.a La duracion de este contrato sera de cinco aos, a contar desde la fecha de su
firma;

"3.a La Primera Parte se compromete a facilitar la ayuda financiera necesaria para


el negocio;

"4.a La Segunda Parte se compromete a poner su entero tiempo y toda su


experiencia a la disposicion del negocio;

"5.a La Segunda Parte no podra, directa o indirectamente, dedicarse por s sola ni


en sociedad con otras personas, o de manera alguna no sea con la Primera Parte, al
negocio de Abonos, simples o preparados, o de materia alguna que se aplique
comunmente a la fertilizacion de suelos y plantas, durante la vigencia de este
contrato, a menos que obtenga autorizacion expresa de la Primera Parte para ello;

"6.a La Primera Parte no podra dedicarse, por s sola ni en sociedad o combinacion


con otras personas o entidades, ni de otro modo que en sociedad con la Segunda
Parte, al negocio de Abonos o Fertilizantes preparados, ya sean ellos importados, ya
preparados en las Islas Filipinas; tampoco podra dedicarse a la venta o negocio de
materias o productos que tengan aplicacion como fertilizantes, o que se usen en la
composicion de fertilizantes o abonos, si ellos son productos de suelo de la
manufactura filipinos, pudiendo sin embargo vender o negociar en materias
fertilizantes simples importados de los Estados Unidos o del Extranjero;
"7.a La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda Parte el 35
por ciento (treinta y cinco por ciento) de las utilidades netas del negocio de abonos,
liquidables el 30 de junio de cada ao;

"8.a La Primera Parte facilitara a la Segunda, mensualmente, la cantidad de P300


(trescientos pesos), a cuenta de su parte de beneficios;

"9.a Durante el ao 1923 la Primera Parte concedera a la Segunda permiso para que
ste se ausente de Filipinas por un perodo de tiempo que no exceda de un ao, sin
menoscabo para los derechos de la Segunda Parte con arreglo a este contrato.

"En testimonio de lo cual firmanos el presente en la Ciudad de Manila, I. F., a


veintisiete de abril de 1922.

"MENZI & CO., INC.

"Por (Fdo.) J. MENZI

"General Manager

"Primera Parte

"(Fdo.) F. BASTIDA

"Segunda Parte

"MENZI & CO., INC.


"(Fdo.) MAX KAEGI

"Acting Secretary"

Defendants denied all the allegations of the amended complaint, except the formal
allegations as to the parties, and as a special defense to the first cause of action
alleged:

1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the
general merchandise business in the Philippine Islands since its organization in
October, 1921, including the importation and sale of all kinds of goods, wares, and
merchandise, and especially simple fertilizers and fertilizer ingredients, and as a
part of that business, it has been engaged since its organization in the manufacture
and sale of prepared fertilizers for agricultural purposes, and has used for that
purpose trade-marks belonging to it;

2. That on or about November, 1921, the defendant, Menzi & Co., Inc., made and
entered into an employment agreement with the plaintiff, who represented that he
had had much experience in the mixing of fertilizers, to superintend the mixing of
the ingredients in the manufacture of prepared fertilizers in its fertilizer department
and to obtain orders for such prepared fertilizers subject to its approval, for a
compensation of 50 per cent of the net profits which it might derive from the sale of
the fertilizers prepared by him, and that said Francisco Bastida worked under said
agreement until April 27, 1922, and received the compensation agreed upon for his
services; that on the said 27th of April, 1922, the said Menzi & Co., Inc., and the
said Francisco Bastida made and entered into the written agreement, which is
marked Exhibit A, and made a part of the amended complaint in this case, whereby
they mutually agreed that the employment of the said Francisco Bastida by the said
Menzi & Co., Inc., in the capacity stated, should be for a definite period of five years
from that date and under the other terms and conditions stated therein, but with
the understanding and agreement that the said Francisco Bastida should receive as
compensation for his said services only 35 per cent of the net profits derived from
the sale of the fertilizers prepared by him during the period of the contract instead
of 50 per cent of such profits, as provided in his former agreement; that the said
Francisco Bastida was found to be incompetent to do anything in relation to its said
fertilizer business with the exception of over-seeing the mixing of the ingredients in
the manufacture of the same, and on or about the month of December, 1922, the
defendant, Menzi & Co., Inc., in order to make said business successful, was obliged
to and actually did assume the full management and direction of said business;

3. That the accounts of the business of the said fertilizer department of Menzi & Co.,
Inc., were duly kept in the regular books of its general business, in the ordinary
course thereof, up to June 30, 1923, and that after that time and during the
remainder of the period of said agreement, for the purpose of convenience in
determining the amount of compensation due to the plaintiff under his agreement,
separate books of account for its said fertilizer business were duly kept in the name
of 'Menzi & Co., Inc., Fertilizer', and used exclusively for that purpose, and it was
mutually agreed between the said Francisco Bastida and the said Menzi & Co., Inc.,
that the yearly balances for the determination of the net profits of said business due
to the said plaintiff as compensation for his services under said agreement would be
made as of December 31st, instead of June 30th of each year, during the period of
said agreement; that the accounts of the business of its said fertilizer department,
as recorded in its said books, and the vouchers and records supporting the same,
for each year of said business have been duly audited by Messrs, Page & Co.,
certified public accountants, of Manila, who, shortly after the close of business at
the end of each year up to and including the year 1926, have prepared therefrom a
manufacturing and profit and loss account and balance sheet, showing the status of
said business and the share of the net profits pertaining to the plaintiff as his
compensation under said agreement; that after the said manufacturing and profit
and the loss account and balance sheet for each year of the business of its said
fertilizer department up to and including the year 1926, had been prepared by the
said auditors and certified by them, they were shown to and examined by the
plaintiff, and duly accepted, and approved by him, with full knowledge of their
contents, and as evidence of such approval, he signed his name on each of them, as
shown on the copies of said manufacturing and profit and loss account and balance
sheet for each year up to and including the year 1926, which are attached to the
record of this case, and which are hereby referred to and made a part of this
amended answer, and in accordance therewith, the said plaintiff has actually
received the portion of the net profits of its said business for those years pertaining
to him for his services under said agreement; that at no time during the course of
said fertilizer business and the liquidation thereof has the plaintiff been in any way
denied access to the books and records pertaining thereto, but on the contrary, said
books and records have been subject to his inspection and examination at any time
during business hours, and even since the commencement of this action, the
plaintiff and his accountants, Messrs. Haskins & Sells, of Manila, have been going
over and examining said books and records for months and the defendant, Menzi &
Co., Inc., through its officers, have turned over to said plaintiff and his accountant
the books and records of said business and even furnished them suitable
accommodations in its own office to examine the same;

4. That prior to the termination of the said agreement, Exhibit A, the defendant,
Menzi & Co., Inc., duly notified the plaintiff that it would not under any conditions
renew his said agreement or continue his said employment with it after its
expiration, and after the termination of said agreement of April 27, 1927, the said
Menzi & Co., Inc., had the certified public accountants, White, Page & Co., audit the
accounts of the business of its said fertilizer department for the four months of 1927
covered by plaintiff's agreement and prepare a manufacturing and profit and loss
account and balance sheet of said business showing the status of said business at
the termination of said agreement, a copy of which was shown to and explained to
the plaintiff; that at that time there where accounts receivable to be collected for
business covered by said agreement of over P100,000, and there was guano, ashes,
fine tobacco and other fertilizer ingredients on hand of over P75,000, which had to
be disposed of by Menzi & Co., Inc., or valued by the parties, before the net profits
of said business for the period of the agreement could be determined; that Menzi &
Co., Inc., offered to take the face value of said accounts and the cost value of the
other properties for the purpose of determining the profits of said business for that
period, and to pay to the plaintiff at that time his proportion of such profits on that
basis, which the plaintiff refused to accept, and being disgruntled because the said
Menzi & Co., Inc., would not continue him in its service, the said plaintiff
commenced this action, including therein not only Menzi & Co., Inc., but also its
managers J. M. Menzi and P. C. Schlobohm, wherein he knowingly make various false
and malicious allegations against the defendants; that since that time the said
Menzi & Co., Inc., has been collecting the accounts receivable and disposing of the
stocks on hand, and there is still on hand old stock of approximately P25,000, which
it has been unable to dispose of up to this time; that as soon as possible a final
liquidation and accounting of the net profits of the business covered by said
agreement for the last four months thereof will be made and the share thereof
appertaining to the plaintiff will be paid to him; that the plaintiff has been informed
from time to time as to the status of the disposition of such properties, and he and
his auditors have fully examined the books and records of said business in relation
thereto.

SECOND CAUSE OF ACTION


As a second cause of action plaintiff alleged:

I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first cause
of action.

II. That the examination made by the plaintiff's auditors of some of the books of the
partnership that were furnished by the defendants disclosed the fact that said
defendants had charged to "purchase" of the business, undue interest, the amount
of which the plaintiff is unable to determine as he has never had at his disposal the
books and vouchers necessary for that purpose, and especially, owing to the fact
that the partnership constituted between the plaintiff and the defendant Menzi &
Co., Inc., never kept its own cash book, but that it funds were maliciously included
in the private funds of the defendant entity, neither was there a separate BANK
ACCOUNT of the partnership, such account being included in the defendant's bank
account.

III. That from the examination of the partnership books as aforesaid, the plaintiff
estimates that the partnership between himself and the defendant Menzi & Co.,
Inc., has been defrauded by the defendants by way of interest in an amount of
approximately P184,432.51, of which 35 per cent, or P64,551.38, belongs to the
plaintiff exclusively.

Wherefore, the plaintiff prays the court to render judgment ordering the defendants
jointly and severally to pay him the sum of P64,551.38, or any amount which may
finally appear to be due and owing from the defendants to the plaintiff upon this
ground, with legal interest from the filing of the original complaint until payment.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and
4, of the special defense to the first cause of action in this amended answer;

2. That under the contract of employment, Exhibit A, of the amended complaint, the
defendant, Menzi & Co., Inc., only undertook and agreed to facilitate financial aid in
carrying on the said fertilizer business, as it had been doing before the plaintiff was
employed under the said agreement; that the said defendant, Menzi & Co., Inc., in
the course of the said business of its fertilizer department, opened letters of credit
through the banks of Manila, accepted and paid drafts drawn upon it under said
letters of credit, and obtained loans and advances of moneys for the purchase of
materials to be used in mixing and manufacturing its fertilizers and in paying the
expenses of said business; that such drafts and loans naturally provided for interest
at the banking rate from the dates thereof until paid, as is the case in all such
business enterprises, and that such payments of interest as were actually made on
such drafts, loans and advances during the period of the said employment
agreement constituted legitimate expenses of said business under said agreement.

THIRD CAUSE OF ACTION

As third cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.

II. That under the terms of the contract Exhibit A, neither the defendants J. M. Menzi
and P. C. Schlobohm, nor the defendant Menzi & Co., Inc., had a right to collect for
itself or themselves any amount whatsoever by way of salary for services rendered
to the partnership between the plaintiff and the defendant, inasmuch as such
services were compensated with the 65% of the net profits of the business
constituting their share.

III. That the plaintiff has, on his own account and with his own money, paid all the
employees he has placed in the service of the partnership, having expended for
their account, during the period of the contract, over P88,000, without ever having
made any claim upon the defendants for this sum because it was included in the
compensation of 35 per cent which he was to receive in accordance with the
contract Exhibit A.

IV. That the defendants J. M. Menzi and P. C. Schlobohm, not satisfied with collecting
undue and excessive salaries for themselves, have made the partnership, or the
fertilizer business, pay the salaries of a number of the employees of the defendant
Menzi & Co., Inc.,

V. That under this item of undue salaries the defendants have appropriated P43,920
of the partnership funds, of which 35 per cent, or P15,372 belongs exclusively to the
plaintiff.

Wherefore, the plaintiff prays the court to render judgment ordering the defendants
to pay jointly and severally to the plaintiff the amount of P15,372, with legal interest
from the date of the filing of the original complaint until the date of payment.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and
4, of the special defense to the first cause of action in this amended answer;

2. That the defendant, Menzi & Co., Inc., through its manager, exclusively managed
and conducted its said fertilizer business, in which the plaintiff was to receive 35 per
cent of the net profits as compensation for his services, as hereinbefore alleged,
from on or about January 1, 1923, when its other departments had special
experienced Europeans in charge thereof, who received not only salaries but also a
percentage of the net profits of such departments; that its said fertilizer business,
after its manager took charge of it, became very successful, and owing to the large
volume of business transacted, said business required great deal of time and
attention, and actually consumed at least one-half of the time of the manager and
certain employees of Menzi & Co., Inc., in carrying it on; that the said Menzi & Co.,
Inc., furnished office space, stationery and other incidentals, for said business, and
had its employees perform the duties of cashiers, accountants, clerks, messengers,
etc., for the same, and for that reason the said Menzi & Co., Inc., charged each year,
from and after 1922, as expenses of said business, which pertained to the fertilizer
department, as certain amount as salaries and wages to cover the proportional part
of the overhead expenses of Menzi & Co., Inc.; that the same method is followed in
each of the several departments of the business of Menzi & Co., Inc., that each and
every year from and after 1922, a just proportion of said overhead expenses were
charged to said fertilizer departments and entered on the books thereof, with the
knowledge and consent of the plaintiff, and included in the auditors' reports, which
were examined, accepted and approved by him, and he is now estopped from
saying that such expenses were not legitimate and just expenses of said business.

FOURTH CAUSE OF ACTION

As fourth cause of action, the plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.

II. That the defendant Menzi & Co., Inc., through the defendants J. M. Menzi and P. C.
Schlobohm, has paid, with the funds of the partnership between the defendant
entity and the plaintiff, the income tax due from said defendant entity for the
fertilizer business, thereby defrauding the partnership in the amount of P10,361.72
of which 35 per cent belongs exclusively to the plaintiff, amounting to P3,626.60.

III. That the plaintiff has, during the period of the contract, paid with his own money
the income tax corresponding to his share which consists in 35 per cent of the
profits of the fertilizer business, expending about P5,000 without ever having made
any claim for reimbursement against the partnership, inasmuch as it has always
been understood among the partners that each of them would pay his own income
tax.

Wherefore, the plaintiff prays the court to order the defendants jointly and severally
to pay the plaintiff the sum of P3,626.60, with legal interest from the date of the
filing of the original complaint until its payment.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and
4, of the special defense to the first cause of action in this amended answer;
2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did make
return to the Government of the Philippine Islands each year during the period of
the agreement, Exhibit A, of the income of its whole business, including its fertilizer
department; that the proportional share of such income taxes found to be due on
the business of the fertilizer department was charged as a proper and legitimate
expense of that department, in the same manner as was done in the other
departments of its business; that inasmuch as the agreement with the plaintiff was
an employment agreement, he was requested to make his own return under the
Income Tax Law and to pay his own income taxes, instead of having them paid at
the source, as might be done under the law, so that he would be entitled to the
personal exemptions allowed by the law; that the income taxes paid by the said
Menzi & Co., Inc., pertaining to the business of the fertilizer department and
charged to that business, were duly entered on the books of that department, and
included in the auditors' reports hereinbefore referred to, which reports were
examined, accepted and approved by the plaintiff, with full knowledge of their
contents, and he is now estopped from saying that such taxes are not a legitimate
expense of said business.

FIFTH CAUSE OF ACTION

As fifth cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.

II. That the plaintiff has discovered that the defendant Menzi & Co., Inc., had been
receiving, during the period of the contract Exhibit A, from foreign firms selling
fertilizing material, a secret commission equivalent to 5 per cent of the total value
of the purchases of fertilizing material made by the partnership constituted between
the plaintiff and the defendant Menzi & Co., Inc., and that said 5 per cent
commission was not entered by the defendants in the books of the business, to the
credit and benefit of the partnership constituted between the plaintiff and the
defendant, but to the credit of the defendant Menzi & Co., Inc., which appropriated
it to itself.
III. That the exact amount, or even the approximate amount of the fraud thus
suffered by the plaintiff cannot be determined, because the entries referring to
these items do not appear in the partnership books, although the plaintiff believes
and alleges that they do appear in the private books of the defendant Menzi & Co.,
Inc., which the latter has refused to furnish, notwithstanding the demands made
therefor by the auditors and the lawyers of the plaintiff.

IV. That taking as basis the amount of the purchases of some fertilizing material
made by the partnership during the first four years of the contract Exhibit A, the
plaintiff estimates that this 5 per cent commission collected by the defendant Menzi
& Co., Inc., to the damage and prejudice of the plaintiff, amounts to P127,375.77 of
which 35 per cent belongs exclusively to the plaintiff.

Wherefore, the plaintiff prays the court to order the defendants to pay jointly and
severally to the plaintiff the amount of P44,581.52, or the exact amount owed upon
this ground, after both parties have adduced their evidence upon the point.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and
4, of the special defense to the first cause of action in this amended answer;

2. That the defendant, Menzi & Co., Inc., did have during the period of said
agreement Exhibit A, and has now what is called a "Propaganda Agency Agreement"
with the Deutsches Kalesyndikat, G. M. B., of Berlin, which is a manufacturer of
potash, by virtue of which the said Menzi & Co., Inc., was to receive for its
propaganda work in advertising and bringing about sales of its potash a commission
of 5 per cent on all orders of potash received by it from the Philippine Islands; that
during the period of said agreement, Exhibit A, orders were sent to said concern for
potash, through C. Andre & Co., of Hamburg, as the agent of the said Menzi & Co.,
Inc., upon which the said Menzi & Co., Inc., received a 5 per cent commission,
amounting in all to P2,222.32 for the propaganda work which it did for said firm in
the Philippine Islands; that said commissions were not in any sense discounts of the
purchase price of said potash, and have no relation to the fertilizer business of
which the plaintiff was to receive a share of the net profits for his services, and
consequently were not credited to that department;

3. That in going over the books of Menzi & Co., Inc., it has been found that there are
only two items of commissions, which were received from the United Supply Co., of
San Francisco, in the total sum of $66.51, which, through oversight, were not
credited on the books of the fertilizer department of Menzi & Co., Inc., but due
allowance has now been given to that department for such item.

SIXTH CAUSE OF ACTION

As sixth cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V, of the first cause of
action.

II. That the defendant Menzi & Co., Inc., in collusion with and through the
defendants J. M. Menzi and P. C. Schlobohm and their assistants, has tampered with
the books of the business making fictitious transfers in favor of the defendant Menzi
& Co., Inc., of merchandise belonging to the partnership, purchased with the latter's
money, and deposited in its warehouses, and then sold by Menzi & Co., Inc., to third
persons, thereby appropriating to itself the profits obtained from such resale.

III. That it is impossible to ascertain the amount of the fraud suffered by the plaintiff
in this respect as the real amount obtained from such sales can only be ascertained
from an examination of the private books of the defendant entity, which the latter
has refused to permit notwithstanding the demand made for the purpose by the
auditors and the lawyers of the plaintiff, and no basis of computation can be
established, even approximately, to ascertain the extent of the fraud sustained by
the plaintiff in this respect, by merely examining the partnership books.

Wherefore, the plaintiff prays the court to order the defendants J. M. Menzi and P. C.
Schlobohm, to make a sworn statement as to all the profits received from the sale
to third persons of the fertilizers pertaining to the partnership, and the profits they
have appropriated, ordering them jointly and severally to pay 35 per cent of the net
amount, with legal interest from the filing of the original complaint until the
payment thereof.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and
4, of the special defense to the first cause of action in this amended answer:

2. That under the express terms of the employment agreement, Exhibit A, the
defendant, Menzi & Co., Inc., had the right to import into the Philippine Islands in
the course of its fertilizer business and sell for its exclusive account and benefit
simple fertilizer ingredients; that the only materials imported by it and sold during
the period of said agreement were simple fertilizer ingredients, which had nothing
whatever to do with the business of mixed fertilizers, of which the plaintiff was to
receive a share of the net profits as a part of his compensation.

SEVENTH CAUSE OF ACTION

As seventh cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.

II. That during the existence of the contract Exhibit A, the defendant Menzi & Co.,
Inc., for the account of the partnership constituted between itself and the plaintiff,
and with the latter's money, purchased from several foreign firms various simple
fertilizing material for the use of the partnership.

III. That in the paid invoices for such purchases there are charged, besides the cost
price of the merchandise, other amounts for freight, insurance, duty, etc., some of
which were not entirely thus spent and were later credited by the selling firms to
the defendant Menzi & Co., Inc.
IV. That said defendant Menzi & Co., Inc., through and in collusion with the
defendants J. M. Menzi and P. C. Schlobohm upon receipt of the credit notes
remitted by the selling firms of fertilizing material, for rebates upon freight,
insurance, duty, etc., charged in the invoice but not all expended, did not enter
them upon the books to the credit of the partnership constituted between the
defendant and the plaintiff, but entered or had them entered to the credit of Menzi
& Co., Inc., thereby defrauding the plaintiff of 35 per cent of the value of such
reductions.

V. That the total amount, or even the approximate amount of this fraud cannot be
ascertained without an examination of the private books of Menzi & Co., Inc., which
the latter has refused to permit notwithstanding the demand to this effect made
upon them by the auditors and the lawyers of the plaintiff.

Wherefore, the plaintiff prays the court to order the defendants J. M. Menzi and P. C.
Schlobohm, to make a sworn statement as to the total amount of such rebates, and
to sentence the defendants to pay to the plaintiff jointly and severally 35 per cent of
the net amount.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and
4, of the special defense to the first cause of action in this amended answer:

2. That during the period of said employment agreement, Exhibit A, the defendant,
Menzi & Co., Inc., received from its agent, C. Andre & Co., of Hamburg, certain
credits pertaining to the fertilizer business in the profits of which the plaintiff was
interested, by way of refunds of German Export Taxes, in the total sum of P1,402.54;
that all of said credits were duly noted on the books of the fertilizer department as
received, but it has just recently been discovered that through error an additional
sum of P216.22 was credited to said department, which does not pertain to said
business in the profits of which the plaintiff is interested.

EIGHTH CAUSE OF ACTION


As eight cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.

II. That on or about April 21, 1927, that is, before the expiration of the contract
Exhibit A of the complaint, the defendant Menzi & Co., Inc., acting as manager of
the fertilizer business constituted between said defendant and the plaintiff, entered
into a contract with the Compaa General de Tabacos de Filipinas for the sale to
said entity of three thousand tons of fertilizers of the trade mark "Corona No. 1", at
the rate of P111 per ton, f. o. b. Bais, Oriental Negros, to be delivered, as they were
delivered, according to information received by the plaintiff, during the months of
November and December, 1927, and January, February, March, and April, 1928.

