[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty.
Paolo Dimayuga
1. COMMISSIONER OF INTERNAL
REVENUE vs. WILLIAM J. SUTER and THE
COURT OF TAX APPEALS
Facts:
A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.," was formed by William J. Suter as the
general partner, and Julia Spirig and Gustav Carlson, as the
limited partners. However, general partner Suter and
limited partner Spirig got married and, thereafter, limited
partner Carlson sold his share in the partnership to Suter
and his wife. The limited partnership had been filing its
income tax returns as a corporation, without objection by
the herein petitioner, Commissioner of Internal Revenue,
until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual
incomes of the partners-spouses Suter and Spirig resulting
in a determination of a deficiency income tax. Respondent
Suter protested the assessment, and requested its
cancellation. CTA rendered a decision in favor of Suter.
Issue:
1) Is the corporate personality of William J. Suter Co.
be disregarded for income tax purposes,
considering that respondent William J. Suter and
his wife, Julia Spirig Suter actually formed a single
taxable unit?
2) Should the partnership of Julia and William be
dissolved after the marriage?
Held:
1) YES.
The theory of the petitioner, Commissioner of Internal
Revenue, is that the marriage of Suter and Spirig and their
subsequent acquisition of the interests of remaining
partner Carlson in the partnership dissolved the limited
partnership, and if they did not, the fiction of juridical
personality of the partnership should be disregarded for
income tax purposes because the spouses have exclusive
ownership and control of the business;
The case of married persons, whether citizens, residents or
non-residents, only one consolidated return for the taxable
year shall be filed by either spouse to cover the income of
both spouses.
2) NO
Suter maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their acquisition
of Carlson's interests in the partnership in 1948 is not a
ground for dissolution of the partnership, Since its
juridical personality had not been affected and since, as a
limited partnership, as contra distinguished from a duly
registered general partnership, it is taxable on its income
similarly with corporations, Suter was not bound to
include in his individual return the income of the limited
partnership.
A husband and a wife may not enter into a contract
of general copartnership, because under the Civil Code,
which applies in the absence of express provision in the
Code of Commerce, persons prohibited from making
donations to each other are prohibited from entering
into universal partnerships.
William J. Suter "Morcoin" Co., Ltd. was not such a
universal partnership, since the contributions of the
partners were fixed sums of money, P20,000.00 by William
Suter and P18,000.00 by Julia Spirig and neither one of
them was an industrial partner. It follows that William J.
Suter "Morcoin" Co., Ltd. was not a partnership that
spouses were forbidden to enter.
The capital contributions of partners William J. Suter and
Julia Spirig were separately owned and contributed by
them before their marriage; and after they were joined in
wedlock, such contributions remained their respective
separate property. The individual interest of each consort
in William J. Suter "Morcoin" Co., Ltd. did not become
common property of both after their marriage.
2. JM Tuason vs Bolanos (1954)
Facts:
- JM Tuason & Co, Inc. filed an action to recover
possession of registered land in Quezon City
against Quirino Bolanos. In his answer, Bolanos
claimed that he and his predecessor-in-interest
have possessed the lance since time immemorial,
and that JM Tuason was able to secure registration
over the land by fraud.
- The trial court ruled in favor of JM Tuason.
- In his appeal to the Supreme Court, one of
Bolanos assignment of error was on the ground
that the case was not brought by the real party in
interest. According to Bolanos, JM Tuasons
complaint states that the plaintiff is "represented
herein by its Managing Partner Gregorio Araneta,
Inc."
Issue: Whether or not the case was brought by the real
party in interest.
Held: Yes.
As to the first assigned error, there is nothing to the
contention that the present action is not brought by the
real party in interest, that is, by J. M. Tuason and Co., Inc.
What the Rules of Court require is that an action be
brought in the name of, but not necessarily by, the real
party in interest. (Section 2, Rule 2.) In fact the practice is
for an attorney-at-law to bring the action, that is to file the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
complaint, in the name of the plaintiff. That practice
appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and
Araneta, "counsel for plaintiff" and commences with the
statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the
plaintiff is "represented herein by its Managing Partner
Gregorio Araneta, Inc.", another corporation, but there is
nothing against one corporation being represented by
another person, natural or juridical, in a suit in court. The
contention that Gregorio Araneta, Inc. can not act as
managing partner for plaintiff on the theory that it is illegal
for two corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation has no
power to enter into a partnership, it may nevertheless
enter into a joint venture with another where the nature of
that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L.
R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is
nothing in the record to indicate that the venture in which
plaintiff is represented by Gregorio Araneta, Inc. as "its
managing partner" is not in line with the corporate
business of either of them.
3. EVANGELISTA & CO., DOMINGO C.
EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD
SANTOS, petitioners, vs. ESTRELLA ABAD
SANTOS, respondent. (G.R. No. L-31684 June 28,
1973)
FACTS:
A co-partnership was formed under the name of
"Evangelista & Co." The Articles of Co-partnership was
amended as to include respondent, Estrella Abad Santos,
as industrial partner, with petitioners Domingo C.
Evangelista, Jr., Leonardo Atienza Abad Santos and
Conchita P. Navarro, the original capitalist partners,
remaining in that capacity, with a contribution of P17,500
each. The amended Articles provided that "the
contribution of Estrella Abad Santos consists of her
industry being an industrial partner", and that the profits
and losses "shall be divided and distributed among the
partners ... in the proportion of 70% for the first three
partners, Domingo C. Evangelista, Jr., Conchita P. Navarro
and Leonardo Atienza Abad Santos to be divided among
them equally; and 30% for the fourth partner Estrella
Abad Santos."
Respondent filed suit against the three other
partners in the CFI of Manila, alleging that the partnership,
which was also made a party-defendant, had been paying
dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused
Atty. Paolo Dimayuga
and continued to refuse and let her examine the
partnership books or to give her information regarding the
partnership affairs to pay her any share in the dividends
declared by the partnership. She therefore prayed that the
defendants be ordered to render accounting to her of the
partnership business and to pay her corresponding share
in the partnership profits after such accounting, plus
attorney's fees and costs.
The defendants (petitioners), in their answer,
denied ever having declared dividends or distributed
profits of the partnership; denied likewise that the plaintiff
ever demanded that she be allowed to examine the
partnership books; and byway of affirmative defense
alleged that the amended Articles of Co-partnership did
not express the true agreement of the parties, which was
that the plaintiff was not an industrial partner; that she did
not in fact contribute industry to the partnership; and that
her share of 30% was to be based on the profits which
might be realized by the partnership only until full
payment of the loan which it had obtained in December,
1955 from the Rehabilitation Finance Corporation in the
sum of P30,000, for which the plaintiff had signed a
promissory note as co-maker and mortgaged her property
as security.
The CFI ruled in favor of respondent and rendered
judgment declaring her an industrial partner of
Evangelista & Co.; ordering petitioners to render an
accounting of the business operations of the partnership;
to pay respondent such amounts as may be due as her
share in the partnership profits and/or dividends after
such an accounting has been properly made; to pay
respondent attorney's fees and the costs of the suit. The
CA affirmed the ruling of the CFI.
ISSUE: WON the respondent was an industrial partner.
HELD: YES.
The Court of Appeals did not hold that the Articles
of Co-partnership was conclusive evidence that the
respondent was an industrial partner of the said company,
but considered it together with other factors, consisting of
both testimonial and documentary evidences, in arriving at
the factual conclusion expressed in the decision.
It is an admitted fact that since before the
execution of the amended articles of partnership,
respondent Estrella Abad Santos has been, and up to the
present time still is, one of the judges of the City Court of
Manila, devoting all her time to the performance of the
duties of her public office. This fact proves beyond
peradventure that it was never contemplated between the
parties, for she could not lawfully contribute her full time
and industry which is the obligation of an industrial
partner pursuant to Art. 1789 of the Civil Code:
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
ART. 1789. An industrial partner cannot engage in business
for himself, unless the partnership expressly permits him to
do so; and if he should do so, the capitalist partners may
either exclude him from the firm or avail themselves of the
benefits which he may have obtained in violation of this
provision, with a right to damages in either case.
It is not disputed that the provision against the
industrial partner engaging in business for himself seeks
to prevent any conflict of interest between the industrial
partner and the partnership, and to insure faithful
compliance by said partner with this prestation. There is
no pretense, however, even on the part of petitioners that
respondent is engaged in any business antagonistic to that
of company, since being a Judge of one of the branches of
the City Court of Manila can hardly be characterized as a
business. That respondent has faithfully complied with
her prestation with respect to petitioners is clearly shown
by the fact that it was only after the filing of the complaint
in this case and the answer thereto that petitioners
exercised their right of exclusion under Art. 1789 of the
Civil Code.
Having always known respondent as a City judge
even before she joined appellant company as an industrial
partner, why did it take petitioners many years before
excluding her from said company as stated in their
allegations?
The Court held that respondent is an industrial
partner of appellant company, with the right to demand for
a formal accounting and to receive her share in the net
profit that may result from such an accounting. The ruling
is based on the following article of the New Civil Code:
ART. 1899. Any partner shall have the right to a formal
account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and
reasonable.
#4
THE CITY OF MANILA, plaintiff-appellant, vs.
FRANCISCO GAMBE, ET AL., defendants-appellees.
FACTS: First. That upon the 31st day of August, 1903, the
plaintiff commenced an action in the Court of First
Instance of the city of Manila against the defendants,
Francisco Gambe, Manuel Perez, Antonio Herranz, and
Florencio Garriz, who constitute the commercial firm of
Herranz & Garriz, for the purpose of recovering the sum of
five thousand dollars ($5,000), United States currency, for
certain damages occasioned by the steamship Alfred to the
"Spanish Bridge" in the city of Manila.
Atty. Paolo Dimayuga
Second. After a consideration of the facts adduced during
the trial, the Honorable Judge Rohde, then one of the
judges of the Court of First Instance of the city of Manila,
rendered a judgment against the said Francisco Gambe, for
the sum of $1,300, United States currency, and for the
costs.
Third. Francisco Gambe was a pilot and member of the
Pilot's Association of Manila and was at the time of the
alleged accident and injury in charge of said
steamship Alfred. Judge Rohde dismissed the cause as to
the other defendants.
Fourth. From this judgment of the lower court the
defendant Gambe appealed to the Supreme Court.
Fifth. After a consideration of the facts, the Supreme Court
on the 31st day of March, 1906, affirmed with costs the
judgment of the lower court.
Sixth. The judgment thus affirmed was returned to the
lower court for an execution of the same.
Seventh. On the 26th day of May, 1906, an execution was
issued upon the said judgment against the said defendant,
Francisco Gambe, and was returned upon the 23d day of
June, 1906, unsatisfied.
Eighth. Later, upon the 11th day of July, 1906, another
execution was issued out of the Court of First Instance
against the defendant, Francisco Gambe, which was
returned upon the 17th day of August, 1906, unsatisfied.
Ninth. On the same day, or the 11th day of July, 1906, in
accordance with the provisions of section 431 of the Code
of Procedure in Civil Actions, the plaintiff attempted to
attach whatever money or effects which the defendant had
in the said Pilots' Association of Manila. These attachments
were directed to the Hongkong and Shanghai Banking
Corporation, the Hon. W. Morgan Shuster, Collector of
Customs, as well as Francisco Aguado, who was the chief of
the said Pilot's Association.
Tenth. On the 22d day of August, 1906, the attorney for the
plaintiff presented in the lower court an affidavit stating
that affiant is informed and believes that an organization
or association known as the "Manila Pilots' Association," of
which Francisco Aguado is the chief pilot, Manuel Goitia is
the treasurer and custodian of its funds, and of which W.
Morgan Shuster, Francisco Gambe, and other pilots of the
port of Manila are members, has property in its possession
dedicated to and for the purpose of payment of damages
caused through negligence of the pilots of said association,
or any of them, to third persons.
Upon this affidavit, the Hon. A. S. Crossfield, one of the
judges of the Court of First Instance of the city of Manila,
do hereby order the said Francisco Aguado, Francisco
Gambe, Manuel Goitia, and W. Morgan Shuster personally
to appear before me in the said city of Manila, on the 10th
day of September, at 10 o'clock in the morning of that day,
to answer concerning the said property.
Eleventh. In accordance with the above order, the said
parties appeared before the said court and testified
relating to the money, property, credits or effects which
the said Pilots' Association had in its possession belonging
to the said defendants.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
After hearing the evidence of these parties, the said Hon. A.
S. Crossfield rendered that Francisco Aguado as chief pilot,
Manuel Goitia as treasurer, and Francisco Gambe and W.
Morgan Shuster as members of the Pilots' Association to
answer as to any property they may have in their
possession or under their control, belonging to the
defendant, Francisco Gambe. Execution having been issued
in the above-named respondents having been attached, as
in garnishee proceedings, all of the above-named
respondents appeared and the two first-named made
declarations as to the property in their hands.
From the declaration made it appears: That each member
of the Pilots' Association before becoming such, must
deposit with the association the sum of P800, to be
retained by the association for the purpose of satisfying
damages which may be incurred by others by reason of
negligence or fault on the part of the association in the
transaction of its business.
It further appears from the declarations that persons thus
depositing the money could not withdraw it; that it is
property of the association and may not be withdrawn,
even in case of the death of a member, and that said
Francisco Gambe is a member.
I therefore find that the above-named respondents, either
as officers of the association or members thereof, have not
in their control, nor do they possess any property, money,
or effects which would be the subject of a levy under
execution against said Gambe, and the order to appear is
discharged.
From this decision of the lower court the plaintiff
appealed.
ISSUE:
WON said Pilots' Association owe to the defendant, a debt
or have in its possession and under its control credits and
other personal property, belonging to the defendant,
subject to be attached in accordance with the provisions of
said section 431.
RULING: No.
Section 431 of the Code of Procedure in Civil Actions
provides: Debts and credits, and other personal property
not capable of manual delivery, shall be attached by
leaving with the person owing such debts or having in his
possession or under his control such credits and other
personal property, a copy of the order of attachment, and a
notice that the debts owing by him to the defendant, or the
credits and other personal property in his possession or
under his control, belonging to the defendant, are attached
in pursuance of such order.
The test whether or not the interests of the defendant, if he
has any, in said association may be attached by virtue of
said section is whether said Gambe could maintain an
action against the said association for the recovery of the
specific debt, credit, or personal property. It would seem
clear and conclusive that if Gambe himself could not
maintain an action against the said association for the
recovery of the specific debt, credit, or personal property
Atty. Paolo Dimayuga
which the plaintiff here is attempting to get possession of
by virtue of the action, that said plaintiff could not recover
the same under the form of action adopted by it. If Gambe
could successfully maintain an action against the said
Pilots' Association for the recovery of a specific sum of
money or specific personal property, then, in our opinion,
his judgment creditors, or the plaintiff in this case, might
also by the procedure provided for under said section 431
maintain the present action, but not otherwise.
A "debt," as used in said section, means some definite
amount of money, ascertained or capable of being
ascertained, which may be paid over to the sheriff or the
court under an order, while "credits " and "personal
property" are something belonging to the defendant, but in
possession and under the control of the person attached.
In our opinion it is also essential that the debt, credit, or
the personal property which is attempted to be subjected
to the payment of the obligation of the defendant, and
which is alleged to be in the possession of the person
attached, must exist in some definite and ascertainable
form at the time of the attachment.
The said Pilots' Association is purely a voluntary
association of the pilots of the city of Manila. The
association is expressly recognized under the law. No one
can become a member of said association who has not
shown special qualifications as a pilot, and no one can act
as a pilot who has not been expressly recommended and
approved by the collector of the port of Manila, and no one
can become a member of said association without having
paid a certain sum of money into the treasury of said
association. This funds becomes the property of the
association for the purpose of protecting its members
against losses occasioned by its members to ships while
said ships are under the control of a member or members
of said association. The money paid in by one member of
said association becomes a part of a general fund of said
association, subject to be paid out for damages done to
ships by any member of the association. The fund created
by the contributions of the members no longer belongs to
the members of the association; it belongs to the
association. The association has a distinct and separate
entity from the individual members who make it up. The
fund is created for a specific purpose. Under the
regulations of said association it has assumed a certain
responsibility for its members. Whether the damage
caused by the defendant in this case is of such a character
for which the said association assumed the responsibility
is a question which the person injured has a right to test in
a special action against said association.
#5 ELIGIO ESTANISLAO, JR. v. COURT OF APPEALS, et
al.
G.R. No. L-49982, 27 April 1988, FIRST DIVISION,
(Gancayco, J.)
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
FACTS:
- Eligio Estanislao, Jr. and private respondents,
Remedios, Emilio and Leocadio Santiago, are siblings
who are co-owners of certain lots in Annapolis and
Aurora, Blvd., Q.C. These properties were then being
leased to the Shell Company of the Philippines Ltd.
(Shell). The siblings agreed to open and operate a gas
station (Estanislao Shell Service Station) thereat w/ an
initial investment of P15000 to be taken from the
advance rental payments of Shell.
- In a joint affidavit, the private respondents agreed to
help Eligio by allowing him to operate and manage the
gasoline service station of the family. Upon
negotiations w/ Shell, it was agreed that Eligio will be
the dealer for the transactions. Remedios helped in
managing the business w/ Eligio for less than a year.
They also entered into an Additional Cash Pledge
Agreement w/ Shell, wherein the P15000 advance
rental fee was deposited w/ Shell to cover advances of
fuel to Eligio as dealer w/ a proviso that said
agreement cancels and supersedes the previous joint
affidavit executed by the co-owners.
- For sometime, Eligio submitted financial statements to
the private respondents regarding their businesss
operations, but thereafter, failed to render subsequent
accounting. A demand was made on Eligio to render an
accounting on profits. By the end of 1968, the financial
report showed a profit amounting to P87293.79 and
on 1969, P150000. Private respondents filed a
complaint in the Court of First Instance (CFI) against
Eligio, praying for (1) the execution of a public
document embodying their partnership agreement,
(2) the rendering of a formal accounting of the
business operation from 1966-1969 and up to the time
the order is issued, and (3) to pay the private
respondents their lawful shares in the net profits and
attorneys fees and costs of the suit.
- CFI dismissed the complaint and Eligios counterclaim,
ordering private respondents to pay Eligio attorneys
fees and costs. When the private respondents moved
for reconsideration, the ruling was set aside (by the
newly-appointed presiding judge of CFI who was then
the judge of the original complaint). The Court of
Appeals (CA) affirmed the CFI decision in toto. Eligios
Motion for Reconsideration was denied. Note that
petitioner heavily relied on the executed joint affidavit
in forwarding his appeal.
ISSUE: Does a partnership exist between members of the
same family, arising from their joint ownership of certain
properties?
RULING: YES
- In the stated joint affidavit, it is clearly stipulated by
the parties that the P1500 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 4 and 1/2 mos. or until 10 October 1966, more
Atty. Paolo Dimayuga
or less covering said P15000. In the subsequent
document entitled "Additional Cash Pledge
Agreement, the private respondents and Eligio
assigned to Shell the monthly rentals due them
commencing the 24th of May 1966 until such time that
the monthly rentals accumulated equal P 15,000.00
which private respondents agree to be a cash deposit
of petitioner in favor of Shell to increase his credit
limit as dealer. It provided therein that "This
agreement, therefore, cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the CO-
OWNERS."
- Eligio 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. The Supreme Court finds no merit in this
argument. Said cancelling provision was necessary for
the Joint Affidavit speaks of P15000 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 P15000 hence the need to provide in
the subsequent document that it "cancels and
supersedes" the previous one. It is true in the latter
document that it is silent as to the statement in the
Joint Affidavit that the P 15000 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.
- Other evidence also shows that there was in fact such
partnership agreement between the parties. This is
attested by the testimonies of private respondent
Remedies Estanislao and her lawyer. Eligio submitted
to private respondents periodic accounting of the
business and gave a written authority to private
respondent Remedies Estanislao, his sister, to examine
and audit the books of their "common business
(aming negosyo). 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.
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 1 dealer of the Shell products.
#6 Fernandez vs. De La Rosa
Facts: the plaintiff alleges that he entered into a verbal
agreement with the defendant to form a partnership for
the purchase of cascoes and cascoes for hire whereby the
defendant will buy the cascoes and the profits will be
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
divided proportionately. On several occasions, plaintiff
Fernandez gave 300 then 300 then another 825 to the
defendant and that the defendant bought the carcoes and
placed the title in his name.
The parties undertook to draw up articles of
partnership but they were unable to agree on certain
articles. So, the plaintiff made a demand for an accounting
but defendant denied the existence of the partnership. The
defendant then returned to the plaintiff 1,125 pesos.
Issue: WON partnership exists?
Ruling: YES
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.
There are two elements of partnership: mutual
contribution to a common fund/stock and joint
interest in the profits.
The first element is present in the case at bar. The money
was furnished by the plaintiff and received by the
defendant with the understanding that it was to be used
for the purchase of the cascoes in question.
The second element is also present in the case at bar. The
court assumed such. Where the fact is established that
parties have mutually contributed to the purchase of a
common stock under circumstances which afford no
different explanation of their object, it must be
deduced that they intended a joint interest in the
profits therefrom. The court added that if for instance,
the object of the parties in purchasing in company had
been to make a more favourable bargain for the two
cascoes than they could have done by purchasing them
separately and that they had no ulterior object except to
effect a division of the common property when once that
had acquired it, the affection societatis would be lacking
and the parties would have become joint tenants only.
Thus, there was a complete and perfect contract of
partnership was entered into by the parties. This is true
despite the fact that they alleged that there must be
partnership articles first but the fact that defendant
purchase the carcoes strongly discountenances the theory.
The execution of a written agreement was not
necessary in order to give efficacy to the verbal
contract of partnership as a civil contract, the
contributions of the partners not having been in the
form of immovable or rights in immovables.
Issue: WON the partnership terminated as a result of
the act of the defendant in receiving back the 1,125
pesos?
Ruling: NO.
Atty. Paolo Dimayuga
Where parties fail to agree upon articles of copartnership
and some of the contributions of one partner, less than all,
are returned to him and accepted with an express
reservation of his rights as partner, the partnership is not
dissolved nor does he waive his right to an accounting of
the profits.
7. Tai Tong Chuache & Co. v. Insurance Commission
Facts:
Complainants acquired from a certain Rolando
Gonzales a parcel of land and a building located at San
Rafael Village, Davao City. Complainants assumed the
mortgage of the building in favor of S.S.S., which building
was insured with respondent S.S.S. Accredited Group of
Insurers for P25,000.00.
On April 19, 1975, Azucena Palomo obtained a loan
from Tai Tong Chuache Inc. in the amount of P100,000.00.
To secure the payment of the loan, a mortgage was
executed over the land and the building in favor of Tai
Tong Chuache & Co. On April 25, 1975, Arsenio
Chua, representative of Thai Tong Chuache & Co. insured
the latter's interest with Travellers Multi-Indemnity
Corporation for P100,000.00 (P70,000.00 for the building
and P30,000.00 for the contents thereof) (Exhibit "A-a,"
contents thereof)
On June 11, 1975, Pedro Palomo secured a Fire
Insurance Policy No. F- 02500 covering the building for
P50,000.00 with respondent Zenith Insurance
Corporation. On July 16, 1975, another Fire Insurance
Policy No. 8459 was procured from respondent Philippine
British Assurance Company, covering the same building
for P50,000.00 and the contents thereof for P70,000.00.
On July 31, 1975, the building and the contents were
totally razed by fire.
Based on the computation of the loss, including
the Travellers Multi- Indemnity, respondents, Zenith
Insurance, Phil. British Assurance and S.S.S. Accredited
Group of Insurers, paid their corresponding shares of the
loss. Complainants were paid the following: P41,546.79 by
Philippine British Assurance Co., P11,877.14 by Zenith
Insurance Corporation, and P5,936.57 by S.S.S. Group of
Accredited Insurers. Demand was made from respondent
Travellers Multi-Indemnity for its share in the loss but the
same was refused. Hence, complainants demanded from
the other three (3) respondents the balance of each share
in the loss based on the computation of the Adjustment
Standards Report excluding Travellers Multi-Indemnity in
the amount of P30,894.31 (P5,732.79-Zenith Insurance:
P22,294.62, Phil. British: and P2,866.90, SSS Accredited)
but the same was refused, hence, this action.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
In their answers, Philippine British Assurance and
Zenith Insurance Corporation admitted the material
allegations in the complaint, but denied liability on the
ground that the claim of the complainants had already
been waived, extinguished or paid. Both companies set up
counterclaim in the total amount of P 91,546.79.
Instead of filing an answer, SSS Accredited Group
of Insurers informed the Commission in its letter of July
22, 1977 that the herein claim of complainants for the
balance had been paid in the amount of P 5,938.57 in full,
based on the Adjustment Standards Corporation Report of
September 22, 1975.
Travellers Insurance, on its part, admitted the
issuance of the Policy No. 599 DV and alleged as its special
and affirmative defenses the following, to wit: that Fire
Policy No. 599 DV, covering the furniture and building of
complainants was secured by a certain Arsenio Chua,
mortgage creditor, for the purpose of protecting his
mortgage credit against the complainants; that the said
policy was issued in the name of Azucena Palomo, only to
indicate that she owns the insured premises; that the
policy contains an endorsement in favor of Arsenio Chua
as his mortgage interest may appear to indicate that
insured was Arsenio Chua and the complainants; that the
premium due on said fire policy was paid by Arsenio Chua;
that respondent Travellers is not liable to pay
complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed
a complaint in intervention claiming the proceeds of
the fire Insurance Policy No. F-559 DV, issued by
respondent Travellers Multi-Indemnity.
Travellers Insurance, in answer to the complaint
in intervention, alleged that the Intervenor is not entitled
to indemnity under its Fire Insurance Policy for lack of
insurable interest before the loss of the insured premises
and that the complainants, spouses Pedro and Azucena
Palomo, had already paid in full their mortgage
indebtedness to the intervenor. 3
As adverted to above respondent Insurance
Commission dismissed spouses Palomos' complaint on
the ground that the insurance policy subject of the
complaint was taken out by Tai Tong Chuache &
Company, petitioner herein, for its own interest only
as mortgagee of the insured property and thus
complainant as mortgagors of the insured property
have no right of action against herein respondent. It
likewise dismissed petitioner's complaint in intervention
From the above decision, only intervenor Tai Tong
Chuache filed a motion for reconsideration but it was
likewise denied hence, the present petition.
Atty. Paolo Dimayuga
It is the contention of the petitioner that respondent
Insurance Commission decided an issue not raised in
the pleadings of the parties in that it ruled that a
certain Arsenio Lopez Chua is the one entitled to the
insurance proceeds and not Tai Tong Chuache &
Company.
Issue:
Whether or not Arsenio Chua as a representative of a
partnership (Tai Tong Chuache & Company) has the
capacity to commence an action against the respondent
Ruling: YES
It is a well known postulate that the case of a party
is constituted by his own affirmative allegations. Under
Section 1, Rule 131 each party must prove his own
affirmative allegations by the amount of evidence required
by law which in civil cases as in the present case is
preponderance of evidence. The party, whether plaintiff or
defendant, who asserts the affirmative of the issue has the
burden of presenting at the trial such amount of evidence
as required by law to obtain favorable judgment. Thus,
petitioner who is claiming a right over the insurance must
prove its case. Likewise, respondent insurance company to
avoid liability under the policy by setting up an affirmative
defense of lack of insurable interest on the part of the
petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance
company did not assail the validity of the insurance policy
taken out by petitioner over the mortgaged property.
Neither did it deny that the said property was totally razed
by fire within the period covered by the insurance.
Respondent, as mentioned earlier advanced an
affirmative defense of lack of insurable interest on the
part of the petitioner that before the occurrence of the
peril insured against the Palomos had already paid
their credit due the petitioner. Respondent having
admitted the material allegations in the complaint, has
the burden of proof to show that petitioner has no
insurable interest over the insured property at the
time the contingency took place. Upon that point, there
is a failure of proof. Respondent, it will be noted,
exerted no effort to present any evidence to
substantiate its claim, while petitioner did. For said
respondent's failure, the decision must be adverse to
it.
However, as adverted to earlier, respondent
Insurance Commission absolved respondent insurance
company from liability on the basis of the certification
issued by the then Court of First Instance of Davao,
Branch II, that in a certain civil action against the
Palomos, Arsenio Lopez Chua stands as the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
complainant and not Tai Tong Chuache. From said
evidence respondent commission inferred that the credit
extended by herein petitioner to the Palomos secured by
the insured property must have been paid. Such is a
glaring error which this Court cannot sanction.
Respondent Commission's findings are based upon a mere
inference.
The record of the case shows that the petitioner to
support its claim for the insurance proceeds offered as
evidence the contract of mortgage which has not been
cancelled nor released. It has been held in a long line of
cases that when the creditor is in possession of the
document of credit, he need not prove non-payment for it
is presumed. The validity of the insurance policy taken b
petitioner was not assailed by private respondent.
Moreover, petitioner's claim that the loan extended to the
Palomos has not yet been paid was corroborated by
Azucena Palomo who testified that they are still indebted
to herein petitioner.
Public respondent argues however, that if the
civil case really stemmed from the loan granted to
Azucena Palomo by petitioner the same should have
been brought by Tai Tong Chuache or by its
representative in its own behalf. From the above
premise respondent concluded that the obligation
secured by the insured property must have been
paid.(The premise is correct but the conclusion is
wrong.)
Citing Rule 3, Sec. 2 respondent pointed out that
the action must be brought in the name of the real party in
interest. We agree. However, it should be borne in mind
that petitioner being a partnership may sue and be
sued in its name or by its duly authorized
representative. The fact that Arsenio Lopez Chua is the
representative of petitioner is not questioned.
Petitioner's declaration that Arsenio Lopez
Chua acts as the managing partner of the partnership
was corroborated by respondent insurance
company. Thus Chua as the managing partner of the
partnership may execute all acts of
administration including the right to sue debtors of
the partnership in case of their failure to pay their
obligations when it became due and demandable. Or at
the very least, Chua being a partner of petitioner Tai
Tong Chuache & Company is an agent of the
partnership. Being an agent, it is understood that he
acted for and in behalf of the firm. Public respondent's
allegation that the civil case filed by Arsenio Chua was
in his capacity as personal creditor of spouses Palomo
has no basis.
The respondent insurance company having issued
a policy in favor of herein petitioner which policy was of
legal force and effect at the time of the fire, it is bound by
Atty. Paolo Dimayuga
its terms and conditions. Upon its failure to prove the
allegation of lack of insurable interest on the part of the
petitioner, respondent insurance company is and must be
held liable.
8. LORENZO T. OA and HEIRS OF JULIA BUALES,
namely: RODOLFO B. OA, MARIANO B. OA, LUZ B.
OA, VIRGINIA B. OA and LORENZO B. OA,
JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL
REVENUE, respondent.
FACTS
Julia Buales died on March 23, 1944, leaving as heirs her
surviving spouse, Lorenzo T. Oa and her five children. In
1948, Civil Case No. 4519 was instituted in the Court of
First Instance of Manila for the settlement of her estate.
Later, Lorenzo T. Oa the surviving spouse was appointed
administrator of the estate of said deceased. On April 14,
1949, the administrator submitted the project of partition,
which was approved by the Court on May 16, 1949.
Because three of the heirs, namely Luz, Virginia and
Lorenzo, Jr., all surnamed Oa, were still minors when the
project of partition was approved, Lorenzo T. Oa, their
father and administrator of the estate, filed a petition in
Civil Case No. 9637 of the Court of First Instance of Manila
for appointment as guardian of said minors. On November
14, 1949, the Court appointed him guardian of the persons
and property of the aforenamed minors.
The project of partition.) shows that the heirs have
undivided one-half (1/2) interest in ten parcels of land
with a total assessed value of P87,860.00, six houses with a
total assessed value of P17,590.00 and an undetermined
amount to be collected from the War Damage Commission.
Later, they received from said Commission the amount of
P50,000.00, more or less. This amount was not divided
among them but was used in the rehabilitation of
properties owned by them in common. Of the ten parcels
of land aforementioned, two were acquired after the death
of the decedent with money borrowed from the Philippine
Trust Company in the amount of P72,173.00.
The project of partition also shows that the estate shares
equally with Lorenzo T. Oa, the administrator thereof, in
the obligation of P94,973.00, consisting of loans contracted
by the latter with the approval of the Court.
Although the project of partition was approved by the
Court on May 16, 1949, no attempt was made to divide the
properties therein listed. Instead, the properties remained
under the management of Lorenzo T. Oa who used said
properties in business by leasing or selling them and
investing the income derived therefrom and the proceeds
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
from the sales thereof in real properties and securities. As
a result, petitioners' properties and investments gradually
increased from P105,450.00 in 1949 to P480,005.20 in
1956 as can be gleaned from the following year-end
balances:
From said investments and properties petitioners derived
such incomes as profits from installment sales of
subdivided lots, profits from sales of stocks, dividends,
rentals and interests. The said incomes are recorded in the
books of account kept by Lorenzo T. Oa where the
corresponding shares of the petitioners in the net income
for the year are also known. Every year, petitioners
returned for income tax purposes their shares in the net
income derived from said properties and securities and/or
from transactions involving them. However, petitioners
did not actually receive their shares in the yearly income.
The income was always left in the hands of Lorenzo T. Oa
who, as heretofore pointed out, invested them in real
properties and securities.
On the basis of the foregoing facts, respondent
(Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax, pursuant to
Section 24, in relation to Section 84(b), of the Tax Code.
Accordingly, he assessed against the petitioners the
amounts of P8,092.00 and P13,899.00 as corporate income
taxes for 1955 and 1956, respectively.. Petitioners
protested against the assessment and asked for
reconsideration of the ruling of respondent that they have
formed an unregistered partnership. Finding no merit in
petitioners' request, respondent denied it.
ISSUE
Whether or not petitioners should be considered as co-
owners of the properties inherited by them from the
deceased Julia Buales and the profits derived from
transactions involving the same, or, must they be deemed
to have formed an unregistered partnership subject to tax
under Sections 24 and 84(b) of the National Internal
Revenue Code?
RULING
The Tax Court found that instead of actually distributing
the estate of the deceased among themselves pursuant to
the project of partition approved in 1949, "the properties
remained under the management of Lorenzo T. Oa who
used said properties in business by leasing or selling them
and investing the income derived therefrom and the
proceed from the sales thereof in real properties and
securities," as a result of which said properties and
investments steadily increased yearly from P87,860.00 in
"land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account,"
P135.714.68 in "land account" and P169,262.52 in
Atty. Paolo Dimayuga
"building account" in 1956. And all these became possible
because, admittedly, petitioners never actually received
any share of the income or profits from Lorenzo T. Oa and
instead, they allowed him to continue using said shares as
part of the common fund for their ventures, even as they
paid the corresponding income taxes on the basis of their
respective shares of the profits of their common business
as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not,
contrary to their contention, merely limit themselves
to holding the properties inherited by them. Indeed, it
is admitted that during the material years herein
involved, some of the said properties were sold at
considerable profit, and that with said profit,
petitioners engaged, thru Lorenzo T. Oa, in the
purchase and sale of corporate securities. It is likewise
admitted that all the profits from these ventures were
divided among petitioners proportionately in
accordance with their respective shares in the
inheritance. In these circumstances, it is Our
considered view that from the moment petitioners
allowed not only the incomes from their respective
shares of the inheritance but even the inherited
properties themselves to be used by Lorenzo T. Oa as
a common fund in undertaking several transactions or
in business, with the intention of deriving profit to be
shared by them proportionally, such act was
tantamount to actually contributing such incomes to a
common fund and, in effect, they thereby formed an
unregistered partnership within the purview of the
above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be
a period when the heirs can be considered as co-owners
rather than unregistered co-partners within the
contemplation of our corporate tax laws aforementioned.
Before the partition and distribution of the estate of the
deceased, all the income thereof does belong commonly to
all the heirs, obviously, without them becoming thereby
unregistered co-partners, but it does not necessarily follow
that such status as co-owners continues until the
inheritance is actually and physically distributed among
the heirs, for it is easily conceivable that after knowing
their respective shares in the partition, they might decide
to continue holding said shares under the common
management of the administrator or executor or of anyone
chosen by them and engage in business on that basis.
Withal, if this were to be allowed, it would be the easiest
thing for heirs in any inheritance to circumvent and render
meaningless Sections 24 and 84(b) of the National Internal
Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it
was stated, among the reasons for holding the appellants
therein to be unregistered co-partners for tax purposes,
that their common fund "was not something they found
already in existence" and that "it was not a property
inherited by them pro indiviso," but it is certainly far
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
fetched to argue therefrom, as petitioners are doing here,
that ergo, in all instances where an inheritance is not
actually divided, there can be no unregistered co-
partnership. As already indicated, for tax purposes, the co-
ownership of inherited properties is automatically
converted into an unregistered partnership the moment
the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to
produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in a
project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding
testate or intestate proceeding. The reason for this is
simple. From the moment of such partition, the heirs are
entitled already to their respective definite shares of the
estate and the incomes thereof, for each of them to manage
and dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly he
becomes liable individually for all taxes in connection
therewith. If after such partition, he allows his share to be
held in common with his co-heirs under a single
management to be used with the intent of making profit
thereby in proportion to his share, there can be no doubt
that, even if no document or instrument were executed for
the purpose, for tax purposes, at least, an unregistered
partnership is formed. This is exactly what happened to
petitioners in this case.
In this connection, petitioners' reliance on Article
1769, paragraph (3), of the Civil Code, providing that:
"The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or interest
in any property from which the returns are derived,"
and, for that matter, on any other provision of said
code on partnerships is unavailing.
In Evangelista, supra, this Court clearly differentiated
the concept of partnerships under the Civil Code from
that of unregistered partnerships which are
considered as "corporations" under Sections 24 and
84(b) of the National Internal Revenue Code. Mr.
Justice Roberto Concepcion, now Chief Justice,
elucidated on this point thus:
To begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct
and different from "partnerships". When our Internal
Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code
must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of
the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly
registered general partnerships," which constitute
precisely one of the most typical forms of partnerships
in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized."
This qualifying expression clearly indicates that a joint
Atty. Paolo Dimayuga
venture need not be undertaken in any of the standard
forms, or in confirmity with the usual requirements of
the law on partnerships, in order that one could be
deemed constituted for purposes of the tax on
corporation. Again, pursuant to said section 84(b),the
term "corporation" includes, among others, "joint
accounts,(cuentas en participacion)" and
"associations", none of which has a legal personality of
its own, independent of that of its members.
Accordingly, the lawmaker could not have regarded
that personality as a condition essential to the
existence of the partnerships therein referred to. In
fact, as above stated, "duly registered general co-
partnerships" which are possessed of the
aforementioned personality have been expressly
excluded by law (sections 24 and 84[b]) from the
connotation of the term "corporation." ....
Similarly, the American Law
... provides its own concept of a partnership. Under the
term "partnership" it includes not only a partnership as
known in common law but, as well, a syndicate, group,
pool, joint Venture, or other unincorporated organization
which carries on any business, financial operation, or
venture, and which is not, within the meaning of the Code,
a trust, estate, or a corporation. ... . (7A Merten's Law of
Federal Income Taxation, p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group,
pool, joint venture or other unincorporated organization,
through or by means of which any business, financial
operation, or venture is carried on. ... . (8 Merten's Law of
Federal Income Taxation, p. 562 Note 63; emphasis ours.)
For purposes of the tax on
corporations, our National Internal
Revenue Code includes these
partnerships with the exception only of
duly registered general copartnerships
within the purview of the term
"corporation." It is, therefore, clear to our
mind that petitioners herein constitute a
It is, therefore, clear to our mind that
petitioners herein constitute a
partnership, insofar as said Code is
concerned, and are subject to the income
tax for corporations.
#9
JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-
appellee
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Facts:
Plaintiffs, 15 of them, in order for them to
purchase one sweepstakes ticket valued at two
pesos (P2), each subscribed and paid therefor
amounts totaling P2.
Plaintiffs purchased, in the ordinary course of
business, from one of the duly authorized agents
of the National Charity Sweepstakes Office (NCSO)
one ticket for the sum of P2, said ticket was
registered in the name of Jose Gatchalian &
Company.
Said ticket won one of the third prizes in the
amount of P50,000 and that the corresponding
check covering the prize was drawn by the NCSO
in favor of Jose Gatchalian & Company against the
Philippine National Bank, which check was cashed
by Jose Gatchalian & Company.
Jose Gatchalian was required to file the
corresponding income tax return covering the
prize won.
Defendant CIR made an assessment against Jose
Gatchalian & Company requesting the payment of
the sum of P1,499.94 to the deputy provincial
treasurer of Pulilan, Bulacan.
Plaintiffs, in a reply through counsel, made a
request for exemption from payment of the
income tax to which reply there were enclosed 15
separate individual income tax returns filed
separately by each one of the plaintiffs. However,
it was denied. Defendant then reiterated his
demand for the payment of the sum of P1,499.94
as income tax.
In view of the failure of the plaintiffs to pay the
amount of tax demanded by the defendant, the
latter issued a warrant of distraint and levy
against the property of the plaintiffs.
Plaintiffs paid under protest the sum of P601.51 as
part of the tax and penalties to the municipal
treasurer to avoid the effects of the warrant.
A request that the balance be paid by plaintiffs in
installments was made. This was granted by
defendant on the condition that a bond be filed.
Plaintiff filed a bond.
Plaintiffs failed in their installment payments.
Hence, defendant ordered the municipal treasurer
to execute the warrant of distraint and levy.
In order to avoid annoyance and embarrassment
arising from the levy of their property, the
plaintiffs paid the balance of P1,260.93.
Plaintiffs made a claim for refund which as denied
by defendant.
Hence, the appeal.
Issue:
Atty. Paolo Dimayuga
Whether the plaintiffs formed a partnership, or merely a
community of property without a personality of its own
***If partnership is thus formed, the same is liable for the
payment of income tax as provided for by Section 10 of Act
No. 2833, as last amended by section 2 of Act No. 3761,
whereas if there was merely a community of property,
they are exempt from such payment.
Ruling: Plaintiffs formed a partnership.
There is no doubt that if the plaintiffs merely formed a
community of property the latter is exempt from the
payment of income tax under the law. But according to the
stipulation facts the plaintiffs organized a PARTNERSHIP
of a civil nature because each of them put up money to buy
a sweepstakes ticket for the sole purpose of dividing
equally the prize which they may win, as they did in fact in
the amount of P50,000 (article 1665, Civil Code).
The partnership was not only formed, but upon the
organization thereof and the winning of the prize, Jose
Gatchalian personally appeared in the office of the
Philippines Charity Sweepstakes, in his capacity as co-
partner, as such collection the prize, the office issued the
check for P50,000 in favor of Jose Gatchalian and company,
and the said partner, in the same capacity, collected the
said check. All these circumstances repel the idea that the
plaintiffs organized and formed a community of property
only.
Having organized and constituted a partnership of a civil
nature, the said entity is the one bound to pay the income
tax which the defendant collected under the aforesaid
section 10 (a) of Act No. 2833, as amended by section 2 of
Act No. 3761. There is no merit in plaintiff's contention
that the tax should be prorated among them and paid
individually, resulting in their exemption from the tax.
10. G.R. Nos. L-24020-21 July 29, 1968
FLORENCIO REYES and ANGEL REYES, petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE and HON.
COURT OF TAX APPEALS, respondents.
FACTS:
On October 31, 1950, petitioners, father and son,
purchased a lot and building, known as the Gibbs Building,
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
situated at 671 Dasmarias Street, Manila, for
P835,000.00, of which they paid the sum of P375,000.00,
leaving a balance of P460,000.00, representing the
mortgage obligation of the vendors with the China Banking
Corporation, which mortgage obligations were assumed by
the vendees. The initial payment of P375,000.00 was
shared equally by petitioners. At the time of the purchase,
the building was leased to various tenants, whose rights
under the lease contracts with the original owners, the
purchasers, petitioners herein, agreed to respect. The
administration of the building was entrusted to an
administrator who collected the rents; kept its books and
records and rendered statements of accounts to the
owners; negotiated leases; made necessary repairs and
disbursed payments, whenever necessary, after approval
by the owners; and performed such other functions
necessary for the conservation and preservation of the
building. Petitioners divided equally the income of
operation and maintenance. The gross income from rentals
of the building amounted to about P90,000.00 annually.
From the above facts, the respondent Court of Tax Appeals
applying the appropriate provisions of the National
Internal Revenue Code, the first of which imposes an
income tax on corporations "organized in, or existing
under the laws of the Philippines, no matter how
created or organized but not including duly registered
general co-partnerships (companias colectivas), ...,"6 a
term, which according to the second provision cited,
includes partnerships "no matter how created or
organized, ...,"7 and applying the leading case of Evangelista
v. Collector of Internal Revenue,8 sustained the action of
respondent Commissioner of Internal Revenue, but
reduced the tax liability of petitioners, as previously noted.
Petitioners maintain the view that the Evangelista ruling
does not apply; for them, the situation is
dissimilar.1wph1.tConsequently they allege that the
reliance by respondent Court of Tax Appeals was
unwarranted and the decision should be set aside.
ISSUE:
Whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code
RULING:
YES
After referring to another section of the National Internal
Revenue Code, which explicitly provides that the term
corporation "includes partnerships" and then to Article
1767 of the Civil Code of the Philippines, defining what a
contract of partnership is, the opinion goes on to state that
"the essential elements of a partnership are two,
namely: (a) an agreement to contribute money,
Atty. Paolo Dimayuga
property or industry to a common fund; and (b) intent
to divide the profits among the contracting parties. The
first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to and did, contribute
money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon
consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for
monetary gain and then divide the same among
themselves.
In support of the above conclusion, reference was made to
the following circumstances, namely, the common fund
being created purposely not something already found in
existence, the investment of the same not merely in one
transaction but in a series of transactions; the lots thus
acquired not being devoted to residential purposes or to
other personal uses of petitioners in that case; such
properties having been under the management of one
person with full power to lease, to collect rents, to issue
receipts, to bring suits, to sign letters and contracts and to
endorse notes and checks; the above conditions having
existed for more than 10 years since the acquisition of the
above properties; and no testimony having been
introduced as to the purpose "in creating the set up
already adverted to, or on the causes for its continued
existence."11 The conclusion that emerged had all the
imprint of inevitability. Thus: "Although, taken singly, they
might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein."12
It may be said that there could be a differentiation made
between the circumstances above detailed and those
existing in the present case. It does not suffice though to
preclude the applicability of the Evangelista decision.
Petitioners could harp on these being only one transaction.
They could stress that an affidavit of one of them found in
the Bureau of Internal Revenue records would indicate
that their intention was to house in the building acquired
by them the respective enterprises, coupled with a plan of
effecting a division in 10 years. It is a little surprising then
that while the purchase was made on October 31, 1950
and their brief as petitioners filed on October 20, 1965,
almost 15 years later, there was no allegation that such
division as between them was in fact made. Moreover, the
facts as found and as submitted in the brief made clear that
the building in question continued to be leased by other
parties with petitioners dividing "equally the income ...
after deducting the expenses of operation and
maintenance. Differences of such slight significance do not
call for a different ruling.
The first alleged error committed by respondent Court of
Tax Appeals in holding that petitioners, in acquiring the
Gibbs Building, established a partnership subject to
income tax as a corporation under the National Internal
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Revenue Code is likewise untenable. In their discussion in
their brief of this alleged error, stress is laid on their being
co-owners and not partners.
This is the way it was disposed of in the opinion of the
present Chief Justice: "This pretense was correctly rejected
by the Court of Tax Appeals."14 Then came the explanation
why: "To begin with, the tax in question is one imposed
upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When our
Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code
must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the
term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly
registered general partnerships", which constitute
precisely one of the most typical forms of partnerships in
this jurisdiction. Likewise, as defined in section 84(b) of
said Code, "the term corporation includes partnerships, no
matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not
be undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on
partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Again,
pursuant to said section 84(b), the term "corporation"
includes, among others, "joint accounts, (cuentas en
participacion)" and "associations", none of which has a
legal personality of its own, independent of that of its
members. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the
existence of the partnerships therein referred to. In fact, as
above stated, "duly registered general copartnerships"
which are possessed of the aforementioned personality -
have been expressly excluded by law (sections 24 and
84[b]) from the connotation of the term
"corporation"."15 The opinion went on to summarize the
matter aptly: "For purposes of the tax on corporations,our
National Internal Revenue Code, include these
partnerships with the exception only of duly registered
general co-partnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for
corporations."16
In the light of the above, it cannot be said that the
respondent Court of Tax Appeals decided the matter
incorrectly. There is no warrant for the assertion that it
failed to apply the settled law to uncontroverted facts.
WHEREFORE, the decision of the respondent Court of Tax
Appeals ordering petitioners "to pay the sums of
P37,128.00 as income tax due from the partnership
formed by herein petitioners for the years 1951 to 1954
and P20,619.00 for the years 1955 and 1956 within thirty
days from the date this decision becomes final, plus the
Atty. Paolo Dimayuga
corresponding surcharge and interest in case of
delinquency," is affirmed. With costs against petitioners.
.
11. In the matter of the Testate Estate of the deceased
Edward E. Christensen, ADOLFO CRUZ
AZNAR, Petitioner. MARIA LUCY CHRISTENSEN DANEY
and ADOLFO CRUZ AZNAR, Petitioners-Appellants, v.
MARIA HELEN CHRISTENSEN GARCIA and BERNARDA
CAMPOREDONDO,Oppositors-Appellees.
BERNARDA CAMPOREDONDO, Plaintiff-Appellee, v.
ADOLFO CRUZ AZNAR, as Executor of the Deceased
EDWARD E. CHRISTENSEN, Defendant-Appellant.
Facts:
It appears that as of 1913, Edward E. Christensen, an
American citizen, was already residing in Davao and on the
following year became the manager of the Mindanao
Estates located in the municipality of Padada of the same
province. At a certain time, which the lower court placed at
1917, a group of laborers recruited from Argao, Cebu,
arrived to work in the said plantation. Among the group
was a young girl, Bernarda Camporedondo, who became
an assistant to the cook. Thereafter, this girl and Edward E.
Christensen, who was also unmarried started living
together as husband and wife and although the records
failed to establish the exact date when such relationship
commenced, the lower court found the same to have been
continuous for over 30 years until the death of Christensen
occurred on April 30, 1953. Out of said relations, 2
children, Lucy and Helen Christensen, were allegedly born.
Upon the demise of the American, who had left a
considerable amount of properties, his will naming Adolfo
Cruz Aznar as executor was duly presented for probate in
court.
Oppositions to the probate of this will were separately
filed by Maria Helen Christensen Garcia and Bernarda
Camporedondo, the first contending that the will lacked
the formalities required by law; that granting that it had,
the dispositions made therein were illegal because
although she and Lucy Christensen were both children had
by the deceased with Bernarda Camporedondo, yet she
was given only a meager sum of P3,600 out of an estate
valued at $485,000 while Lucy would get the rest of the
properties; and that the petitioner Adolfo Cruz Aznar was
not qualified to be appointed as administrator of the estate
because he had an interest adverse to that of the estate. It
was therefore prayed by this oppositor that the application
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
for probate be denied and the will disallowed; that the
proceeding be declared intestate and that another
disinterested person be appointed as administrator.
Bernarda Camporedondo, on the other hand, claimed
ownership over one-half of the entire estate in virtue of
her relationship with the deceased, it being alleged that
she and the testator having lived together as husband and
wife continuously for a period of over 30 years, the
properties acquired during such cohabitation should be
governed by the rules on co-ownership.
This opposition was dismissed by the probate court on the
ground that she had no right to intervene in said
proceeding, for as such common-law wife she had no
successional right that might be affected by the probate of
the will, and likewise, she could not be allowed to establish
her title and co- ownership over the properties therein for
such questions must be ventilated in a court of general
jurisdiction.
The records further show that subsequent to her original
opposition, Helen Christensen Garcia filed a supplemental
opposition and motion to declare her an acknowledged
natural child of Edward E. Christensen, alleging that she
was conceived during the time when her mother Bernarda
Camporedondo was living with the deceased as his
common-law wife; that she had been in continuous
possession of the status of a natural child of the deceased;
that she had in her favor evidence and/or proof that
Edward Christensen was her father; and that she and Lucy
had the same civil status as children of the decedent and
Bernarda Camporedondo.
This motion was opposed jointly by the executor and
Maria Lucy Christensen Daney asserting that before,
during and after the conception and birth of Helen
Christensen Garcia, her mother was generally known to be
carrying relations with 3 different men; that during the
lifetime of the decedent and even years before his death,
Edward Christensen verbally as well as in writing
disavowed relationship with said oppositor, that oppositor
appropriated and used the surname Christensen illegally
and without permission from the deceased. Thus they
prayed the Court that the will be allowed; that Maria Helen
Christensen Garcia be declared not in any way related to
the deceased; and that the motion of said oppositor be
denied.
After due hearing, the lower court in a decision dated
February 28, 1953, found that oppositor Maria Helen
Atty. Paolo Dimayuga
Christensen had been in continuous possession of the
status of a natural child of the deceased Edward
Christensen notwithstanding the fact that she was
disowned by him in his will, for such action must have
been brought about by the latters disapproval of said
oppositors marriage to a man he did not like. But taking
into consideration that such possession of the status of a
natural child did not of itself constitute acknowledgment
but may only be availed of to compel acknowledgment, the
lower Court directed Maria Lucy Christensen Daney to
acknowledge the oppositor as a natural child of Edward E.
Christensen. The will was, however, allowed and letters
testamentary consequently issued to Adolfo Cruz Aznar,
the executor named therein.
Lucy and the executor appealed but the appellate tribunal
elevated the same to Us on the ground that the case
involves an estate the value of which far exceeds
P50,000.00 and thus falls within the exclusive appellate
jurisdiction of this Court.
Issue:
1. Whether the lower Court erred in finding that the
oppositor Maria Helen Christensen Garcia had
been in continuous possession of the status of a
natural child of the deceased Edward E.
Christensen and in directing Maria Lucy
Christensen Daney, recognized daughter and
instituted heir of the decedent, to acknowledge
the former as such natural child
2. Whether Bernarda Camporedondo, by reason of
her relatioship with Edward E. Christensen may
be considered as a co-owner of the properties
acquired by the deceased during said period and
thus entitled to one- half thereof after the latters
death.
Ruling:
1.
Maria Lucy Christensen was born on April 25, 1922, and
Maria Helen Christensen on July 2, 1934, of the same
mother, Bernarda Camporedondo, during the period when
the latter was publicly known to have been living as
common-law wife of Edward E. Christensen. From the facts
of the case there can be no question as to Lucys parentage,
but controversy arose when Edward Christensen, in
making his last will and testament, disavowed such
paternity to Helen and gave her only a legacy of P3,600. In
the course of the proceeding for the probate of the will
(Exh. A), Helen introduced documentary and testimonial
evidence to support her claim that she, like Lucy, was a
natural child of the deceased and, therefore, entitled to the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
hereditary share corresponding to such descendant.
Several witnesses testified in her favor, including her
mother Bernarda Camporedondo, her former teachers and
other residents of the community, tending to prove that
she was known in the locality as a child of the testator and
was introduced by the latter to the circle of his friends and
acquaintances as his daughter. Family portraits, greeting
cards and letters were likewise presented to bolster her
assertion that she had always been treated by the
deceased and by Lucy herself as a member of the family.
Lucy Christensen and Adolfo Cruz Aznar, as executor, tried
to repudiate her claim by introducing evidence to prove
that on or about the period when she was conceived and
born, her mother was carrying an affair with another man,
Zosimo Silva, a former laborer in her Paligue plantation.
Going over the evidence adduced during the trial, It
appears indubitable that on or about the period when
Helen was born, Bernarda Camporedondo had established
residence at her plantation at Paligue, Davao, and that
although Edward Christensen stayed in Davao City to
manage his merchandising business, he spent the
weekends with the former and their child Lucy in the
Christensen plantation. Even granting that Zosimo Silva at
this stage fitted himself into the picture, it cannot be
denied that Helens mother and the deceased were
generally and publicly known to be living together as
husband and wife. This must have been the reason why
Christensen from Helens birth in 1934 provided for her
maintenance; shouldered the expenses for her education
to the extent that she was even enrolled as an intern in an
exclusive college for girls in Manila; tolerated or allowed
her carrying the surname "Christensen", and in effect gave
her the attention and care that a father would only do to
his offspring.
We should take note that nothing appears on record to
show that Christensen ever entertained any doubt or
disputed Helens paternity. His repudiations of her
relationship with him came about only after he and
Bernarda Camporedondo parted ways in March, 1950, and
apparently after Helen took sides with her mother.
Furthermore, it seems that despite the decedents desire
that she continue her studies, Helen ignored the same and
got married to a man for whom Christensen held no high
esteem. We may state at this juncture that while it is true
that herein appellants introduced witnesses to disprove
oppositors claim, the lower Court that had the opportunity
to observe the conduct of the witnesses while testifying
and could better gauge their credibility and impartiality in
the case, arrived at the conclusion that Maria Helen
Christensen had established that she had been in
Atty. Paolo Dimayuga
continuous possession of the status of a natural child of the
deceased. Considering the preponderant evidence on
record, We see no reason to reverse said ruling. The
testators last acts cannot be made the criterion in
determining whether oppositor was his child or not, for
human frailty and parental arrogance sometimes may
draw a person to adopt unnatural or harsh measures
against an erring child or one who displeases him just so
the weight of his authority could be felt.
The lower Court, however, after making its finding
directed Maria Lucy Christensen Daney, an heir of the
decedent, to recognize oppositor as a natural child of the
deceased. This seems improper. The Civil Code provides
for 2 kinds of acknowledgment of a natural child:
voluntary and compulsory. In the first instance, which may
be effected in the record of birth, a will, a statement before
a court of record or in an authentic writing (Art. 278, Civil
Code), court intervention is very nil if not altogether
wanting, whereas in the second, judicial pronouncement is
essential, and while it is true that the effect of a voluntary
and a compulsory acknowledgment on the rights of the
child so recognized is the same, to maintain the view of the
lower Court would eliminate the distinction between
voluntary acts and those brought about by judicial dicta.
Therefore, We hold that in cases of compulsory
recognition, as in the case at bar, it would be sufficient that
a competent court, after taking into account all the
evidence on record, would declare that under any of the
circumstances specified by Article 283 of the Civil Code, a
child has acquired the status of a natural child of the
presumptive parent and such is entitled to all rights
granted to it by law, for such declaration is by itself already
a judicial recognition of the paternity of the parent
concerned which is hers against whom the action is
directed, are bound to respect.
2.
Presumably taking judicial notice of the existence in our
society of a certain kind of relationship brought about by
couples living together as husbands and wives without the
benefit of marriage, acquiring and bringing properties
unto said union, and probably realizing that while same
may not be acceptable from the moral point of view they
are as much entitled to the protection of the laws as any
other property owners, the lawmakers incorporated
Article 144 in Republic Act No. 386 (Civil Code of the
Philippines) to govern their property relations. Said article
read as follows:chanrob1es virtual 1aw library
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Art. 114. When a man and a woman live together as
husband and wife, but they are not married, or their
marriage is void from the beginning, the property acquired
by either or both of them through their work or industry
or their wages and salaries shall be governed by the rules
on co-ownership.
It must be noted that such form of co-ownership requires
that the man and the woman thus living together must not
in any way be incapacitated to contract marriage and that
the properties realized during their cohabitation be
acquired through the work, industry, employment or
occupation of both or either of them. And the same thing
may be said of those whose marriages are by provision of
law declared void ab initio. While it is true that these
requisites are fully met and satisfied in the case at bar, We
must remember that the deceased and herein appellee
were already estranged as of March, 1950. There being no
provision of law governing the cessation of such informal
civil partnership, if it ever existed, same may be
considered terminated upon their separation or desistance
to continue said relations. The Spanish Civil Code which
was then in force contains to counterpart of Article 144
and as the records in the instant case failed to show that a
subsequent reconciliation ever took place and considering
that Republic Act No. 386 which recognized such form of
co-ownership went into operation only on August 30,
1950, evidently, this later enactment cannot be invoked as
basis for appellees claim.
In determining the question poised by this action We may
look upon the jurisprudence then obtaining on the matter.
As early as 1925, this Court already declared that where a
man and a woman, not suffering from any impediment
to: contract marriage, live together as husband and
wife, an informal civil partnership exists and made the
pronouncement that each of them has an interest in
the properties acquired during said union and is
entitled to participate therein if said properties were
the product of their JOINT efforts (Marata v. Dionio G. R.
No. 24449, Dec. 31, 1925). In another case, this Court
similarly held that although there is no technical
marital partnership between persons living maritally
without being lawfully married, nevertheless there is
between them an informal civil partnership, and the
parties would be entitled to an equal interest where
the property is acquired through their JOINT efforts
(Lesaca v. Felix Vda. de Lesaca, 91 Phil., 135).
Appellee, claiming that the properties in controversy were
the product of their joint industry apparently in her desire
to tread on the doctrine laid down in the aforementioned
cases, would lead Us to believe that her help was solicited
Atty. Paolo Dimayuga
or she took a hand in the management and/or acquisition
of the same.
But such assertion appears incredible if We consider that
she was observed by the trial Court as an illiterate woman
who cannot even remember simple things as the date
when she arrived at the Mindanao Estate, when she
commenced relationship with the deceased, not even her
approximate age or that of her children. And considering
that aside from her own declaration, which We find to be
highly improbable, there appears no evidence to prove her
alleged contribution or participation in the acquisition of
the properties involved therein, and that in view of the
holding of this Court that for a claim to one-half of such
property to be allowed it must be proved that same was
acquired through their joint efforts and labor.
We have no recourse but reverse the holding of the lower
Court and deny the claim of Bernarda Camporedondo.
We may further state that, even granting, for the sake of
argument, that this case falls under the provisions of
Article 144 of the Civil Code, same would be applicable
only as far as properties acquired after the effectivity of
Republic Act 386 are concerned and to no other, for such
law cannot be given retroactive effect to govern those
already possessed before August 30, 1950. It may be
argued, however, that being a newly created right, the
provisions of Section 144 should be made to retroact if
only to enforce such right. Article 2252 of the same Code is
explicit in this respect when it states:chanrob1es virtual
1aw library
SEC. 2252. Changes made and new provisions and rules
laid down by this Code which may prejudice or impair
vested or acquired rights in accordance with the old
legislation, shall have no retroactive effect.
x x x
As it cannot be denied that the rights and legitimes of the
compulsory heirs of the deceased Edward Christensen
would be impaired or diminished if the claim of herein
appellee would succeed, the answer to such argument
would be simply obvious.
12. Fortis v Gutierrez Hermanos
FACTS:
Plaintiff Fortis is an employee of defendants Gutierrez
Hermanos during the years 1900, 1901, and 1902
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
The plaintiff brought this action to recover a balance due
him as salary for the year 1902.
He alleged that he was entitled, as salary, to 5 per cent
of the net profits of the business of the defendants for
said year.
The complaint also contained a cause of action for the sum
of 600 pesos, money expended by plaintiff for the
defendants during the year 1903.
The court below, in its judgment, found that the contract
had been made as claimed by the plaintiff; that 5 per cent
of the net profits of the business for the year 1902
amounted to 26,378.68 pesos, Mexican currency; that the
plaintiff had received on account of such salary 12,811.75
pesos, Mexican currency, and ordered judgment against
the defendants for the sum 13,566.93 pesos, Mexican
currency, with interest thereon from December 31, 1904.
The court also ordered judgment against the defendants
for the 600 pesos mentioned in the complaint, and intereat
thereon. The total judgment rendered against the
defendants in favor of the plaintiff, reduced to Philippine
currency, amounted to P13,025.40.
The defendants moved for a new trial, which was denied,
and they have brought the case here by bill of exceptions.
(1) The evidence is sufficient to support the finding of
the court below to the effect that the plaintiff
worked for the defendants during the year 1902
under a contract by which he was to receive as
compensation 5 per cent of the net profits of the
business. The contract was made on the part of
the defendants by Miguel Alonzo Gutierrez. By the
provisions of the articles of partnership he was
made one of the managers of the company, with
full power to transact all of the business thereof.
As such manager he had authority to make a
contract of employment with the plaintiff.
(2) Before answering in the court below, the
defendants presented a motion that the complaint
be made more definite and certain. This motion
was denied. To the order denying it the
defendants excepted, and they have assigned as
error such ruling of the court below. There is
nothing in the record to show that the defendants
were in any way prejudiced by this ruling of the
court below. If it were error it was error without
prejudice, and not ground for reversal. (Sec. 503,
Code of Civil Procedure.)
Atty. Paolo Dimayuga
(3) It is claimed by the appellants that the contract alleged
in the complaint made the plaintiff a copartner of the
defendants in the business which they were carrying on.
(4) It was no necessary that the contract between the
plaintiff and the defendants should be made in writing.
(5) It appearred that Miguel Alonzo Gutierrez, with whom
the plaintiff had made the contract, had died prior to the
trial of the action, and the defendants claim that by reasons
of the provisions of section 383, paragraph 7, of the Code
of Civil Procedure, plaintiff could not be a witness at the
trial. That paragraph provides that parties to an action
against an executor or aministrator upon a claim or
demand against the estate of a deceased person can not
testify as to any matter of fact occurring before the death
of such deceased person. This action was not brought
against the administrator of Miguel Alonzo, nor was it
brought upon a claim against his estate. It was brought
against a partnership which was in existence at the time of
the trial of the action, and which was juridical person. The
fact that Miguel Alonzo had been a partner in this
company, and that his interest therein might be affected by
the result of this suit, is not sufficient to bring the case
within the provisions of the section above cited.
(6) The plaintiff was allowed to testify against the
objection and exception of the defendants,
that he had been paid as salary for the year 1900 a part of
the profits of the business. This evidence was competent
for the purpose of corroborating the testimony of the
plaintiff as to the existence of the contract set out in the
complaint.
(7) The plaintiff was allowed to testify as to the contents of
a certain letter written by Miguel Glutierrez, one of the
partners in the defendant company, to Miguel Alonzo
Gutierrez, another partner, which letter was read to
plaintiff by Miguel Alonzo. It is not necessary to inquire
whether the court committed an error in admitting this
evidence. The case already made by the plaintiff was in
itself sufficient to prove the contract without reference to
this letter. The error, if any there were, was not prejudicial,
and is not ground for revesal. (Sec. 503, Code of Civil
Procedure.)
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
(8) For the purpose of proving what the profits of the
defendants were for the year 1902, the plaintiff presented
in evidence the ledger of defendants, which contained an
entry made on the 31st of December, 1902, as follows:
Perdidas y Ganancias ...................................... a Varios Ps.
527,573.66 Utilidades liquidas obtenidas durante el ano y
que abonamos conforme a la proporcion que hemos
establecido segun el convenio de sociedad.
The defendant presented as a witness on, the subject of
profits Miguel Gutierrez, one of the defendants, who
testiffied, among other things, that there were no profits
during the year 1902, but, on the contrary, that the
company suffered considerable loss during that year. We
do not think the evidence of this witnees sufficiently
definite and certain to overcome the positive evidence
furnished by the books of the defendants themselves.
(9) In reference to the cause of action relating to the 600
pesos, it appears that the plaintiff left the employ of the
defendants on the 19th of Macrh, 1903; that at their
request he went to Hongkong, and was there for about two
months looking after the business of the defendants in the
matter of the repair of a certain steamship. The appellants
in their brief say that the plaintiff is entitled to no
compensation for his services thus rendered, because by
the provisions of article 1711 of the Civil Code, in the
absence of an agreement to the contrary, the contract of
agency is supposed to be gratuitous. That article i not
applicable to this case, because the amount of 600 pesos
not claimed as compensation for services but as a
reimbursment for money expended by the plaintiff in the
business of the defendants.
ISSUE: WON the plaintiff is a co-partner of the defendants
in the business.
RULING:
No
It was a mere contract of employnent. The plaintiff
had no voice nor vote in the management of the affairs
of the company. The fact that the compensation
received by him was to be determined with reference
to the profits made by the defendants in their business
did not in any sense make by a partner therein.
Atty. Paolo Dimayuga
The articles of partnership between the defendants
provided that the profits should be divided among the
partners named in a certain proportion. The contract made
between the plaintiff and the then manager of the
defendant partnership did not in any way vary or modify
this provision of the articles of partnership.
The profits of the business could not be determined until
all of the expenses had been paid. A part of the expenses to
be paid for the year 1902 was the salary of the plaintiff.
That salary had to be deducted before the net profits of the
business, which were to be divided among the partners,
could be ascertained. It was undoubtedly necessary in
order to determine what the salary of the plaintiff was, to
determine what the profits of the business were, after
paying all of the expenses except his, but that
determination was not the final determination of the net
profits of the business. It was made for the purpose of
fixing the basis upon which his compensation should be
determined.
---------------END 1ST-----------------
13.
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM
NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ &
CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P.
FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R.
CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES. JR.,
ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A.
LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO C.
IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG,
ANCHETA K. TAN, and ALICE V. PESIGAN, petitioners.
Two firms ask that they be allowed to continue using the names
of their firms despite the fact that Attys. Sycip and Ozaeta died.
PETITIONERS ARGUMENTS
1. Under the law, a partnership is not prohibited from
continuing its business under a firm name that includes
the name of a deceased partner. NCC 1840 explicitly
sanctions the practice.
The use by the person or partnership continuing the
business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable for
any debts contracted by such person or partnership.
2. In regulating other professions (accountancy and
engineering), the legislature has authorized the
adoption of firm names without any restriction as to
the use of the name of a deceased partner. There is
no fundamental policy that is offended by the
continued use by a firm of professionals of a firm
name, which includes the name of a deceased partner,
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
at least where such firm name has acquired the
characteristics of a "trade name."
3. The Canons of Professional Ethics are not
transgressed by the continued use of the name of a
deceased partner because Canon 33 of the Canons of
Professional Ethics adopted by the American Bar
Association declares that:
The continued use of the name of a deceased or former
partner when permissible by local custom, is not
unethical but care should be taken that no imposition or
deception is practiced through this use.
4. There is no possibility of imposition or deception
because the deaths of their respective deceased
partners were well- publicized in all newspapers of
general circulation for several days. The stationeries
now being used by them carry new letterheads
indicating the years when their respective deceased
partners were connected with the firm.
Petitioners will notify all leading national and
international law directories of the fact of their
deceased partners' deaths.
5. No local custom prohibits the continued use of a
deceased partner's name in a professional firm's
name. There is no Philippine custom or usage that
recognizes that the name of a law firm identifies the
firms individual members.
6. The continued use of a deceased partner's name in
the firm name of law partnerships has been
consistently allowed byU.S. Courts and is an
accepted practice in the legal profession of most
countries.
Issue: WON they may be allowed to continue using the
current names of their firms.
Ruling:
NO. Petitioners advised to drop the names SYCIP and OZAETA
from their respective firm names. Names may be included in the
listing of individuals who have been partners, indicating the
years during which they served.
The Deen case [1953] Court advised the firm to desist from
including in their firm designation the name of C. D.Johnston, who
has long been dead
Register of Deeds of Manila v. China Banking Corporation
[1958] In this case, the law firm of Perkins & Ponce Enrile
moved to intervene as amicus curiae. The Court in a Resolution
stated that it "would like to be informed why the name of Perkins
is still being used although Atty. E. A. Perkins is already dead."
The Court advised the firm to drop the name of E.A. Perkins from
the firm name, and ruled that no practice should be allowed
which even in a remote degree could give rise to the possibility of
deception.
Judicial decisions applying or interpreting the laws form
part of the legal system. The Supreme Court in the Deen and
Perkins cases laid down a legal rule against which no custom or
practice to the contrary, even if proven, can prevail. This is not to
Atty. Paolo Dimayuga
speak of our civil law which clearly ordains that a partnership is
dissolved by the death of any partner. Custom which are contrary
to law, public order or public policy shall not be countenanced.
The use in their partnership names of the names of deceased
partners will run counter to NCC 1815.
Art. 1815. Every partnership shall operate under a firm name,
which may or may not include the name of one or more of the
partners. Those who, not being members of the partnership, include
their names in the firm name shall be subject to the liability of a
partner.
Names in a firm name of a partnership must either be those of
living partners and in the case of non-partners, should be
living persons who can be subjected to liability. NCC 1825
prohibits a third person from including his name in the firm
name under pain of assuming the liability of a partner.
The heirs of a deceased partner in a law firm cannot be held
liable as the old members to the creditors of a firm particularly
where they are non-lawyers. Canon 34 of the Canons of
Professional Ethics prohibits an agreement for the payment to
the widow and heirs of a deceased lawyer of a percentage, either
gross or net, of the fees received from the future business of the
deceased lawyer's clients, both because the recipients of such
division are not lawyers and because such payments will not
represent service or responsibility on the part of the recipient.
Neither the widow nor the heirs can be held liable for
transactions entered into after the death of their lawyer-
predecessor. There being no benefits accruing, there can be no
corresponding liability.
The public relations value of the use of an old firm name can
tend to create undue advantages and disadvantages in the
practice of the profession. An able lawyer without connections
will have to make a name for himself starting from scratch.
Another able lawyer, who can join an old firm, can initially ride
on that old firm's reputation established by deceased partners.
ON ARGUMENT #1
NCC 1840 is within Chapter 3 of Title IX entitled "Dissolution
and Winding Up." It primarily deals with the exemption from
liability in cases of a dissolved partnership, of the individual
property of the deceased partner for debts contracted by the
person or partnership, which continues the business using the
partnership name or the name of the deceased partner as part
thereof. What the law contemplates therein is a hold-over
situation preparatory to formal reorganization.
Secondly, NCC 1840 treats more of a commercial partnership
with a good will to protect rather than of a professional
partnership [with no saleable goodwill but whose reputation
depends on the personal qualifications of its individual
members]. A saleable goodwill can exist only in a commercial
partnership, not in a professional partnership consisting of
lawyers.
ON ARGUMENT #2
A partnership for the practice of law cannot be likened to
partnerships formed by other professionals or for business.
The law on accountancy specifically allows the use of a trade
name in connection with the practice of accountancy.
A partnership for the practice of law is not a legal entity. It is a
mere relationship or association for a particular purpose. It is not
a partnership formed to carry on trade or business or of holding
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
property. The use of a nom de plume, assumed or trade name in
law practice is improper.
Primary characteristics which distinguish the legal
profession from business
1. A duty of public service, of which the emolument is a
byproduct, and in which one may attain the highest eminence
without making much money
2. A relation as an "officer of court" to the administration of
justice involving thorough sincerity, integrity, and reliability
3. A relation to clients in the highest degree fiduciary
4. A relation to colleagues at the bar characterized by candor,
fairness, and unwillingness to resort to current business methods
of advertising and encroachment on their practice, or dealing
directly with their clients
The right to practice law does not only presuppose in its
possessor integrity, legal standing and attainment, but also the
exercise of a special privilege, highly personal and partaking of
the nature of a public trust.
ON ARGUMENT #3
Canon 33 does not consider as unethical the continued use of the
name of a deceased or former partner when such a practice is
permissible by local custom, but the Canon warns that care
should be taken that no imposition or deception is practiced.
In the Philippines, no local custom permits or allows the
continued use of a deceased or former partner's name. Firm
names, under our custom, identify the more active and/or
more senior members or partners of the law firm.
The possibility of deception upon the public, real or
consequential, where the name of a deceased partner continues
to be used cannot be ruled out. A person in search of legal
counsel might be guided by the familiar ring of a distinguished
name appearing in a firm title.
ON ARGUMENT #6
U.S. Courts have allowed the continued use of a deceased
partner's name because it is sanctioned by custom. Not so in
this jurisdiction where there is no local custom that
sanctions the practice.
Custom has been defined as a rule of conduct formed by
repetition of acts, uniformly observed (practiced) as a social rule,
legally binding and obligatory. Courts take no judicial notice of
custom. A custom must be proved as a fact, according to the rules
of evidence. A local custom as a source of right cannot be
considered by a court of justice unless such custom is properly
established by competent evidence like any other fact. Merely
because something is done as a matter of practice does not mean
that Courts can rely on the same for purposes of adjudication as a
juridical custom. Juridical custom must be differentiated from
social custom. The former can supplement statutory law or be
applied in the absence of such statute. Not so with the latter.
The practice of law is related to the administration of justice and
should not be considered like an ordinary "money-making
trade."Petitioners' desire to preserve the identity of their
firms in the eyes of the public must bow to legal and ethical
impediment.
Petitions DENIED
Atty. Paolo Dimayuga
14.
G.R. No. L-4811 July 31, 1953
CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
FORTUNATO F. HALILI, defendant-appellant.
LABRADOR, J.:
Plaintiff Woodhouse entered on a written agreement with the
defendant Halili, wherein they shall organize a partnership for
the bottling and distribution of Mision soft drinks, Woodhouse to
act as industrial partner or manager, and Halili as a capitalist,
furnishing the capital necessary there for and that Woodhouse
was to secure the Mission Soft Drinks franchise for and in behalf
of the proposed partnership, to which Woodhouse was to receive
30 per cent of the net profits of the business.
Prior to entering into this agreement, Woodhouse requested the
Mission Dry Corporation that the right to bottle and distribute be
granted to him for a limited time in order that he may close the
deal with Halili, under the condition that it will finally be
transferred to the corporation. Pursuant for this request, plaintiff
was given "a thirty-days" option on exclusive bottling and
distribution rights for the Philippines".
The contract was finally signed by plaintiff on December 3, 1947.
On that day plaintiff and defendant went to the United States, and
on December 10, 1947, a franchise agreement (Exhibit V) was
entered into the Mission Dry Corporation and Fortunato F. Halili
and/or Charles F. Woodhouse, granted defendant the exclusive
right, license, and authority to produce, bottle, distribute, and sell
Mision beverages in the Philippines.
When the bottling plant was already on operation, plaintiff
demanded of defendant that the partnership papers be executed.
At first defendant executed himself, saying there was no hurry.
Then he promised to do so after the sales of the product had been
increased to P50,000. The defendant also reduced the plaintiffs
share from 30 percent to 15 percent after learning that the latter
did not have the exclusive franchise.
TRIAL COURT: held that the execution of the contract of
partnership could not be enforced upon the parties, but it also
held that the defense of fraud was not proved since it is
improbable that defendant was never shown the letter ("a thirty-
days" option on exclusive bottling and distribution rights)
On this appeal the defendant, as appellant, insists that plaintiff
did represent to the defendant that he had an exclusive franchise,
when as a matter of fact, at the time of its execution, he no longer
had it as the same had expired, and that, therefore, the consent of
the defendant to the contract was vitiated by fraud and it is,
consequently, null and void.
ISSUE:Did Woodhouse falsely represent that he had an exclusive
franchise to bottle Mission beverages?
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
HELD: Yes. It is improbable and incredible for him to have
disclosed the fact that he had only an option to the exclusive
franchise, which was to last thirty days only, and still more
improbable for him to have disclosed that, at the time of the
signing of the formal agreement, his option had already expired.
Had he done so, he would have destroyed all his bargaining
power and authority, and in all probability lost the deal itself.
Plaintiff's attorney, Mr. Laurea, testified that Woodhouse
presented himself as being the exclusive grantee of a franchise.
As a matter of fact, the first draft that Mr. Laurea prepared, which
was made before the Manila Hotel conference on November 27th,
expressly states that plaintiff had the exclusive franchise.
ISSUE: Did plaintiffs false representation amount to a fraud that
would vitiate the contract?
HELD:No. The agreement may not be declared null and void.
The principal obligation that the plaintiff assumed or undertook
was to secure said franchise for the partnership, as the bottler
and distributor for the Mission Dry Corporation. We declare,
therefore, that if he was guilty of a false representation, this was
not the causal consideration, or the principal inducement, that
led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive
franchise was actually the consideration or price plaintiff gave in
exchange for the share of 30 percent granted him in the net
profits of the partnership business. Defendant agreed to give
plaintiff 30 per cent share in the net profits because he was
transferring his exclusive franchise to the partnership.
We conclude from the above that while the representation that
plaintiff had the exclusive franchise did not vitiate defendant's
consent to the contract, it was used by plaintiff to get from
defendant a share of 30 per cent of the net profits.
By pretending that he had the exclusive franchise and promising
to transfer it to defendant, he obtained the consent of the latter to
give him (plaintiff) a big slice in the net profits. This is the dolo
incidente defined in article 1270 of the Spanish Civil Code,
because it was used to get the other party's consent to a big share
in the profits, an incidental matter in the agreement.
In consequence, article 1270 of the Spanish Civil Code
distinguishes two kinds of (civil) fraud, the causal fraud, which
may be a ground for the annulment of a contract, and the
incidental deceit, which only renders the party who employs it
liable for damages. This Court had held that in order that fraud
may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo causante), inducement to the making
of the contract.
ISSUE: May the agreement be executed?
HELD: As the trial court correctly concluded, the defendant may
not be compelled against his will to carry out the agreement nor
execute the partnership papers. Under the Spanish Civil Code, the
defendant has an obligation to do, not to give. The law recognizes
the individual's freedom or liberty to do an act he has promised
to do, or not to do it, as he pleases. It falls within what Spanish
commentators call a very personal act (actopersonalismo), of
Atty. Paolo Dimayuga
which courts may not compel compliance, as it is considered an
act of violence to do so.
15.
ISABELO MORAN, JR. vs. CA and MARIANO E. PECSON
Facts:
On February 22, 1971 Pecson and Moran entered into an
agreement whereby both would contribute P15,000 each for the
purpose of printing 95,000 posters (featuring the delegates to the
1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a commission of
P l,000 a month starting on April 15, 1971 up to December 15,
1971; that on December 15, 1971, a liquidation of the accounts in
the distribution and printing of the 95,000 posters would be
made, that Pecson gave Moran P10,000 for which the latter
issued a receipt; that only a few posters were printed; that on or
about May 28, 1971, Moran executed in favor of Pecson a
promissory note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971 and
P10,000 payable on or before June 30, 1971), the whole sum
becoming due upon default in the payment of the first installment
on the date due, complete with the costs of collection.
Private respondent Pecson filed with the CFI of Manila an action
for the recovery of a sum of money and alleged in his complaint
three (3) causes of action, namely: (1) on the alleged partnership
agreement, the return of his contribution of P10,000.00, payment
of his share in the profits that the partnership would have
earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3)
moral and exemplary damages and attorney's fees.
The CFI held that by virtue of the partnership agreement entered
into by the parties-plaintiff and defendant the plaintiff did
contribute P10,000.00, and another sum of P7,000.00 for the
Voice of the Veteran or Delegate Magazine. Of the expected
95,000 copies of the posters, the defendant was able to print
2,000 copies only authorized of which, however, were sold at
P5.00 each. Nothing more was done after this and it can be said
that the venture did not really get off the ground. On the other
hand, the plaintiff failed to give his full contribution of
P15,000.00. Thus, each party is entitled to rescind the contract
which right is implied in reciprocal obligations under Article
1385 of the Civil Code where under 'rescission creates the
obligation to return the things which were the object of the
contract. The CA likewise rendered a decision against the
petitioner.
Issues: WON petitioner is liable to respondent for the supposed
expected profits due him.
Held:
The rule is, when a partner who has undertaken to
contribute a sum of money fails to do so, he becomes a
debtor of the partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code) and for
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
interests and damages from the time he should have
complied with his obligation (Art. 1788, Civil Code).
Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a
partnership. And even with an assurance made by one of the
partners that they would earn a huge amount of profits, in the
absence of fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. In this case, on an
investment of P15,000.00, the respondent was supposed to earn
a guaranteed P1,000.00 a month for eight months and around
P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of
which were sold at P5.00 each. The fantastic nature of expected
profits is obvious. We have to take various factors into account.
The failure of the Commission on Elections to proclaim all the
320 candidates of the Constitutional Convention on time was a
major factor. The petitioner undesirable his best business
judgment and felt that it would be a losing venture to go on with
the printing of the agreed 95,000 copies of the posters. Hidden
risks in any business venture have to be considered.
It does not follow however that the private respondent is not
entitled to recover any amount from the petitioner. The records
show that the private respondent gave P10,000.00 to the
petitioner. The latter used this amount for the printing of 2,000
posters at a cost of P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the 2,000 copies were
sold at P5.00 each. The gross income therefore was P10,000.00.
Deducting the printing costs of P4,000.00 from the gross income
of P10,000.00 and with no evidence on the cost of distribution,
the net profits amount to only P6,000.00. This net profit of
P6,000.00 should be divided between the petitioner and the
private respondent. And since only P4,000.00 was undesirable by
the petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private
respondent.
Relative to the second alleged error, the petitioner submits that
the award of P8,000.00 as Pecson's supposed commission has no
justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would
give the private respondent a monthly commission of Pl,000.00
from April 15, 1971 to December 15, 1971 for a total of eight (8)
monthly commissions. The agreement does not state the basis of
the commission. The payment of the commission could only have
been predicated on relatively extravagant profits. The parties
could not have intended the giving of a commission inspite of loss
or failure of the venture. Since the venture was a failure, the
private respondent is not entitled to the P8,000.00 commission.
16.
G.R. No. L-23241 March 14, 1925
HENRY FLEISCHER, plaintiff-appellee,
vs.
BOTICA NOLASCO CO., INC., defendant-appellant
Atty. Paolo Dimayuga
FACTS:
Fleischer instituted an action before the CFI of the Province of
Oriental Negros. against the board of directors of the Botica
Nolasco, Inc., a corporation duly organized and existing under the
laws of the Philippine Islands. The plaintiff prayed that said
board of directors be ordered to register in the books of the
corporation five shares of its stock in his name and to pay him the
sum of P500 for damages sustained by him resulting from the
refusal of said body to register the shares of stock in question. .
The defendant filed a demurrer on the ground that the facts
alleged in the complaint did not constitute sufficient cause of
action, and that the action was not brought against the proper
party, which was the Botica Nolasco, Inc. The demurrer was
sustained, and the plaintiff was granted five days to amend his
complaint.
The plaintiff filed an amended complaint against the Botica
Nolasco. The defendant again filed a demurrer on the ground that
the amended complaint did not state facts sufficient to constitute
a cause of action, and that said amended complaint was
ambiguous, unintelligible, uncertain, which demurrer was
overruled by the court.
The defendant answered the amended complaint denying
generally and specifically each and every one of the material
allegations thereof, and, as a special defense, alleged that the
defendant, pursuant to article 12 of its by-laws, had preferential
right to buy from the plaintiff said shares at the par value of P100
a share, plus P90 as dividends corresponding to the year 1922,
and that said offer was refused by the plaintiff.
Upon the issue presented by the pleadings above stated, the
cause was brought on for trial, at the conclusion of which, and on
August 21, 1924, the Honorable N. Capistrano, judge, held that, in
his opinion, article 12 of the by-laws of the corporation which
gives it preferential right to buy its shares from retiring
stockholders, is in conflict with Act No. 1459 (Corporation Law),
especially with section 35 thereof; and rendered a judgment
ordering the defendant corporation, through its board of
directors, to register in the books of said corporation the said five
shares of stock in the name of the plaintiff, Henry Fleischer, as the
shareholder or owner thereof, instead of the original owner,
Manuel Gonzalez, with costs against the defendant.
ISSUE: Whether or not article 12 of the by-laws of the
corporation is in conflict with the provisions of the Corporation
Law (Act No. 1459).
RULING: YES
Article 12 of the by-laws of the corporationgoverns the
transfer of shares of stock of defendant corporation. It also
creates a preferential right to buy, under the same
conditions, the share or shares of stock of a retiring
shareholder.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
On the on the other hand, Section 13, paragraph 7 of the
Corporation Law, empowers a corporation to make by-laws, not
inconsistent with any existing law, for the transferring of its
stock.It follows from said provision, that a by-law adopted by a
corporation relating to transfer of stock should be in harmony
with the law on the subject of transfer of stock. The law on this
subject is found in section 35 of Act No. 1459. Said section
specifically provides that the shares of stock "are personal
property and may be transferred by delivery of the certificate
indorsed by the owner, etc." Said section 35 defines the nature,
character and transferability of shares of stock. Under said
section they are personal property and may be transferred as
therein provided. Said section contemplates no restriction as to
whom they may be transferred or sold. It does not suggest that
any discrimination may be created by the corporation in favor or
against a certain purchaser. The holder of shares, as owner of
personal property, is at liberty, under said section, to dispose of
them in favor of whomsoever he pleases, without any other
limitation in this respect, than the general provisions of law.
Therefore, a stock corporation in adopting a by-law
governing transfer of shares of stock should take into
consideration the specific provisions of section 35 of Act No.
1459, and said by-law should be made to harmonize with
said provisions. It should not be inconsistent therewith.
The by-law now in question was adopted under the power
conferred upon the corporation by section 13, paragraph 7,
above quoted; but in adopting said by-law the corporation
has transcended the limits fixed by law in the same section,
and has not taken into consideration the provisions of
section 35 of Act No. 1459.
As a general rule, the by-laws of a corporation are valid if they are
reasonable and calculated to carry into effect the objects of the
corporation, and are not contradictory to the general policy of the
laws of the land.
The only restraint imposed by the Corporation Law upon
transfer of shares is found in section 35 of Act No. 1459, quoted
above, as follows: "No transfer, however, shall be valid, except
as between the parties, until the transfer is entered and
noted upon the books of the corporation so as to show the
names of the parties to the transaction, the date of the
transfer, the number of the certificate, and the number of
shares transferred." This restriction is necessary in order that
the officers of the corporation may know who are the
stockholders, which is essential in conducting elections of
officers, in calling meeting of stockholders, and for other
purposes. but any restriction of the nature of that imposed in the
by-law now in question, is ultra vires, violative of the property
rights of shareholders, and in restraint of trade.
And moreover, the by-laws now in question cannot have any
effect on the appellee. He had no knowledge of such by-law when
the shares were assigned to him. He obtained them in good faith
and for a valuable consideration. He was not a privy to the
contract created by said by-law between the shareholder Manuel
Atty. Paolo Dimayuga
Gonzalez and the Botica Nolasco, Inc. Said by-law cannot operate
to defeat his rights as a purchaser.
17.
LAGUNA TRANSPORTATION CO., INC. vs. SOCIAL SECURITY
SYSTEM
On January 24, 1958, petitioner Laguna Transportation Co., Inc.
filed with the Court of First Instance of Laguna petition praying
that an order be issued by the court declaring that it is not bound
to register as a member of respondent Social Security System
and, therefore, not obliged to pay to the latter the contributions
required under the Social Security Act. To this petition,
respondent filed its answer on February 11, 1958 praying for its
dismissal due to petitioner's failure to exhaust administrative
remedies, and for a declaration that petitioner is covered by said
Act, since the latter's business has been in operation for at least 2
years prior to September 1, 1957. The facts are as follows:
1. That petitioner is a domestic corporation duly organized and
existing under the laws of the Philippines, with principal place of
business at Bian, Laguna;
2. That respondent has served notice upon the petitioner
requiring it to register as member of the System and to remit the
premiums due from all the employees of the petitioner and the
contribution of the latter to the System beginning the month of
September, 1957;
3. That sometime in 1949, the Bian Transportation Co., a
corporation duly registered with the Securities and Exchange
Commission, sold part of the lines and equipment it operates to
Gonzalo Mercado, Artemio Mercado, Florentino Mata and
Dominador Vera Cruz;
4. That after the sale, the said vendees formed an unregistered
partnership under the name of Laguna Transportation Company
which continued to operate the lines and equipment bought from
the Bian Transportation Company, in addition to new lines
which it was able to secure from the Public Service Commission;
5. That the original partners forming the Laguna Transportation
Company, with the addition of two new members, organized a
corporation known as the Laguna Transportation Company, Inc.,
which was registered with the Securities and Exchange
Commission on June 20, 1956, and which corporation is the
plaintiff now in this case;
6. That the corporation continued the same transportation
business of the unregistered partnership;
7. That prior to November 11, 1957, plaintiff requested for
exemption from coverage by the System on the ground that it
started operation only on June 20, 1956, when it was registered
with the Securities and Exchange Commission but on November
11, 1957, the Social Security System notified plaintiff that it was
covered;
8. On November 14, 1957, plaintiff through counsel sent a letter
to the Social Security System contesting the claim of the System
that plaintiff was covered, . . .
9. On November 27, 1957, Carlos Sanchez, Manager of the
Production Department of the respondent System for and in
behalf of the Acting Administrator, informed plaintiff that
plaintiff's business has been in actual operation for at least two
years, . . .
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
TC rendered a decision in favor of SSS, it was subject to
compulsory coverage under said law. . . .
From this decision, petitioner appealed directly to us, raising
purely questions of law.
Petitioner claims that the lower court erred in holding that it is
an employer engaged in business as a common carrier which had
been in operation for at least 2 years prior to the enactment of
the Social Security Act and, therefore, subject to compulsory
coverage thereunder. SEC. 9 Compulsory Coverage. Coverage in
the System shall be compulsory upon all employees between the
ages of sixteen and sixty years, inclusive, if they have been for at
least six months in the service of an employer who is a member
of the System. Provided, That the Commission may not compel any
employer to become a member of the System unless he shall have
been in operation for at least two years . . . . (Italics supplied.).
ISSUE: WON Laguna Transportation Co is exempt from SSS
coverage
Held: No
While it is true that a corporation once formed is conferred a
juridical personality separate and district from the persons
composing it, it is but a legal fiction introduced for purposes of
convenience and to subserve the ends of justice. The concept
cannot be extended to a point beyond its reasons and policy, and
when invoked in support of an end subversive of this policy, will
be disregarded by the courts.
To adopt petitioner's argument would defeat, rather than
promote, the ends for which the Social Security Act was enacted.
An employer could easily circumvent the statute by simply
changing his form of organization every other year, and then
claim exemption from contribution to the System as required, on
the theory that, as a new entity, it has not been in operation for a
period of at least 2 years. the door to fraudulent circumvention of
the statute would, thereby, be opened.
Moreover, petitioner admitted that as an employer engaged in
the business of a common carrier, its operation commenced on
April 1, 1949 while it was a partnership and continued by the
corporation upon its formation on June 20, 1956. Unlike in the
conveyance made by the Bian Transportation Company to the
partners Gonzalo Mercado, Artemio Mercado, Florentino Mata,
and Dominador Vera Cruz, no mention whatsoever is made either
in the pleadings or in the stipulation of facts that the lines and
equipment of the unregistered partnership had been sold and
transferred to the corporation, petitioner herein. This omission,
to our mind, clearly indicates that there was, in fact, no transfer
of interest, but a mere change in the form of the organization of
the employer engaged in the transportation business, i.e., from an
unregistered partnership to that of a corporation. As a rule,
courts will look to the substance and not to the form.
Finally, the weight of authority supports the view that where a
corporation was formed by, and consisted of members of a
partnership whose business and property was conveyed and
transferred to the corporation for the purpose of continuing its
business, in payment for which corporate capital stock was
issued, such corporation is presumed to have assumed
partnership debts, and is prima facie liable therefor.
Atty. Paolo Dimayuga
18.
Evagelista vs Commissioner of internal revenue
Facts: Petitioners borrowed money from their father and
purchased several lands. For several years, these lands were
leased to tenants by the petitioners. In 1954, respondent
Collector of Internal Revenue demanded from petitioners the
payment of income tax on corporations, real estate dealer's fixed
tax and corporation residence tax for the years 1945-1949. A
letter of demand and corresponding assessments were delivered
to petitioners. Petitioners claim that they should be absolved
from paying said taxes since they are not a corporation.
Issue: Whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act. No. 466,
otherwise known as the National Internal Revenue Code, as well
as to the residence tax for corporations and the real estate
dealers fixed tax.
Held: Yes. Petitioners are subject to the income tax and residence
tax for corporation.
As defined in section 84 (b) of the Internal Revenue Code, "the
term corporation includes partnerships, no matter how created
or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard
forms, or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for
purposes of the tax on corporations. Partnership, as has been
defined in the civil code refers to two or more persons who bind
themselves to contribute money, properly, or industry to a
common fund, with the intention of dividing the profits among
themselves. Thus, petitioners, being engaged in the real estate
transactions for monetary gain and dividing the same among
themselves constitute a partnership so far as the Code is
concerned and are subject to income tax for corporation.
Since Sec 2 of the Code in defining corporations also includes
joint-stock company, partnership, joint account, association or
insurance company, no matter how created or organized, it
follows that petitioners, regardless of how their partnership was
created is also subject to the residence tax for corporations.
19.
Lyons v. Rosenstock
FACTS
Prior to his death on June 18, 1923, Henry W. Elser had been a
resident of the City of Manila where he was engaged during the
years with which we are here concerned in buying, selling, and
administering real estate. In several ventures which he had made
in buying and selling property of this kind the plaintiff, E. S.
Lyons, had joined with him, the profits being shared by the two in
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
equal parts. In April, 1919, Lyons, whose regular vocation was
that of a missionary, or missionary agent, of the Methodist
Episcopal Church, went on leave to the United States and was
gone for nearly a year and a half, returning on September 21,
1920. On the eve of his departure Elser made a written
statements showing that Lyons was, at that time, half owner with
Elser of three particular pieces of real property. Concurrently
with this act Lyons execute in favor of Elser a general power of
attorney empowering him to manage and dispose of said
properties at will and to represent Lyons fully and amply, to the
mutual advantage of both. During the absence of Lyons two of the
pieces of property above referred to were sold by Elser, leaving
in his hands a single piece of property located at 616-618 Carried
Street, in the City of Manila, containing about 282 square meters
of land, with the improvements thereon.
In the spring of 1920 the attention of Elser was drawn to a piece
of land, containing about 1,500,000 square meters, near the City
of Manila, and he discerned therein a fine opportunity for the
promotion and development of a suburban improvement. This
property, which will be herein referred to as the San Juan Estate,
was offered by its owners for P570,000. To afford a little time for
maturing his plans, Elser purchased an option on this property
for P5,000, and when this option was about to expire without his
having been able to raise the necessary funds, he paid P15,000
more for an extension of the option, with the understanding in
both cases that, in case the option should be exercised, the
amounts thus paid should be credited as part of the first
payment. The amounts paid for this option and its extension
were supplied by Elser entirely from his own funds. In the end he
was able from his own means, and with the assistance which he
obtained from others, to acquire said estate. The amount
required for the first payment was P150,000, and as Elser had
available only about P120,000, including the P20,000 advanced
upon the option, it was necessary to raise the remainder by
obtaining a loan for P50,000. This amount was finally obtained
from a Chinese merchant of the city named Uy Siuliong. This loan
was secured through Uy Cho Yee, a son of the lender; and in order
to get the money it was necessary for Elser not only to give a
personal note signed by himself and his two associates in the
projected enterprise, but also by the Fidelity & Surety Company.
The money thus raised was delivered to Elser by Uy Siuliong on
June 24, 1920. With this money and what he already had in bank
Elser purchased the San Juan Estate on or about June 28, 1920.
For the purpose of the further development of the property a
limited partnership had, about this time, been organized by Elser
and three associates, under the name of J. K. Pickering &
Company; and when the transfer of the property was effected the
deed was made directly to this company. As Elser was the
principal capitalist in the enterprise he received by far the
greater number of the shares issued, his portion amount in the
beginning to 3,290 shares.
While these negotiations were coming to a head, Elser
contemplated and hoped that Lyons might be induced to come in
with him and supply part of the means necessary to carry the
enterprise through. In this connection it appears that on May 20,
1920, Elser wrote Lyons a letter, informing him that he had made
an offer for a big subdivision and that, if it should be acquired and
Lyons would come in, the two would be well fixed. On June 3,
1920, eight days before the first option expired, Elser cabled
Lyons that he had bought the San Juan Estate and thought it
advisable for Lyons to resign, meaning that he should resign his
position with the mission board in New York. On the same date
he wrote Lyons a letter explaining some details of the purchase,
Atty. Paolo Dimayuga
and added "have advised in my cable that you resign and I hope
you can do so immediately and will come and join me on the lines
we have so often spoken about. . . . There is plenty of business for
us all now and I believe we have started something that will keep
us going for some time." In one or more communications prior to
this, Elser had sought to impress Lyons with the idea that he
should raise all the money he could for the purpose of giving the
necessary assistance in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any
marked degree to Lyons, and found him averse from joining in
the purchase of the San Juan Estate. In fact upon this visit of
Lyons to the United States a grave doubt had arisen as to whether
he would ever return to Manila, and it was only in the summer of
1920 that the board of missions of his church prevailed upon him
to return to Manila and resume his position as managing
treasurer and one of its trustees. Accordingly, on June 21, 1920,
Lyons wrote a letter from New York thanking Elser for his offer
to take Lyons into his new project and adding that from the
standpoint of making money, he had passed up a good thing.
When Elser was concluding the transaction for the purchase of
the San Juan Estate, his book showed that he was indebted to
Lyons to the extent of, possibly, P11,669.72, which had accrued to
Lyons from profits and earnings derived from other properties;
and when the J. K. Pickering & Company was organized and stock
issued, Elser indorsed to Lyons 200 of the shares allocated to
himself, as he then believed that Lyons would be one of his
associates in the deal. It will be noted that the par value of these
200 shares was more than P8,000 in excess of the amount which
Elser in fact owed to Lyons; and when the latter returned to the
Philippine Islands, he accepted these shares and sold them for his
own benefit. It seems to be supposed in the appellant's brief that
the transfer of these shares to Lyons by Elser supplies some sort
of basis for the present action, or at least strengthens the
considerations involved in a feature of the case to be presently
explained. This view is manifestly untenable, since the
ratification of the transaction by Lyons and the appropriation by
him of the shares which were issued to him leaves no ground
whatever for treating the transaction as a source of further
equitable rights in Lyons. We should perhaps add that after
Lyons' return to the Philippine Islands he acted for a time as one
of the members of the board of directors of the J. K. Pickering &
Company, his qualification for this office being derived precisely
from the ownership of these shares.
ISSUE
Whether or not there was a partnership between Elser and
Lyons?
RULING
We now turn to the incident which supplies the main basis of this
action. It will be remembered that, when Elser obtained the loan
of P50,000 to complete the amount needed for the first payment
on the San Juan Estate, the lender, Uy Siuliong, insisted that he
should procure the signature of the Fidelity & Surety Co. on the
note to be given for said loan. But before signing the note with
Elser and his associates, the Fidelity & Surety Co. insisted upon
having security for the liability thus assumed by it. To meet this
requirements Elser mortgaged to the Fidelity & Surety Co. the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
equity of redemption in the property owned by himself and
Lyons on Carriedo Street. This mortgage was executed on June
30, 1920, at which time Elser expected that Lyons would come in
on the purchase of the San Juan Estate. But when he learned from
the letter from Lyons of July 21, 1920, that the latter had
determined not to come into this deal, Elser began to cast around
for means to relieve the Carriedo property of the encumbrance
which he had placed upon it. For this purpose, on September 9,
1920, he addressed a letter to the Fidelity & Surety Co., asking it
to permit him to substitute a property owned by himself at 644
M. H. del Pilar Street, Manila, and 1,000 shares of the J. K.
Pickering & Company, in lieu of the Carriedo property, as
security. The Fidelity & Surety Co. agreed to the proposition; and
on September 15, 1920, Elser executed in favor of the Fidelity &
Surety Co. a new mortgage on the M. H. del Pillar property and
delivered the same, with 1,000 shares of J. K. Pickering &
Company, to said company. The latter thereupon in turn executed
a cancellation of the mortgage on the Carriedo property and
delivered it to Elser. But notwithstanding the fact that these
documents were executed and delivered, the new mortgage and
the release of the old were never registered; and on September
25, 1920, thereafter, Elser returned the cancellation of the
mortgage on the Carriedo property and took back from the
Fidelity & Surety Co. the new mortgage on the M. H. del Pilar
property, together with the 1,000 shares of the J. K. Pickering &
Company which he had delivered to it.
The explanation of this change of purpose is undoubtedly to be
found in the fact that Lyons had arrived in Manila on September
21, 1920, and shortly thereafter, in the course of a conversation
with Elser told him to let the Carriedo mortgage remain on the
property ("Let the Carriedo mortgage ride"). Mrs. Elser
testified to the conversation in which Lyons used the words
above quoted, and as that conversation supplies the most
reasonable explanation of Elser's recession from his purpose of
relieving the Carriedo property, the trial court was, in our
opinion, well justified in accepting as a proven fact the consent of
Lyons for the mortgage to remain on the Carriedo property. This
concession was not only reasonable under the circumstances, in
view of the abundant solvency of Elser, but in view of the further
fact that Elser had given to Lyons 200 shares of the stock of the J.
K. Pickering & Co., having a value of nearly P8,000 in excess of the
indebtedness which Elser had owed to Lyons upon statement of
account. The trial court found in effect that the excess value of
these shares over Elser's actual indebtedness was conceded by
Elser to Lyons in consideration of the assistance that had been
derived from the mortgage placed upon Lyon's interest in the
Carriedo property. Whether the agreement was reached exactly
upon this precise line of thought is of little moment, but the
relations of the parties had been such that it was to be expected
that Elser would be generous; and he could scarcely have failed
to take account of the use he had made of the joint property of
the two.
As the development of the San Juan Estate was a success from the
start, Elser paid the note of P50,000 to Uy Siuliong on January 18,
1921, although it was not due until more than five months later.
It will thus be seen that the mortgaging of the Carriedo
property never resulted in damage to Lyons to the extent of a
single cent; and although the court refused to allow the
defendant to prove the Elser was solvent at this time in an
amount much greater than the entire encumbrance placed upon
the property, it is evident that the risk imposed upon Lyons was
negligible. It is also plain that no money actually deriving from
this mortgage was ever applied to the purchase of the San Juan
Atty. Paolo Dimayuga
Estate. What really happened was the Elser merely subjected the
property to a contingent liability, and no actual liability ever
resulted therefrom. The financing of the purchase of the San Juan
Estate, apart from the modest financial participation of his three
associates in the San Juan deal, was the work of Elser
accomplished entirely upon his own account.
The case for the plaintiff supposes that, when Elser placed a
mortgage for P50,000 upon the equity of redemption in the
Carriedo property, Lyons, as half owner of said property, became,
as it were, involuntarily the owner of an undivided interest in the
property acquired partly by that money; and it is insisted for him
that, in consideration of this fact, he is entitled to the four
hundred forty-six and two-thirds shares of J. K. Pickering &
Company, with the earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that
the money obtained from Uy Siuliong in the manner already
explained had been used to held finance the purchase of the San
Juan Estate. He seems to have supposed that the Carried property
had been mortgaged to aid in putting through another deal,
namely, the purchase of a property referred to in the
correspondence as the "Ronquillo property"; and in this
connection a letter of Elser of the latter part of May, 1920, can be
quoted in which he uses this language:
As stated in cablegram I have arranged for P50,000 loan
on Carriedo property. Will use part of the money for
Ronquillo buy (P60,000) if the owner comes through.
Other correspondence shows that Elser had apparently been
trying to buy the Ronquillo property, and Lyons leads us to infer
that he thought that the money obtained by mortgaging the
Carriedo property had been used in the purchase of this
property. It doubtedless appeared so to him in the retrospect, but
certain consideration show that he was inattentive to the
contents of the quotation from the letter above given. He had
already been informed that, although Elser was angling for the
Ronquillo property, its price had gone up, thus introducing a
doubt as to whether he could get it; and the quotation above
given shows that the intended use of the money obtained by
mortgaging the Carriedo property was that only part of the
P50,000 thus obtained would be used in this way, if the deal went
through. Naturally, upon the arrival of Lyons in September, 1920,
one of his first inquiries would have been, if he did not know
before, what was the status of the proposed trade for the
Ronquillo property.
Elser's widow and one of his clerks testified that about June 15,
1920, Elser cabled Lyons something to this effect;: "I have
mortgaged the property on Carriedo Street, secured by my
personal note. You are amply protected. I wish you to join me in
the San Juan Subdivision. Borrow all money you can." Lyons says
that no such cablegram was received by him, and we consider
this point of fact of little moment, since the proof shows that
Lyons knew that the Carriedo mortgage had been executed, and
after his arrival in Manila he consented for the mortgage to
remain on the property until it was paid off, as shortly occurred.
It may well be that Lyons did not at first clearly understand all
the ramifications of the situation, but he knew enough, we think,
to apprise him of the material factors in the situation, and we
concur in the conclusion of the trial court that Elser did not act in
bad faith and was guilty of no fraud.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
In the purely legal aspect of the case, the position of the appellant
is, in our opinion, untenable. If Elser had used any money actually
belonging to Lyons in this deal, he would under article 1724 of
the Civil Code and article 264 of the Code of Commerce, be
obligated to pay interest upon the money so applied to his own
use. Under the law prevailing in this jurisdiction a trust does not
ordinarily attach with respect to property acquired by a person
who uses money belonging to another. Of course, if an actual
relation of partnership had existed in the money used, the
case might be difference; and much emphasis is laid in the
appellant's brief upon the relation of partnership which, it is
claimed, existed. But there was clearly no general relation of
partnership, under article 1678 of the Civil Code. It is clear
that Elser, in buying the San Juan Estate, was not acting for
any partnership composed of himself and Lyons, and the law
cannot be distorted into a proposition which would make
Lyons a participant in this deal contrary to his express
determination.
It seems to be supposed that the doctrines of equity worked out
in the jurisprudence of England and the United States with
reference to trust supply a basis for this action. The doctrines
referred to operate, however, only where money belonging to
one person is used by another for the acquisition of property
which should belong to both; and it takes but little discernment
to see that the situation here involved is not one for the
application of that doctrine, for no money belonging to Lyons
or any partnership composed of Elser and Lyons was in fact
used by Elser in the purchase of the San Juan Estate. Of
course, if any damage had been caused to Lyons by the placing of
the mortgage upon the equity of redemption in the Carriedo
property, Elser's estate would be liable for such damage. But it is
evident that Lyons was not prejudice by that act.
20.
G.R. No. L-27741 July 29, 1968
R.B. INDUSTRIAL DEVELOPMENT COMPANY, LIMITED, and
RAY N. KITTILSTVEDT, petitioners,
vs.
HON. MANUEL LOPEZ ENAGE, Judge of the Court of First
Instance of Agusan, Branch II, and EASTERN TIMBER
CORPORATION, respondents.
Facts:
On January 22, 1959, Ray Kittilstvedt was granted by the Bureau
of Forestry a forest concession involving 6,850 hectares located
in Cabadbaran, Agusan. The license was non-transferable and
was to expire on June 30, 1959. On December 22, 1959, more
than five months after the license expired, Kittilsvedt assigned
said license to Eastern Timber Corporation for 400 shares of
stocks with a par value of Php 40,000 and was made vice-
president of the corporation. Soon thereafter, Kittilsvedt sold his
400 shares to Democrito O. Plaza for the same consideration.
Kittilstvedt's timber license was extended on March 6, 1963, and
was again renewed, likewise in his name, on October 27, 1965.
While the license appears in Kittilstvedt's name, averment is
made by Eastern that the expenses for the renewal and other
incidental expenses were paid for by Eastern.
Atty. Paolo Dimayuga
The day following the issuance of the last renewal license, or on
October 28, 1965, Kittilstvedt transferred the same to Industrial.
Industrial thus obtained its own Ordinary Timber License 981-
103166 (New).
On December 21, 1965, Eastern lodged a complaint with the
Director of Forestry against R.B. Mining Co., Ltd. (instead of
Industrial) and Kittilstvedt, praying for (1) the cancellation of
Industrials ordinary timber license and (2) the issuance in lieu
thereof of another license in the name of Eastern; and (3) in the
meantime, for an order stopping Industrial from conducting
logging operations within the forest area. But the remedy
pursued in the Bureau of Forestry was thereafter abandoned.
On February 4, 1966 Eastern filed a case against Kittilstvedt and
Industrial before the CFI of Agusan asking for the following
reliefs: (1) preliminary injunction to stop logging operations in
the area under Industrial's timber license; (2) nullification of the
transfer of Kittilstvedt to Industrial; (3) declaration that plaintiff
is the owner of the said timber license appearing in the name of
Industrial; (4) directing defendants to transfer said license in
Eastern's name; and, (5) accounting by defendants of logs and
forest products, damages, attorneys' fees, and costs.
The defendants filed motion to dismiss saying that Eastern has no
cause of action against them and that the court has no
jurisdiction over the said case. The court held in abeyance
resolution on the motion to dismiss. Defendants moved to
reconsider. On May 2, 1967, the trial court issued an order (1)
denying the motion to reconsider; (2) denying plaintiff's ex-
parte motion to declare defendants in default; (3) ordering
defendants to answer the complaint within the reglementary
period; and (4) setting for on June 5, 1967 plaintiff's urgent
motion for preliminary injunction.
On June 1, 1967, defendants went to the Court of Appeals
on certiorari. Since jurisdiction was the main question involved
therein, cognizable only by the Supreme Court, the Court of
Appeals, on June 14, 1967, dismissed the petition.
Meanwhile, on June 5, 1967, at a time when the certiorari petition
was pending consideration by the Court of Appeals, respondent
judge issued two orders: the first, declaring defendants in default
and denying their counsel's request to defer the proceedings, and
giving leave to plaintiff to present evidence before the deputy
clerk of court; the second, authorizing the deputy clerk of court to
receive plaintiff's evidence in connection with the latter's
(Eastern's) application for a preliminary injunction, hence this
petition.
Issue: WON Eastern has a cause of action against Industrial and
WON the court has jurisdiction to try the case
On the first issue, the Court ruled that Eastern has no cause of
action against the defendants. First, the license had already
expired, thus, there was no license to transfer. Second, the license
itself says that it was non-transferable. Third, the conveyance
was illegal as provided for in Forestry Administrative Order No.
21 (Sept. 18, 1954) which expressly prohibits such transfer.
The transfer, sale or conveyance of any license, permit
or lease issued by the Director of Forestry, now or
hereafter authorized under the forest laws, rules and
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
regulations in favor of any individual, companies or
private corporations within the period of three years
after the issuance of such license, permit or lease, or any
transaction under any guise which will allow or permit
others to enjoy the privilege granted therein, is hereby
prohibited.
After the period of three years from the issuance of the
license, permit or lease, the licensee, permittee or lessee
may, with the approval of the Secretary of Agriculture
and Natural Resources, be allowed to transfer, sell or
convey his license, permit or lease in favor of qualified
persons, companies or corporations, provided that the
licensee, permittee or lessee has fully complied with all
the requirements of the law and the rules and
regulations thereunder promulgated by the Director of
Forestry; and provided further, that there is no evidence
that such transfer, sale or conveyance is being made for
purposes of speculation.
Eastern seeks relief in the court below upon a deed of
conveyance of a forest license 11 months after the issuance
thereof, and after its term has expired. This is contrary to the
prohibition in Forestry Administrative Order No. 21. It is illegal.
Eastern cannot compel Kittilstvedt to comply with the terms of
that contract. For, there is no duty where the law forbids. And
even if we concede that the transfer were valid, the same would
not produce any effect until and unless approved by the Director
of Forestry and the Secretary of Agriculture and Natural
Resources. The suit below being one for specific performance of
an illegal conveyance will not prosper for lack of cause of action.
On the second issue, the Court ruled that the court has
no jurisdiction to try the case, the jurisdiction being lodged with
the Bureau of Forestry. The thrust of the reliefs sought by Eastern
is that it be, declared owner of the timber license now in the
name of Industrial, and that, in consequence, the transfer thereof
by Kittilstvedt to Industrial be annulled. But the question of
whether or not Industrial's timber license should be cancelled
and a new one issue in Eastern's name in lieu thereof is one, upon
the facts of record, beyond the reach of the courts. Such a
prerogative is vested in the Bureau of Forestry by Section 1816 of
the Revised Administrative Code. This codal provision reads:
SEC. 1816. Jurisdiction of Bureau of Forestry. The
Bureau of Forestry shall have jurisdiction and authority
over the demarcation protection, management,
reproduction, reforestation, occupancy, and use of all
public forests and forest reserves and over the granting
of licenses for game, and fish, and for the taking of
forest products, including stone and earth, therefrom.
A doctrine long recognized is that where the law
confines in an administrative office the power to determine
particular questions or matters, upon the facts to be presented,
the jurisdiction of such office shall prevail over the
courts. Respondent Eastern had gone to the Bureau of Forestry. It
withdrew its complaint. Eastern may not go to the courts of
justice which have no jurisdiction in the first instance to approve
the alleged transfer and to direct the issuance of the license in
favor of Eastern. At this stage, the jurisdiction of the court may
not be invoked.
Atty. Paolo Dimayuga
The petition for certiorari and prohibition was granted;
the writ of preliminary injunction was made permanent; and the
respondent judge was directed to dismiss Civil Case 1087 of the
Court of First Instance of Agusan entitled "Eastern Timber
Corporation, Plaintiff, vs. Ray N. Kittilstvedt and R. B. Industrial
Development Company, Limited, Defendants".
21.
G.R. No. L-929 October 8, 1903 WILLARD, J.:
THUNGA CHUI vs. QUE BENTEC
FACTS:
THUNGA CHUI contributed to the partnership P1,000 and
QUE BENTEC gave P2,000
QUE BENTEC claims that:
1) their case falls under Article 1280 (All other
contracts, on which the amount of the prestaciones of one
or the two contracting parties exceed 1,500 pesetas, must
also be drawn in writing, even when they are private
documents), and
2) Before the plaintiff can maintain any action
on the verbal contract he must proceed under Article
1279 to compel the defendant to reduce it to writing
from the moment in which consent and the other
requirements, necessary for their validity, have taken
place.
On May 3, 1897, the trial court held that, Article 1279 does
not impose an obligation, but confers a privilege upon
both contracting parties, and the fact that plaintiff has not
made use of same does not bar his action.
On Oct 19, 1901, the Audiencia ruled in favor of the plaintiff,
Doa Ana Laborda, who agreed verbally with the defendant,
Don Nemesio Alamanzon, to leave the employment which
she then had and to enter the defendant's service, and he
agreed that if she left his service he would pay her during life
an annuity equal to the salary which she was receiving in her
former employment. Having been dismissed, she sued for
several months' salary and the annuity.
ISSUE:
WON THE COURT HAD INFRINGED ART. 1280 WHICH
REQUIRED THAT THE PARTNERSHIP CONTRACT BE IN
WRITING.
HELD: NO, even supposing that the contract upon which this
case turns is one of the class which should be reduced to
writing.
General rule, Art. 1278: Contracts are binding and therefore
enforceable reciprocally by the contracting parties, whatever
may be the form in which the contract has been entered into,
provided that the essential conditions for their validity are
present,which is not in opposition with the following:
1) Art. 1279, which is far from making the enforceability
of the contract dependent upon any special extrinsic form. It
recognizes its enforceability by the mere act of granting to
the contracting parties an adequate remedy whereby to
compel the execution of a public writing, or any other special
form, whenever such form is necessary in order that the
contract may produce the effect which is desired, according
to whatever may be its object.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
2) Art. 1280, which is limited to an enumeration of the
acts contracts which should be reduced to writing, in a
public or private document.
Those provisions establishes an implied condition of every
contract that these formal requisites shall be complied with,
notwithstanding the absence of any express agreement by
the contracting parties to that effect, but does not
subordinate the principal action for the enforcement of
the agreement to the bringing of the secondary action
concerning the form. Such subordination would be
unnecessary, as the cause of action would be the same in
both cases, i.e., the existence of a valid contract.
On June 18, 1902 the court laid down same doctrine: The
enforceability of contracts does not depend upon their
extrinsic form, but solely upon the presence of the
conditions necessary for their validity which it is not
denied are present in the contract in question that
contracts are binding whatever may be the form of their
celebration. The reduction to writing in a public or private
document, required by the law with respect to certain
contracts, is not an essential requisite of their existence, but is
simply a coercive power granted to the contracting parties
by which they can reciprocally compel the observance of
these formal requisites.
The appellant, however, assigns as error the infringement of
articles 119 and 51 of the Code of Commerce. Article 117 of
the Code of Commerce is as follows: The contract of
mercantile partnership entered into with the essential
requisites of the law shall be valid and binding upon the
parties thereto, whatever may be its form, or whatever
lawful and fair conditions and combinations may enter into it,
provided they are not expressly prohibited by this Code . . . .
We hold that under this article a verbal contract of
partnership is good as between the parties themselves. The
phrase "essential requisites of the law" means those
general requirements of the law which are of the essence
of every contract, namely, parties who are capable of
contracting, the meeting of the minds, the absence of fraud,
and those enumerated in article 1261 of the Civil Code.
"Form" refers to the manner in which the contract is made,
whether by parol or in writing, and not the class to which it
may belong as general, limited, or corporate. Article, 117, is
expressly limited to partners, and as to them it is declared
that a verbal contract is sufficient. But when third persons
are involved, the Code has established a different rule,
Article 118 and 119.
There being no provision of the Code of Commerce which
requires the contract of partnership to be in any particular
form as between the partners, this case does not fall within
the terms of article 52 of this Code, and that article is not
applicable.
Article 117, expressly authorizing, as we hold, a verbal
contract of partnership as between the partners, such a
contract is thereby excepted from the operations of article
51. The case at bar is covered by Art. 117.
Whether, therefore, this be a civil partnership (oral
contract of partnership under the Civil Code is valid and
binding between the parties, even if the amount of capital
contributed is in excess of P1500) and so governed by the
Civil Code, or a commercial partnership (by which, to affect
persons, must be reduced to writing and recorded in
mercantile registry, a verbal contract of partnership is good
between the parties themselves) and so governed by the Code
of Commerce, in neither case can the objections made by
the appellant be sustained.
Atty. Paolo Dimayuga
22.
ENCARNACION MAGALONA, ET AL., vs. JUAN PESAYCO
FACTS:
The plaintiffs, Encarnacion, Magalona, Juan Sermeno,
and the defendant, Juan Pesayco, formed a partnership
for the purpose of catching semilias de bangus o aua
in San Jose, Antique.
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. This bid
being the highest, the privilege was awarded to the
defendant. The latter entered upon his duties under the
contract and gave an account of two sales of semilias
de bangus, to TiburcioLutero as representative of the
plaintiff Magalona.
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.
A complaint was filed, 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 plaintiff
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 plaintiff 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 semillias de bangus.
At the trial, it was proven that before April 20, 1931, the
defendant obtained and sold a total of 975,000
semillias de bangus 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.
Defendant 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.
ISSUE:
Whether or not there was a partnership between the
parties despite the fact that the said partnership
agreement was not in writing.
RULING:
YES.
The court ruled that it cannot agree with the appellant
that one of the requisites of a partnership agreement
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