III. That both the contract mentioned above and the benefits derived therefrom,
which the plaintiff estimates at P90,000, Philippine currency, belongs to the fertilizer
business constituted between the plaintiff and the defendant, of which 35 per cent,
or P31,500, belongs to said plaintiff.

IV. That notwithstanding the expiration of the partnership contract Exhibit A, on April
27, 1927, the defendants have not rendered a true accounting of the profits
obtained by the business during the last four months thereof, as the proposed
balance submitted to the plaintiff was incorrect with regard to the inventory of
merchandise, transportation equipment, and the value of the trade marks, for which
reason such proposed balance did not represent the true status of the business of
the partnership on April 30, 1927.

V. That the proposed balance submitted to the plaintiff with reference to the
partnership operations during the last four months of its existence, was likewise
incorrect, inasmuch as it did not include the profit realized or to be realized from the
contract entered into with the Compaa General de Tabacos de Filipinas,
notwithstanding the fact that this contract was negotiated during the existence of
the partnership, and while the defendant Menzi & Co., Inc., was the manager
thereof.
VI. That the defendant entity now contends that the contract entered into with the
Compaa General de Tabacos de Filipinas belongs to it exclusively, and refuses to
give the plaintiff his share consisting in 35 per cent of the profits produced thereby.

Wherefore, the plaintiff prays the honorable court to order the defendants to render
a true and detailed account of the business during the last four months of the
existence of the partnership, i. e., from January 1, 1927 to April 27, 1927, and to
sentence them likewise to pay the plaintiff 35 per cent of the net profits.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and
4, of the special defense to the first cause of action in this amended answer;

2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co.,
Inc., from the Compaa General de Tabacos de Filipinas on April 21, 1927, was
taken by it in the regular course of its fertilizer business, and was to be
manufactured and delivered in December, 1927, and up to April, 1928; that the
employment agreement of the plaintiff expired by its own terms on April 27, 1927,
and he has not been in any way in the service of the defendant, Menzi & Co., Inc.,
since that time, and he cannot possibly have any interest in the fertilizers
manufactured and delivered by the said Menzi & Co., Inc., after the expiration of his
contract for any service rendered to it.

NINTH CAUSE OF ACTION

As ninth cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.
II. That during the period of the contract Exhibit A, the partnership constituted
thereby registered in the Bureau of Commerce and Industry the trade marks
"CORONA NO. 1", "CORONA NO. 2", "ARADO", and "HOZ", the plaintiff and the
defendant having by their efforts succeeded in making them favorably known in the
market.

III. That the plaintiff and the defendant, laboring jointly, have succeeded in making
the fertilizing business a prosperous concern to such an extent that the profits
obtained from the business during the five years it has existed, amount to
approximately P1,000,000, Philippine currency.

IV. That the value of the good-will and the trade marks of a business of this nature
amounts to at least P1,000,000, of which sum 35 per cent belongs to the plaintiff,
or, P350,000.

V. That at the time of the expiration of the contract Exhibit A, the defendant entity,
notwithstanding and in spite of the plaintiff's insistent opposition, has assumed the
charge of liquidating the fertilizing business, without having rendered a monthly
account of the state of the liquidation, as required by law, thereby causing the
plaintiff damages.

VI. That the damages sustained by the plaintiff, as well as the amount of his share
in the remaining property of the business, after its expiration, are wholly unknown
to the plaintiff, and may only be truly and correctly ascertained by compelling the
defendants J. M. Menzi and P. C. Schlobohm to declare under oath and explain to the
court in detail the sums obtained from the sale of the remaining merchandise, after
the expiration of the partnership contract.

VII. That after the contract Exhibit A had expired, the defendant continued to use for
its own benefit the good-will and trade marks belonging to the partnership, as well
as its transportation equipment and other machinery, thereby indicating its
intention to retain such good-will, trade marks, transportation equipment and
machinery, for the manufacture of fertilizers, by virtue of which the defendant is
bound to pay the plaintiff 35 per cent of the value of said property.
VIII. That the true value of the transportation equipment and machinery employed
in the preparation of the fertilizers amounts to P20,000, 35 per cent of which
amounts to P7,000.

IX. That the plaintiff has repeatedly demanded that the defendant entity render a
true and detailed account of the state of the liquidation of the partnership business,
but said defendant has ignored such demands, so that the plaintiff does not, at this
date, know whether the liquidation of the business has been finished, or what the
status of it is at present.

Wherefore, the plaintiff prays the Honorable Court:

"1. To order the defendants J. M. Menzi and P. C. Schlobohm to render a true and
detailed account of the status of the business in liquidation, that is, from April 28,
1927, until it is finished, ordering all the defendants to pay the plaintiff jointly and
severally 35 per cent of the net amount.

"2. To order the defendants to pay the plaintiff jointly and severally the amount of
P350,000, which is 35 per cent of the value of the goodwill and the trade marks of
the fertilizer business;

"3. To order the defendants to pay the plaintiff jointly and severally the amount of
P7,000, which is 35 per cent of the value of the transportation equipment and
machinery of the business; and "4. To order the defendants to pay the costs of this
trial, and further, to grant any other remedy that this Honorable Court may deem
just and equitable."

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and
4, of the special defense to the first cause of action in this amended answer;
2. That the good-will, if any, of the said fertilizer business of the defendant, Menzi &
Co., Inc., pertains exclusively to it, and the plaintiff can have no interest therein of
any nature under his said employment agreement; that the trade-marks mentioned
by the plaintiff in his amended complaint, as a part of such good-will, belonged to
and have been used by the said Menzi & Co., Inc., in its fertilizer business from and
since its organization, and the plaintiff can have no rights to or interest therein
under his said employment agreement; that the transportation equipment pertains
to the fertilizer department of Menzi & Co., Inc., and whenever it has been used by
the said Menzi & Co., Inc., in its own business, due and reasonable compensation for
its use has been allowed to said business; that the machinery pertaining to the said
fertilizer business was destroyed by fire in October, 1926, and the value therefor in
the sum of P20,000 was collected from the Insurance Company, and the plaintiff has
been given credit for 35 per cent of that amount; that the present machinery used
by Menzi & Co., Inc., was constructed by it, and the costs thereof was not charged
to the fertilizer department, and the plaintiff has no right to have it taken into
consideration in arriving at the net profits due to him under his said employment
agreement.

The dispositive part of the decision of the trial court is as follows:

"Wherefore, let judgment be entered:

"(a) Holding that the contract entered into by the parties, evidenced by Exhibit A, is
a contract of general regular commercial partnership, wherein Menzi & Co., Inc., was
the capitalist, and the plaintiff, the industrial partner;

"(b) Holding that the plaintiff, by the mere fact of having signed and approved the
balance sheets, Exhibits C to C-8, is not estopped from questioning the statements
of accounts therein contained;

"(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the
plaintiff the sum of P60,385.67 with legal interest from the date of the filing of the
original complaint until paid;
"(d) Dismissing the third cause of action; "(e) Ordering Menzi & Co., Inc., upon the
fourth cause of action, to pay the plaintiff the sum of P3,821.41, with legal interest
from the date of the filing of the original complaint until paid;

"(f) Dismissing the fifth cause of action;

"(g) Dismissing the sixth cause of action;

"(h) Dismissing the seventh cause of action;

"(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action, to
pay the plaintiff the sum of P6,578.38 with legal interest from January 1, 1929, the
date of the liquidation of the fertilizer business, until paid;

"(j) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff the
sum of P196,709.20 with legal interest from the date of the filing of the original
complaint until paid;

"(k) Ordering the said defendant corporation, in view of the plaintiff's share of the
profits of the business accruing from January 1, 1927 to December 31, 1928, to pay
the plaintiff 35 per cent of the net balance shown in Exhibits 51 and 51-A, after
deducting the item of P2,410 for income tax, and any other sum charged for
interest under the entry 'Purchases';

"(l) Ordering the defendant corporation, in connection with the final liquidation set
out in Exhibits 52 and 52-A, to pay the plaintiff the sum of P17,463.54 with legal
interest from January 1, 1929, until fully paid;

"(m) Dismissing the case with reference to the other defendants, J. M. Menzi and P.
C. Schlobohm; and
"(n) Menzi & Co., Inc., shall pay the costs of the trial."

The appellant makes the following assignments of error:

"I. The trial court erred in finding and holding that the contract Exhibit A constitutes
a regular collective commercial copartnership between the defendant corporation,
Menzi & Co., Inc., and the plaintiff, Francisco Bastida, and not a contract of
employment.

"II. The trial court erred in finding and holding that the defendant, Menzi & Co., Inc.,
had wrongfully charged to the fertilizer business in question the sum of P10,918.33
as income taxes partners' balances, foreign drafts, local drafts, and on other credit
balances in the sum of P172,530.49, and that 35 per cent thereof, or the sum of
P60,385.67, with legal interest thereon from the date of filing his complaint,
corresponds to the plaintiff.

"III. The trial court erred in finding and holding that the defendant, Menzi & Co., Inc.,
had wrongfully charged to the fertilizer business in question the sum of P10,918.33
as income taxes for the years 1923, 1924, 1925 and 1926, and that the plaintiff is
entitled to 35 per cent thereof, or the sum of P3,821.41, with legal interest thereon
from the date of filing his complaint, and in disallowing the item of P2,410 charged
as income tax in the liquidation in Exhibits 51 and 51-A for the period from January
1 to April 27, 1927.

"IV. The trial court erred in refusing to find and hold under the evidence in this case
that the contract, Exhibit A was during the whole period thereof considered by the
parties and performed by them as a contract of employment in relation to the
fertilizer business of the defendant, and that the accounts of said business were
kept by the defendant, Menzi & Co., Inc., on that theory with the knowledge and
consent of the plaintiff, and that at the end of each year for five years a balance
sheet and profit and loss statement of said business were prepared from the books
of account of said business on the same theory and submitted to the plaintiff, and
that each year said balance sheet and profit and loss statement were examined,
approved and signed by said plaintiff and he was paid the amount due him under
said contract in accordance therewith with full knowledge of the manner in which
said business was conducted and the charges for interest and income taxes made
against the same and that by reason of such facts, the plaintiff is now estopped
from raising any question as to the nature of said contract or the propriety of such
charges.

"V. The trial court erred in finding and holding that the plaintiff, Francisco Bastida, is
entitled to 35 per cent of the net profits in the sum of P18,795.38 received by the
defendant, Menzi & Co., Inc., from its contract with the Compaa General de
Tabacos de Filipinas, or the sum of P6,578.38, with legal interest thereon from
January 1, 1929, the date upon which the liquidation of said business was
terminated.

"VI. The trial court erred in finding and holding that the value of the good-will of the
fertilizer business in question was P562,312, and that the plaintiff, Francisco
Bastida, was entitled to 35 per cent of such valuation, or the sum of P196,709.20,
with legal interest thereon from the date of filing his complaint.

"VII. The trial court erred in rendering judgment in favor of the plaintiff and against
the defendant, Menzi & Co., Inc., (a) on the second cause of action, for the sum of
P60,385.67, with legal interest thereon from the date of filing the complaint; (b) on
the fourth cause of action, for the sum of P3,821.41, with legal interest thereon from
the date of filing the complaint; (c) on the eighth cause of action, for the sum of
P6,578.38, with legal interest thereon from January 1, 1929; and (d) on the ninth
cause of action, for the sum of P196,709.20, with legal interest thereon from the
date of filing the original complaint; and (e) for the costs of the action, and in not
approving the final liquidation of said business, Exhibits 51 and 51-A and 52 and 52-
A, as true and correct, and entering judgment against said defendant only for the
amounts admitted therein as due the plaintiff with legal interest, with the costs
against the plaintiff.

"VIII. The trial court erred in overruling the defendants' motion for a new trial."

It appears from the evidence that the defendant corporation was organized in 1921
for the purpose of importing and selling general merchandise, including fertilizers
and fertilizer ingredients. It acquired through John Bordman and the Menzi-Bordman
Co. the good-will, trade-marks, business, and other assets of the old German firm of
Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks and trade-
marks. Behn, Meyer & Co., Ltd., had owned and carried on this fertilizer business
from 1910 until that firm was taken over by the Alien Property Custodian in 1917.
Among the trade-marks thus acquired by the appellant were those known as the
"ARADO", "HOZ", and "CORONA". They were registered in the Bureau of Commerce
and Industry in the name of Menzi & Co. The trade-marks "ARADO" and "HOZ" had
been used by Behn, Meyer & Co., Ltd., in the sale of its mixed fertilizers, and the
trade-mark "CORONA" had been used in its other business. The "HOZ" trade-mark
was used by John Bordman and the Menzi-Bordman Co. in the continuation of the
fertilizer business that had belonged to Behn, Meyer & Co., Ltd.

The business of Menzi & Co., Inc., was divided into several different departments,
each of which was in charge of a manager, who received a fixed salary and a
percentage of the profits. The corporation had to borrow money or obtain credits
from time to time and to pay interest thereon. The amount paid for interest was
charged against the department concerned, and the interest charges were taken
into account in determining the net profits of each department. The practice of the
corporation was to debit or credit each department with interest at the bank rate on
its daily balance. The fertilizer business of Menzi & Co., Inc., was carried on in
accordance with this practice under the "Sundries Department" until July, 1923, and
after that as a separate department.

In November, 1921, the plaintiff, who had had some experience in mixing and
selling fertilizer, went to see Toehl, the manager of the sundries department of
Menzi & Co., Inc., and told him that he had a written contract with the Philippine
Sugar Centrals Agency for 1,250 tons of mixed fertilizers, and that he could obtain
other contracts, including one from the Calamba Sugar Estates for 450 tons, but
that he did not have the money to buy the ingredients to fill the order and carry on
the business. He offered to assign to Menzi & Co., Inc., his contract with the
Philippine Sugar Centrals Agency and to supervise the mixing of the fertilizer and to
obtain other orders for fifty per cent of the net profits that Menzi & Co., Inc., might
derive therefrom. J. M. Menzi, the general manager of Menzi & Co., accepted
plaintiff's offer. Plaintiff assigned to Menzi & Co., Inc., his contract with the Sugar
Centrals Agency, and the defendant corporation proceeded to fill the order. Plaintiff
supervised the mixing of the fertilizer.

On January 10, 1922 the defendant corporation at plaintiff's request gave him the
following letter, Exhibit B:
"MANILA, 10 de enero de 1922

"Sr. FRANCISCO BASTIDA

"Manila

"MUY SR. NUESTRO: Interim formalizamos el contrato que, en principio, tenemos


convenido para la explotacion del negocio de abono y fertilizantes, por la presente
venimos en confirmar su derecho de 50 por ciento de las utilidades que se deriven
del contrato obtenido por Vd. de la Philippine Sugar Centrals (por 1250 tonel.) y del
contrato con la Calamba Sugar Estates, as como de cuantos contratos se cierren
con compradores de abonos preparados antes de la formalizacion definitiva de
nuestro contrato mutuo, lo que hacemos para garanta y seguridad de Vd.

"MENZI & CO.

"Por (Fdo.) W. TOEHL"

Menzi & Co., Inc., continued to carry on its fertilizer business under this
arrangement with the plaintiff. It ordered ingredients from the United States and
other countries, and the interest on the drafts for the purchase of these materials
was charged to the business as a part of the cost of the materials. The mixed
fertilizers were sold by Menzi & Co., Inc., between January 19 and April 1, 1922
under its "CORONA" brand. Menzi & Co., Inc., had only one bank account for its
whole business. The fertilizer business had no separate capital. A fertilizer account
was opened in the general ledger, and interest at the rate charged by the Bank of
the Philippine Islands was debited or credited to that account on the daily balances
of the fertilizer business. This was in accordance with appellant's established
practice, to which the plaintiff assented.

On or about April 24, 1922 the net profits of the business carried on under the oral
agreement were determined by Menzi & Co., Inc., after deducting interest charges,
proportional part of warehouse rent and salaries and wages, and the other expenses
of said business, and the plaintiff was paid some twenty thousand pesos in full
satisfaction of his share of the profits.

Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit


B, the defendant corporation on April 27, 1922 entered into a written contract with
the plaintiff, marked Exhibit A, which is the basis of the present action.

The fertilizer business was carried on by Menzi & Co., Inc., after the execution of
Exhibit A in practically the same manner as it was prior thereto. The intervention of
the plaintiff was limited to supervising the mixing of the fertilizers in Menzi & Co.'s,
Inc., bodegas.

The trade-marks used in the sale of the fertilizer were registered in the Bureau of
Commerce & Industry in the name of Menzi & Co., Inc., and the fees were paid by
that company. They were not charged to the fertilizer business, in which the plaintiff
was interested. Only the fees for registering the formulas in the Bureau of Science
were charged to the fertilizer business, and the total amount thereof was credited to
this business in the final liquidation on April 27, 1927.

On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all
the stems and scraps of tobacco that it might need for its fertilizer business either
in the Philippine Islands or for export to other countries. This contract is referred to
in the record as the "Vastago Contract". Menzi & Co., Inc., advanced the plaintiff
large sums of money for buying and installing machinery, paying the salaries of his
employees, and other expenses in performing his contract.
White, Page & Co., certified public accountants, audited the books of Menzi & Co.,
Inc., every month, and at the end of each year they prepared a balance sheet and a
profit and loss statement of the fertilizer business. These statements were delivered
to the plaintiff for examination, and after he had had an opportunity of verifying
them he approved them without objection and returned them to Menzi & Co., Inc.
Plaintiff collected from Menzi & Co., Inc., as his share or 35 per cent of the net
profits of the fertilizer business the following amounts:

1922 P1,874.73

1923 30,212.62

1924 101,081.56

1925 35,665.03

1926 27,649.98

Total P196,483.92

To this amount must be added plaintiff's share of the net profits from January 1 to
April 27, 1927, amounting to P34,766.87, making a total of P231,250,79.
Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co., Inc.,
notified the plaintiff that the contract for his services would not be renewed.

When plaintiff's contract expired on April 27, 1927, the fertilizer department of
Menzi & Co., Inc., had on hand materials and ingredients and two Ford trucks of the
book value of approximately P75,000, and accounts receivable amounting to
P103,000. There were claims outstanding and bills to pay. Before the net profits
could be finally determined, it was necessary to dispose of the materials and
equipment, collect the outstanding accounts, and pay the debts of the business.
The accountants for Menzi & Co., Inc., prepared a balance sheet and a profit and
loss statement for the period from January 1 to April 27, 1927 as a basis of
settlement, but the plaintiff refused to accept it, and filed the present action.

Menzi & Co., Inc., then proceeded to liquidate the fertilizer business in question. In
October, 1927 it proposed to the plaintiff that the old and damaged stocks on hand
having a book value of P40,000, which the defendant corporation had been unable
to dispose of, be sold at public or private sale, or divided between the parties. The
plaintiff refused to agree to this. The defendant corporation then applied to the trial
court for an order for the sale of the remaining property at public auction, but
apparently the court did not act on the petition.

The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of the
fertilizer business was completed in December, 1928, and a final balance sheet and
a profit and loss statement were submitted to the plaintiff during the trial. During
the liquidation the books of Menzi & Co., Inc., for the whole period of the contract in
question were reaudited by White, Page & Co., certain errors of bookkeeping were
discovered by them. After making the corrections they found the balance due the
plaintiff to be P21,633.20.

Plaintiff employed a certified public accountant, Vernon Thompson, to examine the


books and vouchers of Menzi & Co. Thompson assumed the plaintiff and Menzi &
Co., Inc., to be partners, and that Menzi & Co., Inc., was obliged to furnish free of
charge all the capital the partnership should need. He naturally reached very
different conclusions from those of the auditors of Menzi & Co., Inc.
We come now to a consideration of appellant's assignments of error. After
considering the evidence and the arguments of counsel, we are unanimously of the
opinion that under the facts of this case the relationship established between Menzi
& Co. and the plaintiff by the contract, Exhibit A, was not that of partners, but that
of employer and employee, whereby the plaintiff was to receive 35 per cent of the
net profits of the fertilizer business of Menzi & Co., Inc., in compensation for his
services of supervising the mixing of the fertilizers. Neither the provisions of the
contract nor the conduct of the parties prior or subsequent to its execution justified
the finding that it was a contract of copartnership. Exhibit A, as appears from the
statement of facts, was in effect a continuation of the verbal agreement between
the parties, whereby the plaintiff worked for the defendant corporation for one-half
of the net profits derived by the corporation from certain fertilizer contracts. Plaintiff
was paid his share of the profits from those transactions after Menzi & Co., Inc., had
deducted the same items of expense which he now protests. Plaintiff never made
any objection to defendant's manner of keeping the accounts or to the charges. The
business was continued in the same manner under the written agreement, Exhibit
A, and for four years the plaintiff never made any objection. On the contrary he
approved and signed every year the balance sheet and the profit and loss
statement. It was only when plaintiff's contract was about to expire and the
defendant corporation had notified him that it would not renew it that the plaintiff
began to make objections.

The trial court relied on article 116 of the Code of Commerce, which provides that
articles of association by which two or more persons obligate themselves to place in
a common fund any property, industry, or any of these things, in order to obtain
profit, shall be commercial, no matter what its class may be, provided it has been
established in accordance with the provisions of this Code; but in the case at bar
there was no common fund, that is, a fund belonging to the parties as joint owners
or partners. The business belonged to Menzi & Co., Inc. The plaintiff was working for
Menzi & Co., Inc. Instead of receiving a fixed salary or a fixed salary and a small
percentage of the net profits, he was to receive 35 per cent of the net profits as
compensation for his services. Menzi & Co., Inc., was to advance him P300 a month
on account of his participation in the profits. It will be noted that no provision was
made for reimbursing Menzi & Co., Inc., in case there should be no net profits at the
end of the year. It is now well settled that the old rule that sharing profits as profits
made one a partner is overthrown. (Mechem, second edition, p. 89.)

It is nowhere stated in Exhibit A that the parties were establishing a partnership or


intended to become partners. Great stress is laid by the trial judge and plaintiff's
attorneys on the fact that in the sixth paragraph of Exhibit A the phrase "en
sociedad con" is used in providing that defendant corporation shall not engage in
the business of prepared fertilizers except in association with the plaintiff (en
sociedad con). The fact is that en sociedad con as there used merely means en
reunion con or in association with, and does not carry the meaning of "in
partnership with".

The trial judge found that the defendant corporation had not always regarded the
contract in question as an employment agreement, because in its answer to the
original complaint it stated that before the expiration of Exhibit A it notified the
plaintiff that it would not continue associated with him in said business. The trial
judge concluded that the phrase "associated with", used by the defendant
corporation, indicated that it regarded the contract, Exhibit A, as an agreement of
copartnership.