such as the one under consideration, is that it should be dual capacity as Administratrix of her husbands estates
in writing.
Art. 1667 of the Civil Code provides that; and as partner in lieu of her husband. She sold these to
Civil partnerships may be established in any
form whatever, unless real property or real respondents Washington Sycip and Betty Lee.
rights are contributed to the same, in which
case a public instrument shall be necessary. We note the following in this situation:
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. We are dealing with the transfer of partnership
(Fernandez vs. Dela Rosa, 1 Phil., 671.)
A verbal partnership agreement is valid between the property by one partner, acting in behalf of the
parties even though more than 1,500 pesetas are
involved and can be enforced without bringing action
firm, to a stranger. There is no question between
under article 1279, Civil Code, to compel execution of a the partners inter se.
written instrument. (Arts. 1261, 1278-1280, 1667, Civil
Code; arts. 116-119, 51, Code of Commerce.) Thunga
Chui vs. QueBentec. The partnership was expressly organized to
engage in real estate business, either by buying
--------------END 2ND------------------- and selling real estate. These are expressly
provided for in the Articles of co-partnership.
1.

Goquiolay v. Sycip108 Phil 947 The properties sold were not part of the
contributed capital but land precisely acquired to
Facts: be sold, although subject to a mortgage in favor
of the original owners, from whom the
1940: Goquiolay and Tan Sin An were partners who
partnership had acquired them
owned 3parcels of land. On the same date that
the partnership acquired these, Tan Sin An purchased 46 Regardless of the previous ruling by the
parcels of land. Both the partnership and Tan Sin An Supreme Court for the respondents, the
alone executed mortgages in favor of the same company, petitioners still filed this motion for
La Urbanidad Sociedad Mutua de Construccion. For reconsideration.
the partnership, it was P25,000 while for Tan Sin An, it
was P35,000. A few months later, the two mortgage Issue:

obligations were consolidated and transferred to the

W/N Tan Sin Ans widow, Kong Chai Pin, became
Banco Hipote cario de Filipinas and as a result, Tan Sin
partner when her husband died, allowing her to validly
An, in his individual capacity, and the partnership bound
sell the property that belongs to the partnership.
themselves to pay jointly and severally the total amount
of P52,282.20, with 8% annual interest thereon within a HELD: YES.

period of eight years mortgaging in favor of said entity

the 3 parcels of land belonging to the partnership and the
46 parcels of land belonging individually to Tan Sin An.
1942: Tan Sin An died, his widow, Kong Chai Pin was
Goquiolay insists that Kong Chai Pin never became
more than a limited partner, incapacitated by law to
manage the affairs of partnership; that the testimony of
Kongs witnesses belie that she

made Administratrix of his estates in 1944. In 1949, she

executed a sale of these lands. This was executed in her
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
took over the 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
Goquiolay of his share in the properties sold.
Based on the sequence of events (as taken from the
testimonies of Goquiolay and Kong Chai Pins
witnesses, Young
and Lim), Young and Lim observed that most of the
properties were undeveloped and some were occupied by
the Japanese Army during the Japanese Occupation from
1942-1944.Goquiolay then admitted that in 1945, after
the Japanese Occupation, he allowed the widow to
continue managing the properties. The sale made by
Kong Chai Pin was in 1949. Clearly, the testimonies of
the widows witnesses do not contradict Goquiolays
admission. He had given her authority after the
occupation while witnesses were referring to the time of
the Japanese period. And this authority was never
revoked until now.
Goquiolay tried to argue that Kong Chai Pin only had
the authority to manage the property and did not include
the power to alienate, citing Art. 1713 of the Civil Code
of 1889.What this argument overlooks is that the widow
was not a mere agent because she had become partner
upon her husbands death (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
willhave 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), which
was expressly stipulated in the articles of co-partnership.
The stipulation in the articles of co-partnership imply
that there is a general partnership, and not merely a
limited one, because since the co-partnershipwill
have to be continued with the heirs and assigns, it
Atty. Paolo Dimayuga
cannot continue if the partnership would be converted to
a limited one upon death of one of the partners.
And even though she only became a limited partner at
her husbands death as Goquiolay claims, Goquilays
authorization to manage the property was proof that he
considered her and recognized her as a general partner,
at least since 1945. Takenote that if she were only a
limited partner, under the Code of Commerce, Art. 148,
last paragraph
Limited partners may not perform any act of
administration with respect to the interest of the co-
partnership, not even in the capacity of agents of the
managing partners.
Goquiolay is estopped from saying that Kong Chai Pin is
not a general partner because he granted her the
authority to manage the partnership properties. Also, the
heir ordinarily 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, however, he
may also elect to become general partner instead. This is
a choice exclusively to be made by the heir, because as
general partner, he may have all the rights and privileges
of one, and answering got the debts of the firm not only
with the inheritance but also with the heirs personal
fortune. In addition to this authority, the Court had yet
again stressed the fact that he had 7 years between the
death of his partner and the sale made by his partners
widow to take up the management of the properties
himself, which he clearly failed to do.
General Rule:
Stipulations made between partners in the articles of co-
partnership which require that any of the two managing
partners may contract in the name of the partnership with
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
the consent of the other, creates an obligation between
the two partners BUT shall not impose the same
obligation to a third person who contracts with the
partnership. This means that a third person has the
right to resume that the partner he contracts with already
has the consent of his partner when they both enter into a
contract.
In a partnership that deals with real estate, it is presumed
that every partner already has ample power, as a general
agent of the firm, to enter into an executory contract for
the sale of real estate. (American cases: Rosen v. Rose,
Chester v. Dickerson, Revelsky v. Brown) In this case,
since the articles of co-partnership expressly stipulate
that the business of the partnership is in the buying and
selling of real estate, it cannot be maintained that the sale
Kong Chai Pin made was in excess of her power as a
general partner.
Obiter:
There is no fraud: first of all, the price was already
approved by the Court in the previous case, even if the
petitioners claim it to be much too low. The relationship
between the buyers of the lands and Kong Chai Pin
alone cannot be a badge of fraud. There is no proof that
the buyers were without independent means to purchase
the property. Goquiolay has no proof that he was a
victim of a conspiracy because he has no proof.
Dispositive: Premises considered, the motion for
reconsideration is denied.
DISSENT (Bautista Angelo, J.):
The facts of the case were told a bit differently in the
dissent.1946: Two companies (Yutivo Sons Hardware
co. and Sing, Yee and Cuan Co. filed claims in the
intestate proceeding in Tan Sin An because Tan Sin An
himself and the partnership with Goquiolay had
Atty. Paolo Dimayuga
obligations to him. And when Goquiolay refused to sell
his interest to the companies, these went after the
deceased partners estate1948: It appears that Goquiolay
actually refused to grant Kong Chai Pin a power of
attorney when she requested for one .1949: Kong Chai
Pin filed a petition in the probate court to sell the
properties of the partnership and some conjugal
properties for the purpose of paying these claims. This
was approved by the court and then she then begun to
presume the role of managing partner. The dissenting
opinion stresses 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;
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) The alleged acts of management, even if proven,
could not give Kong Chai Pin the character of
general manager for the same contrary to law and
well-known authorities;
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Garrigues, a well-known commentator, is clearly of the anything for it or on his behalf which he as such
opinion that mere acceptance of the inheritance does not managing partner might do or cause to be done.
make the heir of a general partner a general partner
The law says that an agency created in general terms
himself. He emphasized that heir must declare that he is
includes only acts of administrations, but with regard to
entering the partnership as a general partner unless the
the power to compromise, sell mortgage, and other acts
deceased partner has made it an express condition in his
of strict ownership, an express power of attorney is
will that the heir accepts the condition of entering the
required. Here Kong Chai Pin did not have such power
partnership as a prerequisite of inheritance, in which
when she sold the properties of the partnership.
case acceptance of the inheritance is enough. But here
Tan Sin An died intestate. (4) Kong Chai Pin had no necessity to sell the
properties to pay the obligation of the partnership
(3) Even if Kong Chai Pin acted as general manager
and if she did so it was merely to favor the
she had no authority to sell the partnership
purchasers who were close relatives to the prejudice
properties as to make it legal and valid; and
of Goquiolay.
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 2.

members, all shall have the power to take part in the

WILLIAM UY, plaintiff-appellee,
direction and management of the common business, and
vs.
the members present shall come to an agreement for all
BARTOLOME PUZON, substituted by FRANCO
contracts or obligations which may concern the
PUZON, defendant-appellant.
association

FACTS

the pertinent portions of the articles of partnership It is of record that the defendant Bartolome Puzon had a
provides: contract with the Republic of the Philippines for the
construction of the Ganyangan Bato Section of the
VII. The affairs of the co-partnership shall be managed
Pagadian Zamboanga City Road, province of
exclusively by the managing partner or by his authorized
Zamboanga del Sur and of five (5) bridges in the
agent, and it is expressly stipulated that the managing
Malangas-Ganyangan Road. Finding difficulty in
partner may delegate the entire management of the
accomplishing both projects, Bartolome Puzon sought
affairs of the co-partnership by irrevocable power of
the financial assistance of the plaintiff, William Uy. As
attorney to any person, firm or corporation he may
an inducement, Puzon proposed the creation of a
select, upon such terms as regards compensation as he
partnership between them which would be the sub-
may deem proper, and vest in such person, firm or
contractor of the projects and the profits to be divided
corporation full power and authority, as the agent of the
equally between them. William Uy inspected the
co-partnership and in his name, place and stead to do
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
projects in question and, expecting to derive
considerable profits therefrom, agreed to the proposition,
thus resulting in the formation of the "U.P. Construction
Company" which was subsequently engaged as
subcontractor of the construction projects.
The partners agreed that the capital of the partnership
would be P100,000.00 of which each partner shall
contribute the amount of P50,000.00 in cash. But, as
heretofore stated, Puzon was short of cash and he
promised to contribute his share in the partnership
capital as soon as his application for a loan with the
Philippine National Bank in the amount of P150,000.00
shall have been approved. However, before his loan
application could be acted upon, he had to clear his
collaterals of its incumbrances first. For this purpose, on
October 24, 1956, Wilham Uy gave Bartolome Puzon
the amount of P10,000.00 as advance contribution of his
share in the partnership to be organized between them
under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be
used by Puzon to pay his obligations with the Philippine
National Bank to effect the release of his mortgages with
the said Bank. On October 29, 1956, William Uy again
gave Puzon the amount of P30,000.00 as his partial
contribution to the proposed partnership and which the
said Puzon was to use in payment of his obligation to the
Rehabilitation Finance Corporation. Puzon promised
William Uy that the amount of P150,000.00 would be
given to the partnership to be applied thusly:
P40,000.00, as reimbursement of the capital contribution
of William Uy which the said Uy had advanced to clear
the title of Puzon's property; P50,000.00, as Puzon's
contribution to the partnership; and the balance of
P60,000.00 as Puzon's personal loan to the partnership.
Atty. Paolo Dimayuga
Although the partnership agreement was signed by the
parties on January 18, 1957, work on the projects was
started by the partnership on October 1, 1956 in view of
the insistence of the Bureau of Public Highways to
complete the project right away. Since Puzon was busy
with his other projects, William Uy was entrusted with
the management of the projects and whatever expense
the latter might incur, would be considered as part of his
contribution. At the end of December, 1957, William
Uy had contributed to the partnership the amount of
P115,453.39, including his capital.
The loan of Puzon was approved by the Philippine
National Bank in November, 1956 and he gave to
William Uy the amount of P60,000.00. Of this amount,
P40,000.00 was for the reimbursement of Uy's
contribution to the partnership which was used to clear
the title to Puzon's property, and the P20,000.00 as
Puzon's contribution to the partnership capital.
To guarantee the repayment of the above-mentioned
loan, Bartolome Puzon, without the knowledge and
consent of William Uy, assigned to the Philippine
National Bank all the payments to be received on
account of the contracts with the Bureau of Public
Highways for the construction of the afore-mentioned
projects. By virtue of said assignment, the Bureau of
Public Highways paid the money due on the partial
accomplishments on the government projects in question
to the Philippine National Bank which, in turn, applied
portions of it in payment of Puzon's loan. Of the amount
of P1,047,181.07, released by the Bureau of Public
Highways in payment of the partial work completed by
the partnership on the projects, the amount of
P332,539.60 was applied in payment of Puzon's loan and
only the amount of P27,820.80 was deposited in the
partnership funds, which, for all practical purposes, was
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
also under Puzon's account since Puzon was the
custodian of the common funds.
As time passed and the financial demands of the projects
increased, William Uy, who supervised the said projects,
found difficulty in obtaining the necessary funds with
which to pursue the construction projects. William Uy
correspondingly called on Bartolome Puzon to comply
with his obligations under the terms of their partnership
agreement and to place, at lest, his capital contribution at
the disposal of the partnership. Despite several promises,
Puzon, however, failed to do so. Realizing that his
verbal demands were to no avail, William Uy
consequently wrote Bartolome Puzon pormal letters of
demand, to which Puzon replied that he is unable to put
in additional capital to continue with the projects.
Failing to reach an agreement with William Uy,
Bartolome Puzon, as prime contractor of
construction projects, wrote the subcontractor, U.P.
Construction Company, on November 20, 1957,
advising the partnership, of which he is also a partner,
that unless they presented an immediate solution and
capacity to prosecute the work effectively, he would be
constrained to consider the sub-contract terminated and,
thereafter, to assume all responsibilities in the
construction of the projects in accordance with his
original contract with the Bureau of Public
Highways. On November 27, 1957, Bartolome Puzon
again wrote the U.P.Construction Company finally
terminating their subcontract agreement as of December
1, 1957.
Thereafter, William Uy was not allowed to hold office in
the U.P. Construction Company and his authority to deal
with the Bureau of Public Highways in behalf of the
partnership was revoked by Bartolome Puzon who
continued with the construction projects alone.
Atty. Paolo Dimayuga
ISSUE
1. Whether or not Puzon failed to make contributions to
the partnership?
2. Whether or not Puzon misapplied the partnership
profits?
RULING
1. Yes
The findings of the trial court that the appellant failed to
contribute his share in the capital of the partnership is
clear incontrovertible. The record shows that after the
appellant's loan the amount of P150,000.00 was
approved by the Philippin National Bank in November,
1956, he gave the amount P60,000.00 to the appellee
who was then managing the construction projects. Of
this amount, P40,000.00 was to be applied a
the
reimbursement of the appellee's contribution to the
partnership which was used to clear the title to the
appellant's property, and the balance of P20,000.00, as
Puzon's contribution to the partnership. Thereafter, the
appellant failed to make any further contributions the
partnership funds as shown in his letters to the appellee
wherein he confessed his inability to put in additional
capital to continue with the projects.
Parenthetically, the claim of the appellant that the
appellee is equally guilty of not contributing his share in
the partnership capital inasmuch as the amount of
P40,000.00, allegedly given to him in October, 1956 as
partial contribution of the appellee is merely a personal
loan of the appellant which he had paid to the appellee,
is plainly untenable. The terms of the receipts signed by
the appellant are clear and unequivocal that the sums of
money given by the appellee are appellee's partial
contributions to the partnership capital. Thus, in the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

receipt for P10,000.00 dated October 24, 1956, the competent evidence. It is of record that the appellant
appellant stated:+.wph!1 assigned to the Philippine National Bank all the
payments to be received on account of the contracts with
Received from Mr. William Uy the sum the Bureau of Public Highways for the construction of
of TEN THOUSAND PESOS the aforementioned projects to guarantee the repayment
(P10,000.00) in Check No. SC 423285 of the bank. By virtue of the said appelant's personal
Equitable Banking Corporation, dated loan with the said bank assignment, the Bureau of Public
October 24, 1956, as advance Highways paid the money due on the partial
contribution of the share of said William accomplishments on the construction projects in
Uy in the partnership to be organized question to the Philippine National Bank who, in turn,
between us under the firm name U.P. applied portions of it in payment of the appellant's loan.
CONSTRUCTION COMPANY which
amount mentioned above will be used The appellant claims, however, that the said assignment
by the undersigned to pay his was made with the consent of the appellee and that the
obligations with the Philippine National assignment not prejudice the partnership as it was
Bank to effect the release of his reimbursed by the appellant.
mortgages with the said bank.
(Emphasis supplied) But, the appellee categorically stated that the assignment
to the Philippine National Bank was made without his
In the receipt for the amount of P30,000.00 dated prior knowledge and consent and that when he learned of
October 29, 1956, the appellant also said:+.wph!1 said assignment, he cal the attention of the appellant who
assured him that the assignment was only temporary as
Received from William Uy the sum of he would transfer the loan to the Rehabilitation Finance
THIRTY THOUSAND PESOS Corporation within three (3) months time.
(P30,000.00) in Check No. SC423287,
of the Equitable Banking The question of whom to believe being a matter large
Corporation, as partial contribution of dependent on the trier's discretion, the findings of the
the share of the said William Uy to the trial court who had the better opportunity to examine and
U.P. CONSTRUCTION COMPANY for appraise the fact issue, certainly deserve respect.
which the undersigned will use the said
amount in payment of his obligation to That the assignment to the Philippine National Bank

the Rehabilitation Finance Corporation. prejudicial to the partnership cannot be denied. The
record show that during the period from March, 1957 to
September, 1959, the appellant Bartolome Puzon
received from the Bureau of Public highways, in
2. Yes
payment of the work accomplished on the construction

The findings of the trial court that the appellant projects, the amount of P1,047,181.01, which amount

misapplied partnership funds is, likewise, sustained by rightfully and legally belongs to the partnership by virtue
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
of the subcontract agreements between the appellant and
the U.P. Construction Company. In view of the
assignment made by Puzon to the Philippine National
Bank, the latter withheld and applied the amount of
P332,539,60 in payment of the appellant's personal loan
with the said bank. The balance was deposited in Puzon's
current account and only the amount of P27,820.80 was
deposited in the current account of the partnership. For
sure, if the appellant gave to the partnership all that were
earned and due it under the subcontract agreements, the
money would have been used as a safe reserve for the
discharge of all obligations of the firm and the
partnership would have been able to successfully and
profitably prosecute the projects it subcontracted.
When did the appellant make the reimbursement claimed
by him?
For the same period, the appellant actually disbursed for
the partnership, in connection with the construction
projects, the amount of P952,839.77. Since the appellant
received from the Bureau of Public Highways the sum of
P1,047,181.01, the appellant has a deficit balance of
P94,342.24. The appellant, therefore, did not make
complete restitution.
4.
JOSE MACHUCA, plaintiff-appellee, v. CHUIDIAN,
BUENAVENTURA & CO., defendants-appellants
(G.R. No. 1011, May 13, 1903) (LADD, J.)
SUMMARY: One of the heirs (Vicente Buenaventura)
of the partners of Messrs. Chuisian, Buenaventura & Co.
assigned a 25% share of the part pertaining to him in all
that may be obtained by whatever right in whatever form
Atty. Paolo Dimayuga
from the liquidation of the partnership to Garcia. And
Garcia assigned the share to Machuca. Machuca is now
claiming his purported share against the partnership
while its liquidation is pending. The lower court held
for him while the SC held otherwise because the Clause
19 of the partnership agreement stipulated that upon
dissolution, outside parties were to be satisfied first,
funds allotted for the Chuidian minors second, and
whatever is to be left is to be paid to each one of those
who had put in money.
DOCTRINE: Thus, it follows that Vicente
Buenaventura, whose rights are those of his father, is in
no case entitled to receive any part of the assets until the
creditors who are non-partners and the Chuidian minors
are paid. Whatever rights he had either as creditor or
partner, he could only transfer subject to this condition.
FACTS:
The defendants are a regular general partnership,
organized in Manila, December 29, 1882, as a
continuation of a prior partnership of the same
name. The original partners constituting the
partnership of 1882 were D. TelesforoChuidian,
Doa RaymundaChuidian, Doa
CandelariaChuidian, and D. Mariano
Buenaventura.
The capital was fixed in the partnership
agreement at 16,000 pesos, of which the first
three partners named contributed 50,000 pesos
each, and the last named 10,000 pesos, and it
was stipulated that the liability of the partners
should be "limited to the amounts brought in by
them to form the partnership stock.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

In addition to the amounts contributed by the

partners to the capital, it appears from the On December 15, 1898, D. Vicente
partnership agreement that each one of them had Buenaventura executed a public instrument in
advanced money to the preexisting partnership, which for a valuable consideration he assigned
which advances were assumed or accounts- to D. Jose Gervasio Garcia a 25%share in all
current aggregated something over 665,000 that may be obtained by whatever right in
pesos, of which sum about 569,000 pesos whatever form from the liquidation of the
represented the advances from the Chuidians partnership of Chuidian, Buenaventura & Co., in
and the balance that balance that from D. the part pertaining to him in said partnership.
Mariano Buenaventura.
Jose Machuca claims that Garcia had
Doa RaymundaChuidian retired from the subsequently assigned the right to claim from
partnership November 4, 1885. On January 1, the partnership, which has been notified to the
1888, the partnership went into liquidation, and liquidator of the partnership.
it does not appear that the liquidation had been
terminated when this action was brought. The liquidator of the partnership declined to
record in the books of the partnership the
Down to the time the partnership went into plaintiff's claim under the assignment as a credit
liquidation the accounts-current of D. due him in the books of the partnership.
TelesforoChuidian and Doa
CandelariaChuidian had been diminished in an Machuca brought this action to compel such
amount aggregating about 288,000 pesos, while record to be made, and that he be adjudicated to
that of D. Mariano Buenaventura had been be a creditor of the partnership in an amount
increased about 51,000 pesos. During the period equal to 25% of D. Vicente Buenaventura's
from the commencement of the liquidation down share in his father's account-current, with
to January 1, 1896, the account-current of each interest, less the liability to which the plaintiff is
of the Chuidians had been still further decreased, subject by reason of his share in the capital. He
while that of D. Mariano Buenaventura had been also asks to recover the damages caused by
still further increased. reason of the failure of the liquidator to record
his credit in the books of partnership.
On January 1, 1894, D. Mariano Buenaventura
died,among his heirs was D. Vicente The lower court had the credit assigned to the
Buenaventura. Upon the partition of the estate, plaintiff recorded in the books of the
the amount of the interest of D. Vicente partnership. And also had him receive 25% of
Buenaventura in his father's account-current and an amount representing the share he claims, with
in the capital was ascertained and recorded in interest, the payment of the 25% of
the books of the firm.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Buenaventura's share in the capital to be
postponed till the termination of the liquidation.
ISSUE: WON Machuca was entitled to receive his claim
over the partnership pending liquidation.
HELD: NO.
Clause 19 of the partnership agreement stipulate
that: "upon the dissolution of the company, the pending
obligations in favor of outside parties should be
satisfied, the funds of the minors Jose and Francisco
Chuidian [it does not appear what their interest in the
partnership was or when or how it was acquired] should
be taken out, and afterwards the resulting balance of the
account-current of each one of those who had put in
money (imponentes) should be paid."
A construction of the clause establishes that the
liabilities to noncompartners are to be first discharged;
that the claims of the Chuidian minors are to be next
satisfied; and that what is due to the respective partners
on account of their advances to the firm is to be paid last
of all, leaving the ultimate residue, of course, if there be
any, to be distributed, among the partners in the
proportions in which they may be entitled thereto.
A distinction is made in this clause between
creditors who were partners and creditors who were not
partners, and that the expression "outside parties" refers
to the latter class. And the words "pending obligations"
clearly comprehend outstanding obligations of every
kind in favor of such outside parties, and do not refer
merely, as claimed by counsel for the plaintiff, to the
completion of mercantile operations unfinished at the
time of the dissolution of the partnership, such as
consignments of goods and the like.
Atty. Paolo Dimayuga
Such being the basis upon which by agreement
of the partners the assets of the partnership are to be
applied to the discharge of the various classes of the
firm's liabilities, it follows that D. Vicente
Buenaventura, whose rights are those of his father, is in
no case entitled to receive any part of the assets until the
creditors who are nonpartners and the Chuidian minors
are paid. Whatever rights he had either as creditor or
partner, he could only transfer subject to this condition.
It is clear, from the language of the instrument
under which the plaintiff claims, that this conditional
interest was all that D. Vicente Buenaventura ever
intended to transfer. By that instrument he undertakes to
assign to Garcia not a present interest in the assets of the
partnership but an interest in whatever "may be obtained
from the liquidation of the partnership," which Garcia is
to receive "in the same form in which it may be obtained
from said partnership.
The assignment by its terms is not to take effect
until all the liabilities of the partnership have been
discharged and nothing remains to be done except to
distribute the assets, if there should be any, among the
partners. Meanwhile the assignor, Buenaventura, is to
continue in the enjoyment of the rights and is to remain
subject to the liabilities of a partner as though no
assignment had been made. In other words, the
assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to 25% of
such portion of the ultimate residue of the partnership
property as the assignor may become entitled to receive
by virtue of his proportionate interest in the capital.
There is nothing in the case to show either that
the nonpartner creditors of the partnership have been
paid or that the claims of the Chuidian minors have been
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

satisfied. Such rights as the plaintiff has acquired against The judgment of the lower court is reversed and the case
the partnership under the assignment still remain, is remanded to that court with directions to enter a
therefore, subject to the condition which attached to judgment of dismissal.
them in their origin, a condition wholly uncertain of
realization, since it may be that the entire assets of the
5.
partnership will be exhausted in the payment of the
creditors entitled to preference under the partnership
PAUL MACDONALD, ET AL., Petitioners, vs. THE
agreement, thus extinguishing the plaintiff's right to
NATIONAL CITY BANK OF NEW
receive anything from the liquidation.
YORK,Respondent.[G.R. No. L-7991. May 21, 1956.]

It is contended by the plaintiff that, as the

FACTS:
partnership was without authority to enter upon new
STASIKINOCEY is a partnership doing
mercantile operations after the liquidation commenced,
business at No. 58, Aurora Boulevard, San Juan,
the increase in D. Mariano Buenaventura's account-
Rizal, and formed by Alan W. Gorcey, Louis F.
current during that period was the result of a void
da Costa, Jr., William Kusik and Emma
transaction, and that therefore the plaintiff is entitled to
BadongGavino. This partnership was denied
withdraw at once the proportion of such increase to
registration in the Securities and Exchange
which he is entitled under the assignment. With
Commission, and while it is confusing to see in
reference to this contention, it is sufficient to say that it
this case that the CARDINAL RATTAN,
nowhere appears in the case that the increase in D.
sometimes called the CARDINAL RATTAN
Mariano Buenaventura's account-current during the
FACTORY, is treated as a copartnership, of
period of liquidation was the result of new advances to
which Defendants Gorcey and da Costa are
the firm, and the figures would appear to indicate that it
considered general partners, we are satisfied
resulted from the accumulation of interest.
that, as alleged in various instruments appearing
of record, said Cardinal Rattan is merely the
The plaintiff having acquired no rights under the
business name or style used by the partnership
assignment which are now enforceable against the
Stasikinocey.
defendant, the action can not be maintained. The
liquidator of the defendant having been notified of the
assignment, the plaintiff will be entitled to receive from Defendant Stasikinocey had an overdraft

the assets of the partnership, if any remain, at the account with The National City Bank of New

termination of the liquidation, 25% of D. Vicente's York, a foreign banking association duly

resulting interest, both as partner and creditor. The licensed to do business in the Philippines. The

judgment in this case should not affect the plaintiff's overdraft showed a balance of P6,134.92 against

right to bring another action against the partnership the Defendant Stasikinocey or the Cardinal

when the affairs of the same are finally wound up. The Rattan, which account, due to the failure of the