In the first place, the complaint and answer having been superseded by the
amended complaint and the answer thereto, and the answer to the original
complaint not having been presented in evidence as an exhibit, the trial court was
not authorized to take it into account. "Where amended pleadings have been filed,
allegations in the original pleadings are held admissible, but in such case the
original pleadings can have no effect, unless formally offered in evidence." (Jones on
Evidence, sec. 273; Lucido vs. Calupitan, 27 Phil., 148.)

In the second place, although the word "associated" may be related etymologically
to the Spanish word "socio", meaning partner, it does not in its common acceptation
imply any partnership relation.

The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant corporation
obligated itself to pay to the plaintiff 35 per cent of the net profits of the fertilizer
business, to advance to him P300 a month on account of his share of the profits,
and to grant him permission during 1923 to absent himself from the Philippines for
not more than one year are utterly incompatible with the claim that it was the
intention of the parties to form a copartnership. Various other reasons for holding
that the parties were not partners are advanced in appellant's brief. We do not
deem it necessary to discuss them here. We merely wish to add that in the Vastago
contract, Exhibit A, the plaintiff clearly recognized Menzi & Co., Inc., as the owners
of the fertilizer business in question.
As to the various items of expense rejected by the trial judge, they were in our
opinion proper charges and erroneously disallowed, and this would be true even if
the parties had been partners. Although Menzi & Co., Inc., agreed to furnish the
necessary financial aid for the fertilizer business, it did not obligate itself to
contribute any fixed sum as capital or to defray at its own expense the cost of
securing the necessary credit. Some of the contentions of the plaintiff and his
expert witness Thompson are so obviously without merit as not to merit serious
consideration. For instance, they objected to the interest charges on draft for
materials purchased abroad. Their contention is that the corporation should have
furnished the money to purchase these materials for cash, overlooking the fact that
the interest was added to the cost price, and that the plaintiff was not prejudiced by
the practice complained of. It was also urged, and this seems to us the height of
absurdity, that the defendant corporation should have furnished free of charge such
financial assistance as would have made it unnecessary to discount customers'
notes, thereby enabling the business to reap the interest. In other words, the
defendant corporation should have enabled the fertilizer department to do business
on a credit instead of a cash basis.

The charges now complained of, as we have already stated, are the same as those
made under the verbal agreement, upon the termination of which the parties made
a settlement; the charges in question were acquiesced in by the plaintiff for years,
and it is now too late for him to contest them. The decision of this court in the case
of Kriedt vs. E. C. McCullough & Co. (37 Phil., 474), is in point:

"1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF PARTIES. Acts


done by the parties to a contract in the course of its performance are admissible in
evidence upon the question of its meaning, as being their own contemporaneous
interpretation of its terms.

"2. ID.; ID.; ACTION OF PARTIES UNDER PRIOR CONTRACT. In an action upon a
contract containing a provision of doubtful application it appeared that under a
similar prior contract the parties had, upon the termination of said contract,
adjusted their rights and made a settlement in which the doubtful clause had been
given effect in conformity with the interpretation placed thereon by one of the
parties. Held: That this action of the parties under the prior contract could properly
be considered upon the question of the interpretation of the same clause in the
later contract.
"3. ID.; ID.; ACQUIESCENCE. Where one of the parties to a contract acquiesces in
the interpretation placed by the other upon a provision of doubtful application, the
party so acquiescing is bound by such interpretation.

"4. ID.; ID.; ILLUSTRATION. One of the parties to a contract, being aware at the
time of the execution thereof that the other placed a certain interpretation upon a
provision of doubtful application, nevertheless proceeded, without raising any
question upon the point, to perform the services which he was bound to render
under the contract. Upon the termination of the contract by mutual consent a
question was raised as to the proper interpretation of the doubtful provision. Held:
That the party raising such question had acquiesced in the interpretation placed
upon the contract by the other party and was bound thereby."

The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of the
net profits derived by Menzi & Co., Inc., from its contract for fertilizers with the
Tabacalera. This finding in our opinion is not justified by the evidence. This contract
was obtained by Menzi & Co., Inc., shortly before plaintiff's contract with the
defendant corporation expired. Plaintiff tried to get the Tabacalera contract for
himself. When this contract was filled, plaintiff had ceased to work for Menzi & Co.,
Inc., and he has no right to participate in the profits derived therefrom.

Appellant's sixth assignment of error is that the trial court erred in finding the value
of the good-will of the fertilizer business in question to be P562,312, and that the
plaintiff was entitled to 35 per cent thereof of P196,709.20. In reaching this
conclusion the trial court unfortunately relied on the opinion of the accountant,
Vernon Thompson, who assumed, erroneously as we have seen, that the plaintiff
and Menzi & Co., Inc., were partners; but even if they had been partners there
would have been no good-will to dispose of. The defendant corporation had a
fertilizer business before it entered it entered into any agreement with the plaintiff;
plaintiff's agreement was for a fixed period, five years, and during that time the
business was carried on in the same of Menzi & Co., Inc., and in Menzi & Co.'s
warehouses and after the expiration of plaintiff's contract Menzi & Co., Inc.,
continued its fertilizer business, as it had a perfect right to do. There was really
nothing to which any good-will could attach. Plaintiff maintains, however, that the
trade-marks used in the fertilizer business during the time that he was connected
with it acquired great value, and that they have been appropriated by the appellant
to its own use. That seems to be the only basis of the alleged good-will, to which a
fabulous valuation was given. As we have seen, the trademarks were not new. They
had been used by Behn, Meyer & Co. in its business for other goods and one of
them for fertilizer. They belonged to Menzi & Co., Inc., and were registered in its
name; only the expense of registering the formulas in the Bureau of Science was
charged to the business in which the plaintiff was interested. These trademarks
remained the exclusive property of Menzi & Co., and the plaintiff had no interest
therein on the expiration of his contract.

The balance due the plaintiff, as appears from Exhibit 52, s P21,633.20. We are
satisfied by the evidence that said balance is correct.

For the foregoing reasons, the decision appealed from is modified and the
defendant corporation is sentenced to pay the plaintiff twenty-one thousand, six
hundred and thirty-three pesos and twenty centavos (P21,633.20), with legal
interest thereon from the date of the filing of the complaint or June 17, 1927,
without a special finding as to costs.

Street, Villamor and Villa-Real, JJ., concur.

Hull, J., Participated in this case, but on account of his absence on leave at the time
of the promulgation of the decision he authorized to certify that he voted to odify
the decision of the trial court as appears in the foregoing decision of this court.
Villamor, J., Presiding.

||| (Bastida v. Menzi & Co. Inc., G.R. No. 35840, [March 31, 1933], 58 PHIL 188-226)

SECOND DIVISION

[G.R. No. 39607. February 6, 1934.]

ENCARNACION MAGALONA, ET AL., plaintiffs-appellees, vs. JUAN PESAYCO,


defendant-appellant.

Manuel Polido and Pedro V. Jimenez for appellant.


Lutero & Lutero and Ramon Maza for appellees.

SYLLABUS

1. PARTNERSHIP; PROOF OF EXISTENCE OF CONTRACT; FAILURE TO OBJECT. If a


party permits a contract, which the law provides shall be in writing, to be proved,
without objection as to the form of the proof, it is just as binding as if the statute
had been complied with.

2. ID.; CIVIL PARTNERSHIP; FORM OF CONTRACT. "Civil partnerships may be


established in any form whatever, unless real property or real rights are contributed
to the same, in which case a public instrument shall be necessary." (Article 1667,
Civil Code.)

3. ID.; ID.; ID. "Articles of partnership are not required to be in writing except in
the cases mentioned in article 1667, Civil Code, which controls article 1280 of the
same Code. (Fernandez vs. De la Rosa, 1 Phil., 671.)" (4 Phil. Digest, 3468.)

DECISION

GODDARD, J p:

In the month of September, 1930, the plaintiffs, Encarnacion Magalona, Juan


Sermeno, and the defendant, Juan Pesayco, formed a partnership for the purpose of
catching "semillas de bagus o aua" in the sea and rivers within the jurisdiction of
the municipality of San Jose, Antique Province, for the year 1931. It was agreed that
the defendant should put in a bid for this privilege and that the partners should
each supply one third of the capital in case the defendant was awarded the desired
privilege. The defendant, having had experience in this line, was to be the manager
in case his bid was accepted. The defendant offered the sum of P5,550.09 for the
year ending December 31, 1931. As a deposit of one-fourth of the amount of the bid
was required each of the partners put up one third of this amount. This bid, being
the highest, was accepted by the municipality and the privilege was awarded to the
defendant. The latter entered upon his duties under the contract and gave an
account of two sales of "semillas de bagus", to Tiburcio Lutero as representative of
the plaintiff Magalona. As the defendant, on April 21, 1931, had on hand only P410
he wired, Exhibit A, Lutero for sufficient money to complete the payment of the first
quarter which was to be paid within the first twenty days of the second quarter of
the year 1931. This telegram reads as follows: "Hemos conseguido plazo hasta esta
tarde tenemos aqui cuatrocientos diez gira telegraficamente restante." Lutero
immediately sent P1,000 to the municipal treasurer of San Jose, Antique (Exhibit D).

The defendant managed the business from January 1, 1931, and with the exception
of the two sales above-mentioned, never gave any account of his catches or sales
to his partners, the plaintiffs. In view of this the herein complaint was filed April 21,
1931, in which it was prayed that a receiver be appointed by the court to take
charge of the funds of the partnership and the management of its affairs; that the
defendant be ordered to render an account of his management and to pay to the
plaintiffs their participation in the profits thereof; that the defendant be required to
turn over to the receiver all of the funds of the partnership and that the defendant
be condemned to pay the costs.

The plaintiffs put up a bond of P5,000 and a receiver was appointed who also put up
a bond for the same amount.

The receiver took over the management and took possession of all the devices and
implements used in the catching of "semillas de bagus".

At the trial it was proven that before April 20, 1931, the defendant obtained and
sold a total of 975,000 "semillas de bagus" the market value of which was P3 per
thousand. The defendant made no report of this nor did he pay the plaintiffs any
part of the P2,925 realized by him on the sales thereof. This was not denied.

In his two counter-complaints the defendant prays that he be awarded damages in


the sum of P34,700. He denies that there was a partnership and depends principally
upon the fact that the partnership agreement was not in writing.

The partnership was conclusively proven by the oral testimony of the plaintiffs and
other witnesses, two of whom were Attorneys Lutero and Maza. The defense made
no objection to the questions asked with regard to the forming of this partnership.
This court has held that if a party permits a contract, which the law provides shall
be in writing, to be proved, without objection as to the form of the proof, it is just as
binding as if the statute had been complied with.

However, we cannot agree with the appellant that one of the requisites of a
partnership agreement, such as the one under consideration, is that it should be in
writing.

Article 1667 of the Civil Code provides that "Civil partnerships may be established in
any form whatever, unless real property or real rights are contributed to the same,
in which case a public instrument shall be necessary."

"Articles of partnership are not required to be in writing except in the cases


mentioned in article 1667, Civil Code, which controls article 1280 of the same Code.
(Fernandez vs. De la Rosa, 1 Phil., 671.)

"A verbal partnership agreement is valid between the parties even though more
than 1,500 pesetas are involved and can be enforced without bringing action under
article 1279, Civil Code, to compel execution of a written instrument. (Arts. 1261,
1278-1280, 1667, Civil Code; arts. 116-119, 51 Code of Commerce.) Thunga Chui
vs. Que Bentec, 2 Phil., 561." (4 Phil. Digest, 3468.)

The dispositive part of the decision of the trial court reads as follows:

"Habiendose probado, sin pruebas en contrario, de que el demandado obtuvo


durante su administracion de este negocio, semillas de bagus por valor de P2,925
que no dio cuenta ni participacion a sus consocios los demandantes, el Juzgado
declara al demandado en deber a la sociedad, compuesta por demandantes y
demandado, en la suma de P2,925, importe de 975,000 semillas de bagus a P3 el
millar, y ordena que entregue esta suma al depositario judicial nombrado, como
fondos de dicha sociedad.
"Se sobreseen las contrademandas y se condena en costas al demandado. Asi se
ordena."

This decision is affirmed with costs in both instances against the defendant-
appellant. So ordered.

Malcolm, Villa-Real, Hull, and Imperial, JJ., concur.

||| (Magalona v. Pesayco, G.R. No. 39607, [February 6, 1934], 59 PHIL 453-456)

EN BANC

[G.R. No. L-24193. June 28, 1968.]

MAURICIO AGAD, plaintiff-appellant, vs. SEVERINO MABATO & MABATO & AGAD
COMPANY, defendants-appellees.

Angeles, Maskario & Associates for plaintiff-appellant.

Victorio S. Advincula for defendants-appellees.

SYLLABUS

1. CIVIL LAW; PARTNERSHIP; PURPOSE TO "OPERATE A FISHPOND"; APPLICABILITY


OF ART. 1773 N.C.C. Where a partnership was formed "to operate a fishpond", not
to "engage in a fishpond business", and the partners contributed P1,000.00 each as
their share, Art. 1773 of the Civil Code does not apply, it appearing that neither a
fishpond nor a real right thereto was contributed to the partnership or become a
part of the capital thereof, even if a fishpond or a real right thereto could become
part of its assets.
DECISION

CONCEPCION, J p:

In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the
Court of First Instance of Davao, we are called upon to determine the applicability of
Article 1773 of our Civil Code to the contract of partnership on which the complaint
herein is based.

Alleging that he and defendant Severino Mabato are pursuant to a public


instrument dated August 29, 1952, copy of which is attached to the complaint as
Annex "A" partners in a fishpond business, to the capital of which Agad
contributed P1,000, with the right to receive 50% of the profits; that from 1952 up
to and including 1956, Mabato who handled the partnership funds, had yearly
rendered accounts of the operations of the partnership; and that, despite repeated
demands, Mabato had failed and refused to render accounts for the years 1957 to
1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company,
filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay him
(Agad) the sum of P14,000, as his share in the profits of the partnership for the
period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering the
dissolution of the partnership, as well as the winding up of its affairs by a receiver to
be appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and denied
the existence of said partnership, upon the ground that the contract therefor had
not been perfected, despite the execution of Annex "A", because Agad had allegedly
failed to give his P1,000 contribution to the partnership capital. Mabato prayed,
therefore, that the complaint be dismissed; that Annex "A" be declared void ab
initio; and that Agad be sentenced to pay actual, moral and exemplary damages, as
well as attorney's fees.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint
states no cause of action and that the lower court had no jurisdiction over the
subject matter of the case, because it involves principally the determination of
rights over public lands. After due hearing, the court issued the order appealed
from, granting the motion to dismiss the complaint for failure to state a cause of
action. This conclusion was predicated upon the theory that the contract of
partnership, Annex "A", is null and void, pursuant to Art. 1773 of our Civil Code,
because an inventory of the fishpond referred in said instrument had not been
attached thereto. A reconsideration of this order having been denied, Agad brought
the matter to us for review by record on appeal.

Articles 1771 and 1773 of said Code provide:

"Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument
shall be necessary.

"Art. 1773. A contract of partnership is void, whenever immovable property is


contributed thereto, if inventory of said property is not made, signed by the parties,
and attached to the Public instrument."

The issue before us hinges on whether or not "immovable property or real rights"
have been contributed to the partnership under consideration. Mabato alleged and
the lower court held that the answer should be in the affirmative, because "it is
really inconceivable how a partnership engaged in the fishpond business could exist
without said fishpond property (being) contributed to the partnership." It should be
noted, however, that, as stated in Annex "A" the partnership was established "to
operate a fishpond", not to "engage in a fishpond business". Moreover, none of the
partners contributed either a fishpond or a real right to any fishpond. Their
contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4 of the
Annex "A" provides:

"That the capital of the said partnership is Two Thousand (P2,000.00) Pesos
Philippine Currency, of which One Thousand (P1,000.00) pesos has been contributed
by Severino Mabato and One Thousand (P1,000.00) Pesos has been contributed by
Mauricio Agad.

xxx xxx xxx"


The operation of the fishpond mentioned in Annex "A" was the purpose of the
partnership. Neither said fishpond nor a real right thereto was contributed to the
partnership or became part of the capital thereof, even if a fishpond or a real right
thereto could become part of its assets.

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that,
the order appealed from should be, as it is hereby set aside and the case remanded
to the lower court for further proceedings, with the costs of this instance against
defendant- appellee, Severino Mabato. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ.,
concur.

||| (Agad v. Mabato, G.R. No. L-24193, [June 28, 1968], 132 PHIL 634-637)

FIRST DIVISION

[G.R. No. L-3186. March 7, 1907.]

THE GREAT COUNCIL OF THE UNITED STATES OF THE IMPROVED ORDER OF RED
MEN, plaintiff-appellee, vs. THE VETERAN ARMY OF THE PHILIPPINES, defendant-
appellant.

Hartigan, Rohde, & Gutierrez, for appellant.

W. A. Kincaid, for appellee.

SYLLABUS
1. VETERAN ARMY OF THE PHILIPPINES. The constitution of the Veteran Army of
the Philippines makes provision for the management of its affairs, so that article
1695 of the Civil Code, making each member an agent of the partnership in the
absence of such provision, is not applicable to that organization.

2. ID.; FRATERNAL SOCIETIES; PARTNERSHIP. Whether a fraternal society, such as


the Veteran Army of the Philippines, is a civil partnership is not decided.

DECISION

WILLARD, J p:

Article 3 of the Constitution of the Veteran Army of the Philippines provides as


follows:

"The object of this association shall be to perpetuate the spirit of patriotism and
fraternity those men who upheld the Stars and Stripes in the Philippine Islands
during the Spanish war and the Philippine insurrection, and to promote the welfare
of its members in every just and honorable way; to assist the sick and afflicted and
to bury the dead, to maintain among its members in time of peace the same union
and harmony with which they served their country in times of war and insurrection."

Article 5 provides that:

"This association shall be composed of

"(a) A department.

"(b) Two or more posts."


It is provided in article 6 that the department shall be composed of a department
commander, fourteen officers, and the commander of each post, or some member
of the post appointed by him. Six members of the department constitute a quorum
for the transaction of business.

The Constitution also provides for the organization of posts. Among the posts thus
organized is the General Henry W. Lawton Post, No. 1. On the 1st day of March,
1903, a contract of lease of parts of a certain buildings in the city of Manila was
signed by W.W. Lewis, E.C. Stovall, and V.O., Hayes, as trustees of the Apache Tribe,
No. 1, Improved Order of Red Men, as lessors, and Albert E. McCabe, citing for and
on behalf of Lawton Post, Veteran Army of the Philippines as lessee. The lease was
for the term of two years commencing February 1, 903, and ending February 28,
1905. The Lawton Post occupied the premises in controversy for thirteen months,
and paid the rent for that time. It them abandoned them and this action was
commenced to recover the rent for the unexpired term. Judgment was rendered in
the court below on favor of the defendant McCabe, acquitting him of the complaint.
Judgment was rendered also against the Veteran Army of the Philippines for
P1,738.50, and the costs. From this judgment, the last named defendant has
appealed. The plaintiff did not appeal from the judgment acquitting defendant
McCabe of the complaint.

It is claimed by the appellant that the action can not be maintained by the plaintiff,
The Great Council of the United States of the Improved Order of Red Men, as this
organization did not make the contract of lease.

It is also claimed that the action can not be maintained against the Veteran Army of
the Philippines because it never contradicted, either with the plaintiff or with Apach
Tribe, No. 1, and never authorized anyone to so contract in its name.

We do not find it necessary to consider the first point because we think the
contention of the appellant on the second point must be sustained.

It is difficult to determine the exact nature of the defendant organization. It is of


course not a mercantile partnership. There is some doubt as to whether it is a civil
partnership, in view of the definition of the term in article 1665 of the Civil Code.
That article is as follows:
"Partnership is a contract by which two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves."

It seems to be the opinion of the commentators that where the society is not
constituted for the purpose of gain. it does not fall within this article of the Civil
Code. Such an organization is fully covered by the Law of Associations of 1887, but
that law was never extended to the Philippine Islands. According to some
commentators it would be governed by the provisions relating to the community of
property. However, the questions thus presented we do not find necessary to , and
to not resolve. The view most favorable to the appellee is the one that makes the
appellant a civil partnership. Assuming that is such, and is covered by the provisions
of title 8, book 4 of the Civil Code, it is necessary for the appellee to prove that the
contract in question was executed by some authorized to so by the Veteran Army of
the Philippines.

Article 1695 of the Civil Code provides as follows:

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

"1 All the partners shall be considered as agents, and whatever any one of them
may do by himself shall bind the partnership; but each one may oppose the act of
the others before they may have produced any legal effect."

One partner, therefore, is empowered to contract in the name of the partnership


only when the articles of partnership make no provision for the management of the
partnership business. In the case at bar we think that the articles of the Veteran
Army of the Philippines do so provide. It is true that an express disposition to that
effect is not found therein, but we think one may be fairly deduced from the
contents of those articles. They declare what the duties of the several officers are.
In these various provisions there is nothing said about the power of making
contracts, and that faculty is not expressly given to any officer. We think that it was,
therefore, reserved to the department as a whole; that is, that in any case not
covered expressly by the rules prescribing the duties of the officers, the department
were present. It is hardly conceivable that the members who formed this
organization should have had the intention of giving to any one of the sixteen or
more persons who composed the department the power to make any contract
relating to the society which that particular officer saw fit to make, or that a
contract when so made without consultation with, or knowledge of the other
members of the department should bind it. We therefore, hold, that no contract,
such as the one in question, is binding on the Veteran Army of the Philippines unless
it was authorized at a meeting of the department. No evidence was offered to show
that the department had never taken any such action. In fact, the proof shows that
the transaction in question was entirely between Apache Tribe, No. 1, and the
Lawton Post, and there is nothing to show that any member of the department ever
knew anything about it, or had anything to do with it. The liability of the Lawton Post
is not presented in this appeal.

Judgment against the appellant is reversed, and the Veteran Army of the Philippines
is acquitted of the complaint. No costs will be allowed to either party in this court.
After the expiration of twenty days let judgment be rendered in accordance to the
lower court for proper action. So ordered.

Arellano, C.J., Torres, Mapa, Johnson, and Tracey, JJ., concur.

Carson, J., did not sit in this case.

||| (Red Men v. Veteran Army of the Philippines, G.R. No. L-3186, [March 7, 1907], 7
PHIL 685-689)

FIRST DIVISION

[G.R. No. L-12371. March 23, 1918.]

LEOPOLDO CRIADO, plaintiff-appellant, vs. GUTIERREZ HERMANOS, defendant-


appellant.

Eduardo Gutierrez Repide and Felix Socias for plaintiff-appellant.


C.W. O'Brien for defendant-appellant.

SYLLABUS

1. PARTNERSHIP; LIMITATION OF ACTIONS; RECOVERY OF PROFITS ON PARTNERSHIP


CONTRACT. The period of time fixed for the prescription of an action brought for
the purpose of demanding from a mercantile firm a certain sum as the profits of its
business, by reason of a partnership contract that produces between the partners
reciprocal rights and obligations is that of ten years as fixed in section 43 No. 1 of
the Code of Civil Procedure.

2. ID.; DETERMINATION OF INTEREST OF INDUSTRIAL PARTNERS; LIABILITY FOR


LOSSES. Pursuant to the pertain to the industrial, in order to determine the profits
that pertain to the industrial partner entitled to share in the profits but no obliged to
guarantee the firm's losses, all the various profits produced by the firm's business
and transactions must be added together, from which sum must be deducted the
firm's losses, if the profits are greater than the losses, and the difference is the net
profit in which the industrial partner shares; but if, on the contrary, the losses are
greater than the profits, according to the articles of partnership, the industrial
partner should not be liable for the resultant balance which constitute a real failure
for the firm.

3. ID.; TERMINATION OF EXISTENCE; SIGNING OF ARTICLES OF RECONSTITUTED


PARTNERSHIP BY INDUSTRIAL PARTNER AS CAPITALIST DOES NOT AMOUNT TO
RENUNCIATION OF INTEREST IN FORMER FIRM. When in a mercantile partnership,
at the expiration of the term of its existence and upon its reorganization for the
continuance of its business, an industrial partner becomes a capitalist partner by
bringing in a certain determine amount of assets-in the new articles of partnership
no mention being made of any larger amount which constitutes the remainder of his
aliquot part of the total assets of the extinct partnership of which he was a mere
industrial partner, nor of the condonation or waiver of any other sum whatever
which might pertain to him from the previous extinct partnership-it is not proper to
hold that such partner was in estoppel and lost his right to collect the remainder of
his assets in the previous partnership by having joined the new partnership wherein
he appears as a capitalist partner who has brought a fixed sum to the assets of the
new partnership, as it would not be just that the deprived of what belongs to him,
nor that his copartners in the previous extinct partnership should, without any
equitable reason and to the grave detriment of his interest, benefit by such
misappropriation.

4. ID.; ID.; PARTNER NOT OBLIGED TO BE LIQUIDATOR. The partner who is not the
administrator of a general or a limited partnership is not obliged to discharge the
duties of a liquidator of the partnership to which he belongs. (Arts. 170-174, 228
and 229, Code of Commerce.)

DECISION

TORRES, J p:

In the ordinary proceedings prosecuted in the Court of First Instance of Manila by


counsel for Leopoldo Criado against the firm of Gutierrez Hermanos for the recovery
of a sum of money, on September 11, 1916, judgment was handed down whereby
said firm was ordered to pay, in addition to other amounts therein specified.
P54.296.62. with interest thereon at the rate of 6 per cent per annum from May 25,
1912, and whereby it was held that plaintiff was entitled to a share of .34064 per
cent on P818,260.70, the total amount of the unpaid bills, subject to the liability of
10 per cent contracted toward the defendant in respect to said bills or to such part
thereof as should be found to be uncollectible, with the costs against the defendant.
Both parties excepted from his judgment and moved for a new trial, which motion
was denied by an order of September 25th of the same year, to which both parties
excepted. Plaintiff and defendant by mutual consent have filed but a single bill of
exceptions and the same was approved, certified and forwarded t the clerk of this
court, together with the oral and documentary evidence of record.

The original complaint was filed in the Court of First Instance on May 25, 1912, and
after being twice amended was finally filed on January 15, 1913. Upon answering it,
defendant interposed a cross-complaint. After full trial, judgment was rendered on
July 8, 1913, by which, dismissing plaintiff's first, second, third, and fourth causes of
action and the cross-complaint of the defendant the court sentenced the defendant,
the firm of Gutierrez Hermanos, to pay the several sums specified in the fifth, sixth,
seventh, eight, ninth, and tenth causes of action, with legal interest thereon from
May 25, 1912, and ordered same further to render accounts to the plaintiff for the
reason therein stated, and to pay the costs. From this judgment defendant appealed
and moved for a new trial. The motion was denied and defendant excepted and filed
the proper bill of exceptions which was forwarded to this court. Upon hearing, a
decision was rendered on March 24, 1915, whereby, for the reasons therein given,
the judgment appealed from was set aside and the record remanded to the court of
origin for the proper proceedings.

The proceedings in the Court of First Instance having been reopened upon petition
by plaintiff, on May 24, 1915, the judge ordered the defendant Gutierrez Hermanos
to render within a period of twenty days a detailed account, supported by vouchers,
of the share which the plaintiff might have in the capital stock of said firm up to that
date. In compliance with this order, the defendant presented an account (record, pp.
103-124) certified by the bookkeeper of the firm of Gutierrez Hermanos on June 3 of
the same year.

In view of the fact that the defendant firm had not complied with the order of the
court in respect to the account presented, counsel for plaintiff moved in writing that
the clerk of court, McMicking, be appointed so that, in his presence and in that of
the parties, G.B. Wicks might proceed to make a true liquidation of plaintiff's said
share of the capital stock of the firm of Gutierrez Hermanos, since his separation
therefrom, on December 31, 1911. Said motion was accompanied by an affidavit in
which the plaintiff Leopoldo Criado declared under oath that he had examined the
accounts presented by the defendant referring to his capital in that firm and that
said accounts were based upon a false debit balance of P26,349.13- a balance
which had been previously impeached by the affiant as well as the accounts from
which said sum is sought to be derived. Wherefore he again assailed them in their
totality on the grounds that some of the entries thereof were improper, others
fraudulent, and still other false. Therefore plaintiff's counsel moved that defendant
be ordered to place immediately at the disposal of Commissioner Wicks all the
books, accounts, bills, vouchers, and other documents that might be necessary, in
order that said liquidation might be might within a period of 30 days. Despite the
motion made by defendant's counsel, by an order of September 2, 1915, the court
ruled in conformity therewith, authorizing defendant to appoint another expert
accountant who together with the one already designated, Wicks, might examine
the books an documents aforementioned. On motion by plaintiff, and
notwithstanding the arguments made by the defendant firm, it was provided by
another order of the court that said firm should comply with what the court had
previously ordered, to wit, to place said books and documents at the disposal of the
commissioner for this examination in the office of the clerk of court, on the three
specified days of the week, from 2.30 o'clock up every afternoon.
After a rehearing of the case and an examination of George B. Wicks was made
regarding the contents of the report that he had submitted after studying for that
purpose the books and other documents placed at his disposal by the defendant-to
which report he attached several documents in proof or substantiation of the
different items mentioned in said report (Exhibit Z-3) in view of the result and the
evidence adduced by the parties, and by the said commissioner's report duly
supported by vouchers, the court rendered the judgment aforementioned, on
September 11, 1916. To this both parties excepted and moved for a new trial. This
motion was denied, exception was taken, and, upon receipt of the proper bill of
exceptions, both appeals were forwarded in the usual manner.

Counsel for the defendant-appellant assails in general the judgment appealed from
because the trial court did not determine the issues raised in the first, second, third,
fourth, sixth, seventh, eight, ninth, and tenth causes of action, and in defendant's
cross-complaint; and inasmuch as in the judgment the contrary appears with the
exception of the first cause of action, the court will now proceed to examine each of
the causes of action referred to in the complaint and assailed by defendant and also
the cross-complaint filed by the latter in its answer.

The first cause of action consists in the obligation assumed by Miguel Alonzo,
formerly one of the general partners and the manager of the firm of Gutierrez
Hermanos, to pay to the plaintiff Leopoldo Criado the sum of P1,100 by reason of
the contract of loan of said sum executed by Alonzo in behalf of Criado, and to
prevent plaintiff from suing for the recovery of that an action against the testate or
intestate estate of the debtor who died without having paid his debt; the other
partner Miguel Gutierrez de Celis, manager of the firm, succeeded in persuading the
plaintiff Criado to refrain from suing for the recovery of his credit by promising to
return said sum to Criado this not being a strange obligation, for at the time of
his death the deceased debtor Miguel Alonzo, was a partner in the firm of Gutierrez
Hermanos and had a share in the firm's assets. But the fact is that from 1889, when
settlement had already been made of the decedent's said share and in spite of the
attempts to collect made by the creditor he was unable to recover the loan.

Even on the supposition that at the time of his death the debtor Miguel Alonzo
certainly and positively left this debt an that order to avoid judicial proceedings on
the part of the creditor, Miguel Gutierrez de Celis subrogated and put himself in the
place of debtor, binding himself to pay said amount to plaintiff, yet, in view of the
fact that said loan we made as an independent private act, unconnected with the
mercantile operations of the firm of Gutierrez Hermanos, and that the record does
not duly show that this firm, through its manager assumed the obligation to
reimburse the sum, there is no provision of law to warrant us in holding that the firm
of Gutierrez Hermanos is obliged to pay the amount claimed by plaintiff as the
subject-matter of his first cause of action.

In the second cause of action plaintiff demands the payment of P43,410.86, and
alleges that, pursuant to a notarial instrument of March 29, 1900, he became a
partner of the firm of Gutierrez Hermanos; and that said document stipulated that
the partnership should last for four years from January 1, 1900, and, among other
conditions, it contained the following:

"Second. Therefore the partnership is organized among the parties to this


instrument, Don Placido Gutierrez de Celis, Don Miguel Gutierrez de Celis, Don
Miguel Alonzo y Gutierrez, Don Daniel Perez y Alberto, and Don Leopoldo Criado y
Garcia, the first three as capitalist partners, and the last two as industrial partners."

"Eight. All earnings or profits that may be obtained shall be distributed among the
partners in the following proportion: 37 per cent to Don Miguel Gutierrez de Celis;
16 per cent to Don Miguel Alonzo y Gutierrez; 5 per cent, to Don Daniel Perez y
Alberto; and 5 per cent to Don Leopoldo Criado y Garcia. In the same proportion
above established for the profits the capitalist partners shall be liable for all losses
or damages that may be sustained."

A copy of said instrument was presented as Exhibit A and made an integral part of
the complaint.

Plaintiff also alleged that, according to the books of the defendant firm, his capital
was P56,796.25 in 1902, and, according to the balance had on December 31, 1903,
the profits obtained amounted to P256,025.31, 5 per cent of which, or P12,801.26,
belonged to him, according to the eight clause of the articles of partnership,
although the manager Miguel Gutierrez de Celis, by means of false and erroneous
entries in the books, succeeded in concealing such profits, thereby injuring him in
said amount of P43,410.86. Plaintiff testified that as soon as he learned of such
entries, he at once protested, but that said manager assured him that as soon as
the probate proceedings concerning the estate of the decedent Miguel Alonzo
should be determined said amount would be refunded although in spite of his
efforts said promise has not been fulfilled.

In its answer the defendant firm admitted that plaintiff Criado was an industrial
partner entitled to 5 per cent of the profits, but denied all the other averments of
the complaint. In special defense it alleged that on December 31, 1903, there was
made a liquidation and balance of the business of the firm-operations which were
approved by all the partners with no protest made by plaintiff before or after said
liquidation, but on the contrary, he gave his assent thereto and without reserve
whatsoever he executed a new partnership contract, inasmuch as the sum shown
by said liquidation and balance of the business of the firm at the end of December,
1903, formed the basis of the capital mentioned in the articles of partnership
executed before a notary on May 9, 1904. Finally, the defendant alleged that, in
accordance with the provisions of section 43 of the Code of Civil Procedure, this
second cause of action had already prescribed, inasmuch as its object, the recovery
of personal property, prescribed after four years, just as an action for damages by
reason of fraud.

The purpose of the second cause of action exercised by plaintiff's counsel is to


obtain from the defendant the share of the profits earned by the firm from 1900 to
December 31, 1903, belonging to plaintiff, by reason of the partnership contract
a contract that produced reciprocal rights and obligation between the partners
and if the record shows as duly proven that there were profits, the obligation on the
part of the defendant firm to pay to plaintiff his share of said profits at the rate of 5
per cent is inevitable, there appearing no just and legal reason in the record for
exempting the defendant from the fulfillment of said obligation. It is therefore not
proper to assert that the action brought by plaintiff has for its object the recovery of
personal property, or to demand damages for fraud, and therefore the period for
prescription is not the four years fixed by section 43, paragraph 3, of the Code of
Civil Procedure, but that of ten years, as provided in paragraph 1 of said section,
inasmuch as the action brought is founded on a contract in writing and demand is
thereby made for the payment of a certain net sum, entered in the books of the firm
of Gutierrez Hermanos, for the prescription of which the lapse of ten years is
required a period which certainly has not elapsed since the last balance was
made of the business of the firm of which Leopoldo Criado was a partner.

In order to determine whether-besides the sum of P25,129.09 which constituted the


capital brought by the plaintiff Leopoldo Criado, as capitalist, during the second
period of the firm newly organized in 1904 plaintiff still has a right to demand the
sum that is the subject of his complaint in the second cause of action, or any other
owing him in his capacity of industrial partner during the first period of the firm
organized for four years from January, 1900, it becomes necessary first to decide
whether in fact the plaintiff is in estoppel and unable to oppose any valid objection
against said liquidation and balance; inasmuch as, according to the inventory of the
firm's business, made on December 31, 1903, which was signed by Leopoldo Criado,
Miguel Gutierrez de Celis and Daniel Perez de Celis, plaintiff Criado's capital on that
date was only P25,129.09, the sum recorded as his capital in the articles of
partnership, Exhibit O, which were in force during the second period from January,
1904, although this contract was executed on May 9 of that year. From clause 7 of
said contract, it appears that the firm's capital stock amounted to P1,605,479.30, of
which the sum of P25,129.09 belonged to Leopoldo Criado, as the capital brought by
him into the new firm.

In an affidavit plaintiff stated that when he learned of the contents of the firm's
books, he protested against the entries therein, but that the manager Gutierrez de
Celis assured him that he would lose nothing by those entries made in connection
with a serious matter then pending; that afterwards he learned that said entries had
been made in the books through fear that Jose Fortiz, a creditor of 5 per cent of the
years 1902 and 1903; that in fact Fortiz did bring judgment not only in the Court of
First Instance but also in the Supreme Court which affirmed the judgment of the
lower court (record, p. 381); that another reason why said false and erroneous
entries were made in the firm's books by Gutierrez de Celis was to show the family
of the deceased Miguel Alonzo that the losses reported in hi letter received during
his lifetime from Gutierrez de Celis were due to his poor management of the firm's
business (record, pp. 381 and 382); that as, in spite of the repeated steps taken by
plaintiff, said Gutierrez de Celis did not fulfill his promise to pay the sums which had
been unduly withheld by means of those improper entries, plaintiff therefore finally
refused to sign the balance sheet for the business of 1909, but did sign the previous
one containing the record of a loss of P110,000 and also the partnership contract of
1904, showing his capital to be P25,129.09 as he believed that Miguel Gutierrez de
Celis would reimburse him, as he had promised, his share of the sums which had
been entered as losses in the firm's books.

In Exhibit 10 (record, p. 205) there appears an entry which reads thus:

"P501,513.57, amount of the bills cancelled in the books in this date which should
have been cancelled in previous years on account of difficulty in their collection,
some of these bills being of such a nature that they should be charged to the
account of the management as they are contrary to the provisions of the 5th and
10th clauses of the partnership contract . . . but, in view of the fact that the author
of these irregularities is not living so that compliance with the contract may be
demanded of him, we have distributed the losses equally among the three
principal . . . an 5 per cent against each of the industrial partners, Leopoldo Criado's
share of the losses being P25,080.68."

Without doubt this entry was made for the purpose of showing that Miguel Alonzo,
former manager of the partnership, was to blame for these losses. It is to be noted
that, according to the contract, plaintiff as an industrial partner is not liable for said
losses; therefore in this distribution said sum was unduly deducted from his share of
the assets.

In order to prove the certainly of the protest made by plaintiff and the repeated
promises of payment by Miguel Gutierrez de Celis, Attorney Eduardo Gutierrez
Repide was called as a witness and testified that, as a consequence to the
complaint made by the plaintiff to the attorney Marple, one of the members of the
Hartigan law firm, against the acts of the manager of the firm of Gutierrez
Hermanos a proceeding which, as plaintiff stated produced the effect of
continually reducing his assets in the firm by order of the said Marple he, witness,
went to confer with said manager Gutierrez de Celis who after learning of plaintiff's
complaint stated to witness that there was then good and sufficient reason for
making it appear in the firm's books that the industrial partner Leopoldo Criado had
less assets in the firm than in reality he had, but that he should not worry further as
later on the firm would pay him the reduced amount of the forty-three thousand and
odd pesos which made up the reduction, and that, sometime afterwards, witness
having been called as a friend, and not as an attorney, by said manager of the firm,
on meeting the latter, he learned that just then Leopoldo Criado was refusing to sign
the instrument setting forth the new articles of partnership for a new period
because said manager had not fulfilled his promise to return to plaintiff the
aforesaid sum deducted from his capital stock, on which occasion the notary Barrera
was there waiting; that then Gutierrez de Celis directed the witness to tell plaintiff
not to worry, and that said sum would be returned to him; that therefore witness,
trusting in these words of the manager; advised plaintiff to sign the instrument, just
as he did; and that witness afterwards learned that these promises had not been
fulfilled.
In view of the evidence adduced by plaintiff, not rebutted by counsel for the
defendant, if cannot be held that plaintiff was estoppel immediately after having
signed the partnership contract of May 9, 1904, in which it appears that he brought
into the new firm, as capital of his own, P25,129.09, nor many it be said that he was
not entitled to claim the rest of his assets in the firm during the first period form
1900 to 1903, to wit, the difference between the sum of P56,793,25, plaintiff
Criado's capital as an industrial partner and said P25,129.09, the capital brought
into the new firm, inasmuch as it was not the plaintiff, but the manager of the firm,
Miguel Gutierrez de Celis, who intentionally and deliberately induced Leopoldo
Criado to sign said partnership contract of May, 1904, in which plaintiff appeared as
a capitalist partner for the last mentioned sum brought into the general assets of
the firm under the repeated promise that he would afterwards be paid the rest of
the assets due him upon to the aforestated sum of P56,793.25, the amount of
capital standing to his credit at the time of the termination of the previous
partnership on December 31, 1903.

As aforesaid, plaintiff signed the instrument of 1904 in the belief that the manager
of the firm of Gutierrez Hermanos would fulfill the promise he had made not only to
the plaintiff but also to attorney Gutierrez Repide; wherefore, it is evident that the
defendant cannot set up estoppel against the plaintiff, who relied upon said
repeated promise (Act No. 190, sec. 333), inasmuch as the defendant was aware
that plaintiff, as an industrial partner, was entitled to collect a greater sum as a part
of his capital than that brought into the new partnership and he had an indisputable
right to contradict and adduce oral evidence against the contents of said instrument
of May 9, 1904 (Act No. 190, sec. 285), in case the exception of the plaintiff which
the defendant denied were based on the contents of that instrument, and likewise
against the liquidation and balance made at the expiration of the term of the first
partnership, causing to appear in said balance and in the books of the firm, among
other entries, that aforementioned sum of P501,513.57, certified to in the document
Exhibit 10, this amount is sufficiently large when distributed among the partners, as
losses when plaintiff Criado, as one of the industrial partners is not liable for the
losses which the firm may have sustained according to the eight clause of the
notarial instrument of May 29, 1900. The allotment to the industrial partner
Leopoldo Criado of the amount of P25,080.68 as losses suffered by the firm in its
business during the years 1900 to 1903 was notoriously illegal, inasmuch as he,
being merely an industrial partner, was not liable for any loss whatever.

Plaintiff assails several entries made in the books of the firm consisting of losses in
hemp, merchandise, depreciation of streamers, and reductions in the capital stock
belonging to the partners, and amounting to P793,199.24, as well as the net loss
estimated at P110,578.38. But it suffices our purpose to mention the reduction as
losses, distributed among the partners, of P501,613.57, P25,080.68 of which was
charged against the plaintiff as his proportionate loss of the capital, in order to show
the propriety of plaintiff's averments that without any good reason or ground
whatever he sustained a loss by the decrease of his capital.

For the practical application and the fulfillment of the stipulations made by the
partners, in the second and eighth clauses of said articles of partnership of March
29, 1900, it should be understood that, for the purpose of determining the profits
that correspond to an industrial partner who shares in the profits, but is not liable
for the losses, all the various profits from the different transactions carried on by the
firm must be added together from which sum must be subtracted that of the losses
sustained in its business, and in the difference which represents the net profits-if
there are greater than the losses-the industrial partners, i.e., in the sum total of the
profits. But if, on the contrary, the losses are greater and exceed the profits in said
difference the industrial partner should not be liable, for this constitutes a real loss
to the firm.

Wherefore, having examined the documents presented at the trial, among them
Exhibits C, F, P, 2 and 8 as well as the report of the commissioner, Wicks, Exhibit Z-
3, together with the documents attached by him to his report, and taking into
account that only sixty-seven thousand and odd pesos could be collected from the
credits considered as uncollectible, and that the plaintiff, as an industrial partner,
should not be liable for the losses, according to the articles of partnership, it follows
that, at the termination of the partnership in 1903, plaintiff's assets were
P56,793.25, and his liabilities P1,054.56, there being in his favor consequently a
balance of P55,738.69; but as in the instrument of May, 1904, he was credited with
only P25,129.09, as capital brought into the new company, the plaintiff is entitled to
demand that the firm of Gutierrez Hermanos pay him in the sum of P30,609.60.

Furthermore, in the instrument of May 9, 1904, it is not stated that the amount
brought in by plaintiff was the balance and sole asset that he had as an industrial
partner in the extinct firm in 1903, nor that he condoned and renounced any other
assets he might have therein; consequently, he has not lost his right to collect the
rest of his capital by having signed said instrument, and it is not fair that his
copartners should benefit with no just reason and to his prejudice.

The commissioner, Wicks awarded plaintiff P32,875.46, as a part of his capital which
he was entitled to collect (Exhibit Z-3). Plaintiff accepts this sum, though he
demanded more in his complaint; but this court can not accept the commissioner's
conclusion in this particular, inasmuch as plaintiff admitted that his capital, on
December 31, 1902, was the sum aforementioned which appears in the defendant's
books, and in 1903 the firm of Gutierrez Hermanos netted no profits from its
business; because, as a result of the commissioner's examination of the books and
papers of the defendant firm, he unduly awarded plaintiff P6,205.25, as a part of his
capital, which the defendant had failed to pay him in the years 1900 to 1902, and
P1,660.91, as a part of his assets unduly excluded by the defendant firm from his
account of invested capital in 1903, both amount aggregating P7,866.17. It is to be
observed that plaintiff agrees that his capital in 1903, according to the defendant
firm's books, amounts to P56,793.25, without the debt of P1,054.56.