proper judgment will be that the action be dismissed. partnership to make the required payment, was
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
converted into an ordinary loan for which the
corresponding promissory joint note non-
negotiable was executed by Louis F. da Costa
for and in the name of the Cardinal Rattan,
Louis F. da Costa and Alan Gorcey. This
promissory note was secured by a chattel
mortgage executed by Louis F. da Costa, Jr.,
General Partner for and in the name of
Stasikinocey, alleged to be a duly registered
Philippine partnership, doing business under the
name and style of Cardinal Rattan, with
principal office at 69 Riverside, San Juan, Rizal.
The chattels mortgaged were the following
motor vehicles:(a) Fargo truck
(1949);(b) Plymouth Sedan
automobile; and(c) Fargo Pick-Up FKI-16
(1949).
The mortgage deed was fully registered by the
mortgagee, in the Office of the Register of
Deeds for the province of Rizal, at Pasig, and
among other provisions it contained the
following:(a) That the mortgagor shall not sell
or otherwise dispose of the said chattels without
the mortgagees written consent; and(b) That
the mortgagee may foreclose the mortgage at
any time, after breach of any condition thereof,
the mortgagor waiving the 30- day notice of
foreclosure.
On June 7, 1949, the same day of the execution
of the chattel mortgage aforementioned, Gorcey
and Da Costa executed an agreement purporting
to convey and transfer all their rights, title and
participation in Defendant partnership to
Shaeffer, allegedly in consideration of the
cancellation of an indebtedness of P25,000 owed
Atty. Paolo Dimayuga
by them and Defendant partnership to the latter,
which transaction is said to be in violation of the
Bulk Sales Law (Act No. 3952 of the Philippine
Legislature).
While the said loan was still unpaid and the
chattel mortgage
subsisting, Defendant partnership,
through Defendants Gorcey and Da Costa
transferred to Defendant McDonald the Fargo
truck and Plymouth sedan. The Fargo pickup
was also sold by William Shaeffer to Paul
McDonald.
Paul Mcdonald, notwithstanding Plaintiffs
existing mortgage lien, in turn transferred the
Fargo truck and the Plymouth sedan to Benjamin
Gonzales.
The National City Bank of New
York, Respondent herein, upon learning of the
transfers made by the partnership Stasikinocey
to William Shaeffer, from the latter to Paul
McDonald, and from Paul McDonald to
Benjamin Gonzales, of the vehicles previously
pledged by Stasikinocey to theRespondent, filed
an action against Stasikinocey and its alleged
partners Gorcey and Da Costa, as well as Paul
McDonald and Benjamin Gonzales, to recover
its credit and to foreclose the corresponding
chattel mortgage. McDonald and Gonzales were
made Defendants because they claimed to have a
better right over the pledged vehicle.
CFI Manila ruled in favor of National City
Bank.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Only Paul McDonald and Benjamin Gonzales RESIDENCE OF THE MEMBERS WHO EXECUTED
appealed to the CA. SAME; AND, AS A CONSEQUENCE THEREOF, IN
NOT MAKING ANY FINDING OF FACT AS TO THE
CA modified the decision of the trial court, ACTUAL RESIDENCE OF SAID CHATTEL
relieving Appellant William Shaeffer of the MORTGAGOR, DESPITEAPPELLANTS RAISING
obligation of paying, jointly and severally, THAT QUESTION PROPERLY BEFORE IT AND
together with Alan W. Gorcey and Louis F. da REQUESTING A RULING THEREON.
Costa, Jr., any deficiency that may remain (3) WON WHEN A CHATTEL MORTGAGOR
unpaid after applying the proceeds of the sale of EXECUTES AN AFFIDAVIT OF GOOD FAITH
the said motor vehicles which shall be BEFORE A NOTARY PUBLIC OUTSIDE OF THE
undertaken upon the lapse of 90 days from the TERRITORIAL JURISDICTION OF THE LATTER,
date this decision becomes final, if by THE AFFIDAVIT IS VOID AND THE CHATTEL
then Defendants Louis F. da Costa, Jr., and Alan MORTGAGE IS NOT BINDING ON THIRD
W. Gorcey had not paid the amount of the PERSONS WHO ARE INNOCENT PURCHASERS
judgment debt. This decision is without FOR VALUE; AND, AS A CONSEQUENCE
prejudice to whatever action Louis F. da Costa, THEREOF, IN NOT MAKING ANY FINDING OF
Jr., and Alan W. Gorcey may take against their FACT AS TO WHERE THE DEED WAS IN FACT
co-partners in the Stasikinocey unregistered EXECUTED, DESPITE APPELLANTS RAISING
partnership. THAT QUESTION PROPERLY BEFORE IT AND
EXPRESSLY REQUESTING A RULING THEREON.
An appeal by certiorari was taken by Paul
(4) WON A LETTER AUTHORIZING ONE MEMBER
McDonald and Benjamin
OF AN UNREGISTERED COMMERCIAL CO-
Gonzales, Petitioners herein.
PARTNERSHIP TO MAKE ALL OFFICIAL AND
ISSUES: (1) WONAN UNREGISTERED BUSINESS ARRANGEMENTS .. WITH THE
COMMERCIAL CO-PARTNERSHIP WHICH HAS NATIONAL CITY BANK OF NEW YORK IN
NO INDEPENDENT JURIDICAL PERSONALITY ORDER TO SIMPLIFY ALL MATTERS RELATIVE
CAN HAVE A DOMICILE SO THAT A CHATTEL TO LCS CABLE TRANSFERS, DRAFTS, OR OTHER
MORTGAGE REGISTERED IN THAT DOMICILE BANKING MEDIUMS, WAS SUFFICIENT
WOULD BIND THIRD PERSONS WHO ARE AUTHORITY FOR THE SAID MEMBER TO
INNOCENT PURCHASERS FOR VALUE. EXECUTE A CHATTEL MORTGAGE IN ORDER TO
(2) WONWHEN A CHATTEL MORTGAGE IS GIVE THE BANK SECURITY FOR A PRE-
EXECUTED BY ONE OF THE MEMBERS OF AN EXISTING OVERDRAFT, GRANTED WITHOUT
UNREGISTERED COMMERCIAL CO- SECURITY. WHICH THE BANK HAD CONVERTED
PARTNERSHIP WITHOUT JURIDICAL INTO A DEMAND LOAN UPON FAILURE TO PAY
PERSONALITY INDEPENDENT OF ITS MEMBERS, SAME AND BEFORE THE CHATTEL MORTGAGE
IT NEED NOT BE REGISTERED IN THE ACTUAL WAS EXECUTED.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
RULING: (1) While an unregistered commercial
partnership has no juridical personality,
nevertheless, where two or more persons attempt to
create a partnership failing to comply with all the
legal formalities, the law considers them as partners
and the association is a partnership in so far as it is a
favorable to third persons, by reason of the equitable
principle of estoppel.
In Jo Chung Chang vs. Pacific Commercial Co., it
was held that although the partnership with the firm
name of TeckSeing and Co. Ltd., could not be regarded
as a partnership de jure, yet with respect to third persons
it will be considered a partnership with all the
consequent obligations for the purpose of enforcing the
rights of such third persons. Da Costa and Gorcey
cannot deny that they are partners of the partnership
Stasikinocey, because in all their transactions with
theRespondent they represented themselves as such.
Petitioner McDonald cannot disclaim knowledge of the
partnership Stasikinoceybecause he dealt with said
entity in purchasing two of the vehicles in question
through Gorcey and Da Costa. As was held in Behn
Meyer & Co. vs. Rosatzin, where a partnership not
duly organized has been recognized as such in its
dealings with certain persons, it shall be considered
as partnership by estoppel and the persons dealing
with it are estopped from denying its partnership
existence. The sale of the vehicles in question being
void as to Petitioner McDonald, the transfer from the
latter to Petitioner Benjamin Gonzales is also void, as
the buyer cannot have a better right than the seller.
It results that if the law recognizes a defectively
organized partnership as de facto as far as third persons
Atty. Paolo Dimayuga
are concerned, for purposes of its de facto existence it
should have such attribute of a partnership as domicile.
In Hung-Man Yoc vs. Kieng-Chiong-Seng, it was held
that although it has no legal standing, it is a
partnership de facto and the general provisions of the
Code applicable to all partnerships apply to it. The
registration of the chattel mortgage in question with the
Office of the Register of Deeds of Rizal, the residence or
place of business of the partnership Stasikinocey being
San Juan, Rizal, was therefore in accordance with
section 4 of the Chattel Mortgage Law.
(2) These have become academic by reason of the
answer to the first question, namely, that as a de facto
partnership, Stasikinocey had its domicile in San
Juan, Rizal.
(3) It is noteworthy that the chattel mortgage in
question is in the form required by law, and there is
therefore the presumption of its due execution which
cannot be easily destroyed by the biased testimony of
the one who executed it. The interested version of Da
Costa that the affidavit of good faith appearing in the
chattel mortgage was executed in Quezon City before a
notary public for and in the City of Manila was correctly
rejected by the trial court and the Court of Appeals.
Indeed, cumbersome legal formalities are imposed to
prevent fraud. As aptly pointed out in El Hogar Filipino
vs. Olviga, If the biased and interested testimony of
a grantor and the vague and uncertain testimony of
his son are deemed sufficient to overcome a public
instrument drawn up with all the formalities
prescribed by the law then there will have been
established a very dangerous doctrine which would
throw wide open the doors to fraud.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
(4) In view of the conclusion that Stasikinocey is a de
facto partnership, and Da Costa appears as a co-manager
in the letter of Gorcey to the Respondent and in the
promissory note executed by Da Costa, and that even the
partners considered him as such, as stated in the
affidavit, to the effect that That we as the majority
partners hereby agree to appoint Louis da Costa co-
managing partner of Alan W. Gorcey, duly approved
managing partner of the said firm, the partner who
executed the chattel mortgage in question must be
deemed to be so fully authorized.Section 6 of the
Chattel Mortgage Law provides that when a
partnership is a party to the mortgage, the affidavit
may be made and subscribed by one member thereof.
In this case the affidavit was executed and subscribed
by Da Costa, not only as a partner but as a managing
partner.
There is no merit in Petitioners pretense that the motor
vehicles in question are the common property of Da
Costa and Gorcey. Petitioners invoke article 24 of the
Code of Commerce in arguing that an unregistered
commercial partnership has no juridical personality and
cannot execute any act that would adversely affect
innocent third persons. Petitioners forget that
theRespondent is a third person with respect to the
partnership, and the chattel mortgage executed by
Da Costa cannot therefore be impugned by Gorcey
on the ground that there is no partnership between
them and that the vehicles in question belonged to
them in common. As a matter of fact,
the Respondent and the Petitioners are all third
persons as regards the partnership Stasikinocey;and
even assuming that the Petitioners are purchasers in
good faith and for value, the Respondent having
transacted with Stasikinocey earlier than the Petitioners,
it should enjoy and be given priority.
Atty. Paolo Dimayuga
6.
E. WALCH v. LIM CHAI SENG
G.R. No. L-37160, 2 March 1933, EN BANC, (Hull,
J.)
FACTS:
- A limited co-partnership was formed b/w Lim Hai
Tao (LHT) and Lim Chai Seng (LCS) under the firm
name Lim Hai Tao, S. en C., and doing business
under the Chinese name of Guan Hoo. The
partnership was duly registered in the Bureau of
Commerce and Industry (BCI) and accdg. to its
articles, the general partner was LHT w/ a capital of
P20,000, and the limited partner was LCS w/ a
capital of P40,000, thereby making the sum of
P60,000 as its capital. The term of the partnership
was for an indefinite period but it could be dissolved
by the agreement of the parties. LHT was the
manager of the business and LCS had no
intervention in its management w/ the exception of
his right to examine the books of the partnership
during the days of January each year.
- Accdg. to the balance sheet of the partnership for the
ending year of 1929, its assets amounted to
P130,723.14, while its obligations totaled
P94,435.43. The participation of LCS in the capital
was P24,191.81 while his credit against the
partnership was P6,937.46. When LCS agreed to
LiongKee Hos (LKH) proposal of buying his
participation in the partnership, a written agreement
was entered into by and b/w LCS and LHT, by
virtue of w/c the former retired and separated from
the partnership effective on the same date. This was
duly filed for registry in the BCI. Before the
execution of this agreement, LKH delivered to LHT
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
the sum of P31,129.27 to be paid to LCS as purchase
price of his participation. This transaction appeared
in the books of the partnership as a loan, but this
circumstance was explained by LCS in that, at time
of the delivery of the money to LHT by LKH, the
deed of separation had not yet been formally
executed. When the deed was made, the sum of
P31,129.27 was paid to LCS in the partnership
capital and P6,937.36 to his credit against the
partnership. This transaction likewise appears in the
books.
- An insolvency proceeding was instituted in the CFI
of Manila by Guan Hoos creditors (Menzi& Co,
Inc, Otto Gmur, Inc. and Pacific Commercial Co.),
all of whom are doing business individually under
the name and style of Guan Hoo.LHT was duly
adjudged insolvent by the court and E. Walch was
elected by the creditors as assignee of the insolvent
estate. In his aforesaid capacity as assignee, has sued
LCS for the purpose of recovering from him the sum
of 24,191.81. This amount being a part of the money
paid to him by LKH for his participation in the
business of the partnership. This claim was
grounded on the theory that the payment of the sum
to LCS was in fraud of the creditors of both the
partnership and LHT. The CFI rendered a decision
in favor of LCS. When Walchs motion for new trial
was denied, he perfected the appeal to the SC.
ISSUE: Is Walchs claim, in representation of the estate
of the insolvent LHT, meritorious?
RULING: NO.
- The principal defenses relied upon by LCS are the
ff: (1) the co-partnership has never been declared
insolvent, (2) the transactions of the present
Atty. Paolo Dimayuga
creditors were actually w/ the individual LHT,
instead of w/ the co-partnership, and (3) the
money w/c LCS received was paid in by a 3rd
party, LKH, for LCSs interest in the co-
partnership and that the assets of the latter
suffered no diminution and therefore, the
creditors of the firm were not injuriously affected
by the said transaction.
- The CFI based its decision on the 2nd and 3rd
grounds, that the transactions of the present creditors
were only w/ LHT and that the money received by
LCS was in his own interest and not that of the co-
partnership. The 2nd ground being more of a question
of fact than of law, should not be tackled here as it
requires a lengthy opinion. No matter what
conclusion might be reached on the 2nd defense, the
SC is convinced that recovery cannot be had in view
of the 1st and 3rd defenses mentioned, that the co-
partnership was never declared insolvent, and that
upon payment to LCS, the partnership and its
creditors were prejudiced.
7. TESTATE ESTATE OF LAZARO MOTA,
deceased, ET AL.vs. SALVADOR SERRA
G.R. No. L-22825 February 14, 1925
Art. 1829. On dissolution the partnership is not
terminated, but continues until the winding up of
partnership affairs is completed.
Doctrine:The dissolution of a partnership must not be
understood in the absolute and strict sense so that at the
termination of the object for which it was created the
partnership is extinguished.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
After dissolution, the partnership as a business
enterprise remains viable only for the purpose of
winding up its affairs. The principal signicance of
dissolution is that thereafter, no new partnership
business should be undertaken, but affairs should be
liquidated and distribution made to those entitled to the
partners interest.
Facts: plaintiffs and defendant entered into a contract of
partnership for the construction and exploitation of a
railroad line from the "San Isidro" and "Palma" centrals
to the place known as "Nandong." The original capital
stipulated was P150,000. It was covenanted that the
parties should pay this amount in equal parts and the
plaintiffs were entrusted with the administration of the
partnership. When the capital was proved to be
insufficient, the defendant entered into a contract of sale
with Venancio Concepcion, Phil. C. Whitaker, and
Eusebio R. de Luzuriaga, whereby he sold to the latter
the estate and central known as "Palma" with its running
business, as well as all the improvements, machineries
and buildings, real and personal properties, rights,
choses in action and interests, including the sugar
plantation of the harvest year of 1920 to 1921, covering
all the property of the vendor.
Before the delivery to the purchasers of the hacienda
thus sold, Eusebio R. de Luzuriaga renounced all his
rights in favor of Messrs. Venancio Concepcion and
Phil. C. Whitaker. The purchasers guaranteed the unpaid
balance of the purchase price by a first and special
mortgage in favor of the vendor upon the hacienda and
the central with all the improvements, buildings,
machineries, and appurtenances then existing on the said
hacienda.
Atty. Paolo Dimayuga
Afterwards, Venancio Concepcion and Phil. C. Whitaker
bought from the plaintiffs the one-half of the railroad
line pertaining to the latter. Of the purchase price,
Venancio Concepcion and Phil. C. Whitaker paid the
sum of P47,544.43 only. The plaintiffs and Concepcion
and Whitaker agreed, among other things, that the
partnership "Palma" and "San Isidro," between Serra,
Lazaro Mota, now deceased, and Juan J. Vidaurrazaga
for himself and in behalf of his brother, Felix and
Dionisio Vidaurrazaga, should be dissolved upon the
execution of this contract, and that the said partnership
agreement should be totally cancelled and of no force
and effect whatever.
So it results that the "Hacienda Palma," with the entire
railroad, the subject-matter of the contract of partnership
between plaintiffs and defendant, became the property of
Whitaker and Concepcion. Phil. C. Whitaker and
Venancio Concepcion having failed to pay to the
defendant a part of the purchase price, that is, P750,000,
the vendor, the herein defendant, foreclosed the
mortgage upon the said hacienda, which was adjudicated
to him at the public sale held by the sheriff for the
amount of P500,000, and the defendant put in possession
thereof, including what was planted at the time, together
with all the improvements made by Messrs. Phil. C.
Whitaker and Venancio Concepcion.
Since the defendant Salvador Serra failed to pay one-half
of the amount expended by the plaintiffs upon the
construction of the railroad line, that is, P113,046.46, as
well as Phil. C. Whitaker and Venancio Concepcion, the
plaintiffs instituted the present action.
Defendant set up three special defenses: (1) The
novation of the contract by the substitution of the debtor
with the conformity of the creditors; (2) the confusion of
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
the rights of the creditor and debtor; and (3) the
extinguishment of the contract
Arguments: Testate estate of Mota assigns also as a
ground of their appeal the holding of the court that by
the termination of the partnership, no legal rights can be
derived therefrom.
By virtue of the contract Exhibit 5, the plaintiffs and
Phil. C. Whitaker and Venancio Concepcion, by
common consent, decided to dissolve the partnership
between the "Hacienda Palma" and "Hacienda San
Isidro," thus cancelling the contract of partnership of
February 1, 1919.
Counsel for appellee (Serra) in his brief and oral
argument maintains that the plaintiffs cannot enforce any
right arising out of that contract of partnership, which
has been annulled, such as the right to claim now a part
of the cost of the construction of the railroad line
stipulated in that contract.
Defendant's contention signifies that any person, who
has contracted a valid obligation with a partnership, is
exempt from complying with his obligation by the mere
fact of the dissolution of the partnership. Defendant's
contention is untenable.
Main Issue: WON the partnership is terminated,
hence, no legal rights can be derived therefrom?
Ruling: the partnership is terminated but continues
until the winding up of partnership affairs is
completed. (Art. 1829)
Atty. Paolo Dimayuga
The dissolution of a partnership must not be understood
in the absolute and strict sense so that at the termination
of the object for which it was created the partnership is
extinguished, pending the winding up of some incidents
and obligations of the partnership, but in such case, the
partnership will be reputed as existing until the juridical
relations arising out of the contract are dissolved. This
doctrine has been upheld by the supreme court of Spain
in its decision of February 6, 1903, in the following case:
There was a partnership formed between several persons
to purchase some lands sold by the state. The partnership
paid the purchase price and distributed among its
members the lands so acquired, but after the lapse of
some time, one of the partners instituted an action in the
court of Badajoz, praying that he be accepted as a
partner with the same rights and obligations as the
others, for the reason that he had not been allowed all
that he had a right to. The court granted the petition,
which judgment was affirmed by the Audiencia de
Caceres.
From that decision the defendant sued out a writ of error
alleging infringement of articles 1680 and 1700 of the
Civil Code, on the proposition that all contracts are
reputed consummated and therefore extinguished, when
the contracting parties fulfill all the obligations arising
therefrom and that by the payment of the money and the
granting and distribution of the lands without any
opposition, the juridical relations between the
contracting parties become extinguished and none of the
parties has any right of action under the contract. The
supreme court, holding that some corrections and
liquidations asked by the actor were still pending,
denied the writ, ruling that the articles cited were not
infringed because a partnership cannot be considered
as extinguished until all the obligations pertaining to
it are fulfilled. (11 Manresa, page 312.)
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
The dissolution of a firm does not relieve any of its
members from liability for existing obligations,
although it does save them from new obligations to
which they have not expressly or impliedly assented,
and any of them may be discharged from old
obligations by novation of other form of release. It is
often said that a partnership continues, even after
dissolution, for the purpose of winding up its affairs.
(30 Cyc., page 659.)
For all of the foregoing, the judgment appealed from
is reversed, and we hold that the defendant Salvador
Serra is indebted to the plaintiffs, the Testate Estate
of Lazaro Mota, et al., in the amount of P113,046.46,
and said defendant is hereby sentenced to pay the
plaintiffs the said amount, together with the agreed
interest at the rate of 10 per cent per annum from the
date of the filing of the complaint.
1st issue: WON there was novation?
Ruling: NO.
It should be noted that in order to give novation its legal
effect, the law requires that the creditor should consent
to the substitution of a new debtor. This consent must be
given expressly for the reason that, since novation
extinguishes the personality of the first debtor who is to
be substituted by new one, it implies on the part of the
creditor a waiver of the right that he had before the
novation which waiver must be express under the
principle that renuntiatio non praesumitur, recognized by
the law in declaring that a waiver of right may not be
performed unless the will to waive is indisputably shown
by him who holds the right.
Atty. Paolo Dimayuga
The fact that Phil. C. Whitaker and Venancio
Concepcion were willing to assume the defendant's
obligation to the plaintiffs is of no avail, if the latter have
not expressly consented to the substitution of the first
debtor. Neither can the letter, Exhibit 6, on page 87 of
the record be considered as proof of the consent of the
plaintiffs to the substitution of the debtor, because that
exhibit is a letter written by plaintiffs to Phil. C.
Whitaker and Venancio Concepcion for the very reason
that the defendant had told them (plaintiffs) that after the
sale of the "Hacienda Palma" to Messrs. Phil. C.
Whitaker and Venancio Concepcion, the latter from then
on would bear the cost of the repairs and maintenance of
the railroad line and of the construction of whatever
addition thereto might be necessary.
But in all of the evidence presented, there was nothing to
show the express consent, the manifest and deliberate
intention of the plaintiffs to exempt the defendant from
his obligation and to transfer it to his successors in
interest, Messrs. Phil. C. Whitaker and Venancio
Concepcion.
2nd issue: WON there was a merger of the rights of
debtor and creditor?
Ruling: NO.
Phil. C. Whitaker and Venancio Concepcion mortgaged
unto the plaintiffs what they had bought from the
plaintiffs and also what they had bought from Salvador
Serra. If Messrs. Phil. C. Whitaker and Venancio
Concepcion had purchased something from Mr.
Salvador Serra, the herein defendant, regarding the
railroad line, it was undoubtedly the one-half thereof
pertaining to Mr. Salvador Serra. This clearly shows
that the rights and titles transferred by the plaintiffs
to Phil. C. Whitaker and Venancio Concepcion were
only those they had over the other half of the railroad
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
line. Therefore, as already stated, since there was no
novation of the contract between the plaintiffs and the
defendant, as regards the obligation of the latter to pay
the former one-half of the cost of the construction of the
said railroad line, and since the plaintiffs did not include
in the sale, evidenced by Exhibit 5, the credit that they
had against the defendant, the allegation that the
obligation of the defendant became extinguished by the
merger of the rights of creditor and debtor by the
purchase of Messrs. Phil. C. Whitaker and Venancio
Concepcion is wholly untenable.
8.
Singsonvs Isabella Sawmill
Facts:
On January 30, 1951 the defendants Leon Garibay,
Margarita G. Saldejeno, and TimoteoTubungbanua
entered into a Contract of Partnership under the firm
name "Isabela Sawmill.
On February 3, 1956 the plaintiff Oppen, Esteban, Inc.
sold a Motor Truck and two Tractors to the partnership
Isabela Sawmill for the sum of P20,500.00. In order to
pay the said purcahse price, the said partnership agreed
to make arrangements with the International Harvester
Company at Bacolod City so that the latter would sell
farm machinery to Oppen, Esteban, Inc. with the
understanding that the price was to be paid by the
partnership.
The International Harvester Company has been paid a
total of P19,211.11, leaving an unpaid balance of
P1,288.89. Other creditors also claimed for unpaid
balance by the partnership.
Atty. Paolo Dimayuga
On April 25, 1958 Civil Case No. 4797 was filed by the
spouses CecilioSaldajeno and Margarita G. Saldajeno
against the Isabela Sawmill, Leon Garibay, and
TimoteoTubungbanua.
On April 27, 1958 the defendants Leon Garibay,
TimoteoTubungbanua and Margarita G. Saldajeno
entered into a "Memorandum Agreement" allowing the
former to continue the business under the name of the
partnership after the withdrawal of Margarita from the
same.
On May 26, 1958 the defendants Leon Garibay,
TimoteoTubungbanua and Margarita G. Saldajeno
executed a document entitled "Assignment of Rights
with Chattel Mortgage". Thereafter the defendants Leon
Garibay and TimoteoTubungbanua did not divide the
assets and properties of the "Isabela Sawmill" between
them, but they continued the business of said partnership
under the same firm name "Isabela Sawmill".
On May 18, 1959 the Provincial Sheriff of Negros
Occidental published two (2) notices that he would sell
at public auction on June 5, 1959 at Isabela, Negros
Occidental certain trucks, tractors, machinery, office
equipment and other things that were involved in Civil
Case No. 5223 of the Court of First Instance of Negros
Occidental, entitled "Margarita G. Saldajeno vs. Leon
Garibay, et al
On October 15, 1969 the Provincial Sheriff of Negros
Occidental executed a Certificate of Sale in favor of the
defendant Margarita G. Saldajeno, as a result of the sale
conducted by him on October 14 and 15, 1959 for the
enforcement of the judgment rendered in Civil Case No.
5223 of the Court of First Instance of Negros Occidental.
On October 20, 1959 the defendant Margarita G.
Saldajeno executed a deed of sale in favor of the Pan
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Oriental Lumber Company transfering to the latter for
the sum of P45,000.00 the trucks, tractors, machinery,
and other things that she had purchased at a public
auction referred to in the foregoing paragraph.
The plaintiffs and the defendants CecilioSaldajeno and
Margarita G. Saldajeno reserve the right to present
additional evidence at the hearing of this case.
The plaintiffs and the defendants Cecilio and Margarita
G. Saldajeno presented additional evidence, mostly
documentary, while the cross-defendants did not present
any evidence. The case hardly involves questions of fact
at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted
to the plaintiff Oppen, Esteban, Inc. in the amount of
P1,288.89 as the unpaid balance of an obligation of
P20,500.00 contracted on February 3, 10956 is expressly
admitted in paragraph 2 and 3 of the Stipulation.
Issue: Whether or not Isabela Sawmill ceased to be a
partnership and that the creditors could no longer
demand payment
Ruling: No. Isabella Sawmill remains a partnership
despite the withdrawal of Margarita G. Saldajeno and
the creditors can demand payment from them.
It is true that the dissolution of a partnership is caused by
any partner ceasing to be associated in the carrying on of
the business. However, on dissolution, the partnership is
not terminated but continuous until the winding up to the
business.
The remaining partners did not terminate the business of
the partnership "Isabela Sawmill". Instead of winding up
the business of the partnership, they continued the
business still in the name of said partnership. It is
expressly stipulated in the memorandum-agreement that
Atty. Paolo Dimayuga
the remaining partners had constituted themselves as the
partnership entity, the "Isabela Sawmill".
There was no liquidation of the assets of the partnership.
The remaining partners, Leon Garibay and
TimoteoTubungbanua, continued doing the business of
the partnership in the name of "Isabela Sawmill". They
used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by
the remaining partners, Leon Garibay and
TimoteoTubungbanua, belonged to the partnership
"Isabela Sawmill." The appellant, Margarita G.
Saldajeno, was correctly held liable by the trial court
because she purchased at public auction the properties of
the partnership which were mortgaged to her.
It does not appear that the withdrawal of Margarita G.
Saldajeno from the partnership was published in the
newspapers. The appellees and the public in general had
a right to expect that whatever, credit they extended to
Leon Garibay and TimoteoTubungbanua doing the
business in the name of the partnership "Isabela
Sawmill" could be enforced against the properties of said
partnership. The judicial foreclosure of the chattel
mortgage executed in favor of Margarita G. Saldajeno
did not relieve her from liability to the creditors of the
partnership.
The appellant, Margrita G. Saldajeno, cannot complain.
She is partly to blame for not insisting on the liquidaiton
of the assets of the partnership. She even agreed to let
Leon Garibay and TimoteoTubungbanua continue doing
the business of the partnership "Isabela Sawmill" by
entering into the memorandum-agreement with them.
Although it may be presumed that Margarita G.
Saldajeno had action in good faith, the appellees aslo
acted in good faith in extending credit to the partnership.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Where one of two innocent persons must suffer, that appelees have a right to file the action to nullify the
person who gave occasion for the damages to be caused chattel mortgage in question.
must bear the consequences. Had Margarita G. Saldajeno
The portion of the decision appealed from ordering the
not entered into the memorandum-agreement allowing
appellants to pay attorney's fees to the plaintiffs-
Leon Garibay and TimoteoTubungbanua to continue
appellees cannot be sustained. There is no showing that
doing the business of the partnership, the appellees
the appellants displayed a wanton disregard of the rights
would not have been misled into thinking that they were
of the plaintiffs. Indeed, the appellants believed in good
still dealing with the partnership "Isabela Sawmill".
faith, albeit erroneously, that they are not liable to pay
Under the facts, it is of no moment that technically
the claims.
speaking the partnership "Isabela Sawmill" was
dissolved by the withdrawal therefrom of Margarita G. The defendants-appellants have a right to be reimbursed
Saldajeno. The partnership was not terminated and it whatever amounts they shall pay the appellees by their
continued doping business through the two remaining co-defendants Leon Garibay and TimoteoTubungbanua.
partners. In the memorandum-agreement, Leon Garibay and
TimoteoTubungbaun undertook to release Margarita G.
The contention of the appellant that the appllees cannot
Saldajeno from any obligation of "Isabela Sawmill" to
bring an action to annul the chattel mortgage of the
third persons.
propertiesof the partnership executed by Leon Garibay
and TimoteoTubungbanua in favor of Margarita G.
Saldajeno has no merit.
9.
As a rule, a contract cannot be assailed by one who is
not a party thereto. However, when a contract prejudices NG CHO CIO ET AL., plaintiffs-appellants,
the rights of a third person, he may file an action to vs.
annul the contract. NG DIONG, defendant-appellant.
C. N. HODGES, ET AL., defendants-appellees.
This Court has held that a person, who is not a party
obliged principally or subsidiarily under a contract, may FACTS:
exercised an action for nullity of the contract if he is
prejudiced in his rights with respect to one of the On May 23, 1925, Ng Diong, Ng Be Chuat, Ng Feng
contracting parties, and can show detriment which would Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng
positively result to him from the contract in which he has Due King(6 people) entered into a contract of general
no intervention. co-partnership under the name NG CHIN BENG
HERMANOS. The partnership was to exist for a period
The plaintiffs-appellees were prejudiced in their rights
of 10 years from May 23, 1925 and Ng Diong was
by the execution of the chattel mortgage over the
named as managing partner. On May 10, 1935, the
properties of the partnership "Isabela Sawmill" in favor
articles of co-partnership were amended by extending its
of Margarita G. Saldajeno by the remaining partners,
Leon Garibay and TimoteoTubungbanua. Hence, said
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
life to 16 years more to be counted from May 23, 1925,
or up to May 23, 1941.
On January 5, 1938, the partnership obtained from the
National Loan and Investment Board a loan in the
amount of P30,000.00, and to guarantee its payment it
executed in its favor a mortgage on Lots Nos. 236-B,
317-A, 233 and 540 (4 parcels) of the cadastral survey of
Iloilo. On the same date, the partnership also obtained
from the same entity another loan in the amount of
P50,000.00 to secure which it also executed in its favor a
mortgage on Lots Nos. 386, 829 and 237 (3 parcels) of
the same cadastral survey.
Sometime in 1938, the partnership was declared
insolvent upon petition of its creditors in the Court of
First Instance of Iloilo wherein one Crispino Melocoton
was elected as assignee. As a consequence, on June 21,
1939, the titles to the seven parcels of land
abovementioned were issued in his name as assignee. In
due time, the creditors filed their claims in said
proceeding which totalled P192,901.12.
On August 9, 1940, a majority of the creditors with
claims amounting to P139,704.81, and the partners of
the firm, acting thru counsel, entered into a composition
agreement whereby it was agreed that said creditors
would receive 20% of the amount of their claims in full
payment thereof. Prior to this agreement, however,
defendant Julian Go had already acquired the rights of
24 of the creditors of the insolvent whose total claims
amounted to P139,323.10. Said composition agreement
was approved by the insolvency court.
On January 30, 1941, the Agricultural and Industrial
Bank which had succeeded the National Loan and
Investment Board assigned its rights and interests in the
loans obtained from it by the partnership in the
Atty. Paolo Dimayuga
aggregate amount of P80,000.00 in favor of C.N.
Hodges, together with the right and interest in the
mortgage executed to secure the loans. Since said loans
became due and no payment was forthcoming, Hodges
asked permission from the insolvency court to file a
complaint against the assignee to foreclose the mortgage
executed to secure the same in a separate proceeding,
and permission having been granted, Hodges filed a
complaint for that purpose on May 13, 1941. In his
complaint, Hodges prayed that the assignee be ordered
to pay him the sum of P75,622.90, with interest at 8%
per annum thereon from March 6, 1941, plus P8,000.00
attorney's fees, exclusive of costs and charges.
Meanwhile, war broke out and nothing appears to have
been done in the insolvency proceedings. The court
records were destroyed. However, they were
reconstituted later and given due course.
On August 15, 1945, the partners of the insolvent firm
and Julian Go, who acquired most of the claims of the
creditors, filed a petition with the insolvency court
praying at the insolvency proceedings be closed or
terminated cause the composition agreement the
creditors had submitted relative to the settlement of the
claims had already been approved on October 10, 1940.
And on October 6, 1946, the court, acting favorably on
the petition, ordered, closure of the proceedings directing
the assignee to turn and reconvey all the properties of the
partnership back to the latter as required by law. In
accordance with this order of the court, the assignee
executed a deed of reconveyance of the properties to the
partnership on April 2, 1946 and by virtue thereof, the
register of deeds cancelled the titles issued in the name
of the assignee and issued new ones in lieu thereof in the
name of the partnership.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
As of said date, April 2, 1946, the indebtedness of the
partnership to C. N. Hodges which was the subject of the
foreclosure proceedings in a separate case was
P103,883.34. In order to pay off the same and raise
necessary funds to pay the other obligations of the
partnership, it was deemed proper and wise by Ng
Diong, who continued to be the manager of the
partnership, to sell all its properties mortgaged to
Hodges in order that the excess may be applied to the
Payment of said other obligations, and to that effect Ng
Diong executed on April 2, 1946 a deed of sale thereof
in favor of Hodges for the sum of P124,580.00. Out of
this price; the sum of P103,883.34 was applied to the
payment of the debt of the partnership to Hodges and the
balance was paid to the other creditors of the
partnership. On the same date, Hodges executed another
contract giving the partnership the right to repurchase
Lots Nos. 237, 386 and 829 in installments for the sum
of P26,000.00 within three years with interest the rate of
1% Per annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its
indebtedness to Julian Go in the amount of P24,864.62
under the composition agreement, nor did it have any
money to repurchase Lots Nos. 237, 386 and 829 and so
Ng Diong, in behalf of the partnership, transferred the
right of the latter to repurchase the same from Hodges to
Julian Go in full payment of the partnership's
indebtedness to him. And having Julian Go exercised the
option January 6, 1948, Hodges executed a deed of sale
of the properties in his favor, and pursuant thereto the
register of deeds issued new titles' in his name covering
said lots. On May 29, 1948, Hodges executed another
deed of sale covering Lots Nos. 317-A, 236-B, 233 and
540 for the sum of P119,067.79 in favor of Jose C.
Tayengco. And on August 31, 1948, Tayengco
mortgaged said lots, together with three other lots of his,
Atty. Paolo Dimayuga
to the Bank of the Philippine Islands to secure a loan of
P126,000.00 to be used in the construction of a
commercial building on said lots.
ISSUE:
(1) The sale made by Ng Diong in behalf of the
partnership NG CHIN BENG HERMANOS of the seven
lots belonging to it in favor of C. N. Hodges on April 2,
1946 is null and void because at that time said parcels
were still in the custody of the assignee of the insolvency
proceedings, or in custodia legis, and, hence, the same is
null and void;
(2) Said sale is also null and void "because of the
disparity, irrationality and unreasonableness between the
consideration and the real value of the properties when
sold"; and
(3) The lower court erred in not finding that the two
deeds of mortgage executed by the partnership in favor
of the National Loan and Investment Board which were
later assigned to C. N. Hodges can no longer be enforced
because the action to foreclose the same has already
prescribed.
RULING:
(1) NO.
Anent the first issue, it would be well to state the
following facts by way of clarification: It should be
recalled that on August 8, 1940 the majority of the
creditors of the partnership, as well as the representatives
of the latter, submitted to the court taking cognizance of
the insolvency proceedings a composition
agreement whereby it was agreed that said creditors
would receive 20% of the amount of their claims in full
payment thereof. This agreement was approved on
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
October 10, 1940 which, in contemplation of law, has
the effect of putting an end to the insolvency
proceedings. However, no further step was taken thereon
because of the outbreak of the war. Later, the record of
the case was reconstituted and the parties on August 15,
1945 filed a petition with the court praying for the
dismissal and closure of the proceedings in view of the
approval of the aforesaid composition agreement, and
acting favorably thereon, the court on October 6, 1945,
issued an order declaring the proceedings terminated and
ordering the assignee to return and reconvey the
properties the partnership. The actual re-conveyance was
done by an assignee on April 2, 1946.
It would, therefore, appear that for legal and practical
purposes the insolvency ended on said date. Since then
partnership became, restored to its status quo. It again
reacquired its personality as such with Ng Diong as its
general manager. From that date on its properties ceased
to be in custodia legis. Such being the case, it is obvious
that when Ng Diong as manager of the partnership sold
the seven parcels of land to C. N. Hodges on April 2,
1946 by virtue of a deed of sale acknowledged before a
notary public on April 6, 1946, the properties were
already was at liberty to do what it may deem convenient
and proper to protect its interest. And acting accordingly,
Ng Diong made the sale in the exercise of the power
granted to him by the partnership in its articles of co-
partnership. We do not, therefore, find anything irregular
in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership
had already expired, the question may be fixed: Who
shall wind up it business affairs? May its manager still
execute the sale of its properties to C. N. Hodges as was
done by Ng Diong? The answer to this question cannot
but be in the affirmative because Ng Diong was still the
Atty. Paolo Dimayuga
managing partner of the partnership and he had the
necessary authority to liquidate its affairs under its
articles of co-partnership. And considering that war had
intervened and the affairs of the partnership were placed
under receivership up to October 6, 1945, we are of the
opinion that Ng Diong could still exercise his power as
liquidator when he executed the sale in question in favor
of C. N. Hodges. This is sanctioned by Article 228 of the
Code of Commerce which was the law in force at the
time.1
(2) NO.
With regard to the second issue, it is contended that the
trial court should have declared the sale of the lots made
to C. N. Hodges null and void "because of the disparity,
irrationality and unreasonableness between the
consideration and real value of the properties when
sold." In stressing his point, counsel contends that the
lands in question, which are located in a commercial
section of the City of Iloilo, were frittered away only for
a "pittance of P124,580.00" when, borrowing his words
they could have been sold like hot cakes to any resident
of the city of regular financial standing upon proper
approaches and representations, because at that time
those properties were fairly worth one-half of a million
pesos."
This claim may be true, but the same is unsupported.
Appellants have failed to introduce any evidence to
show that they could have secured better offers for the
properties if given a chance to do so and that they
advance now is a mere speculation or conjecture which
had no place in our judicial system. Since every claim
must be substantiated by sufficient evidence, and this
appellants have failed to do, their pretense cannot be
entertained.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

(3) NO. and C, there being no questions as to the

location or identity of the same under the proofs
Neither can we give any value to the claim that the offered by either party. The objection to the
action for the foreclosure of the mortgage executed by registration of these two parcels is based
the partnership in favor of C. N. Hodges has already principally on the following notarial
prescribed not only because the same is immaterial but instrument.
because it is an issue that appellants are raising for the
first time in this appeal. Such issue has never been raised
The undersigned scriptory creditors of the
in their pleadings, nor in the trial court. Verily, this
spouses Don Ramon Henson and Doa
claim has no merit.
MatildeMagdagal, residents of the pueblo of
Arayat, Province of Pampanga, have entered
With regard to the appeal taken by the heirs of defendant
into the following agreement for effecting the
Ng Diong whose main claim is that the trial court failed
transfer by sale and delivery of their
to adjudicate to the partnership the properties which
property, as payment, on the grounds:
were bought by Julian Go from C. N. Hodges, suffice it
to say that the same could not be done, firstly, because
o 1. Don Ceferino Revilla, in
no such claim was made by them in their pleadings in
representation of the spouses Don Lino
the trial court, and, secondly, because the evidence
Cardenas Reyes, and Doa Raymunda
shows that said properties were bought by Julian Go by
Soriano under power of attorney duly
virtue of the option given to him by the partnership for a
acknowledged, obligates himself to
valuable consideration in full payment of the credits
withdraw the complaint in the court of
assigned to him by a good number of creditors of said
the Province of Pampanga, which Don
partnership. There is no evidence that he promised to
Manuel Murciano filed, raising the
reconvey the same to the partnership.
attachment levied on the hacienda
belonging to those spouses, Don Ramon
Henson and Doa MatildeMagdagal
situated in the barrio of Lacmit of the
pueblo of Arayat, and leaving it free to
10.
the disposition of the undersigned.
CRISANTO LICHAUCO, ET AL., vs. RAYMUNDA
SORIANOG.R. No. L-8450January 29, 1914
o 2. The amount of P7400, the subject
matter of Don Manuel Murciano's
FACTS:
complaint wherein Don Lino Cardenas
This is an appeal from a judgment of the Court
Reyes was subrogated, shall fix the
of Land Registration, ordering the registration of
proportion in which he shall participate
several parcels of land in the names of the
in both the expenses and the assets of
petitioners. The appeal is limited to parcels A
said hacienda; likewise, Doa
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
JoaquinaCaldes shall participate in
proportion to her P2090; Doa
Concepcion Gruet de Atayde and Doa
Cornelia Laochanco, in both expenses
and assets, and these last two credits
shall be liquidated on the current thirty-
first of December, and all these credits
shall be passed upon the creditors
themselves in order to determine the
total liabilities, as the joint partnership
capital.
o 3. After the expenses have been
deducted, Messrs. Cardenas and Caldes
shall take note from the net profits the
proportionate part corresponding to
each, while the remainder shall be
divided equally between the two
creditors, Doa Concepcion Gruet de
Atayde and Doa Cornelia Laochanco,
without reference to the amounts of their
credits.
o 4. These allotments of assets shall serve
for extinguisher their respective credits,
with the rate of interest made uniform at
six per cent a year.
o 5. Care shall be taken by all the
interested parties that the management
be the most economical possible, with
the maximum of production, and sale of
the products of the hacienda at the best
price.
o 6. Doa JoaquinaCaldes also agrees to
withdraw the complaint she has filed in
the said court of Pampanga, raising the
Atty. Paolo Dimayuga
attachment levied in part on the products
of said land, leaving them free to the
disposition of the interested parties
themselves.
o 7. A book of minutes shall be kept for
administration and management of the
hacienda, which book shall be in care of
a person chosen by the creditors
themselves; and they will submit,
without appeal, to the decision of
friendly arbitrators, whenever they may
disagree in a tie vote on subjects not
expressly provided for in this
agreement, each partner to have in the
meeting only one vote, regardless of the
amount of his credit; and all are
obligated to perform what the majority
decides.
o 8. With reference to his general credit of
P8000, Mr. Cardenas agrees to collect
the same after the undersigned shall
have secured their respective credits.
o 9. As the first expense charged against
the products of the hacienda, there shall
be assigned to the spouses Henson and
Magdagal a pension of P30/month
from the first of January, 1889.
o 10. When everything shall have been
paidthe hacienda and its dependencies
shall be restored to the spouses Henson
and Magdagal.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
o 11. Spouses Henson and Magdagal
shall be obligated to direct and to aid in
the care of the hacienda, if the
partnership so deem expedient, in order
to utilize the knowledge and experience
they may have of it.
o 12. In case need should arise for an
administrator or manager of said
hacienda to look after the cultivation
and kindred labors, including milling,
with the status of a genuine manager,
action shall likewise be taken by vote
among the creditors.
o 13. Each partner in person or by proxy
shall have the same intervention and
inspection for all the operations of the
hacienda, but shall cease to have any
right or participation under this
agreement after his credit has been paid.
o 14. If, as is not to be expected in view of
the new management and resources the
hacienda will have, and there should not
have intervened any public calamity
or force majeure, it should be seen that
in two and excluding the present one,
not even enough should have been
produced to pay the indispensable cost
of cultivation, with merely unproductive
expense to the undersigned, the creditors
shall agree among themselves upon the
best plan they may deem expedient in
accord with the instrument of delivery.
o 15. Any one failing to comply with the
decisions reached and with these
Atty. Paolo Dimayuga
conditions shall be liable on his
proportionate share of profits and on his
credit for the damages his negligence or
opposition may cause.
o 16. The parties to this agreement shall
seek the best method of arranging with
Messrs. Smith, Bell & Co. in regard to
the debt of Don Ramon Henson for the
machinery installed on the hacienda.
o 17. The present instrument shall be
made a public document after execution
of the instrument of sale and delivery.
By a notarial document of the same date,
numbered 16, the two spouses attempted to
make an absolute sale of parcels A and C to
Concepcion Gruet and Cornelia Laochanco. The
former assigned her rights in the premises to the
latter, who was the mother of the present
petitioners.
ISSUE: WON the subject parcels of land in question
may be registered under the name of petitioners.
RULING: The claim of ownership on the part of the
petitioners to parcels A and C cannot be sustained.
The document copied above, constituted a novation of
the preexisting claims of the creditors who affixed their
names thereto, regardless of whether such claims were
secured by mortgage liens on the real property of the
spouses, or were merely personal debts. It is a self-
evident from this document, that a contract of
antichresis was created upon the property of the
spouses; and that, as between the creditors
themselves, a partnership was formed, as is
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
specifically stated in clause No. 2 thereof. The
attempted sale of the property to two of these creditors
shortly thereafter appears to have been made, on the part
of the spouses, under a misunderstanding of its
signification. It was made without the consent of the
other parties to the original contract. The fact that at the
time this contract of sale entered in the property registry,
the original contract did not appear therein, can make no
difference under the facts of this case. The original
contract was binding on the parties thereto and their
privies, without registration.
The sale of January 12, 1889, was an attempt on the
part of two of the partners to withdraw from the
partnership for their own personal profit before the
termination of the partnership at the expense of the
partnership, an act which was expressly prohibited
by Law 12, Title 10, Fifth Partida, and is now
prohibited by article 1706, of the Civil Code. The
notarial document of January 12, 1889, did not therefore
convey the title to the land in dispute to the would-be
purchasers, and as the claim of ownership of the
petitioners is necessarily based on that document, it
results that the certificate of registration ought not to
include those parcels.
11.
G.R. No. L-28920 October 24, 1928
MAXIMO-GUIDOTE, plaintiff-appellant,
vs.
ROMANA BORJA, as administratrix of the estate of
Narciso Santos, deceased, defendant-appellee.
OSTRAND, J.:
Atty. Paolo Dimayuga
Plaintiff Maximo Guidote brought an action against
Romana Borja, the administratrix of the estate of
Narciso Santos, deceased, to recover P9,534.14, a part of
which was alleged to be the net profits due the plaintiff
in a partnership business conducted under the name of
"Taller Sinukuan," in which Santos was the capitalist
partner and the plaintiff the industrial partner
The defendant in her answer admitted the existence of
the partnership and in a cross-complaint and counter-
claim prayed that the plaintiff be ordered to render an
accounting of the partnership business and to pay to the
estate of the deceased the sum of P25,000 as net profits,
credits, and property pertaining to said deceased.
Due to the plaintiffs failure to liquidate the affairs of the
partnership and to render an account thereof to the
administratrix of Santos estate, the trial court dismissed
the case and absolved Borja. After rendering an account
prepared by Tomas Alfonso (public accountant) in
behalf of Guidote, the court disproved the account
stating that it was unreliable. The court then ordered that
Borja must submit to the court an accounting of the
partnership business from the date of the commencement
of the partnership, June 15, 1918, up to the time the
business was closed.
Borja presented an account and liquidation prepared by a
public accountant, Santiago A. Lindaya, showing a
balance of P29,088.95 in favor of the defendant. At the
hearing, the defendant introduced the public accountant
Jose Turiano Santiago to testify as to the results of an
audit made by him of the accounts of the partnership.
Santiago testified that he had examined the exhibits
offered in evidence of the case by both parties and that
he had prepared a separate accounting or liquidation
similar in results to that prepared by Lindaya, but with a
few differences in the sums total.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