On pages 8 to 12 of Exhibit Z-3 the commissioner Wicks also unduly charged


plaintiff 5 per cent of the interests on certain personal accounts that were canceled
in the books and on certain sums which appeared on the firm's books as losses
pertaining to the year 1904 to 1911, as being related to certain other accounts that
originated during the period 1900 to 1903. These charges were improper because
the interests on the accounts stricken from the books are, like the principal debts,
also losses for which, according to the articles of partnership, the industrial partner
should not be held liable. The amount thus unduly charged against plaintiff on
account of the said 5 per cent interest aggregates P5,600.32, which sum,
subtracted from said P7,866.17, an amount also unduly paid, leaves a difference of
P2,265.85 likewise unduly credited to plaintiff and which apparently increases his
assets. This latter sum, subtracted from that awarded by the commissioner, shows
that plaintiff is entitled only to the sum of P30,609.60, a sum which, with the sole
difference of one centavo through inaccuracy in the calculations, we deem to be
mathematically correct, lawful, just, and in conformity with the stipulations made by
and among the partners in said instrument; and therefore the defendant should be
ordered to pay the same, together with the legal interest thereon from the date of
the filing of the compliant.

As regards the third cause of action in the previous judgment which was set aside,
the complaint, in so far as this cause of action was concerned, was dismissed and
upon a reopening of the case, in subsequent judgment rendered therein on
September 11, 1916, the court abstained from granting the petition made in
connection with said third cause of action; notwithstanding, the plaintiff-appellant in
his brief made no assignment of error with respect to this matter, nor did he request
the court to make any ruling on the petition submitted in connection with said cause
of action. Therefore, notwithstanding the agreement contained in the document
Exhibit 50, and in view of the fact that plaintiff tacitly waived any right he might
have had to enforce this claim, judging from his conduct in the matter of the
collection of the sum of P406.99, also mentioned by the commissioner in his report
Exhibit Z-3, this court dismisses the complaint in so far said third cause of action is
concerned.

In the judgment appealed from , the trial court holds that item relative to the shares
of stock in the Bataan mines pertained to the losses suffered in 1906 and should
have been charged to the account of profits and losses as, according to the 8th
clause of the articles of partnership, plaintiff had suffered a loss not only of 5 but 10
per cent. The plaintiff-appellant likewise makes no assignment of error against
dismissed with to the fourth cause of action. By the fifth cause of action counsel for
plaintiff demands payment of the sum of P88,245.93, and the trial court, for the
reasons stated in the judgment, held that the defendant firm was obliged to pay to
plaintiff the sum of P51,296.62, with legal interest thereon from May 25, 1912, the
date of the filing of the complaint. This finding has not been assailed, nor has any
error been assigned against it by the plaintiff-appellant in his brief, but the
defendant-appellant, ordered in the judgment to pay that sum, made an assignment
of errors based on the reasons set forth in its brief.

The plaintiff having impliedly acquiesced in the finding of the trial court with respect
to the fifth cause of action, we shall now proceed merely to inquire whether that
court actually committed the errors assigned to the judgment by the defendant-
appellant.

According to the document Exhibit 7, presented by the defendant, which appears to


be a copy of plaintiff's stock account, certified as authentic by the defendant's
bookkeeper, the capital stock of the plaintiff Leopoldo Criado, prior to December 29,
1911, was P73,147.87, an amount which also appears in the document (Exhibit P)
and tends to prove that on December 31, 1911, plaintiff capital was the amount
stated, before the annotation of the entries assailed as false and fraudulent by
plaintiff.

The eight and sixteenth clauses of the articles of partnership, Exhibit O (record, P.
82), executed in May, 1904, which ratified and approved the transactions of the firm
of Gutierrez Hermanos from January of that year state the following:
"Eight. The earnings or profits which may obtained shall be distributed among the
partners in the following proportion:

"Forty per cent to D. Placido Gutierrez de Celis;

"Forty per cent to D. Miguel Gutierrez de Celis;

"Ten per cent to D. Daniel Perez Albertos; and

"Ten per cent to D. Leopoldo Criado Garcia.

"In the same proportion provided for the profits, the partners shall be liable for the
losses that may incurred."

"Sixteenth. In case the partnership business should incur such losses as to prevent
a continuance of the business or to make a dissolution of the partnership advisable,
same shall be liquidated, each capitalist partner bearing such loss in a pro rata
proportion to the capital represents, the expenses necessary for the prosecution of
the business being chargeable to the firm as a whole. Notwithstanding these
provisions the partners Don Placido and Don Miguel as principal capitalist partners
may liquidate the partnership or alienate its rights whenever they deem proper so
to do."

By a notarial instrument of January 2, 1908, the life of the partnership was extended
to another term of four years, upon the same bases and conditions (Exh., X p.100).

From the two preinserted clauses of the partnership contracts it is deduced that the
partners should be liable for all the losses incurred by the partnership in the
proportion fixed in the 8th clauses; but that, in case such losses should be of so
great importance as to prevent a continuation of the partnership business, or to
make advisable the dissolution of the partnership, then due action should be taken
in conformity with the provisions of said clause 16, and the partners should be liable
from the losses in a proportion pro rata to their share in the partnership assets; in
consequence whereof, plaintiff should be liable at the rate of 10 per cent of the
losses sustained.

The trial judge held, according to the balance sheet (Exhibit P) admitted by the
defendant (sten. notes, p. 45), the profits in 1911 were P120,986.34; but a mere
reading of this balance sheet shows that the profits were not so much as the
plaintiff claims, even by adding thereto the sum of P30,000, nor did they amount to
the sum fixed by the court, for the reason that same document shows losses of
P21,963.38 for general expenses and of P22,569.41 for the account on its face,
which accounts bear debit balances.

In order to determine the exact amount of the profits and losses during the year
1911, it becomes necessary to examine the 1910 inventory, not discussed by the
litigants, the 1911 inventory. Having examined various documents stating accounts
of several kinds relating to the business of the firm of Gutierrez Hermanos, as those
of merchandise, various debtors, furnitures, shares, consignments, vessels, cash
operations of provincial business, and rural and urban properties, it appears that the
active capital of the partnership was, on December 31, 1911, P2,685,096.40.

According to the inventory Exhibit 51 (record, p. 172), the liabilities of the


partnership were P789,228.65 in 1911.

The unpaid accounts aggregate a total of P148,965.66. In his report (Exhibit Z-3) the
commissioner classified these credits as uncollectible, doubtful and of slow
collection a classification we find very just, since the entry No. 1657, Exhibit T,
admits that a part of such credits, without being uncollectible or doubtful, is of slow
collection. According to said commissioner's report, the uncollectible credits amount
to P33,746.58, and amount which may, in justice, be and considered as lost; those
doubtful amount to P39,864,49, and those of slow collection to P75,354.59, making
a total of P118,219.08.

We cannot consider as lost the credits of slow collection nor even the doubtful ones,
as there is the hope that they may be collected in the future; therefore the sum of
the doubtful credits and those of slow collection should be deducted, as unpaid
accounts from the liabilities which, consequently, are reduced to P671,019.57, an
amount that still must be reduced to P662,337, because in 1912 the balance of
P8,682.57, Ramon Madarieta's debt, was collected as the commissioner states in his
report. According to the entry No. 1658, Exhibit U, the active capital was reduced on
account of the difference in the price of hemp, by the sum of P110,091.19.
Therefore, deducting from the liabilities the excess of P102,534.27, it appears that,
on December 31, subtracted from the active capital, shows that the firm's sum,
compared with the capital that the defendant firm had no December 31, 1910,
which, according to Exhibit Z (record, p. 120) was P2,182,010.04, shows a loss of
P56,716.57. Consequently, there should be deducted from plaintiff's capital 10 per
cent of this sum or P5,671.64 as his share of the loss.

The capital which plaintiff had in the firm in 1911, according to Exhibit 7 (record, p.
197), amounts to P76,141.08, a balance which constituted his capital on December
31, 1910, and adding thereto the sum of the amounts collected, P605.50, the result
is that plaintiff's true assets, in his account of capital stock, must be P76,746.58.
Deducting from this sum that of P2,570.98 which is charged as a debit against
plaintiff, there appears a net balance in is favor of P74,175.60 and, deducting from
this sum 10 per cent of the P56,716.37, or P5,671.64 as losses, there results the
difference of P68,503.97, the sum which he was entitled to collect from the
defendant by this fifth cause of action although the amount was reduced to
P51,296.62 as fixed in the judgment the payment of which the defendant is
obliged in the manner stipulated in the 19th clause of the articles of partnership, in
proportion to the total net capital, that is, at the rate of 3.22 per cent with legal
interest from the date of the filing of the complaint.

By the sixth cause of action plaintiff claims the sum of P2,000, alleging that same
was unduly charged against his private account when, in truth and in fact, in
consequence of a compromise made by advice of the attorneys of the defendant,
the former firm of Del Pan and Ortigas, he, as manager of the defendant firm, paid
said sum to Leopoldo who for this reason, in spite of his better right, desisted
defendant then had an action pending.

The trial court rendered judgment in favor of the plaintiff for P2,000, with legal
interest thereon, at the first hearing of this case, and at the second hearing held
that plaintiff should be paid P1,800, considering the remaining P200 as plaintiff's
share in the loss suffered by the firm on account of said compromise.
The defendant alleged that its manager's statement shows that this sum of P2,000
was paid by Gutierrez Hermanos on the account of Leopoldo Criado, as there was no
need of buying this credit of Leopoldo Ferrer against Tirso Nery, and that while
acting as manager plaintiff took advantage of the opportunity to buy said credit for
25 per cent of its nominal value.

Plaintiff testified that Miguel Gutierrez de Celis read the complaint of Leopoldo
Ferrer and believed that it was advisable to pay this creditor's claim; that therefore
De Celis himself drew the check for the payment of Ferrer's claim and ordered
plaintiff to go to court in company with the attorney to stipulate a compromise
about the matter.

The manager, Miguel Gutierrez de Celis, testified that he had no knowledge of that
complaint and of that compromise; but the court, who saw and observed these
witnesses while they were testifying, gave credence to plaintiff's testimony, and we
see no reason whatever for modifying his judgment in this matter, for the evidence
as a whole tends to prove that plaintiff told the truth.

So therefore plaintiff is entitled to recover from the defendant the sum of P1,800 but
must suffer the loss of the remaining P200 as his share of the loss of the credit.

In the seventh cause of action plaintiff claims compensation for the services
rendered the defendant firm at the instance of Miguel Gutierrez de Celis, and
alleged that a just and reasonable compensation from December 31, 1911, when he
left the firm, until March 30, 1912, is P1,000 per month, such services being
rendered at the request of Miguel Gutierrez de Celis, with the promise that
compensation would be in accordance with the profits obtained; that this value of
services, P1,000 per month, was estimated on the basis of the work done by him
and the profits obtained; that he therefore demanded of Miguel Gutierrez de Celis
the payment of said compensation, but that the latter refused to pay anything
(record, p. 427).

The manager Miguel Gutierrez de Celis testified that Leopoldo Criado lodged and
boarded in the house of Gutierrez Hermanos during the months of January,
February, and March, 1912; that his work consisted solely in being there and seeing
that the things were accomplished; that he intervened in the preparation of the
balance sheets; and that consequently his services were of no value.
Upon the foregoing evidence the lower court rendered judgment in favor of the
plaintiff for the amount claimed and fixed by himself, and basing judgment on the
nature of his work and on what he had earned previously as a partner.

In trying to prove that the trial court erred in its award in favor of plaintiff for this
cause of action, counsel for the that plaintiff could not establish his right under this
cause of action; that, according to the testimony of the defendant's manager, the
sole reason why plaintiff continued in the firm after December 31, 1911, was to
make the final balance sheets; and that therefore he can recover nothing for his
services because the rule established in various American cases cited is that
liquidator-partner is not entitled to any compensation for his services as such,
unless there are special stipulations in the matter of circumstances from which such
contractual stipulations may be deduced.

Assuming that the rule cited were applicable in this country, the same rule favors
the plaintiff for, in the present case, there was not only an implied but an express
contract that defendant should pay plaintiff a compensation proportionate to the
profits that might be obtained from the business for the firm.

With respect to the amount of that compensation, counsel for the defendant say on
the aforecited page of their brief, that plaintiff testified that his salary ought to be in
accordance with the profits that might be obtained but that he did not prove how
much he could have earned elsewhere.

It is undeniable that plaintiff did render services to the defendant firm when he was
not obliged to do so gratuitously, for, neither in the partnership contract (Exhibit O),
nor in the law, is there any provision whatever to the effect that plaintiff as a
partner was obliged to liquidate the business without compensation, since among
the partner's obligations as prescribed by articles 170 to 174 of the Code of
Commerce, such an obligation does not appear, but on the contrary, articles 228
and 229 of the said Code provide that in general or limited partnership, should there
be no objection on the part of any of the partners, the persons who managed the
common funds shall continue in charge of the liquidation. Plaintiff, without being
obliged, rendered service to the defendant at the manager's request, with the
understanding that his compensation should be in proportion to the profits that
might be obtained, and, therefore, it is just and reasonable that such services
should be remunerated.

As regards the amount of the compensation we do not find satisfactory rebuttal of


plaintiff's testimony in this matter, as the manager merely said that plaintiff's
services were worth nothing, a statement that falls by its own weight, for, however
insignificant may be the work one person does on behalf of another, it is always
worth something. There is no evidence that the benefits on which plaintiff bases the
estimate of his compensation were not received nor do we find his estimate
exaggerated. Nor does there appear any reason whatever for modifying the
judgment of the trial court in respect to this point.

Therefore the defendant ought in justice pay to the plaintiff the amount claimed in
this seventh cause of action.

In the eighth cause of action plaintiff claims the sum of P52 as his 10 per cent share
of the P520 which La Germinal paid the defendant as divided obtained in 1911 and
corresponding to the shares of stock the defendant held in that defendant collected
said amount, it failed to credit him with P52, the sum to which he was entitled.

In its answer defendant admitted that it collected the divided mentioned, and that
plaintiff was entitled to the payment of the P52.

Plaintiff testified (record, p. 429) that the books do not show that the sum of P520
was divided among the partners. Counsel for the defendant admitted that they had
no evidence to present in respect to this cause of action.

Therefore plaintiff has an unquestionable right to collect from the defendant the
sum of P52, as held by the trial court.

By the ninth cause of action plaintiff claims the payment of P1,171.11 as his 10 per
cent share of the P11,711.16 which the insurers of several of the defendant's
steamers paid on account of certain damages suffered by these vessels-said repairs
were paid proportionately by all the partners-and that, notwithstanding the
collection of this sum, defendant did not pay him share thereof.

Defendant denied that it received P11,711.16, but admitted that it did receive
P9,032.92, and that of this sum plaintiff should be credited with P935.90.

The court below rendered in favor of plaintiff judgment for P953.90, from which
judgment he did not appeal, nor did the defendant make any assignment of error in
respect thereto. We see no reason whatever for changing or modifying this finding,
for the defendant admitted, as aforesaid, that plaintiff was entitled to the amount
awarded him in the judgment. We therefore affirm this part of the judgment.

By the tenth cause of action plaintiff asks judgment for P3,000, alleging that in
1911, after he had ceased to be a to the account of "Items pending collection" and
credited in favor of Movellan and Angulo, of Paris, insurers of the defendant's
steamers, P35,334.09 for the premiums on the insurance of said steamers of the
year 1912, thereby diminishing the partners' capital; and that of said P35,334.09,
he is entitled to P3,000 which the defendant's manager failed to pay plaintiff,
notwithstanding the demand made upon him so to do.

The defendant alleges that the premiums pertaining to the year 1912 amount to
only P958.97, of which P95.89 belongs to plaintiff, and admits that said sum should
be credited to plaintiff's account.

The lower court rendered judgment in favor of plaintiff for P1,001.22, from which
appealed he did not appeal, and although the defendant appealed from this award
of the judgment, it was not included in its assignment of errors. Nor do we find
anything in the record to show that the trial court erred; on the contrary, we see
that the dates and premiums of the insurance policies mentioned in the judgment,
of which plaintiff should not be held liable, agree with those given in Exhibit 45
(record, p. 297) which is a copy of the insurance policies of the streamers Montaez
Dos Hermanos, and Magallanes, certified to by the bookkeeper of the defendant
firm, no policies of other steamers having been presented, while the report of the
commissioner (record, p. 77), schedule 28 of Exhibit 45. Therefore said award of the
trial court should likewise be affirmed.
DEFENDANT'S CROSS-COMPLAINT.

The defendant asks therein that plaintiff be ordered to pay any amount proved due
the partnership, and alleges that during the time that plaintiff acted as the official in
charge and the manager of the defendant firm's business, to wit, during the period
between May 1 and December 10, 1903, he, knowingly and in contravention of the
stipulations contained in the articles of partnership, sold and delivered various
merchandise and other effects to several debtors, such as Antonio de la Riva, whose
debt had then reached the amount of P88,617.96, and Gerena & Co. whose account
showed a debit balance of P39,417.16, without having the security required by the
articles of partnership; that therefore plaintiff alone is responsible for the losses
occasioned through such procedure; and that, upon making the balance sheet on
December 31, 1911, a loss was found whereby plaintiff owed the defendant more
than P26,000.

The clause to which cross-complaint refers and which was violated by plaintiff is the
fifth of the instrument of March 16, 1900, presented as Exhibit A (record, p. 58), and
is of the following tenor:

"The purpose of the partnership shall be the transaction of business in the purchase
and sale of groceries and beverages from Europe and America, and domestic
merchandise; and in the advancement of funds on goods under security to
companies or to private parties, the credit allowed thereon not to exceed thirty
thousand pesos and granted only on the approval of the principal capitalist
partners."

The trial court dismissed this cross-complaint, for the reason that the transactions,
the responsibility for which the defendant claims to hold plaintiff liable, were
ratified, by Miguel Gutierrez de Celis upon his arrival in the Philippines.

The cross-complaint raises two questions, to wit: (First.) Is plaintiff liable for the
debts of Antonio de la Riva and of Gerena & Co.? (Second.) Is plaintiff in debt to the
defendant in the sum of twenty-six thousand and odd pesos?
With respect to the second question we have already shown in discussing the fifth
cause of action, that, is disclosed by the record, the defendant is indebtedness to
plaintiff.

As regard the first question, even supposing that plaintiff by giving credit to various
persons without taking the security required in the fifth clause of said articles, yet in
the cross-complaint no other reasons are alleged by virtue of which he should be
held liable for said breach of contract.

Article 144 of the Code of Commerce makes a partner liable for the damages
suffered by the partnership by reason of his malice, abuse of powers, or serious
negligence, and requires him to indemnity the partnership, should the other
partners so require, provided an express or verbal approval or ratification of the act
on which the claim is based can not be deduced in any manner whatsoever.
According to this legal provision, in order that the partner at fault may be compelled
to pay an indemnity, it is indispensable, in the first place, that his conduct shall
have caused some damage to the partnership, and, in the second place, that his
conduct should not have been expressly or impliedly ratified by the other partners
or by the manager of the partnership.

In the cross-complaint the allegation is made that plaintiff, violating said fifth clause
of the articles of partnership, sold and delivered merchandise and other effects to
various debtors, such as Antonio de la Riva and Gerena & Co., without the security
required in said articles; and that, because of the large sums which said debtors
owe to the partnership, plaintiff is liable for all the damage and harm caused,
amounting to P128,035.12.

Plaintiff Leopoldo Criado testified, with respect to Gerena & Co., that subsequent to
his arrival in this country, Miguel Gutierrez de Celis continued to maintain
commercial relations with said debtor firm, whose debt would have been collected
had Gutierrez de Celis followed his (plaintiff's) advice and that of the attorneys of
the firm of Gutierrez Hermanos-aside from the fact that the firm of Gerena & Co.
was solvent and could pay its debt; so it is that the business ratified plaintiff's
procedure during the three months and several days that he acted temporarily; in
1903, as manager of the partnership; and for said reason there is no ground upon
which plaintiff may be held liable for the harm occasioned by the non-payment of
the debt of Gerena & Co,: and that rather did the liability for such hard fall upon the
manager Gutierrez de Celis who conscientiously never believed that plaintiff was
solely liable for the loss, for the Entry No. 1889 (Exhibit 10, aforecited) contains the
statement that the author of such losses no longer exists, the fault being attributed
to the deceased Miguel Alonzo, although Miguel Gutierrez de Celis testified (record,
p. 557) that he gave his approval to what had been done, without knowing what it
was, and that he afterwards saw that it was an error, for it was plaintiff who gave
the money to Gerena & Co. Testimony is in direct contradiction to the evidence
contained in the entry aforementioned, written on December 31, 1903, and
notwithstanding that error was discovered by Gutierrez de Celis, as he stated, the
truth is that the amount of the loss was not charged to Leopoldo Criado, neither was
a similar charge made in respect to the amount paid to Leopoldo Ferrer of which
mention has previously been made herein above. So said Entry No. 1889 of the
document Exhibit 10 remained intact.

With respect to the account of Antonio de la Riva which shows, as of December 31,
1903, a debit balance of P91,000 and odd pesos, plaintiff testified (record, p. 590)
that as security for this debt De la Riva had delivered to the firm of Gutierrez
Hermanos a lot of hemp worth P33,218.06, a power of attorney to collect P26,000
from the store "Isla de Cuba" in monthly installments of P2,000, and the insurance
policy of the launch Concha, which represented P34,000; whereby the debt was
reduced to P12,000, on December 31, 1903.

This testimony appears corroborated by the documents and other evidence of


record for, with respect to the power of attorney to collect the sum mention from
the "Isla de Cuba," the same exhibit, No. 5, which is the account of Antonio de la
Riva, certified to by the defendant's bookkeeper, shows that on July 3, August 5, and
September 5, 1903, the account of Antonio de la Riva's indebtedness to the
partnership was credited with various sums collected from the "Isla de Cuba." With
respect to the hemp referred to by witness, the manager himself Miguel Gutierrez
de Celis testified (record, p. 565) that upon his arrival in the Philippines, he allowed
an increase in De la Riva's debt, by reason of the security of the hemp which this
debtor was sending to the firm. With reference to the insurance of the launch
Concha, there is no evidence of record in contradiction of the facts, except the
testimony of Miguel Gutierrez de Celis in which the latter claims that the launch was
purchased by plaintiff in his own name with money belonging to the firm, in order
afterwards to sell it to Antonio de la Riva (record, p. 567). The manager De Celis
does not deny that the partnership policy on the launch as security, more that De la
Riva was the owner of the boat, for, if the launch were sold to De la Riva and the
proceeds from the sale were charged to the latter's account, together with the
expenses occasioned by the trips made by that boat (Exhibit 5), it is obvious that
Antonio de la Riva was the owner of the launch, although he was a debtor to the
firm of Gutierrez Hermanos for its price and the expense incurred.

Consequently it is indisputable and beyond all doubt that when plaintiff turned over
to Miguel Gutierrez de Celis the management and administration of the business of
the firm, this business was in very good condition, and if afterwards losses had been
sustained same were due to the fault of Gutierrez de Celis himself; so it is that, in
canceling in the books the account of Antonio de la Riva, he divided the amount
thereof among all partners, in the belief that it was a loss that affected them all.

Starting from the fact that the record shows that the defendant owes plaintiff
various sums of greater or lesser importance, as stated in the findings on the
majority of the causes of action prosecuted by plaintiff, it is logical that this court
should not find any well-founded or legal reason by virtue of which judgment may
be rendered against plaintiff for whatever amount he may be owing the defendant
firm, inasmuch as the latter is shown to be his debtor. Therefore plaintiff should be
absolved from the cross-complaint filed by the defendant.

As regards the amount of the collectible accounts and of unpaid credits which total
sum is stated in part of this decision relative to the fifth cause of action, it is
undeniable that the plaintiff Leopoldo Criado, as a capitalist partner of the
partnership organized in May, 1904, is entitled to receive 10 per cent of every sum
collected from the date on which he ceased to belong to the firm, January, 1912,
and of whatever sum that in the future may be collected from said collectible
accounts or unpaid credits, and it is so held, without any liability on his part in
relation to the bad or uncollectible credits. Therefore, in view of section 126 of Act
No. 190, we reverse that part of the judgment of the court below whereby such
liability for 10 per cent is imposed upon the plaintiff.

The last error assigned by the defendant to the judgment of the court below relates
to the order of September 2, 1915, in which it is held that the accounts presented
by the defendants are not in accord with the orders given by the Supreme Court in
its previous decision, in so far as it was directed that the firm of Gutierrez Hermanos
should render a new account supported by vouchers to determine exactly plaintiff's
share in the first's assets. In fact the defendant was ordered immediately to present
to the court all its book, vouchers and other documents that might be necessary for
the settlement of the assets pertain to plaintiff during the years 1900 to 1911, and
to place the same at the disposal of the expert, Wicks, might examine the books
and papers of the firm of Gutierrez Hermanos. This order is perfectly legal and just.
It is an interlocutory order of mere procedure, issued in compliance with and in
consequence of the decision of this court, to the end that, with the result of the
liquidation of the accounts made by the expert appointed, without the defendant
having wished to appoint another in use of its right so to do, this court may decide
this suit equitably, in accordance with it true merits and in conformity with the law.

For the foregoing reasons, whereby the errors assigned to the judgment appealed
from with respect to the parts thereof discussed in this decision have been refuted,
the defendant should be, as it hereby is absolved from the complaint by the first
cause of action. By the second cause of action the firm of Gutierrez Hermanos, the
defendant, should be, as it hereby is ordered to pay to the plaintiff Leopoldo Criado
the sum of P30,609.60, with legal interest thereon from May 25, 1912, the date of
the filing of the complaint. In so far as it is based on the third and the fourth causes
of action, said compliant is dismissed. In accordance with the fifth cause of action,
the defendant should be, as it hereby is, ordered to pay to plaintiff the sum of
P51,296.62 fixed in the judgment appealed from with legal interest thereon from the
date when the original complaint was filed, May, 1912, and the plaintiff must pay
said sum in the manner prescribed in the 19th clause of the articles of partnership
of 1904. By the sixth cause of action, the defendant is likewise ordered to pay
P1,800; by the seventh, P3,000; by the eight, P52; by the ninth, P935.90; and by the
tenth, P1,001.22. The part of the judgment relating to plaintiff's liability for 10 per
cent of the outstanding and the uncollectible bills is reversed, and he is reserved his
right in the sums collected or which may be collected from same. The plaintiff
Leopoldo Criado is absolved from the cross-complaint filed by the defendant
Gutierrez Hermanos.

The plaintiff shall by the one-third, and the defendant, two thirds, of the costs of
both instances. The judgment appealed from is thus affirmed in so far as it is in
accord with this decision, and is reversed in so far as it is not. So ordered.

Arellano, C.J., Johnson, Araullo, Street, Malcolm, Avancea, and Fisher, JJ., concur.

||| (Criado v. Gutierrez Hermanos, G.R. No. L-12371, [March 23, 1918], 37 PHIL 883-
912)

FIRST DIVISION
[G.R. No. L-4281. March 30, 1908.]

JOSE GARRIDO, plaintiff-appellant, vs. AGUSTIN ASENCIO, defendant-appellee.

Gregorio Yulo, for appellant.

P. Q. Rothrock, for appellee.

SYLLABUS

1. BOOKS OF ACCOUNT; ADMISSIBILITY. Books of account, although not kept in


accordance with the provisions of the Code of Commerce, if not objected to, are
admissible in evidence, and, in any event, they may be admitted under section 338
of the Code of Civil Procedure, as a memorandum to refresh the memory of the
witness. (Tan Machan vs. Gan Aya, 3 Phil. Rep., 684.)

2. ID.; ID.; ADMISSION. Behn Meyer & Co. vs. Rosatzin (5 Phil. Rep., 660) followed
to the point that books of account kept by a person (or by him jointly with another)
constitute an admission of the facts stated therein and are admissible to show such
admission.

DECISION

CARSON, J p:

Plaintiff and defendant were members of a partnership doing business under the
firm name of Asencio y Cia. The business of the partnership did not prosper and it
was dissolved by mutual agreement of the members. The plaintiff brings this action
to recover from the defendant, who appears to have been left in charge of the
books and the funds of the firm, the amount of the capital which he had invested in
the business. The defendant, alleging that there had been considerable losses in the
conduct of the business of the partnership, denied that there was anything due the
plaintiff as claimed, and filed a cross complaint wherein he prayed for a judgment
against the plaintiff for a certain amount which he alleged to be due by the plaintiff
under the articles of partnership on account of plaintiff's share of these losses.

The trial court found that the evidence substantially sustains the claim of the
defendant as to the alleged losses in the business of the partnership and gave
judgment in his favor.

The only question submitted on appeal is the competency and sufficiently of the
evidence on which the trial court based its findings as to the status of the accounts
of the company.

Plaintiff and appellant makes the following assignment of errors:

First. The trial court erred in holding the estado de cuentas (statement of account)
of the partnership of Asencio y Cia. submitted by the defendant as competent and
sufficient evidence in this case.

Second. The trial court erred in holding that evidence of record proved the existence
of losses in the business of the said partnership.

Third. The trial court erred in refusing to give judgment in favor of the plaintiff.

It appears from the record that by mutual agreement the defendant had general
charge and supervision of the books and funds of the firm, but it appears that these
books were at all times open to the inspection of the plaintiff, and there is evidence
which tends to show that the plaintiff himself made entries in these books touching
particular transactions in which he happened to be interested; so that while it is
clear that the defendant was more especially burdened with the care of the books
and accounts of the partnership, it would appear that the plaintiff had equal rights
with the defendant in this regard, and that during the existence of the partnership
they were equally responsible for the mode in which the books were kept and that
the entries made by one had the same effect as if they had been made by the other.

At the trial the principal question at issue was the amount of the profits or losses of
the business of the partnership during the period of its operation. The plaintiff made
no allegation as to profits, but denied defendant's allegation as to the losses. The
defendant in support of his allegations offered in evidence the estado de cuentas
(general statement of accounts) of the partnership, supported by a number of
vouchers, and by his own testimony under oath as to the accuracy and correctness
of the items set out therein. The plaintiff assigns as error the admission of this
account on the ground that the books of the partnership were not kept in
accordance with the provisions of Title III, Book I, of the Code of Commerce.

It is not necessary for us to consider this assignment of error as to the


inadmissibility of this account on the ground that the books were not kept in
accordance with the provisions of the Commercial Code, because no objection was
made to its admission in the court below; and further, because in any event it was
admissible under the provisions of section 338 of the Code of Civil Procedure as
memorandum used to refresh the memory of the witness. (Tan Machan vs. Gan Aya,
3 Phil. Rep., 684.) We think further that in view of the testimony of record that the
plaintiff jointly with the defendant kept these books, made entries therein, and was
responsible with him therefor, the doctrine laid down in Behn, Meyer & Co., vs.
Rosatzin (5 Phil. Rep., 660) is applicable in this case, and the correctness of the
entries in these books must be taken to be admitted by him, except so far as it is
made to appear that they are erroneous as a result of fraud or mistake.

It appears from the record that the statement of account, the vouchers, and the
books of the company were placed at the disposition of the plaintiff for more than
six weeks prior to the trial, and that during the trial he was given every opportunity
to indicate any erroneous or fraudulent items appearing in the account, yet he was
unable, or in any event he declined to specify such items, contenting himself with a
general statement to the effect that there must be some mistake, as he did not and
could not believe that the business had been conducted at a loss.

The court below seems to have scrutinized the account with painstaking care, and
to have been satisfied as to its accuracy, except as to some unimportant items,
which he corrected, but counsel for the appellant reiterates in this court his general
allegations as to the inaccuracy of the account, and points out some instances
wherein he alleges that items of expenditure appear to have been charged against
the partnership more than once.

Upon the whole record as brought here by the appellant we are not able to say that
the weight of the evidence does not sustain the findings of the trial court, and the
judgment entered in that court should be, and is hereby, affirmed with the costs of
this instance against the appellant. So ordered.

Arellano, C.J., Torres, Mapa Johnson, Willard and Tracey, JJ., concur.

||| (Garrido v. Asencio, G.R. No. L-4281, [March 30, 1908], 10 PHIL 691-694)

FIRST DIVISION

[G.R. No. 44119. March 30, 1937.]

SHARRUF & CO., known also as SHARRUF & ESKANAZI, SALOMON SHARRUF and
ELIAS ESKENAZI, plaintiffs-appellees, vs. BALOISE FIRE INSURANCE CO., SUN
INSURANCE OFFICE, LTD., and SPRINGFIELD INSURANCE CO., SUN INSURANCE CO.,
represented by KUENZLE & STREIFF, INC., defendants-appellants.

Carlos A. Sobral for appellants.

Ramon Diokno for appellees.

SYLLABUS

1. FIRE INSURANCE; RIGHTS TO INSURANCE POLICIES OF A FIRM TRANSMITTED TO A


NEW ONE SUBSTITUTING IT. When the partners of a general partnership doing
business under the firm name of "Sharruf & Co." obtain insurance policies issued to
said firm and the latter is afterwards changed to "Sharruf & Eskenazi", which are the
names of the same and only partners of said firm "Sharruf & Co.", continuing the
same business, the new firm acquires the rights of the former under the same
policies.

2. ID.; PROOF OF THE CAUSE OF THE FIRE. When the evidence relative to the
cause of a fire and the author thereof is so vague and doubtful, the insured cannot
be attributed incendiary intervention therein for the mere fact that he had the keys
to the unoccupied building in his possession.

3. ID.; FRAUDULENT CLAIMS. A person, who presents a claim for damages caused
by fire to articles and goods not existing at the time of the fire, does so fraudulently,
and his claim is fraudulent.

4. ID.; ID. When, immediately after a fire that broke out inside a completely
locked building, lasting scarcely 27 minutes, only about ten or eleven partly burned
and scorched cases, some containing textiles and wrapping paper and others,
statues of saints, have been found without any trace of the destruction of other
cases by said fire, it can neither logically nor reasonably be inferred that 40 of said
cases were inside the building when the fire broke out.

DECISION

VILLA-REAL, J p:

This is an appeal taken by the defendant companies Baloise Fire Insurance Co., Sun
Insurance Office Ltd., and Springfield Insurance Co., represented by Kuenzle &
Streiff, Inc., from the judgment of the Court of First Instance of Manila, the
dispositive part of which reads as follows:

"Wherefore, judgment is rendered ordering the defendant insurance companies to


pay to the plaintiffs Salomon Sharruf and Elias Eskenazi the total amount of P40,000
plus interest thereon at 8 per cent annum from the date of the filing of the
complaint, with the costs of the trial. The defendants shall pay this judgment jointly
in proportion to the respective policies issued by them. The plaintiffs Salomon
Sharruf and Elias Eskenazi shall recover the judgment share and share alike,
deducting from the portion of the plaintiff Elias Eskenazi the sum of P3,000 which
belongs and shall be turned over to the intervenor E. Awad & Co., Inc. It is so
ordered."

In support of their appeal the appellants assign the following alleged errors as
committed by the court a quo in its decision in question, to wit:

"1. The lower court erred in holding, that Salomon Sharruf and Elias Eskenazi had
personality to sue, either as a partnership or individually, and therefore, an
insurable interests.

"2. The lower court erred in holding, that the fire that broke out in the premises at
Nos. 299-301 Muelle de la Industria of this city, occupied by the alleged plaintiffs,
was not of incendiary origin.

"3. The lower court erred in holding, that the 'idea of using petroleum in the fire in
question, surged after the fire for the purpose of making it appear as a part of the
evidence.'

"4. The lower court erred in holding, that the claim of loss filed by the alleged
plaintiffs was not fraudulent, but merely inaccurate, due to the peculiar
circumstances of the case, such as the loss of invoices and sales-slips.

"5. The lower court erred in sentencing the defendants to pay jointly to the alleged
plaintiffs the sum of P40,000, with interest thereon at the rate of 8 per cent per year
and costs.

"6. The lower court erred in overruling defendants' motion for new trial and in failing
to dismiss the case altogether, with costs against the alleged plaintiffs."

The preponderance of the evidence shows the existence of the following facts:
In the months of June and July, 1933, the plaintiffs Salomon Sharruf and Elias
Eskenazi were doing business under the firm name of Sharruf & Co. As they had
applied to the defendant companies for insurance of the merchandise they had in
stock, the latter sent their representative P. E. Schiess to examine and assess it. On
July 25, 1933, the defendant insurance companies issued insurance policies Exhibits
D, E, and F in the total amount of P25,000 in the name of Sharruf & Co. On August
15, 1933, the defendant Springfield Insurance Co. issued an additional policy
(Exhibit G) in the sum of P15,000 in favor of said firm Sharruf & Co., raising the total
amount of the insurance on said merchandise to P40,000. On August 26, 1933, the
plaintiffs executed a contract of partnership between themselves (Exhibit A)
wherein they substituted the name of Sharruf & Co. with that of Sharruf & Eskenazi,
stating that Elias Eskenazi contributed to the partnership, as his capital, goods
valued at P26,299.94 listed in an inventory Exhibit B. It was likewise stated in said
contract that Salomon Sharruf brought to said partnership, as his capital, goods
valued at P24,205.10, appearing in the inventories Exhibits C and C-1. The total
value of the merchandise contributed by both partners amounted to P50,505.04.
Part of said merchandise, most of which were textiles, was sold for P8,000, leaving
goods worth P43,000. In all there were from 60 to 70 bolts of silk. All the goods,
most of which were aluminum kitchen utensils, various porcelain and glass wares,
and other articles, of stucco, were contained in about 39 or 40 cases. The last time
the plaintiffs were in the building was on September 19, 1933, at 4 o'clock in the
afternoon. Up to the month of September 1933, about 30 or 40 cases of
merchandise belonging to the plaintiffs were in Robles' garage at No. 1012 Mabini
Street.

At about 12.41 o'clock on the morning of September 22, 1933, the fire alarm bell
rang in the different fire stations of the city. The firemen of the San Nicolas Fire
Station, headed by Captain Charles A. Baker, were the first to arrive at the scene of
the fire, followed by Captain Thomas F. McIntyre of the Santa Cruz Fire Station, who
arrived at 12.44 o'clock. Having found the door at No. 301, Muelle de la Industria
Street, where the building was in flames, locked, the firemen pumped water on the
upper part of the building and later broke open the door through which they entered
the premises. They then saw an inflamed liquid flowing towards the sidewalk, the
flames thereon blazing more intensely every time water fell on them. The liquid
apparently came from under the staircase of said floor. They likewise noted that the
entire spice occupied by the staircase was in flames except the adjoining room.
After the fire had been extinguished, an earthen pot (Exhibit 15) containing ashes
and the residue of a certain substance, all of which smelled of petroleum, was found
by detective Manalo near the railing of the stairway of the second floor. At about
8.30 o'clock that same morning, detective Irada found another earthen pot (Exhibit
16), one-fourth full of water that smelled of petroleum, under the staircase of the
first floor; straw and excelsior, that also smelled of petroleum, around said pot, a
red rag (Exhibit 18) in front of the toilet, and a towel which also smelled of
petroleum on the garbage, rages and other things stuffed into the petroleum can,
Exhibit 21. On the following day, September 23, 1933, photographs were taken of
the condition of the different parts of the building and of the goods found therein.
Said photographs are: Exhibit 1, showing the interior of the first floor partially
burned, with the staircase, the doorway, the wooden partition wall and pieces of
wood scattered on the floor supposed to be from the door that was demolished;
Exhibit 2, showing about 8 or 9 scorched cases some closed and others open;
Exhibit 3, showing the space or hall of the upper floor partially damaged by the fire
at the place occupied by the staircase, with chairs piled up and unburnt, pieces of
wood and debris apparently from the cement partition wall beside the staircase and
the attic; Exhibit 4, showing the same space taken from another angle, with the
partition wall beside the staircase and the attic; Exhibit 4, showing the same space
taken from another angle, with the partition wall of cement and stone and some
broken railings of the stairway; Exhibit 5, showing a room with partially burnt
partition wall, with a wardrobe and a table in the background, another table in the
center, a showcase near the wall with porcelain and iron articles on top thereof and
fallen and burnt window shutters on the floor; Exhibit 6, showing an open unburnt
showcase containing necklaces with imitation stones and other jewelry; Exhibit 7,
showing piled up chairs and boxes and the burned and destroyed upper part of the
partition wall and attic; Exhibit 8, presenting a showcase with a burnt top,
containing kitchen utensils, tableware, dinner pails and other articles; Exhibit 9,
presenting a half-open trunk with protruding ends of cloth, other pieces of cloth
scattered on the floor, a step of the staircase and a bench; Exhibit 10, showing the
partially destroyed attic and wires wound around the beams; Exhibit 11, presenting
another view of the same attic from another angle. On the 27th of said month and
year, the following photographs were taken: Exhibit 12, presenting a close-up of the
beams and electric wires in the same attic shown in Exhibit 10; Exhibit 13,
presenting a close-up of the wires found in the attic, with an electric bulb hanging
from a beam, and the burnt beams; and Exhibit 14, showing Nos. 14 and 18 wire
entwined with one another on the first floor, with the burnt posts and partition walls.
Electrical Engineer Joseph Mora, who inspected the electric wiring on September 25,
1933, was of the opinion that the wires wound around the beam and a nail might
have caused the fire, but he could not assure whether any of the wires was burned
due to an electrical discharge that passed through it, or whether or not the fire
started from the lighting system. In the burned building the plaintiffs kept petroleum
used for cleaning the floor.
The first question to be decided in the present appeal, which is raised in the first
assignment of alleged error, is whether or not Salomon Sharruf and Elias Eskenazi
had juridical personality to bring this action, either individually or collectively, and
whether or not they had insurable interest.

As already seen, Salomon Sharruf and Elias Eskenazi were doing business under the
firm name of Sharruf & Co. in whose name the insurance policies were issued, Elias
Eskenazi having paid the corresponding premiums.

In the case of Lim Cuan Sy vs. Northern Assurance Co. (55 Phil., 248), this court
said:

"A policy insuring merchandise against fire is not invalidated by the fact that the
name of the insured in the policy is incorrectly written 'Lim Cuan Sy' instead of 'Lim
Cuan Sy & Co.', the latter being the proper legal designation of the firm, where it
appears that the designation of the firm, where it appears that the designation 'Lim
Cuan Sy' was commonly used as the name of the firm in its business dealings and
that the error in the designation of the insured in the policy was not due to any
fraudulent intent on the part of the latter and did not mislead the insurer as to the
extent of the liability assumed."

In the present case, while it is true that at the beginning the plaintiffs had been
doing business under the firm name of "Sharruf & Co.", insuring their business in
said name, and upon executing the contract of partnership (Exhibit A) on August 26,
1933, they changed he title thereof to "Sharruf & Eskenazi," the membership of the
partnership in question remained unchanged, the same and only members of the
former, Salomon Sharruf and Elias Eskenazi, being the ones composing the latter,
and it does not appear that in changing the title of the partnership they had the
intention of defrauding the herein defendant insurance companies. Therefore, under
the above-cited doctrine the responsibility of said defendants to the plaintiffs by
virtue of the respective insurance policies has not been altered. If this is true, the
plaintiffs have juridical personality to bring this action.

The second question to be decided is that raised in the second assignment of


alleged error, which consists in whether or not the fire which broke out in the
building at Nos. 299-301 Muelle de la Industria, occupied by the plaintiffs, is of
incendiary origin.
In maintaining the affirmative, the appellants call attention to the earthen pots
Exhibits 15 and 15, the first found by detective Manalo beside the railing of the
stairway of the upper floor and the second fund by detective Irada on the first floor,
both containing liquid, ashes and other residues which smelled of petroleum; a red
rag (Exhibit 18) found by detective Irada on first floor, both containing liquid, ashes
and other residues which smelled of petroleum; a red rag (Exhibit 18) found by
detective Irada in front of the toilet; the partially burnt box (Exhibit 20); and the old
can (Exhibit 21) containing garbage. The fact that the liquid found by the detective
in the earthen jars smelled of petroleum, does not constitute conclusive evidence
that they had been used as containers for petroleum to burn the house. Said smell
could have very well come from the strips of China wood of which boxes from
abroad are made, the resin of which smells of petroleum, or from the rages found
therein which might have been sued to clean the floor by saturating them with
petroleum. There being petroleum for cleaning the floor in the building, it is not
strange that when the house caught fire the petroleum also caught fire, the flames
floating on the water coming out from under the door from the pumps. There is
neither direct nor strong circumstantial evidence that the plaintiffs personally or
through their agents placed petroleum in the building in order to burn it, because it
was locked on the outside and nobody was staying therein. As it cannot be assumed
that the petroleum might have burned by itself, it is probable that the fire might
have originated from the electric wiring, although electrical engineer Mora stated
that he could not assure whether any of the wires was burned due to an electric
discharge passing through it, or whether or not the fire was cause by the lighting
system.