The court therefore, found that the conclusions reached As to the other witnesses for the plaintiff His Honor
by Santiago A. Lindaya as modified by Jose Turinao further says:
Santiago were just and correct and ordered the plaintiff
The testimony of the other witnesses for the plaintiff
to pay the defendant the sum of P26,020.89, Philippine
deserves but scant consideration as evidence to
currency, with legal interest thereon from April 2, 1921,
overcome the testimony of Mr. Santiago, as a whole
the date of the defendant's answer, and to pay the costs
particularly that of the witness Chua Chak, who, after
In order to contradict the conclusions of Lindaya and identifying and testifying as to a certain exhibit shown
Jose Turiano Santiago, the plaintiff presented Tomas him by counsel for plaintiff, showed that he could
Alfonso and the bookkeeper, Pio Gaudier, as witnesses neither read nor write English, Spanish, or Tagalog, and
in his favor. In regard to the character of the testimony that of the witness Mr. Claro Reyes, who, after
of these witnesses, His Honor, the trial judge, says: positively assuring the court that a certain exhibit
tendered him for identification was an original
The testimony of these two witnesses is so unreliable
document, was forced to admit that it was but a mere
that the court can place no reliance thereon. Mr. Tomas
copy.
Alfonso is the same public accountant who filed the
liquidation Exhibit O on behalf of the plaintiff, in ISSUE: Do the legal representatives of the deceased
relation to the partnership business, which liquidation partner have the obligation to render accounts of the
was disapproved by this court in its decision of August operations of the partnership, as contended by Guidote?
20, 1923. It is also to be noted that Mr. Alfonso would
HELD: No. In the case of Wahl vs. Donaldson Sim &
have this court believe the proposition that the plaintiff,
Co. (5 Phil., 11, 14), it was held that the death of one of
a mere industrial partner, notwithstanding his having
the partners dissolves the partnership, but that the
received the sum of P21,649.61 on the various jobs and
liquidation of its affairs is by law entrusted, not to the
contracts of the "Taller Sinukuan," had actually
executors of the deceased partner, but to the surviving
expended and paid out the sum of P63,360.27, of
partners or the liquidators appointed by them. The same
P44,710.66 in excess of the gross receipts of the
rule is laid down by the Supreme Court of Spain in
business. This proposition is not only improbable on its
sentence of October 12, 1870.
face, but it materially contradicts the allegations of
plaintiff's complaint to the effect that the advances made The other assignments of error have reference only to
by the plaintiff only the amount to P2,017.50. questions of fact in regard to which the findings of the
court below seem to be as nearly correct as possible
Mr. Pio Gaudier is the same bookkeeper who prepared
upon the evidence presented. There may be errors in the
three entirely separate and distinct liquidation for the
interpretation of the accounts, and it is possible that the
same partnership business all of which were repeated by
amount of P26,020.89 charged against the plaintiff is
the court in its decisions of September 1, 1922 and the
excessive, but the evidence presented by him is so
court finds that the testimony given by him at the last
confusing and unreliable as to be practically of no
hearing is confusing, contradictory and
weight and cannot serve as a basis for a readjustment of
unreliable.1awph!l.net
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
the accounts prepared by the accountant Lindaya and the
apparently reliable witness, Jose Turiano Santiago.
We should, perhaps, have been more inclined to question
the conclusions of Lindaya and Santiago if the plaintiff
had shown a disposition to render an honest account of
the business and to effect a fair liquidation of the
partnership but instead of doing so, he has by means of
very questionable, and apparently false, evidence sought
to mulct his deceased partner's estate to the extent of
over P9,000. The rule for the conduct of a surviving
partner is thus stated in 20 R. C. L., 1003:
In equity surviving partners are treated as trustees of the
representatives of the deceased partner, in regard to the
interest of the deceased partner in the firm. As a
consequence of this trusteeship, surviving partners are
held in their dealings with the firm assets and the
representatives of the deceased to that nicety of dealing
and that strictness of accountability required of and
incident to the position of one occupying a confidential
relation. It is the duty of surviving partners to render an
account of the performance of their trust to the personal
representatives of the deceased partner, and to pay over
to them the share of such deceased member in the
surplus of firm property, whether it consists of real or
personal assets.
The appellant has completely failed to observe the rule
quoted, and he is not in position to complain if his
testimony and that of his witnesses is discredited.
12.
G.R. No. L-29182 October 24, 1928
LEONCIA VIUDA DE CHAN DIACO (alias LAO
LIONG NAW) appellee,
Atty. Paolo Dimayuga
vs.
JOSE S. Y. PENG, assignee, appellant
FACTS:
It appears from the record that on June 13, 1925, the
San Miguel Brewery, Porta Pueco& Co., and Ruiz
&Rementaria S. en C. instituted insolvency
proceedings against LeonciaVda. de Chan Diaco (alias
Lao LiongNaw), alleged to be the owner of a grocery
store on Calle Nueva, Binondo, known as the store of
"La Viuda de G. G. Chan Diaco."
The above-mentioned firms alleged, among other things,
that Leoncia was indebted to them in the sum of
P26,234.47, which debt was incurred within thirty days
prior to the filing of said petition. It further appears that
other creditors have filed claims against the estate to the
amount of P50,000.
The petition for the declaration of insolvency was set
down for hearing on June 25, 1925. Leoncia did not
appear at the hearing, notwithstanding the fact that she
was duly notified, and the court (CFI Manila) declared
her insolvent. Judge Simplicio del Rosario, in an order
dated September 12, 11925, appointed Ricardo
Summers, the clerk of the Court of First Instance of
Manila, referee, authorizing him to take further evidence
in regard to the questions of fact raised by the motions of
August 5th and 19th. The report was approved by Judge
del Rosario on April 14, 1926.
On April 22, 1926, the attorney for the insolvent filed
her exception to the report of the referee, which had
already been approved on April 14, and on July 23,
1926, the court rendered a decision, reaffirming its
order of April 14, and ordered the insolvent to deliver to
the assignee the sum of P56,000, more or less.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
On August 4, 1926, attorney for the insolvent filed a
motion asking the court to dismiss the proceedings
against her on the ground that they should have been
brought against the partnership "Lao LiongNaw& Co.,"
of which she was only a member. The alleged
partnership was evidenced by an agreement dated July
22, 1922, and from which it appeared that on that date
Lao LiongNaw (Leoncia), Chan ChiacoWa, Cua Yuk,
Chan Bun Suy, Cahn Bun Le, and Juan Maquitan
Chan(6 all in all) had formed a partnership with a capital
of P21,000, of which only P4,000 was contributed by
Leoncia.
After several hearings in which various witnesses were
examined and documents presented on behalf of both
sides, the referee, on February 28, 1927, rendered a
second report, in which he found as facts that the alleged
partnership between the insolvent and some of her
relatives and employees was only a fictitious
organization created for the purpose of deceiving the
Bureau of Customs and enable some of the aforesaid
relatives, who were mere coolies, to come to the
Philippines under the status of merchants. He, therefore,
recommended that the motion of the insolvent to dismiss
the proceedings against her be denied.
ISSUE: Whether or not the lower court erred in ordering
the filing of a new petition of insolvency against the
fictitious partnership Lao LiongNiew& Co. and the
delivery to the sheriff of all the property of the
insolvency
RULING:
As to the second and third assignments of error it is to be
observed that conceding for the sake of the argument
that the debts in question were incurred by the alleged
partnership, it clearly appears from the record that
said partnership, as such, has no visible assets that,
Atty. Paolo Dimayuga
therefore, the partners individually must, jointly and
severally, respond for its debts (Code of Commerce,
art. 127). As the appellee is one of the partners and
admits that she is insolvent, we can see no reason for
the dismissal of the proceedings against her. It is
further to be noted that both the partnership and the
separate partners thereof may be joined in the same
action, though the private property of the latter
cannot be taken in payment of the partnership debts
until the common property of the concern is
exhausted (ComapniaMaritima vs. Munoz, 9 Phil., 326)
and, under this rule, it seems clear that the alleged
partnership here in question may, if necessary, be
included in the case by amendments to the insolvency
petition.
We also call attention to the fact that the evidence
clearly shows that the business, alleged to have been that
of the partnership, was carried on under the name
"LeonciaVda. de Chan Diaco" or "La Vda. de G. G.
Chan Diaco," both of which are names of the appellee,
and we think it can be safely held that a partnership may
be adjudged bankrupt in the name of an ostensible
partner, when such name is the name under which the
partnership did business.
The decision appealed from is hereby reversed, the
reports and recommendations of the referee are
approved.
13.
EUGENIA LICHAUCO, ET AL., plaintiffs-appellants,
vs.
FAUSTINO LICHAUCO, defendant-appellant. G.R.
No. L-10040 January 31, 1916
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
In October, 1901, a notarial instrument was
executed in Manila, by the terms of which a partnership
was duly organized for the purpose of carrying on a rice-
cleaning business at Dagupan, and for the purchase and
sale of "palay" and rice.
The articles of association, which were not
recorded in the mercantile registry, contain, among
others, the following provisions:
2. The association will be named F.
LichaucoHermanos and will be domiciled in the
center of its operations, that is, in the pueblo of
Dagupan, Province of Pangasinan.
3. The association cannot be dissolved
except by the consent and agreement of two-
thirds of its partners and in the event of the death
of any of the latter, the heirs of the deceased, if
they be minors or otherwise incapacitated, shall
be represented in the association by their legal
representatives or if two-thirds of the surviving
partners agree thereto, the participation of the
deceased partner may be liquidated.
4. The management and direction of the
association shall be in charged of Don Faustino
Lichauco y Santos, who shall be domiciled in
this city of Manila, with ample powers to direct
and manage the business; to carry out all manner
of purchases and sales of "palay," rice, chattels,
machinery and whatsoever may be necessary
and proper for the business of the association;
The articles disclose that the capital invested in
the enterprise was fixed at P100,000, of which amount
P60,000 was contributed by the defendant and his
brothers in the form of machinery in a mill at Dagupan
Atty. Paolo Dimayuga
and the good will of the milling business formerly
conducted at the place, the balance of the capital being
contributed by the plaintiffs and others in cash, in the
following proportions: Eugenia Lichauco, P13,000;
CatalinoArevalo, P8,000; Mariano Nable Jose, P5,000;
Tomas Roux, P4,000; JulitaLichauco, P10,000.(5 all in
all)(40k for these people)
The business thus organized was carried on until
May, 1904, when it was found to be unprofitable and
discontinued by the defendant manager (gestor); and
thereafter, the machinery of the rice mil was dismantled
by his orders, and offered for sale. No accounting ever
was made to his associates by the defendant until this
action was instituted in October, 1912. It further
appears that during all that time the defendant manager
of the defunct enterprise had in his possession not less
than P20,000, the cash balance on hand, over and above
all claims of indebtedness after suspending operations in
1904; and that since that time he received or should have
received substantial sums of money from the sale of the
machinery of the dismantled mill.
The action was brought by two of the partners of
an enterprise of which the defendant was manager
(gestor), to secure an accounting of its affairs, and the
payment to the plaintiffs of their respective shares of
capital and profits.
The defendant admitted the allegations of the
complaint as to the organization of the enterprise and the
participation of the plaintiffs therein, but he contended
that the plaintiffs could not maintain this action under
the terms of the written contract by virtue of which the
enterprise was organized.
The trial court ruled in favour on the plaintiffs
stating that there is doubt that from the time the

defendant concluded the operations of the business in
1904 until the date of the institution of this action in
1912, the defendant made no attempt to account to his
associates or to turn over to them the amount due them
on a proper accounting.
ISSUE:
Isthe dissolution and liquidation of
association is absolutely prohibited by the articles of
association,except by and with the conformity and
agreement of two-thirds of the partners.
RULING: NO.
The contentions of counsels for the defendant
take no account of the provisions of both the Civil and
Commercial Codes for the dissolution and liquidation
of the different classes of partnerships
mercantile associations upon the occurrence of
certain contingencies not within the control of the
partners. The provisions of the articles of partnership
prohibiting the dissolution of the association under
review, except by the consent and agreement of two-
thirds of its partners, denied the right to a less number
of the partners to effect a dissolution of the
partnership through judicial intervention
otherwise; but in no wise limited or restricted the rights
of the individual partners in the event the dissolution of
the association was effected, not by any act of theirs, but
by the express mandate of statutory law. It would be
absurd and unreasonable to hold that such an
association could never be dissolved and liquidated
without the consent and agreement of two-thirds of
its partners notwithstanding that it had lost all its
capital, or had become bankrupt, or that the
enterprise for which it had been organized had been
concluded or utterly abandoned.
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga
Chapter 3 of Title VIII [Book IV,] of the Civil
Code prescribes the means by which partnership
(sociedades) as defined in that code, may be
terminated. The first article of that chapter is as
follows:
1700. Partnership is extinguished:
the (1) When the term for which it was constituted
expires.
(2) When the thing is lost, or the business for
which it was constituted ends.
(3) By the natural death, civil interdiction, or
insolvency of any of the partners, and in the case
provided for in article 1699.
(4) By the will of any of the partners, subject to
the provisions of articles 1705 and 1707.
and Partnerships, to which article 1670 refers, are
excepted from the provisions of Nos. 3 and 4 of
this article, in the cases in which they should
exist, according to the Code of Commerce.
1670. Civil partnerships, on account of the
objects for which they are destined, may adopt
all the forms accepted by the Code of
or Commerce. In this case, the provisions of the
same shall be applicable, in so far as they are not
in conflict with those of the present Code.
Articles 221 and 222 of the Code of Commerce are as
follows:
221. Associations of any kind whatsoever shall
be completely dissolved for the following
reasons:

(1) The termination of the period fixed in the
articles of association of the conclusion of the
enterprise which constitutes its purpose.
(2) The entire loss of the capital.
(3) The failure of the association.
222. General and limited copartnerships shall
furthermore be totally dissolved for
following reasons:
(1) The death of one of the general partners if
the articles of copartnership do not contain an
express agreement that the heirs of deceased
partner are to continue in the copartnership, or
an agreement to the effect that
copartnership will continue between
surviving partners.
(2) The insanity of a managing partner or any
other cause which renders him incapable of
administering his property.
(3) The failure of any of the general partners.
It cannot be doubted that under these provisions
of law the association of which the defendant was
nominated manager (gestor) was totally dissolved in the
year 1904, when the rice mill for the operation of which
it was organized was dismantled, the machinery offered
for sale and the whole enterprise concluded and
abandoned.
Upon the dissolution of the association in
1904, it became the duty of the defendant to liquidate
its affairs and account to his associates for their
respective shares in the capital invested this not
merely from the very nature of his relation to the
enterprise and of his duties to those associated with
him as partners, but also by the express mandate of
the law. The association having been dissolved by the
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga
termination and abandonment of the enterprise for which
it was organized, he owed this duty to liquidate and
account to all and to each of his associates, and upon his
failure to perform that duty, all or any of them had a
clear legal right to compel him to fulfill it.
Each of his associates had a perfect right to
the demand for himself a full, complete and satisfactory
accounting, and in the event that he conceived
himself aggrieved in this regard, to institute the
appropriate judicial proceedings to secure relief.
Doubtless, in order to avoid a multiplicity of actions, the
defendant in such an action could require all the
associates to be made parties, but the right of an
said individual member of the association to recover his share
the in the enterprise and to assert his individual claim for
redress, wholly independent of the action or attitudes of
his associates, could be in no wise affected thereby. The
other associates would be proper, but not necessary,
parties to an action of this kind; and when, as in the case
at bar, the defendant proceeds to trial without objection
on the express ground that all the associates in the
enterprise have not been made parties to the action, he
cannot thereafter be heard to raise such an objection for
the purpose of challenging any judgment which may be
rendered therein.
Although the enterprise was organized in the
year 1901 for the purpose of conducting mercantile
operations, including the buying and selling of "palay"
and rice, the articles of partnership or association
were not registered in the mercantile registry in
accordance with the provisions of articles 17 and 119
of the Commercial Code. It was therefore a mere
unregistered commercial partnership, and the
association never became in the legal sense a juridical
person, nor did it attain the dignity, rights or
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
privileges accorded the different classes of
compaiasmercantiles(mercantile partnerships),
discussed in Title 1 of Book 2 of the Commercial
Code.
The duty of the defendant to liquidate the
affairs of the enterprise and to account to his
associates promptly upon the dissolution of the
association in the year 1904 is expressly prescribed in
the Commercial Code, whether we regard the
association, so far as it affects the mutual rights and
obligations of the partners, as clothed with the forms
of a "sociedad de cuentas en participacion" (joint
account partnership) or a "sociedad en comindata."
We conclude that an express statutory
obligation imposed upon the defendant an imperative
obligation to proceed without delay to the liquidation
of the association in the year 1904 and the further
duty to account to his associates for the result of that
liquidation. While he appears to have gone forward
with the liquidation far enough to collect all the cash
resources of the association into his own hands, how
utterly failed neglected to account therefor to his
associates or to make any attempt so to do, and we are of
opinion that the plaintiffs were clearly entitled to bring
this action to compel an accounting, and the payment of
their respective shares of the capital invested, together
with damages resulting from the failure of the defendant
to perform the duty expressly imposed upon him by
statute.
14.
NICOLAS GATDULA, plaintiff-appellee,
vs.SIMPLICIO SANTOS and MODESTO SANTOS,
defendants-appellants. JOSE SANTIAGO and
Atty. Paolo Dimayuga
POLICARPIA DE LOS SANTOS, interveners-
appellants.
Counsel for Nicolas Gatdula filed a complaint in the
Court of First Instance of Manila, alleging as a cause of
action that in the month of January, 1907, for the
purpose of securing the good name and interests thereof
the joint-account company denominated "Los Obreros
Pescadores" was constituted; articles of partnership were
drawn up among the partners Simplicio Santos, Modesto
Santos, Mateo Felix, Andres Antonio, and the plaintiff
Nicolas Gatdula(5 all in all), to engage in buying and
selling fish and shipping and selling same on
commission; that the plaintiff, being a partner and
possessing stock of the value of P500, was eliminated as
such partner from the said company "Los Obreros
Pescadores" by the manager thereof, Simplicio Santos,
who put in his place third parties who were not
legitimate partners; that notwithstanding the repeated
demands of the other partners, the manager Simplicio
Santos never distributed dividends among the
shareholders, because there were no funds to distribute,
as the former cashier, Mateo Felix, had embezzled over
P25,000; that this alleged embezzlement of P25,000, the
reason for the failure to distribute dividends, was wholly
pretended and fictitious; that the manager, Simplicio
Santos, in connivance with the present cashier, Modesto
Santos, had falsely made debts to appear against the
company to its prejudice; that the manager Simplicio
Santos and the cashier Modesto Santos made the fish-
salting establishment, called "Umbuyan Katagalugan,"
located in the barrio of Bancusay of the Tondo district of
the city of Manila, appear as a separate industry,
capitalized independently of the company, although it
was the property of the company "Los Obreros
Pescadores.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

The defendants, Simplicio Santos and Modesto Santos, 1908 for a shortage of over P25,000 of the company's
in answer to the complaint, denied the facts therein funds, the complaint being afterwards dismissed.
contained, and alleged that the defendant Simplicio
Santos had never been required to distribute dividends; In the motion opposing the appointment of Mateo Felix

that he had never handled money of the company, nor as receiver, filed by the defendants on December 3,

had he ever had anything to do with the company funds, 1912, Jose Santiago set up a claim of intervention,

just as he had embezzled; that the plaintiff Nicolas alleging that he was a profit- sharing partner in "Los

Gatdula is not a partner in "Los Obreros Pescadores," Obreros Pescadores," he having two shares, worth

but a mere employee in said company on a fixed salary; P1,000.

that although it was true that the plaintiff Nicolas

After the property of the company had been turned over
Gatdula had been included as a partner in the articles of
to the receiver Mateo Felix, Policarpia de los Santos set
partnership it was at his own request, and that after said
up a claim of intervention, alleging that she was the
articles had been signed the plaintiff Gatdula informed
owner of said fish-salting establishment, she having
the defendants that he had given up the idea of becoming
expended in its construction the sum of P3,709.75,
a partner in said company, wherefore he did not pay any
which she had given her sons Simplicio and Modesto
part of the amount of his share. As a counterclaim, they
Santos for that purpose; that when the receiver Mateo
set forth that the plaintiff well knew that he was not a
Felix took over the said establishment the business was
partner in "Los Obreros Pescadores," although with
in bad repute with the public; that from December 3,
unheard-of audacity he had instituted this action against
1912, until the date of the filing of this claim of
the defendants, thereby damaging them in the sum of
intervention, scarcely any business could be transacted
P2,000, incurred for expenses of defense.
in said fish-salting establishment, owing to the discredit

The defendants, Andres Antonio, Jose Flor Mata, and caused by the receiver and by Jose Flor Mata and Andres

Mateo Felix, answered the complaint filed by Nicolas A. Felix, she having been damaged thereby in an amount

Gatdula, admitting that the latter is a partner in "Los not less than P2,500; wherefore she prayed that the court

Obreros Pescadores; that since its formation the said order the establishment "Umbayan Katagalugan" to be

company had never paid dividends among the excluded from the property of the company "Los

shareholders, the manager Simplicio Santos alleging that Obreros Pescadores".

there were no funds because the cashier Mateo Felix had

After trial of the case and examination of the evidence
embezzled over P25,000; as a special defense they
submitted by both parties, the court rendered the
alleged that they never had any share in the management
decision in favor of the plaintiff, Nicolas Gatdula,
of the business of the company, except that from the
declaring him to be a partner in the joint-account
year 1905 until August 4, 1907, Andres Antonio had
partnership "Los Obreros Pescadores," with an interest
held the office of collector, Jose Flor Mata that of
therein of P500; ordering the defendants, Simplicio
secretary, and Mateo Felix that of cashier, this last one
Santos, Modesto Santos, and Jose Santiago to make an
having been sued by the board of directors in the year
accounting of the management and administration of the
business of said company since the commencement
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
thereof, and ordering the said defendants, Simplicio
Santos and Modesto Santos, to pay the costs; declaring
the intervener Jose Santiago a partner in the said joint-
account company with an interest of P1,000, without
cost in his favor; declaring that the intervener Policarpia
de los Santos has an interest of P3,709.75, with a
mortgage for that amount on the building belonging to
the company, which is now in the receiver's charged,
without costs in her favour.
ISSUES:
1) WON the plaintiff Nicolas Gatdula and the intervener
Jose Santiago form part as members of the joint-stock
company denominated "Los Obreros Pescadores"
2) WON the defendants Simplicio Santos, Modesto
Santos and the said Jose Santiago should be ordered to
make an accounting, the company be dissolved, and the
property thereof be distributed among the stockholders.
3) whether the other intervener, Policarpia de los Santos,
is entitled to share in the property of said company to the
extent of P3,709.75, as proprietor of the fishing-salt
establishment in Bancusay, Tondo
Held:
1) Yes. It has been duly proven in the case that Nicolas
Gatdula is a member of the joint-account partnership
"Los Obreros Pescadores," for that is demonstrated by
the articles of partnership of said company. It appears in
the second clause of said articles of partnership that the
net capital of the company was P5,250 Philippine
currency; and according to the twelfth clause thereof the
plaintiff Nicolas Gatdula was elected a member of the
board of directors of "Los Obreros Pescadores" with
voice and vote therein. Although the respective amounts
Atty. Paolo Dimayuga
contributed by each partner to the capital does not
appear, the plaintiff has shown by parol evidence that
each of the partners executing those articles contributed
P500, Philippine currency, which added to the capital of
its predessor "La Consignataria," constituted the assets
of the company "Los Obreros Pecadores." According to
the evidence submitted by the plaintiff Nicolas Gatdula,
that all the subscribers to the articles of partnership paid
their respective quotas or shares, since otherwise they
would not have been permitted to sign those articles. The
only partner who exhibited a receipt for payment to the
company of the value of his shares is the intervener Jose
Santiago. He presented the receipt Exhibit A-1 (p. 196)
and treasurer respectively of the company "Los Obreros
Pescadore," showing that he had purchased two shares in
the said company and had paid their value of 1,000. The
existence of this receipt is examined by the simple
reason that Jose Santiago did not sign the articles of
partnership, Exhibit B, and it does not appear therein
that he was a partner in "Los Obreros Pescadores," so
when he purchased two shares in the company it was
necessary to issue a receipt for the two shares he had
paid in, the receipt to serve at the same time as a
certificate of partnership in said company. From the
foregoing we must conclude that the partners executing
the articles of partnership of the company "Los Obreros
Pecadores" paid their respective shares, although no
receipts were issued to them therefor, their fact that they
had executed and signed said instrument being sufficient
as acknowledging them to be such partners and as
having paid in their respective quotas. This is the
situation of the plaintiff Gatdula, who signed those
articles.
2) During the five years and a half and more that said
company was in operation, that is, from January 17,
1907, until the filing of the complaint herein on August
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
28, 1912, no regular meeting of stockholders was held,
but there were two extraordinary meetings, the first in
the house of the bookkeeper Avellana on September 4,
1907 (Exhibit 2, p. 206), and the second in the house of
the director Jose Santiago (sten. notes, 32), solely to
consider the alleged embezzlement of over P25,000
committed by the cashier Mateo A. Felix; that monthly
and semi-annual balances were not struck, nor was the
cash counted, something which the cashier ought to have
done three times a week, for it appears that the accounts
of the company were not properly kept, as the record
shows; and that since the formation of the said company
dividends were never paid, in spite of the demands
therefor made by various partners. For these reasons the
plaintiff Nicolas Gatdula and the defendants Andres
Antonio, Jose Flor Mata, and Mateo A. Felix prayed that
the company be dissolved, and that an accounting be
had, a prayer that has been opposed by the other
defendants, Simplicio Santos and Modesto Santos, and
the intervener Jose Santiago. There can be no question
that the majority of the partners seek an accounting, and
the dissolution and liquidation of the company, because
of the violation of certain clauses in the articles of
partnership, whereby the company and its members have
been damaged. The court found said claim to be just,
since the grounds therefor were held to be established.
3) The intervener, Policarpia de los Santos, mother of
the defendants Simplicio and Modesto Santos, claims to
be the exclusive owner of the building in question,
although in her claim of intervention she alleged that her
sons Simplicio and Modesto Santos, as her
representatives, asked her permission to employ some of
her capital in its erection. It is proven that the intervener
has been paying the rental of the ground on which said
building is erected (pp. 231-236); that she spent the sum
of P3,709.75 in the construction thereof (p. 225), which
Atty. Paolo Dimayuga
appears to have been built by Santiago Reyes in 1911;
and that after its completion a notarial instrument was
executed, in which it was set forth under date of
November 16, 1911, that the said building was the
property of the intervener Policarpia de los Santos. This
document is not inscribed in the property registry as
proof of the intervener's claim.
The witness Mateo Buson testified that the company
"Los Obreros Pescadores" paid a monthly rental of P15
for the use of the building, but aside from this testimony
it has not been satisfactorily demonstrated that the
company was her lessee in the occupation thereof. The
mere fact that "Los Obreros Pescadores" occupied the
building without paying rent gives rise to the
presumption that it belongs to the said company.
Policarpia de los Santos is entitled to collect the sum of
P3,709.75, which she lent to the company for
constructing the building, but in the absence of proof of
her claim she cannot be considered the owner thereof.
15.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-12371 March 23, 1918
LEOPOLDO CRIADO, plaintiff-appellant,
vs.
GUTIERREZ HERMANOS, defendant-appellant.
TORRES, J.:
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Back ground: Leopoldo Criado filed a complaint
against the firm of Gutierrez Hermanos for the recovery
of a sum of money. Criado wanted to recover his share
of the capital stock of the firm of Gutierrez Hermanos,
since he began his connection therewith, on January 1,
1900, until his separation on December 31, 1911.
court did not determine the issues raised in the first,
second, third, fourth, sixth, seventh, eighth, ninth, and
tenth causes of action, and in defendant's cross-
complaint.