Upon consideration of all the evidence and circumstances surrounding the fire, this
court finds no evidence sufficient to warrant a finding that the plaintiffs are
responsible for the fire.

With respect to the question whether or not the claim of loss filed by the plaintiffs is
fraudulent, it is alleged by them that the total value of the textiles contained in
cases deposited inside the building when the partnership Sharruf & Eskenazi was
formed was P12,000; that of the fancy jewelry with imitation stones from P15,000 to
P17,000, and that of the kitchen utensils and tableware made of aluminum, bronze
and glass P10,676 (Exhibits B, C, and C-1). If, as said plaintiffs claim, they had
already sold articles, mostly textiles, valued at P8,000, a small quantity of cloth
must have been left at the time the fire occurred. In their claim, however, the
textiles allegedly consumed by fire and damaged by water are assessed by them at
P12,000. The claim of P12,000 is certainly not attributable to a mere mistake in
estimate and counting because if they had textiles worth only P12,000 before the
fire and they sold goods, mostly textiles, worth P8,000, surely textiles in the same
amount of P12,000 could not have been burned and damaged after the fire. Of the
kitchen utensils and tableware made of aluminum, bronze and glass, of which,
according to the evidence for the plaintiffs, they had a stock valued at P10,676
(Exhibit B), there were found after the fire articles worth only P1,248.80 (Exhibit K).
Therefore, utensils valued at P9,427.20 were lacking. A considerable amount of
kitchen utensils made of noninflammable and fireproof material could not, by the
very nature of things have been totally consumer by the fire. At most, said articles
would have been damaged, as the rest, and would have left traces of their
existence. The same may be said of the fancy jewels with imitation stones, and
others of which the plaintiffs claim to have had a stock worth from P15,000 to
P17,000 at the time of the fire, of which only a few value at P3,471.16, were left
after the fire (Exhibit K). According to said plaintiffs, all the articles, for the alleged
loss of which indemnity is sought, were contained in about 40 cases kept on the
upper and lower floors of the building, in show cases and wardrobes. According to
the testimony of the fire station chiefs, corroborated by the photographs of record,
the flames cause more damage in the upper part of the rooms than in the lower
part thereof; since, of the ten or eleven cases found inside the building after the fire
only a few were partially burned and others scorched. Judging from their
appearance, the goods were damaged more by wart than by fire. According to the
inventory made by White & Page, adjusters of the insurance companies, in the
presence of the plaintiffs themselves and according to data supplied by the latter,
the total value thereof, aside from the articles not included in the inventories
Exhibits B, C, and C-1, assessed at P744.50, amounts to only P8,077.35. If the
plaintiffs' claim that at the time of the fire there were about 40 cases inside the
burnt building were true, as ten or eleven of them were found after the fire, traces
of the thirty or twenty-nine cases allegedly burnt would be found, since experience
has shown that during the burning of a building all the cases deposited therein are
not so reduced to ashes that the least vestige thereof cannot be found. In the case
of Go Lu vs. Yorkshire Insurance Co. (43 Phil., 633), this court laid down the following
doctrine:

"This court will legally presume that in an ordinary fire fifty bales of boxes of bolt
goods of cloth cannot be wholly consumed or totally destroyed, and that in the very
nature of things some trace or evidence will be left remaining of their loss or
destruction."

The plaintiffs, upon whom devolve the legal obligation to prove the existence, at the
time of the fire, of the articles and merchandise for the destruction of which they
claim indemnity from the defendant companies, have not complied with their duty
because they have failed to proved by a preponderance of evidence that when the
fire took place in the total amount of the insurance policies or that the textiles and
other damaged and undamaged goods found contrary, their own witness, Robles,
testified that up to the month of September, 1933, there were about 39 or 40 cases
belonging to the plaintiffs in his garage on Mabini Street, indicating thereby that the
cases of merchandise examined by the agent of the insurance companies on July 25
and August 15, 1933, and for which the insurance policies were issued, were taken
from the burned building where they were found. So great is the difference between
the amount of articles insured, which the plaintiffs claim to have been in the
building before the fire, and the amount thereof shown by the vestige of the fire to
have been therein, that the most liberal human judgment can not attribute such
difference to a mere innocent error in estimate or counting but to a deliberate intent
to demand of the insurance companies payment of an indemnity for goods not
existing at the time of the fire, thereby constituting the so-called "fraudulent claim"
which, by express agreement between the insurers and the insured, is a ground for
exemption of the insurers from civil liability.

Therefore, as the herein plaintiffs-appellees have acted in bad faith in presenting a


fraudulent claim, they are not entitled to the indemnity claimed by them by virtue
of the insurance policies issued by the defendant-appellant companies in their favor.

For the foregoing considerations, this court is of the opinion and so holds: (1) that
when the partners of a general partnership doing business under the firm names of
"Sharruf & Co." obtain insurance policies issued to said firm and the latter is
afterwards changed to "Sharruf & Eskenazi", which are the names of the same and
only partners of said firm "Sharruf & Co.", continuing the same business, the new
firm acquires the rights of the former under the same policies; (2) that when the
evidence relative to the cause of a fire and the author thereof is so vague and
doubtful, the insured cannot be attributed incendiary intervention therein for the
mere fact that he had the keys to the unoccupied building in his possession; (3) that
a person who presents a claim for damages caused by fire to articles and goods not
existing at the time of the fire does so fraudulently and his claim is fraudulent, and
(4) that when, immediately after a fire that broke out inside a completely locked
building, lasting scarcely 27 minutes, only about ten or eleven party burned and
wrapping paper and others, statues of saints, have been found without any trace of
the destruction of other cases by said fire, it can neither logically nor reasonably be
inferred that 40 of said cases were inside the building when the fire broke out.
Wherefore, the appealed judgment is reversed, and the defendant companies are
absolved from the complaint which is dismissed, with costs to the appellees. So
ordered.

Avanea, C. J., Abad Santos, Imperial, Diaz, Laurel and Concepcion, JJ., concur.

||| (Sharruf & Co. v. Baloise Fire Insurance Co., G.R. No. 44119, [March 30, 1937], 64
PHIL 258-269)

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 & Santiago for plaintiff-appellee.

Anacleto D. Badoy, Jr. for defendant-appellant.

SYNOPSIS

The defendant company, a general partnership, purchased from Island Sales, Inc. a
motor vehicle, executing for that purpose a promissory note for the entire price,
payable in twelve monthly installments. Having failed to receive the third
installment, Island Sales sued the company, including its general partners as co-
defendants. On motion of plaintiff, the complaint was later dismissed insofar as one
of the partners was concerned. After trial, judgment was entered sentencing the
defendant to pay the sum due, with interest, and expressly stating that the four of
the five partners would pay in case the company has no properties with which to
satisfy judgment. One of the partners appealed claiming that the liability of each
partner should not exceed 1/5 of the obligation due inasmuch as there are five
partners in the company.

The Supreme Court ruled that under Art. 1816 of the Civil Code, the liability of
partners shall be pro-rata; that the dismissal of the complaint to favor one of the
general partners results in the condonation of the debt of that partner's individual
share and that appellant's share in the obligation shall not be increased thereby but
shall be limited to 1/5 of the obligation of defendant company.

Decision affirmed as clarified.

SYLLABUS

1. OBLIGATIONS AND CONTRACTS; LIABILITY OF GENERAL PARTNERS, PRO-RATA;


CONDONATION OF INDIVIDUAL LIABILITY DOES NOT AFFECT THE OTHER'S SHARE IN
THE OBLIGATION. Where there was five general partners when the promissory
note in question executed for and in behalf of the partnership, and the complaint
against one of them was dismissed upon motion of the plaintiff, the general
partner's share in the obligation remains limited to only 1/5 of the amount due and
demandable, their liability being pro-rata.

DECISION

CONCEPCION, JR., J p:

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

"WHEREFORE, the Court sentences defendant United Pioneer General Construction


Company to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per
annum until it is fully paid, plus attorney's fees which the Court fixes in the sum of
Eight Hundred Pesos (P800.00) and costs.
"The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto
Palisoc are sentenced to pay the plaintiff in this case with the understanding that
the judgment against these individual defendants shall be enforced only if the
defendant company has no more leviable properties with which to satisfy the
judgment against it.

"The individual defendants shall also pay the costs."

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

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

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

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

When the case was called for hearing, the defendants and their counsels failed to
appear notwithstanding the notices sent to them. Consequently, the trial court
authorized the plaintiff to present its evidence ex-parte 3 , after which the trial court
rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision
claiming that since there are five (5) general partners, the joint and subsidiary
liability of each partner should not exceed one-fifth (1/5) of the obligations of the
defendant company. But the trial court denied the said motion notwithstanding the
conformity of the plaintiff to limit the liability of the defendants Daco and Sim to
only one-fifth (1/5) of the obligations of the defendant company 4 . Hence, this
appeal.

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

Article 1816 of the Civil Code provides:

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

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

"The partnership of Yulo and Palacios was engaged in the operation of a sugar
estate in Negros. It was, therefore, a civil partnership as distinguished from a
mercantile partnership. Being a civil partnership, by the express provisions of
articles 1698 and 1137 of the Civil Code, the partners are not liable each for the
whole debt of the partnership. The liability is pro rata and in this case Pedro Yulo is
responsible to plaintiff for only one-half of the debt. The fact that the other partner,
Jaime Palacios, had left the country cannot increase the liability of Pedro Yulo."

In the instant case, there were five (5) general partners when the promissory note in
question was executed for and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited
to only one-fifth (1/5) of the obligations of the defendant company. The fact that the
complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of
the plaintiff, does not unmake the said Lumauig as a general partner in the
defendant company. In so moving to dismiss the complaint, the plaintiff merely
condoned Lumauig's individual liability to the plaintiff.

WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without


pronouncement as to costs.

SO ORDERED.

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

||| (Island Sales, Inc. v. Daco, G.R. No. L-22493, [July 31, 1975], 160 PHIL 577-580)

EN BANC

[G.R. No. 24243. January 15, 1926.]

ILDEFONSO DE LA ROSA, administrator of the intestate estate of the deceased Go-


Lio, plaintiff-appellant, vs. ENRIQUE ORTEGA GO-COTAY, defendant-appellant.

Crispin Oben for plaintiff-appellant.

Paredes, Buencamino & Yulo for defendant-appellant.

SYLLABUS

1. PARTNERSHIPS; LIQUIDATION OF THEIR BUSINESS; DETERMINING PROFITS.


When in liquidating a partnership the profits for a given period of time cannot be
exactly determined for lack of evidence, but the profits for certain periods prior and
subsequent thereto are known, the profits corresponding to the said given time may
be determined by finding the average of those profits already known and
multiplying it by the length of the time included between said periods.

2. ID.; ID.; MANAGING PARTNER; HIS AUTHORITY; RECEIVER. When to prevent a


receiver from taking charge of a business in dissolution, the managing partner gives
a bond and continues the business, he ceases to be managing partner from that
time in order to become receiver; and while before that date the property was liable
for his acts, yet that is not the case with his subsequent acts, which are regulated
by the provisions of section 175 of the Code of Civil Procedure, and without express
judicial authority he cannot continue the business of the partnership, being
personally liable for the losses should he do so. (34 Cyc., 296.)

DECISION

VILLA-REAL, J p:

During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a
society for the Purchase and sale of articles of commerce, and for this purpose they
opened a store in the town of San Isidro, Nueva Ecija. Later Go-Lio went to China.
Vicente Go-Sengco died and his son Enrique Ortega Go-Cotay took charge of the
business. Go-Lio died in China in October, 1916, leaving a widow and three children,
one of whom came to the Philippines and filed a petition for the appointment of
Ildefonso de la Rosa as administrator of the intestate estate of his deceased father,
which petition was granted by the Court of First Instance of Nueva Ecija. Ildefonso
de la Rosa, in his capacity as administrator of the intestate estate of the deceased
Go-Lio, requested Enrique Ortega Go-Cotay to wind up the business and to deliver
to him the portion corresponding to the deceased Go-Lio. Enrique Ortega Go-Cotay
denied the petition, alleging that the business was his exclusively. In view of this
denial, Ildefonso de la Rosa, as administrator, on July 2, 1918, filed with the Court of
First Instance of Nueva Ecija a complaint against Enrique Ortega Go-Cotay in which
he prayed that the defendant be sentenced to deliver to the plaintiff one-half of all
the property of the partnership formed by Go-Lio and Vicente Go-Sengco, with costs
against the defendant, and that the said plaintiff be appointed receiver for the
property of the said partnership.

Defendant, in answering the complaint, denied each and every allegation thereof,
and as a special defense alleged that more than ten years had elapsed before the
filing of the complaint, and prayed that he be absolved therefrom, with costs
against the plaintiff.

On August 3, 1918, the Court of First Instance of Nueva Ecija appointed Justo Cabo-
Chan, Francisco T. Tantengco and Go-Tiao, as commissioners to make an inventory,
liquidate and determine the one-half belonging to the plaintiff of all of the property
of the store in question.

On August 9, 1918, in order to prevent Justo Cabo-Chan from assuming the office of
receiver, pursuant to the order of the court dated August 3, 1918, the defendant
filed a bond in the sum of P10,000.

Under the date of November 15, 1920, the said commissioners submitted to the
court their report, showing the net profits of the business between the period from
1913 to 1917, which amounted to the total sum of P25,038.70 and consisted of the
following items:

Profits for the year 1913 2,979.00

Profits for the year 1914 3,046.94

Profits for the year 1915 4,103.07

Profits for the year 1916 4,736.00

Profits for the year 1917 10,174.69

Total 25,038.70

In view of the appeal taken by defendant the parties on December 7, 1921, entered
into an agreement whereby they agreed to suspend the liquidation ordered by the
court until the appeal to the Supreme Court was decided, and whereby the
defendant was authorized to continue in the possession of the property in litigation,
upon the giving of a bond in the amount of P25,000, and cancelling the former bond
for P10,000.

This court in deciding case R. G. No. 18919, on October 5, 1922, held that the
appeal was premature and ordered that the record be remanded to the court of
origin with instruction to enter a final order in accordance with the liquidation made
by the commissioners.

The record having been remanded and two of the commissioners having filed their
resignations, the court below appointed again Justo Cabo-Chan suggested by the
defendant and Cua Poco suggested by the plaintiff, as commissioners, who
submitted two reports, one prepared by commissioners Tantengco and Cua Poco,
and the other by commissioner Justo Cabo-Chan. The former stated in their report
that they had examined the books for the years 1919 to 1922, for the reason, they
said, that they appeared "to have been prepared by some person in a careful way at
a certain time." The latter commissioner examined all the books and stated in his
report that the business had suffered a net loss amounting to the sum of
P89,099.22.

After trial and the parties having introduced all their evidence, the lower court, by
order of December 13, 1924, disapproved the report of the commissioners
Tantengco and Cua Poco, but approved, with slight modifications, the report of
commissioner Cabo-Chan, holding that the result of the liquidation showed liabilities
to the amount of P89,690.45 in view of which plaintiff had nothing to recover from
defendant, as there was no profit to divide.
From this decision the plaintiff has appealed in due time and form making the
following assignment of errors: (1) The lower court erred in holding that the books
were authentic, and in not holding that they were false books exhibited by the
defendant about alleged operations in the years 1918 et seq. which show enormous
debts and imaginary losses of the business; (2) the lower court erred in giving full
credit to the testimony of commissioner Justo Cabo-Chan; (3) the lower court erred
in holding that the partnership had incurred debts and suffered losses, as shown in
the report of Justo Cabo-Chan from 1518 on; (4) the lower court erred in not holding
that the share of the plaintiff, as his capital and profits until the end of 1917, is
equivalent to the sum of twenty-seven thousand seven hundred fifty-five pesos and
forty-seven centavos (P27,755.47), Philippine currency, plus an annual quota of at
least two thousand five hundred three pesos and eighty-seven centavos
(P2,503.87), Philippine currency, as his portion of the profits since the beginning of
1918 until the delivery to the plaintiff of his share in the partnership; (5) the court
below erred in not ordering the prosecuting attorney to commence an investigation
as to the falsified books of accounts that the defendant had exhibited for proper
criminal proceeding.

From the evidence it appears that the partnership capital was P4,779.39, and the
net profits until the year 1915 amounted to P5,551.40. Because some books of
account had been destroyed by white ants (anay), the liquidation of the business of
the partnership for the period from 1906 to 1912 could not be made. But knowing
the net profit for the period between 1904 and 1905, which is P5,551.40, and
finding the average of the profits for each of these years, which is P2,775.70; and
knowing the net profit for the year 1913, which is P2,979, we can find the average
between the net profit for 1905, namely, P2,275.70, and the net profit for the said
year 1913, namely, P2,979. Said average is the sum of P2,877.35, which may be
considered as the average of the net annual profits for the period between 1906
and 1912, which in seven years make a total of P20,141.45. The assets of the
partnership, as well as the value of its property, could not be determined when
making the liquidation because there was no inventory and for this reason it was
not possible to determine the capital of the partnership. The plaintiff, however,
seems to be agreeable to considering the initial partnership capital as the capital at
the time of the winding up of the business.

August 3, 1918, defendant assumed complete responsibility for the business by


objecting to the appointment of a receiver as prayed for by the plaintiff, and giving
a bond therefor. Until that date his acts were those of a managing partner, binding
against the partnership; but thereafter his acts were those of a receiver whose
authority is contained in section 175 of the Code of Civil Procedure.
A receiver has no right to carry on and conduct a business unless he is authorized or
directed by the court to do so, and such authority is not derived from an order of
appointment to take and preserve the property (34 Cyc., 283; 23 R. C. L., 73). It
does not appear that the defendant as a receiver was authorized by the court to
continue the business of the partnership in liquidation. This being so, he is
personally liable for the losses that the business may have sustained. (34 Cyc.,
296.) The partnership must not, therefore, be liable for the acts of the defendant in
connection with the management of the business until August 3, 1918, the date
when he ceased to be a member and manager in order to become receiver.

As to the first semester of 1918, during which time the defendant had been
managing the business of the partnership as a member and manager, taking into
account that the profits had been on the increase, said profits having reached the
amount of P10,174.69 in the year 1917, it would not be an exaggeration to estimate
that the profits for 1918 would have been at least the same as the profits of 1917;
so that for the first half of 1918, the profit would be P5,087.34.

In conclusion we have the following profits of the business of this partnership now in
liquidation, to wit:

Capital of partnership 4,779.39

Profits until 190 5,651.40

Profits 1906-1912 20,141.4

Profits 1913-1917 25,038.70


Profits first semester 1918 6,087.34

Total 60,598.28

One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of
the intestate estate of Go-Lio.

In view of the foregoing, we are of the opinion that the case must be, as is hereby,
decided by reversing the judgment appealed from, and sentencing the defendant to
pay the plaintiff the sum of P30,299.14 with legal interest at the rate of 6 per cent
per annum from July 1, 1918, until fully paid, with the costs. So ordered.

Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Romualdez,
JJ., concur.

||| (De la Rosa v. Go-Cotay, G.R. No. 24243, [January 15, 1926], 48 PHIL 605-610)

SECOND DIVISION

[G.R. No. L-11840. July 26, 1960.]

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.


GOQUIOLAY", plaintiffs-appellants, vs. WASHINGTON Z. SYCIP, ET AL., defendants-
appellees.
Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for appellants.

Sycip, Quisumbing, Salazar & Associates for appellees.

SYLLABUS

1. PARTNERSHIP; MANAGEMENT, RIGHT OF EXCLUSIVE; PERSONAL RIGHT;


TERMINATION UPON MANAGER-PARTNER'S DEATH. The right of exclusive
management conferred upon Tan Sin An, being premised upon trust and confidence,
was a mere personal right that terminated upon Tan's demise.

2. ARTICLES OF CO-PARTNERSHIP; RIGHT OF HEIRS TO REPRESENT DECEASED


PARTNER; MANAGERIAL RIGHT; PROPRIETARY INTEREST. The provision in the
Articles of Co-Partnership stating that "in the event of death of any one of the
partners within the 10-year term of the partnership, the deceased partner shall be
represented by his heirs", could not have referred to the managerial right given to
Tan Sin An; more appropriately, it relates to the succession in the proprietary
interest of each partner.

3. ID.; ID.; EFFECT OF HEIRS' FAILURE TO REPUDIATE; HEIRS BECOME INDIVIDUAL


PARTNERS; MINORITY OF HEIRS. Consonant with the articles of co-partnership
providing for the continuation of the firm notwithstanding the death of one of the
partners, the heirs of the deceased, by never repudiating or refusing to be bound
under the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tan's demise. Minority of the heirs is not a bar to the application of
that clause in the articles of co-partnership. Heirs liability in the partnership being
limited to the value of their importance, they become no more than limited
partners, when they manifest their intent to be bound as general partners.

4. ID.; SALE OF PARTNERSHIP PROPERTIES; CONSENT OF ALL PARTNERS


UNNECESSARY; STRANGERS DEALING WITH PARTNERSHIPS; POWER TO BIND
PARTNERSHIP. As to whether or not the consent of the other partners was
necessary to perfect the sale of the partnership properties, the Court believes that it
is not. Strangers dealing with a partnership have the right to assume, in the
absence of restrictive clauses in the co- partnership agreement, that every general
partner has power to bind the partnership.

5. ID.; ID.; ESTOPPEL. By allowing defendant Kong Chai Pin to retain control of the
partnership properties from 1942 to 1949, plaintiff Goquiolay estopped himself from
denying her (Kong Chai Pin's) legal representation of the partnership, with the
power to bind it by proper contracts.

6. PARTNERSHIP; GENERAL PARTNER BY ESTOPPEL; WIDOW OF MANAGING PARTNER


AUTHORIZED BY OTHER PARTNER TO MANAGE PARTNERSHIP. By authorizing the
widow of the managing partner to manage partnership property (which a limited
partner could not be authorized to do), the other general partner recognized her as
a general partner, and is now in estoppel to deny her position as a general partner,
with authority to administer and alienate partnership property.

7. ID.; HEIR OF PARTNER, STATUS ORDINARILY AS LIMITED PARTNER BUT MAY WAIVE
IT AND BECOME AS GENERAL PARTNER. Although the heir of a partner ordinarily
becomes a limited partner for his own protection, yet the heir may disregard it and
instead elect to become a collective or general partner, with all the rights and
obligations of one. This choice pertains exclusively to the heir, and does not require
the assent of the surviving partner.

8. ID.; PRESUMPTIONS; AUTHORITY OF PARTNER TO DEAL WITH PROPERTY. A third


person has the right to presume that a general partner dealing with partnership
property has the requisite authority from his co-partners.

9. ID.; PROPERTY OF PARTNERSHIP; SALE OF IMMOVABLES, WHEN CONSIDERED


WITHIN THE ORDINARY POWERS OF A GENERAL PARTNER. Where the express and
avowed purpose of the partnership is to buy and sell real estate (as in the present
case), the immovables thus acquired by the firm form part of its stock-in-trade, and
the sale thereof is in pursuance of partnership purposes, hence within the ordinary
powers of the partner.

10. ID.; SALE OF PARTNERSHIP PROPERTY; ACTION FOR RESCISSION ON GROUND OF


FRAUD; NO INADEQUACY OF PRICE; CASE AT BAR. Appellant's claim that the price
was inadequate, relies on the testimony of a realtor, who in 1955, six years after the
sale in the question, asserted that the land was by then worth double the price for
which it was sold. But taking into account the continued rise of real estate values
since liberation, and the fact that the sale in question was practically a forced sale
because the partnership has no other means to pay the legitimate debts, this
evidence certainly does not show such "gross inadequacy" as to justify the
rescission of the sale.

11. ID.; ID.; ID.; RELATIONSHIP ALONE IN NO BADGE OF FRAUD. The Supreme
court has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs.
McMicking, 21 Phil., 243; Hermandad de Smo. Nombre de Jesus vs. Sanchez, 40
Official Gazette 1685).

12. ID.; ID.; ID.; FRAUD OF CREDITORS DISTINGUISHED FROM FRAUD TO OBTAIN
CONSENT. Fraud used to obtain a party's consent to a contract (deceit or dolus in
contrahendo) is different from fraud of creditors that gives rise to a rescission of
contract.

13. ID.; ID.; ID.; SUBSIDIARY NATURE; ALLEGATION OF NO OTHER MEANS TO OBTAIN
REPARATION, NECESSARY. The action for rescission is subsidiary; it can not be
instituted except when the party suffering damage has no other legal means to
obtain reparation for the same. hence, if there is no allegation or evidence that the
plaintiff can not obtain reparation from the widow and heirs of the deceased
partner, the suit to rescind the sale in question s not maintainable, even if the fraud
charged actually did exist.

DECISION

REYES, J.B.L. J p:

Direct appeal from the decision of the Court of First Instance of Davao (the amount
involved being more than P200,000) dismissing the plaintiffs-appellants' complaint.

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

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

"VIII. The affairs of the co-partnership shall be managed exclusively by the


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

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

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

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

However, the partnership could be dissolved and its affairs liquidated at any time
upon mutual agreement in writing of the partners (Art. XIII, articles of Co-
Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this
effect:

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

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

On September 25, 1940, the two separate obligations were consolidated in an


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

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

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

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

On March 29, 1949, Kong Chai Pin filed a petition with the probate court for
authority to sell all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee,
for the purpose primarily of settling the aforesaid debts of Tan Sin An and the
partnership. Pursuant to a court order of April 2, 1949, the administratrix executed
on April 4, 1949, a deed of sale 1 of the 49 parcels of land to the defendants
Washington Sycip and Betty Lee in consideration of P37,000.00 and of vendees'
assuming payment of the claims filed by Yutivo Sons Hardware Co. and Sing Yee and
Cuan Co., Inc. Later, in July, 1949, defendants Sycip and Betty Lee executed in favor
of the Insular Development Co., Inc. a deed of transfer covering the said 49 parcels
of land.

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

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

"I. The lower court erred in holding that Kong Chai Pin became the managing
partner of the partnership upon the death of her husband, Tan Sin An, by virtue of
the articles of Partnership executed between the Tan Sin An and Antonio Goquiolay,
and the general power of attorney granted by Antonio Goquiolay.

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

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

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

V The lower court erred in finding that the partnership did not pay its obligation
to the Banco Hipotecario.
VI The lower court erred in holding that the consent of Antonio Goquiolay was not
necessary to consummate the sale of the partnership properties.

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

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

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

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

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

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

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

Upon the other hand, consonant with the articles of co- partnership providing for the
continuation of the firm notwithstanding the death of one of the partners, the heirs
of the deceased, by never repudiating or refusing to be bound under the said
provision in the articles, became individual partners with Antonio Goquiolay upon
Tan's demise. The validity of like clauses in partnership agreements is expressly
sanctioned under Article 222 of the Code of Commerce. 1

Minority of the heirs is not a bar to the application of that clause in the articles of
co-partnership (2 Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite
Elementaire de Droit Civil, English translation by the Louisiana State Law Institute,
Vol. 2, Pt. 2, p. 177).

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

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

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

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

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

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

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

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

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

"367. Primera hipotesis. A falta de factos especiales, la facultad de administrar


corresponde a cada socio personalmente. No hay que esperar ciertamente
concordia con tantas cabezas, y para cuando no vayan de acuerdo, la disciplina del
Cdigo no ofrece un sistema eficaz que evite los inconvenientes. Pero, ante el
silencio del contrato, debia quiz el legislador privar de la administracin a uno de
los socios en beneficio del otro? Sera una arbitrariedad. Deber quiz declarar nula
la Sociedad que no haya elegido Administrador? El remedio sera peor que el mal.
Deber, tal vez, pretender que todos los socios concurran en todo acto de la
Sociedad? Pero este concurso de todos habra reducido a la impotencia la
administracin, que es asunto de todos los das y de todas horas. Hubieran sido
disposiciones menos oportunas que lo adoptado por el Cdigo, el cual se confa al
espiritu de reciproca confianza que debera animar la colaboracin de los socios, y
en la ley inflexible de responsabilidad que implica comunidad en los intereses de los
mismos.

En esta hiptesis, cada socio puede ejercer todos los negocios comprendidos en el
contrato social sin dar de ello noticia a los otros, porque cada uno de ellos ejerce la
administracin en la totalidad de sus relaciones, salvo su responsabilidad en el caso
de una administracin culpable. Si debiera dar noticia, el beneficio de su simultnia
actividad, frecuentemente distribuda en lugares y en tiempos diferentes, se echara
a perder. Se objetar el que de esta forma, el derecho de oposicin de cada uno de
los socios puede quedar frustrado. Pero se puede contestar que este derecho de
oposicin concedido por la ley como un remedio excepcional, debe subordinarse al
derecho de ejercer el oficio de Administrador, que el Cdigo concede sin lmite: 'se
presume que los socios se han concedido recprocamente la facultad de administrar
uno para otro.' Se hara precipitar esta hiptesis en la otra de una administracin
colectiva (art. 1.721, Cdigo Cvil) y se acabara con pedir el consentimiento, a lo
menos tcito, de todos los socios lo que el Cdigo excluye . . ., si se obligase al
socio Administrador a dar noticia previa del negocio a los otros, a fin de que
pudieran oponerse si no consintieran."

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

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

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

Cuando los Estatutos o la escritura social no contienen ninguna clusula relativa al


nombramiento o designacin de uno o mas de un socio para administrar la
Compaa (art. 129 del Cdigo) todos tienen por un igual el derecho de concurir a la
decisin y manejo de los negocios comunes . . ."
Although the partnership under consideration is a commercial partnership and,
therefore, to be governed by the Code of Commerce, the provisions of the old Civil
Code may give us some light on the right of one partner to bind the partnership.
States Art. 1695 thereof:

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

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

The records fail to disclose that appellant Goquiolay made any opposition to the
sale of the partnership realty to Washington Z. Sycip and Betty Lee; on the contrary,
it appears that he (Goquiolay) only interposed his objections after the deed of
conveyance was executed and approved by the probate court, and, consequently,
his opposition came too late to be effective.

Appellants assail the correctness of the amounts paid for the account of the
partnership as found by the trial court. This question, however, need not be
resolved here, as in the deed of conveyance executed by Kong Chai Pin, the
purchasers Washington Sycip and Betty Lee assumed, as part consideration of the
purchase, the full claims of the two creditors, Sing Yee and Cuan Co., Inc. and Yutivo
Sons Hardware Co.

Appellants also question the validity of the sale covering the entire firm realty, on
the ground that it, in effect, threw the partnership into dissolution, which requires
consent of all the partners. This view is untenable. That the partnership was left
without the real property it originally had will not work its dissolution, since the firm
was not organized to exploit these precise lots but to engage in buying and selling
real estate, and "in general real estate agency and brokerage business".
Incidentally, it is to be noted that the payment of the solidary obligation of both the
partnership and the late Tan Sin An, leaves open the question of accounting and
contribution between the co-debtors, that should be ventilated separately.
Lastly, appellants point out that the sale of the partnership properties was only a
fraudulent device by the appellees, with the connivance of Kong Chai Pin, to ease
out Antonio Goquiolay from the partnership. The "devise", according to the
appellants, started way back sometime in 1945, when one Yu Khe Thai sounded out
Antonio Goquiolay on the possibility of selling his share in the partnership; and upon
his refusal to sell, was followed by the filing of the claims of Yutivo Sons Hardware
Co. and Sing Yee and Cuan Co., Inc. in the intestate estate proceedings of Tan Sin
An. As creditors of Tan Sin An and the plaintiff partnership (whose liability was
alleged to be joint and several), Yutivo Sons Hardware Co. and Sing Yee and Cuan
Co., Inc. had every right to file their claims in the intestate proceedings. The denial
of the claims at first by Kong Chai Pin (for lack of sufficient knowledge) negatives
any conspiracy on her part in the alleged fraudulent scheme, even if she
subsequently decided to admit their validity after studying the claims and finding it
best to admit the same. It may not be amiss to remark that the probate court
approved the questioned claims.

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

Wherefore, finding no reversible error in the appealed judgment, we affirm the


same, with costs against appellant Antonio Goquiolay.

Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera and


Gutierrez David, JJ., concur.
RESOLUTION

December 10, 1963

REYES, J.B.L., J p:

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

Cash paid P37,000.00

Debts assumed by purchaser:

To Yutivo 62,415.91

To Sing Yee Cuan & Co. 54,310.13

__________

TOTAL P153,726.04

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

Three things must be always held in mind in the discussion of this motion to
reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by one
partner, acting in behalf of the firm, to a stranger. There is no question between
partners inter se, and this aspect of the case was expressly reserved in the main
decision of 26 July 1960;

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

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

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

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

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

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

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

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


A. I did not.

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

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

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

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

Discarding the self-serving expressions, these admissions of Goquiolay are certainly


entitled to greater weight than those of Hernando Young and Rufino Lim, having
been made against the party's own interest.

Moreover, the appellant's reference to the testimony of Hernando Young, that the
witness found the properties "abandoned and undeveloped", omits to mention that
said part of the testimony started with the question:

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

Similarly, the testimony of Rufino Lim, to the effect that the properties of the
partnership were undeveloped, and the family of the widow (Kong Chai Pin) did not
receive any income from the partnership properties, was given in answer to the
question:
"According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his
family lived on the plantation of the partnership and derived their subsistence from
that plantation. What can you say to that?" (Dep. 19 July 1956, p. 8)

And also

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

to which witness gave the following answer:

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

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

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

We thus find that Goquiolay did not merely rely on reports from Lim and Young; he
actually manifested his willingness that the widow should manage the partnership
properties. Whether or not she complied with this authority is a question between
her and the appellant, and is not here involved. But the authority was given, and
she did have it when she made the questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was
only to manage the property, and that it did not include the power to alienate, citing
Article 1713 of the Civil Code of 1889. What this argument overlooks is that the
widow was not a mere agent, because she had become a partner upon her
husband's death, as expressly provided by the articles of co-partnership. Even
more, granting that by succession to her husband, Tan Sin An, the widow only
became a limited partner, Goquiolay's authorization to manage the partnership
property was proof that he considered and recognized her as general partner, at
least since 1945. The reason is plain: Under the law (Article 148, last paragraph,
Code of Commerce), appellant could not empower the widow, if she were only a
limited partner, to administer the properties of the firm, even as a mere agent:

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

By seeking authority to manage partnership property, Tan Sin An's widow showed
that she desired to be considered a general partner. By authorizing the widow to
manage partnership property (which a limited partner could not be authorized to
do), Goquiolay recognized her as such partner, and is now in estoppel to deny her
position as a general partner, with authority to administer and alienate partnership
property.

Besides, as we pointed out in our main decision, the heir ordinarily (and we did not
say "necessarily") becomes a limited partner for his own protection, because he
would normally prefer to avoid any liability in excess of the value of the estate
inherited so as not to jeopardize his personal assets. But this statutory limitation of
responsibility being designed to protect the heir, the latter may disregard it and
instead elect to become a collective or general partner, with all the rights and
privileges of one, and answering for the debts of the firm not only with the
inheritance but also with the heir's personal fortune. This choice pertains exclusively
to the heir, and does not require the assent of the surviving partner.

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


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

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

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

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

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

"The stipulation in the articles of partnership that any of the two managing partners
may contract and sign in the name of the partnership with the consent of the other,
undoubtedly creates an obligation between the two partners, which consists in
asking the other's consent before contracting for the partnership. This obligation of
course is not imposed upon a third person who contracts with the partnership.
Neither is it necessary for the third person to ascertain if the managing partner with
whom he contracts has previously obtained the consent of the other. A third person
may and has a right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his co-partner; for otherwise
he would not enter into the contract. The third person would naturally not presume
that the partner with whom he enters into the transaction is violating the articles of
partnership, but on the contrary, is acting in accordance therewith. And this finds
support in the legal presumption that the ordinary course of business has been
followed (No. 18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable to
contracts which have the force of law between the parties." (Litton vs. Hill & Cern,
et al., 67 Phil., 509, 516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no authority to sell the real
estate of the firm. This argument is lamentably superficial because it fails to
differentiate between real estate acquired and held as stock-in-trade and real state
held merely as business site (Vivante's "taller banco social") for the partnership.
Where the partnership business is to deal in merchandise and goods, i.e., movable
property, the sale of its real property (immovables) is not within the ordinary powers
of a partner, because it is not in line with the normal business of the firm. But where
the express and avowed purpose of the partnership is to buy and sell real estate (as
in the present case), the immovables thus acquired by the firm form part of its
stock-in-trade, and the sale thereof is in pursuance of partnership purposes, hence
within the ordinary powers of the partner. This distinction is supported by the
opinion of Gay de Montella 1 , in the very passage quoted in the appellant's motion
for reconsideration:

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

The same rule obtains in American law.

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

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

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

"And hence, when the partnership business is to deal in real estate, one partner has
ample power, as a general agent of the firm, to enter into an executory contract for
the sale of real estate."
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:

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

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

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

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

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

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

First, as to the price: As already noted, this property was actually sold for a total of
P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts
assumed by the purchaser. These debts (P62,415.91 to Yutivo, and P54,310.13 to
Sing Yee Cuan & Co.) are not questioned; they were approved by the Court, and its
approval is now final. The claims were, in fact, for the balance on the original
purchase price of the land sold (due first to La Urbana, later to the Banco
Hipotecario) plus accrued interests and taxes, redeemed by the two creditors-
claimants. To show that the price was inadequate, appellant relies on the testimony
of the realtor Mata, who in 1955, six years after the sale in question, asserted that
the land was worth P312,000.00. Taking into account the continued rise of real
estate values since liberation, and the fact that the sale in question was practically
a forced sale because the partnership had no other means to pay its legitimate
debts, this evidence certainly does not show such "gross inadequacy" as to justify
rescission of the sale. If at the time of the sale (1949) the price of P153,726.04 was
really low, how is it that appellant was not able to raise the amount, even if the
creditor's representative, Yu Khe Thai, had already warned him four years before
(1945) that the creditors wanted their money back, as they were justly entitled to?

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

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

Appellant seeks to create the impression that he was the victim of a conspiracy
between the Yutivo firm and their component members. But no proof is adduced. If
he was such a victim, he could have easily defeated the conspirators by raising
money and paying off the firm's debts between 1945 and 1949; but he did not; he
did not even care to look for a purchaser of the partnership assets. Were it true that
the conspiracy to defraud him arose (as he claims) because of his refusal to sell the
lands when in 1945 Yu Khe Thai asked him to do so, it is certainly strange that the
conspirators should wait 4 years, until 1949, to have the sale effected by the widow
of Tan Sin An, and that the sale should have been routed through the probate court
taking cognizance of Tan Sin An's estate, all of which increased the risk that the
supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee
Cuan & Co., (as subrogees of the Banco Hipotecario) in proceedings for the
settlement of the estate of Tan Sin An. This for two reasons: First, Tan Sin An and the
partnership "Tan Sin An & Goquiolay" were solidary (joint and several) debtors
(Exhibit "N" mortgage to the Banco Hipotecario), and Rule 87, section 6, is to the
effect that:

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

Secondly, the solidary obligation was guaranteed by a mortgage on the properties


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

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

Premises considered, the motion for reconsideration is denied.

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

Separate Opinions
BAUTISTA ANGELO, J., dissenting:

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

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

On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos.
526, 441 and 521 of the cadastral survey of Davao, the only assets of the
partnership, with the capital originally invested, financing the balance of the
purchase price with a mortgage in favor of "La Urbana Sociedad Mutua de
Construccin Prestamos" in the amount of P25,000.00 payable in ten years. On the
same date, Tan Sin An, in his individual capacity, acquired 46 parcels of land
executing a mortgage thereon in favor of the same company for the sum of
P35,000.00. On September 25, 1940, these two mortgage obligations were
consolidated and transferred to the Banco Hipotecario de Filipinas and as a result
Tan Sin An, in his individual capacity, and the partnership bound themselves to pay
jointly and severally the total amount of P52,282.80, with 8% annual interest
thereon within the period of eight years mortgaging in favor of said entity the 3
parcels of land belonging to the partnership to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong
Chai Pin, and four children, all of whom are minors of tender age. On March 18,
1944, Kong Chai Pin was appointed administratrix of the intestate estate of Tan Sin
An. And on the same date, Sing, Yee and Cuan Co., Inc. paid to the Banco
Hipotecario the remaining unpaid balance of the mortgage obligation of the
partnership amounting to P46,116.75 in Japanese currency.

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

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

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

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

The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the
partnership properties on the ground that she had no authority to sell because even
granting that she became a partner upon the death of Tan Sin An the power of
attorney granted in favor of the latter expired after his death.

Defendants, on the other hand, defended the validity of the sale on the theory that
she succeeded to all the rights and prerogatives of Tan Sin An as managing partner.

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

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

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

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

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

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

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

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

1. This point is pivotal for if Kong Chai Pin did not execute the acts of management
imputed to her our ruling cannot be sustained. In making our aforesaid ruling we
apparently gave particular importance to the fact that it was Goquiolay himself who
tried to prove the acts of management. Appellants, however, have emphasized the
fact, and with reason, that the appellees themselves are the ones who denied and
refuted the so-called acts of management imputed to Kong Chai Pin. to have a clear
view of this factual situation, it becomes necessary that we analyze the evidence of
record.

Plaintiff Goquiolay, it is intimated, testified on cross- examination that he had a


conversion with one Hernando Young in Manila in the year 1945 who informed him
that Kong Chai Pin "was attending to the properties and deriving some income
therefrom and she had no other means of livelihood except those properties and
some rentals derived from the properties." He went on to say by way of remark that
she could continue doing this because he wanted to help her. On point that he
emphasized was that he was "not interested in agricultural lands."

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

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

It is unquestionable that Goquiolay was merely repeating an information given to


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

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

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

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

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

2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are
true, could such acts give her the character of general manager of the partnership
as we have concluded in our decision?

Our answer is in the negative because it is contrary to law and precedents.


Garrigues, a well-known commentator, is clearly of the opinion that mere
acceptance of the inheritance does not make the heir of a general partner a general
partner himself. He emphasized that the heir must declare that he is entering the
partnership as a general partner unless the deceased partner has made it an
express condition in his will that the heir accepts the condition of entering the
partnership as a prerequisite of inheritance, in which case acceptance of the
inheritance is enough. 1 But here Tan Sin An died intestate.

Now, could Kong Chai Pin be deemed to have declared her intention to become
general partner by exercising acts of management? We believe not, for, in
consonance with our ruling that as a general rule the heirs of a deceased partner
succeed as limited partners only by operation of law, it is obvious that the heir,
upon entering the partnership, must make a declaration of his character, otherwise
he should be deemed as having succeeded as limited partner by the mere
acceptance of inheritance. And here Kong Chai Pin did not make such declaration.
Being then a limited partner upon the death of Tan Sin An by operation of law, the
peremptory prohibition contained in Article 148 2 of the Code of Commerce became
binding upon her and as a result she could not change her status by violating its
provisions not only under the general principle that prohibited acts cannot produce
any legal effect, but also because under the provisions of Article 147 3 of the same
Code she was precluded from acquiring more rights than those pertaining to her as
a limited partner. The alleged acts of management, therefore, did not give Kong
Chai Pin the character of general manager to authorize her to bind the partnership.

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

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

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

And the pertinent portions of the Articles of partnership provides:

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

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

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

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

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

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

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

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

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

(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell
them if her purpose was only to pay the partnership's obligation. She could have
negotiated a loan if she wanted to pay it by placing the properties as security, but
preferred to sell them even at such low prices because of her close relationship with
the purchasers and creditors who conveniently organized a partnership to exploit
them, as may be seen from the following relationship of their pedigree:

KONG CHAI PIN, the administratrix, was a granddaughter of Jose P. Yutivo, founder of
the defendant Yutivo Sons Hardware Co. YUTIVO SONS HARDWARE CO, and SIN YEE
CUAN CO, INC., alleged creditors, are owned by the heirs of Jose P. Yutivo (Sing, Yee
& Cuan are the three children of Jose). YU KHE THAI is a grandson of the same Jose
P. Yutivo, and president of the two alleged creditors. He is the acknowledged head of
the Yu families. WASHINGTON Z. SYCIP, one of the original buyers, 'is married to Ana
Yu, a daughter of Yu Khe Thai, BETTY Y. LEE, the other original buyer is also a
daughter of Yu Khe Thai. The INSULAR DEVELOPMENT CO., the ultimate buyer, was
organized for the specific purpose of buying the partnership properties. Its
incorporators were: Ana Yu and Betty V. Lee, Atty. Quisumbing and Salazar the
lawyers who studied the papers of sale and have been counsel for the Yutivo
interests; Dalton Chen a brother-in-law of Yu Khe Thai and an executive of Sing Yee
& Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an executive of Yutivo Sons Hardware,
and Simeon Daguiwag, a trusted employee of the Yutivos.

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

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

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

Labrador, Paredes and Makalintal, JJ., concur.

||| (Goquiolay v. Sycip, G.R. No. L-11840, [July 26, 1960], 108 PHIL 947-988)