Leopoldo Criado alleged that accounts presented by the Second Cause of Action:

defendant referring to his capital in that firm were based

Facts: In the second cause of action Criado demands the
upon a false debit balance of P26,349.13 a balance
payment of P43,410.86, and alleges that, pursuant to a
which had been previously impeached by the affiant as
notarial instrument of March 29, 1900, he became a
well as the accounts from which said sum is sought to be
partner of the firm of Gutierrez Hermanos; and that said
derived. Wherefore he again assailed them in their
document stipulated that the partnership should last for
totality on the grounds that some of the entries thereof
four years from January 1, 1900, and, among other
were improper, other fraudulent, and still other false.
conditions, it contained the following:

Therefore Criados counsel moved that defendant be

Second. Therefore the partnership is organized
ordered to place immediately at the disposal of
among the parties to this instrument, Don
Commissioner Wicks all the books, accounts, bills,
Placido Gutierrez de Celis, Don Miguel
vouchers, and other documents that might be necessary,
Gutierrez de Celis, Don Miguel Alonso y
in order that said liquidation might be made by
Gutierrez, Don Daniel Perez y Alberto, and Don
defendants counsel, by an order of September 2, 1915,
Leopoldo Criado y Garcia,(5 all in all) the first
the court ruled in conformity therewith, authorizing the
three as capitalist partners, and the last two as
firm of Gutierrez Hermanos to appoint another expert
industrial partners.
accountant who, together with the one already
designated. Eighth. All earnings or profits that may be
obtained shall be distributed among the partners
After a rehearing of the case and an examination of
in the following proportion: 37 per cent shall go
George B. Wicks was made regarding the contents of the
to Don Placido Gutierrez de Celis; 37 per cent to
report that he submitted after studying for that purpose
Don Miguel Gutierrez de Celis; 16 per cent to
the books and other documents placed at his disposal by
Don Miguel Alfonso y Gutierrez; 5 per cent, to
the defendant. In view of the result and the evidence
Don Daniel Perez y Alberto; and 5 per cent to
adduced by the parties, and by the said commissioner's
Don Leopoldo Criado y Garcia. In the same
report duly supported by vouchers, the court rendered
proportion above established for the profits the
the judgment aforementioned, on September 11, 1916.
capitalist partners shall be liable for all losses or

Counsel for the firm of Gutierrez Hermanos assails in damages that may be sustained.

general the judgment appealed from because the trial

 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Plaintiff also alleged that 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,
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 Alfonso 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 the plaintiff before or after said liquidation, but
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.
In order to determine whether plaintiff still has a right to
demand the sum that is the subject of his complaint in
the second cause of action, it becomes necessary first too
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
Atty. Paolo Dimayuga
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 which
were in force during the second period from January,
1904. From clause 7 of said contract, and according to
said inventory of December 31, 1903, it appears that the
firm's capital stock amounted to P1,605,497.30, of which
the sum of P25,129.09 belonged to Leopoldo Criado.
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 Guiterrez de Celis
assured him that he would lose nothing by those entries
made in connection with a serious matter then pending.
Criado alleged that the 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 Alonso that the losses of the firm of
Gutierrez Hermanos were due to his poor management
of the firm's business
Where 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 partners . . . and 5 per cent
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
against each of the industrial partners, Leopoldo
Criado's share of the losses being P25,080.68.
Issue: WON the losses of the firm of Gutierrez
Hermanos was duly deducted from the share of Criado.
Ruling: No, without doubt this entry was made for the
purpose of showing that Miguel Alonso, former manger
of the partnership, was to blame for these losses. It is to
be noted that, according to the contract that plaintiff
Criado, as one of the industrial partners is not liable for
the losses which the firm may have sustained according
to the eighth 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.
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 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 these are greater
than the losses the industrial partner shares, 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, 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
Atty. Paolo Dimayuga
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.
Fifth Cause of Action:
Facts: According to the document 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 and tends to
prove that on December 31, 1911, plaintiff's capital was
the amount stated, before the annotation of the entries
assailed as false and fraudulent by plaintiff.
The eighth and sixteenth clauses of the articles of
partnership executed in May, 1904, which ratified and
approved the transactions of the firm of Gutierrez
Hermanos from January of that year state the following:
Eighth. The earnings or profits which may be
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 be incurred.
Sixteenth. In case the partnership business
should incur such losses as to prevent a
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
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 he 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).
Issue: WON Criado having a capital stock with the firm
of Hermanos Gutierrez should be liable for the losses.
Ruling: Yes, from the two preinstated clauses of the
partnership contract it is deduced that the partners should
be liable for all the losses incurred by the partnership in
the proportion fixed in the 8th clause; 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. The firm of Hermanos
Gutierrez 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.
Atty. Paolo Dimayuga
16.
URBANO LOTA (Substituted by SOLOMON LOTA
in his capacity as Administrator of the Estate of
URBANO LOTA), plaintiff-appellant,
vs.
BENIGNO TOLENTINO, defendant-appellee.
FACTS:
On March 3, 1937, plaintiff filed an action against
defendant to order the latter (a) to render an accounting
of his management of their partnership, and (b) to
deliver the plaintiff whatever share he may have in the
assets of the partnership after the liquidation has been
approved by the Court.
The partnership above-mentioned was entered into by
and between plaintiff and defendant in the year 1918,
whereby they agreed to engage in general business in the
municipality of Alabat, province of Batangas, both to
divide the profits and losses share alike, and defendant to
be manager of the partnership. Plaintiff alleges that from
1918 until 1928 defendant had rendered an annual
accounting, but has refused to do so from 1929 to 1937,
hence, plaintiff's complaint.
To plaintiff's complaint, defendant filed an answer,
alleging that defendant was the industrial partner in said
partnership; that he rendered a yearly accounting and
liquidation thereof from 1918 to 1932, and that in the
latter year, 1932, the partnership was dissolved and
defendant delivered all its properties and assets to the
plaintiff. Hence, defendant prays for the dismissal of
plaintiff's complaint.
The plaintiff died in 1938, and on September 28, 1939,
he was substituted by the administrator of his estate,
Solomon Lota.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
On December 8, 1939, defendant's counsel made a
suggestion upon the record that defendant died on
November 26, 1939. On January 9, 1940, the Court gave
plaintiff 30 days to amend the complaint by substituting
for the deceased defendant the administrator of his estate
or his legal representative.
On January 28, 1941, the Court ordered the dismissal of
the case for lack of prosecution. This order was
reconsidered and set aside upon a showing by plaintiff
that on March 28, 1941, he had filed a petition for the
issuance of letters of administration to deceased
defendant's surviving spouse, Marta Sadiasa, for the
purpose of substituting her for the deceased defendant,
said petition being Special Proceedings No. 3859 of this
Court entitled "Intestate Estate of the late
BenignoTolentino, Solomon Lota, petitioner." This
special proceedings was, however, dismissed for failure
of the administratrix to file a bond and to take her oath.
It will thus be seen that from defendant's death on
November 26, 1939, to the present, or almost ten years,
no administrator or legal representative had been
actually substituted to take the place of said defendant. It
was only on April 6, 1949, that plaintiff made another
try to substitute said deceased by filing his motion,
referred to in the first paragraph of this resolution,
praying that defendant's heirs be substituted for him as
parties defendant.
The following considerations stand in the way of
plaintiff's motion for substitution:
1. It being undisputed that defendant was the manager of
the partnership formed by and between him and the
plaintiff, and that said defendant died on November 26,
1939, during the pendency of the present for accounting
and liquidation against defendant, the said action should
have been discontinued as it could no longer be
Atty. Paolo Dimayuga
maintained against deceased defendant. Under these
circumstances, the remedy and duty of the plaintiff are
as set out in the following ruling of the Supreme Court
in Po YengCheo vs. Lim Ka Yam, (44 Phil. 172, 178):
In the first place, it is well settled that when a member of
a mercantile partnership dies, the duty of liquidating its
affairs devolves upon the surviving member, or members
of the firm, not upon the legal representative of the
deceased partner. (Wahl vs. Donaldson Sim and Co., 5
Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744). And
the same rule must be equally applicable to a civil
partnership clothed with the form of the commercial
association (Art. 1670, Civil Code; Lichauco vs.
Lichauco, 33 Phil., 350).
If, as it appears of record, plaintiff died prior to
defendant's death, the duty to liquidate devolved upon
the legal representative of the plaintiff because it was the
latter who sought to establish a claim against the
defendant.
2. If after such liquidation, there should be found money
or property due the partnership from the deceased
defendant, a claim therefor should be filed against the
latter's estate in administration. Again, this is the
procedure marked out in the case just cited:
Upon the death of Lim Ka Yam it therefore become the
duty of his surviving associates to take the proper steps
to settle the affairs of the firms, and any claim against
him, or his estate, for a sum of money due to the
partnership by reason of any misappropriation of its
funds by him or damages resulting from his wrongful
acts as a manager, should be prosecuted against his
estate in administration in the manner pointed out in
sections 686 to 701, inclusive, of the Code of Civil
Procedure. Moreover, when it appears, as here, that the
property pertaining to Kwong Cheong Tay, like the

shares in the YasiengChyipKonski and Manila Electric
Railroad and Light Company, are in the possession of
the deceased partner, the proper step for the surviving
associates to take would be to make application to the
court having charge of the administration to require the
administration to surrender such property.
YengCheo vs. Lim Ka Yam, supra.)
This procedure was not also followed in the case at bar
because plaintiff, or his legal representative, did not
procure the appointment and qualification of an
administrator of the estate of deceased defendant, altho
he had already filed a petition looking towards such
administration. This plaintiff was under a duty to do if
he considered himself a creditor with a legitimate claim
enforceable against the estate of deceased defendant.
3. What plaintiff, or his legal representative, insisted on
doing in the present case is to continue and press his
action for accounting and liquidation against the heirs of
deceased defendant, a procedure which, as above stated,
runs counter to that set out in the Po YengCheo vs. Lim
Ka Yam case. But even in this, plaintiff, or his legal
representative, proceeded half-heartedly, because he
only filed a petition for the appointment of an
administrator for the estate of deceased defendant, but
did not see to it that administrator filed a bond and
qualify as such. Hence, the said petition
administration was dismissed.
4. Also, conceding, without admitting, that the present
action for accounting would lie against defendant, it is
this Court's opinion that such a duty to account died with
the defendant, was extinguished upon his death, and was
not shifted upon his heirs. The heirs of the defendant
have never been partners in the partnership formed by
and between plaintiff and defendant, and said heirs are
[PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga
hardly in a position and hardly called upon to effect an
accounting of said partnership.
5. Finally, it will be recalled that the partnership in
question was organized in 1918 and dissolved in 1932.
The action for accounting was commenced on March 3,
(Po
1937. And the present motion for substitution was filed
on April 6, 1949, only. Trial on the merits at this late
date might prove futile and fruitless if no partnership
property is found in the possession of defendant's heirs,
let alone the allegation of said defendant in his answer to
the complaint back in 1937 that he had already delivered
all the properties and assets of the partnership to the
plaintiff. If the principle of laches is ever to be applied, it
should be applied to this case.
Wherefore, the plaintiff's action for substitution is denied
and defendant's prayer for the dismissal for this case
against the plaintiff.
The present appellant is Solomon Lota, in his capacity as
administrator of the estate of UrbanoLota, original
plaintiff, who died in l938.
ISSUE:
Whether or not after the death of the defendant
BenignoTolentino on November 22, 1939, plaintiff's
action for accounting and liquidation of the partnership
for
formed in l918 between UrbanoLota and
BenignoTolentino, of which the latter was the industrial
and managing partner, may be continued against the
heirs of BenignoTolentino.
RULING:
NO.
The applicable authority is the case of Po YengCheo vs.
Lim Ka Yam, 44 Phil. 172, in which the following
pronouncements were made:
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

In the first place, it is well settled that when a member of discontinue the action against the administrator should
a mercantile partnership dies, the duty of liquidating its have been granted. (pp. 178-179.)
affairs devolves upon the surviving member, or
Another ground equally decisive against the appellant
members, of the firm, not upon the legal representatives
correctly advanced by the lower court in dismissing
of the deceased partner. (Wahl vs. Donaldson Sim and
the present action for accounting, is lack of prosecution
Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
on the part of the appellant. It may be fittingly recalled
744.) And the same rule must be equally applicable to a
that the action for accounting and liquidation was filed
civil partnership clothed with the form of a commercial
on March 3, l937. No sooner had the defendant
association (art. 1670, Civil Code: Lichaucovs.Licahuco,
BenignoTolentino died on November 22, l939, than said
33 Phil., 350). Upon the death of Lim Ka Yam it
fact was made record by his attorney. On January 9,
therefore become the duty of his surviving associates to
1940, the lower court gave the plaintiff (who had then
take the proper steps to settle the affairs of the firm, and
died and was substituted on September 28, 1939, by the
any claim against him, or his state, for a sum of money
administrator of his estate, Solomon Lota), 30 days to
due to the partnership by reason of any misappropriation
amend the complaint by substituting the administrator or
of its funds by him, or for damages resulting from his
legal representative of the deceased defendant
wrongful acts as manager, should be prosecuted against
BenignoTolentino. On January 28, 1941, the lower court
his estate in administration in the manner pointed out in
dismissed the case for lack of prosecution on the part of
sections 686 to 701, inclusive, of the Code of Civil
the plaintiff, but the order of dismissal was reconsidered,
Procedure. Moreover, when it appears, as here, that the
upon a showing by the plaintiff that on March 28, 1941,
property pertaining to Kwong Cheong Tay, like the
an administration proceeding for the estate of
shares in the YutSiongChyipKonski and Manila Electric
BenignoTolentino was instituted by the plaintiff. On
Railroad and Light Company, are in the possession of
August 8, 1941 the lower court issued, at the instance of
the partner, the proper step for the surviving associates
the plaintiff, letters of administration to Tolentino's
to take would be to make application to the court having
surviving spouse, Marta Sadiasa, who however failed to
charge of the administration to require the administrator
qualify. Accordingly, the court dismissed the
to surrender such property.
administration proceeding on January 3, 1949, for lack
But in the second place, as already indicated, the of interest. It was only as late as April 6, l949, that the
proceedings in this cause, considered in the character of plaintiff filed the motion to substitute, not even the legal
an action for an accounting, were futile; and the court, representative of BenignoTolentino but his heirs.
abandoning entirely the effort to obtain an accounting,
If the plaintiff was genuinely interested in substituting
gave judgment against the administrator upon the
the proper party, assuming that plaintiff's action may still
supposed liability of his intestate to respond for the
be pursued after Tolentino's death, he should have taken
plaintiffs proportionate share of the capital and assets.
timely measures to have the administratrix appointed on
But of course the action was not maintenable in this
August 8, 1941, qualify or, in case of her failure or
aspect after the death of the defendant; and the motion to
refusal, to procure the appointment of another
administrator; because the plaintiff could have availed
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
himself of section 6, Rule 80, of the Rules of Court,
providing that "letters of administration may be granted
to any qualified applicant, though it appears that there
are other competent persons having better right to the
administration, if such persons fail to appear when
notified and claim the issuance of letters to themselves."
Certainly, inaction for almost eight years (after the
issuance of letters of administration) on the part of the
appellant, sufficiently implies indifference to or
desistance from its suit.
The theory of the appellant is that the heirs may properly
be substituted for the deceased BenignoTolentino,
because they are in possession of property allegedly
belonging to the partnership in question, and the
appellant seeks the recovery thereof. Apart from the fact
that said allegation seems to refer to cause of action
foreign to the claim for accounting and liquidation
against Tolentino, and should have been made in proper
pleading to duly admitted by the lower court, the filing
of appellant's motion for substitution more than twelve
years after the institution of the complaint came too late
and already called for the prosecution. It is immaterial
that, before the appealed resolution was issued by the
lower court, the appellant attempted to have the deceased
defendant had not yet been properly substituted.
-----------END 3RD------------
#1
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and
RAFAELITO W. LOPEZ, Petitioners, vs.MA. CLARITA T. LAZATIN-
MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN
and JOSE MARCOS T. LAZATIN, Respondents.
FACTS
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin,
Jaime T. Lazatin and Jose Marcos T. Lazatin (the Lazatins for brevity),
are co-owners of two (2) adjoining parcels of land, with a combined
area of 30,000 square meters, located in Tagaytay City and covered
by Transfer Certificate of Title (TCT) No. T-10848 of the Register of
Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by
Lopez, in his capacity as President, entered into a Joint Venture
Atty. Paolo Dimayuga
Agreement (JVA) for the development of the aforementioned
property into a residential subdivision to be known as "Tagaytay
Garden Villas." Under the JVA, the Lazatin siblings obliged
themselves to contribute the two parcels of land as their share in
the joint venture. For its part, Primelink undertook to contribute
money, labor, personnel, machineries, equipment, contractors pool,
marketing activities, managerial expertise and other needed
resources to develop the property and construct therein the units
for sale to the public.
The Lazatins agreed to subject the title over the subject property to
an escrow agreement. Conformably with the escrow agreement, the
owners duplicate of the title was deposited with the China Banking
Corporation.
The Lazatins, through counsel, demanded that Primelink comply
with its obligations under the JVA, otherwise the appropriate action
would be filed against it to protect their rights and interests. This
impelled the officers of Primelink to meet with the Lazatins and
enabled the latter to review its business records/papers. In another
Letter dated October 22, 1997, the Lazatins informed Primelink that
they had decided to rescind the JVA effective upon its receipt of the
said letter. The Lazatins demanded that Primelink cease and desist
from further developing the property.
The Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay
City, Branch 18, a complaint for rescission accounting and damages,
with prayer for temporary restraining order and/or preliminary
injunction against Primelink and Lopez. The case was docketed as
Civil Case No. TG-1776. Plaintiffs alleged, among others, that,
despite the lapse of almost four (4) years from the execution of the
JVA and the delivery of the title and possession of the land to
defendants, the land development aspect of the project had not yet
been completed, and the construction of the housing units had not
yet made any headway.
The trial court has observed, that a pattern of what appears to be a
scheme or plot to reduce and eventually blot out the net income
generated from sales of housing units by defendants, has been
established. As of September 30, 1995, the joint venture project
earned a net income of aboutP2,603,810.64. This amount, however,
was drastically reduced in a subsequent financial report submitted
by the defendants to P1,954,216.39. Shortly thereafter, and to the
dismay of the plaintiffs, the defendants submitted an income
statement and a balance sheet indicating a net loss of P5,122,906.39
as of June 30, 1997.
Of the reported net income of P2,603,810.64, the plaintiffs should
have received the sum ofP1,041,524.26 representing their 40%
share under paragraph II and V of the JVA. But this was not to be so.
Even before the plaintiffs could get hold of their share as indicated
above, the defendants closed the chance altogether by declaring a
net loss. The court perceives this to be one calculated coup-de-grace
that would put to thin air plaintiffs hope of getting their share in the
profit under the JVA.
That this matter had reached the court is no longer a cause for
speculation. The way the defendants treated the JVA and the
manner by which they handled the project itself vis--vis their
partners, the plaintiffs herein, there is bound to be certain conflict
as the latter repeatedly would received the losing end of the
bargain.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
CA affirmed the decision of the Trial Court and ordered Transfer
Certificate of Title held for safekeeping by Chinabank pursuant to
the Escrow Agreement is ordered released for return to the
plaintiffs-appellees and conformably with the affirmed decision, the
cancellation by the Register of Deeds of Tagaytay City of whatever
annotation in TCT No. 10848 by virtue of the Joint Venture
Agreement, is now proper.
Petitioners maintain that the aforesaid portion of the decision which
unconditionally awards to respondents "all improvements" on the
project without requiring them to pay the value thereof or to
reimburse Primelink for all expenses incurred therefore is inherently
and essentially illegal and confiscatory, oppressive and
unconscionable, contrary to the tenets of good human relations, and
will allow respondents to unjustly enrich themselves at Primelinks
expense.
ISSUE
Whether or not the order of the court to release the TCT along with
all the improvements to the LAZATINS proper?
RULING
The legal concept of a joint venture is of common law origin. It has
no precise legal definition, but it has been generally understood to
mean an organization formed for some temporary purpose. It is, in
fact, hardly distinguishable from the partnership, since elements are
similar community of interest in the business, sharing of profits
and losses, and a mutual right of control. The main distinction cited
by most opinions in common law jurisdictions is that the partnership
contemplates a general business with some degree of continuity,
while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. This observation is
not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art.
1783, Civil Code). It would seem therefore that, under Philippine
law, a joint venture is a form of partnership and should thus be
governed by the laws of partnership. The Supreme Court has,
however, recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a
partnership contract, it may, however, engage in a joint venture
with others.
The LAZATINs were able to establish fraud on the part of PRIMELINK
which, in the words of the court a quo, was a pattern of what
appears to be a scheme or plot to reduce and eventually blot out the
net incomes generated from sales of housing units by the
defendants. Under Article 1838 of the Civil Code, where the
partnership contract is rescinded on the ground of the fraud or
misrepresentation of one of the parties thereto, the party entitled to
rescind is, without prejudice to any other right is entitled to a lien
on, or right of retention of, the surplus of the partnership
property after satisfying the partnership liabilities to third persons
for any sum of money paid by him for the purchase of an interest in
the partnership and for any capital or advance contributed by him.
In the instant case, the joint venture still has outstanding liabilities
to third parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848
which is now held by Chinabank for safekeeping pursuant to the
Escrow Agreement executed between Primelink Properties and
Development Corporation and Ma. Clara T. Lazatin-Magat should
Atty. Paolo Dimayuga
also be returned to the LAZATINs as a necessary consequence of the
order of rescission of contract. The reason for the existence of the
Escrow Agreement has ceased to exist when the joint venture
agreement was rescinded.
The trial court was not proscribed from placing respondents in
possession of the parcels of land and the improvements on the said
parcels of land. It bears stressing that the parcels of land, as well as
the improvements made thereon, were contributed by the parties to
the joint venture under the JVA, hence, formed part of the assets of
the joint venture. The trial court declared that respondents were
entitled to the possession not only of the parcels of land but also of
the improvements thereon as a consequence of its finding that
petitioners breached their agreement and defrauded respondents of
the net income under the JVA.
We agree with the CA ruling that petitioner Primelink and
respondents entered into a joint venture as evidenced by their JVA
which, under the Courts ruling in Aurbach, is a form of
partnership, and as such is to be governed by the laws on
partnership.
When the RTC rescinded the JVA on complaint of respondents based
on the evidence on record that petitioners willfully and persistently
committed a breach of the JVA, the court thereby
dissolved/cancelled the partnership. With the rescission of the JVA
on account of petitioners fraudulent acts, all authority of any
partner to act for the partnership is terminated except so far as may
be necessary to wind up the partnership affairs or to complete
transactions begun but not yet finished. On dissolution, the
partnership is not terminated but continues until the winding up of
partnership affairs is completed. Winding up means the
administration of the assets of the partnership for the purpose of
terminating the business and discharging the obligations of the
partnership.
The transfer of the possession of the parcels of land and the
improvements thereon to respondents was only for a specific
purpose: the winding up of partnership affairs, and the partition
and distribution of the net partnership assets as provided by
law. After all, Article 1836 of the New Civil Code provides that
unless otherwise agreed by the parties in their JVA, respondents
have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not
wrongfully dissolved the partnership or the legal representative of
the last surviving partner, not insolvent, has the right to wind up the
partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain
winding up by the court.
It must be stressed, too, that although respondents acquired
possession of the lands and the improvements thereon, the said
lands and improvements remained partnership property, subject to
the rights and obligations of the parties, inter se, of the creditors
and of third parties under Articles 1837 and 1838 of the New Civil
Code, and subject to the outcome of the settlement of the accounts
between the parties as provided in Article 1839 of the New Civil
Code, absent any agreement of the parties in their JVA to the
contrary. Until the partnership accounts are determined, it cannot
be ascertained how much any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that
it be indemnified for the value of the improvements on the parcels
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
of land owned by the joint venture/partnership. Notably, the JVA of
the parties does not contain any provision designating any party to
wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the
parties when dissolution is caused in contravention of the
partnership agreement are as follows:
(1) Each partner who has not caused dissolution
wrongfully shall have:
(a) All the rights specified in the first paragraph
of this article, and
(b) The right, as against each partner who has
caused the dissolution wrongfully, to damages
for breach of the agreement.
(2) The partners who have not caused the dissolution
wrongfully, if they all desire to continue the business in
the same name either by themselves or jointly with others,
may do so, during the agreed term for the partnership and
for that purpose may possess the partnership property,
provided they secure the payment by bond approved by
the court, or pay to any partner who has caused the
dissolution wrongfully, the value of his interest in the
partnership at the dissolution, less any damages
recoverable under the second paragraph, No. 1(b) of this
article, and in like manner indemnify him against all
present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully
shall have:
(a) If the business is not continued under the
provisions of the second paragraph, No. 2, all the
rights of a partner under the first paragraph,
subject to liability for damages in the second
paragraph, No. 1(b), of this article.
(b) If the business is continued under the second
paragraph, No. 2, of this article, the right as
against his co-partners and all claiming through
them in respect of their interests in the
partnership, to have the value of his interest in
the partnership, less any damage caused to his
co-partners by the dissolution, ascertained and
paid to him in cash, or the payment secured by a
bond approved by the court, and to be released
from all existing liabilities of the partnership; but
in ascertaining the value of the partners interest
the value of the good-will of the business shall
not be considered.
And under Article 1838 of the New Civil Code, the party entitled to
rescind is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by
him for the purchase of an interest in the partnership and
for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have been
satisfied, in the place of the creditors of the partnership
for any payments made by him in respect of the
partnership liabilities; and
Atty. Paolo Dimayuga
(3) To be indemnified by the person guilty of the fraud or
making the representation against all debts and liabilities
of the partnership.
The accounts between the parties after dissolution have to be
settled as provided in Article 1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after
dissolution, the following rules shall be observed, subject to any
agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary
for the payment of all the liabilities specified in
No. 2.
(2) The liabilities of the partnership shall rank in order of
payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for
capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their
declaration in No. 1 of this article to the satisfaction of the
liabilities.
(4) The partners shall contribute, as provided by article
1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the
right to enforce the contributions specified in No. 4, to the
extent of the amount which he has paid in excess of his
share of the liability.
(7) The individual property of a deceased partner shall be
liable for the contributions specified in No. 4.
(8) When partnership property and the individual
properties of the partners are in possession of a court for
distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual
property, saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall
rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of
contribution.
#2
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF
APPEALS and NENITA A. ANAY, respondents.(G.R. No. 127405.
October 4, 2000, YNARES-SANTIAGO, J.)
FACTS:
Fresh from her stint as marketing adviser of Technolux in
Bangkok, Thailand, private respondent Nenita A. Anay met
petitioner William T. Belo, then the vice-president for operations of
Ultra Clean Water Purifier, through her former employer in Bangkok.
Belo introduced Anay to petitioner Marjorie Tocao, who conveyed
her desire to enter into a joint venture with her for the importation
and local distribution of kitchen cookwares. Belo volunteered to
finance the joint venture and assigned to Anay the job of marketing
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
the product considering her experience and established relationship
with West Bend Company, a manufacturer of kitchen wares in
Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist,
Tocao as president and general manager, and Anay as head of the
marketing department and later, vice-president for sales. Anay
organized the administrative staff and sales force while Tocao hired
and fired employees, determined commissions and/or salaries of the
employees, and assigned them to different branches. The parties
agreed that Belos name should not appear in any documents
relating to their transactions with West Bend Company. Instead,
they agreed to use Anays name in securing distributorship of
cookware from that company. The parties agreed further that Anay
would be entitled to: (1) ten percent (10%) of the annual net profits
of the business; (2) overriding commission of six percent (6%) of the
overall weekly production; (3) thirty percent (30%) of the sales she
would make; and (4) two percent (2%) for her demonstration
services. The agreement was not reduced to writing on the strength
of Belos assurances that he was sincere, dependable and honest
when it came to financial commitments.
Anay having secured the distributorship of cookware
products from the West Bend Company and organized the
administrative staff and the sales force, the cookware business took
off successfully. They operated under the name of Geminesse
Enterprise, a sole proprietorship registered in Marjorie Tocaos
name, with office at Makati City. Belo made good his monetary
commitments to Anay. Thereafter, West Bend Company invited
Anay to the distributor/dealer meeting in US. Anay accepted the
invitation with the consent of Marjorie Tocao who, as president and
general manager who even wrote a letter to the Visa Section of the
U.S. Embassy in Manila on July 13, 1987. A portion of the letter
reads:
Ms. Nenita D.
Anay (sic), who has been
patronizing and supporting
West Bend Co. for twenty
(20) years now, acquired the
distributorship of Royal
Queen cookware for
Geminesse Enterprise, is the
Vice President Sales
Marketing and a business
partner of our company, will
attend in response to the
invitation.
Anay arrived from the U.S.A. in mid-August 1987, and
immediately undertook the task of saving the business on account of
the unsatisfactory sales record in the Makati and Cubao offices. Few
months later, Anay learned that Tocao had signed a letter addressed
to the Cubao sales office to the effect that she was no longer the
vice-president of Geminesse Enterprise. The following day, she
received a note from Lina T. Cruz, marketing manager, that Tocao
had barred her from holding office and conducting demonstrations
in both Makati and Cubao offices. Anay attempted to contact Belo.
She wrote him twice to demand her overriding commission for the
period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits, however, the
leteers were unanswered.
Anay still received her five percent (5%) overriding
commission up to December 1987. The following year, 1988, she did
Atty. Paolo Dimayuga
not receive the same commission although the company netted a
gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed a complaint for sum
of money with damages against Tocao and Belo. In their answer,
Marjorie Tocao and Belo asserted that the alleged agreement with
Anay that was neither reduced in writing, nor ratified, was either
unenforceable or void or inexistent. As far as Belo was concerned,
his only role was to introduce Anay to Marjorie Tocao.There could
not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao.
Because Anay merely acted as marketing demonstrator of
Geminesse Enterprise for an agreed remuneration, and her
complaint referred to either her compensation or dismissal, such
complaint should have been lodged with the Department of Labor
and not with the regular court.
In their defense during pre-trial conference, Belo denied
that Anay was supposed to receive a share in the profit of the
business. He, however, admitted that the two had agreed that Anay
would receive a three to four percent (3-4%) share in the gross sales
of the cookware. He denied contributing capital to the business or
receiving a share in its profits as he merely served as a guarantor of
Marjorie Tocao. He attended and/or presided over business
meetings of the venture in his capacity as a guarantor but he never
participated in decision-making.
Tocao denied having entered into an oral partnership
agreement with Anay. However, she admitted that Anay was an
expert in the cookware business and hence, they agreed to grant her
the following commissions: thirty-seven percent (37%) on personal
sales; five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel.
Marjorie denied that they agreed on a ten percent (10%)
commission on the net profits.
The trial court held that there was indeed an oral
partnership agreement between the plaintiff and the defendants,
based on the following: (a) there was an intention to create a
partnership; (b) a common fund was established through
contributions consisting of money and industry, and (c) there was a
joint interest in the profits. Belos claim that he was merely a
guarantor has no basis since there was no written evidence thereof
as required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise
plus his issuance of a memo giving Anay 37% commission on
personal sales belied this. On the contrary, it demonstrated his
involvement as a partner.
The trial court further held that it did not matter that the
agreement was not in writing because Article 1771 of the Civil Code
provides that a partnership may be constituted in any form.
The trial court finally held that a partner who is excluded
wrongfully from a partnership is an innocent partner. Hence, the
guilty partner must give him his due upon the dissolution of the
partnership as well as damages or share in the profits realized from
the appropriation of the partnership business and goodwill. An
innocent partner thus possesses pecuniary interest in every existing
contract that was incomplete and in the trade name of the co-
partnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals was dismissed.
Petitioners Belo and Marjorie Tocao are now before this Court on a
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
petition for review on certiorari, asserting that there was no
business partnership.
ISSUE:
1. WON a partnership exists between Belo, Anay and Tocao or is it
a mere employer-employee relationship.
2. WON the partnership is deemed dissolved, in case there is a
partnership.
RULING:
1. Partnership exists NOT an employer-employee relationship. The
issue of whether or not a partnership exists is a factual matter which
are within the exclusive domain of both the trial and appellate
courts. This Court cannot set aside factual findings of such courts
absent any showing that there is no evidence to support the
conclusion drawn by the court a quo. In this case, both the trial
court and the Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership. This Court
finds no reason to rule otherwise.
To be considered a juridical personality, a partnership
must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a common
fund; and (2) intention on the part of the partners to divide the
profits among themselves. It may be constituted in any form; a
public instrument is necessary only where immovable property or
real rights are contributed thereto. This implies that since a contract
of partnership is consensual, an oral contract of partnership is as
good as a written one. Where no immovable property or real rights
are involved, what matters is that the parties have complied with
the requisites of a partnership. Thefact that there appears to be no
record in the Securities and Exchange Commission of a public
instrument embodying the partnership agreement pursuant to
Article 1772 of the Civil Code did not cause the nullification of the
partnership. The pertinent provision of the Civil Code on the matter
states:
Art. 1768. The partnership has a
juridical personality separate and
distinct from that of each of the
partners, even in case of failure to
comply with the requirements of
article 1772, first paragraph.
Petitioners admit that private respondent had the
expertise to engage in the business of distributorship of cookware.
Private respondent contributed such expertise to the partnership
and hence, under the law, she was the industrial or managing
partner. It was through her reputation with the West Bend Company
that the partnership was able to open the business of distributorship
of that companys cookware products; it was through the same
efforts that the business was propelled to financial success.
Petitioner Tocao herself admitted private respondents indispensable
role in putting up the business when, upon being asked, the latter
answered that the private respondent held the positions of
marketing manager and later on, vice-president for sales. By the
set-up of the business, third persons were made to believe that a
partnership had indeed been forged between petitioners and
private respondents.
On the other hand, Belos claim that he was merely a
guarantor is belied by that personal act of proprietorship in the
business. Moreover, if he was indeed a guarantor of future debts of
Atty. Paolo Dimayuga
petitioner Tocao under Article 2053 of the Civil Code, he should have
presented documentary evidence therefor. While Article 2055 of the
Civil Code simply provides that guaranty must be express, Article
1403, the Statute of Frauds, requires that a special promise to
answer for the debt, default or miscarriage of another be in writing.
The business venture operated under Geminesse
Enterprise did not result in an employer- employee relationship
between petitioners and private respondent. While it is true that the
receipt of a percentage of net profits constitutes only prima facie
evidence that the recipient is a partner in the business, the evidence
in the case at bar controverts an employer-employee relationship
between the parties. In the first place, private respondent had a
voice in the management of the affairs of the cookware
distributorship, including selection of people who would constitute
the administrative staff and the sales force. Secondly, petitioner
Tocaos admitted that, like herwho owned Geminesse
Enterprise,private respondent received only commissions and
transportation and representation allowances and not a fixed salary.
As an industrial partner, private respondent had the right
to demand for a formal accounting of the business and to receive
her share in the net profit.
The fact that the cookware distributorship was operated
under the name of Geminesse Enterprise, a sole proprietorship, is of
no moment. What was registered with the Bureau of Domestic
Trade on August 19, 1987 was merely the name of that enterprise.
Petitioner Tocao indicatedthat it would be engaged in retail of
kitchenwares, cookwares, utensils, skillet, she also admitted that the
enterprise was only 60% to 70% for the cookware business, while
20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier. Indubitably then, the business name Geminesse
Enterprise was used only for practical reasons - it was utilized as the
common name for petitioner Tocaos various business activities,
which included the distributorship of cookware.
2. NO. A mere falling out or misunderstanding between partners
does not convert the partnership into a sham organization. The
partnership exists until dissolved under the law. Since the
partnership created by petitioners and private respondent has no
fixed term and is therefore a partnership at will predicated on their
mutual desire and consent, it may be dissolved by the will of a
partner. Thus:
x xx. The right to choose with whom a person
wishes to associate himself is the very
foundation and essence of that partnership. Its
continued existence is, in turn, dependent on
the constancy of that mutual resolve, along
with each partners capability to give it, and the
absence of cause for dissolution provided by
the law itself. Verily, any one of the partners
may, at his sole pleasure, dictate a dissolution
of the partnership at will. He must, however,
act in good faith, not that the attendance of
bad faith can prevent the dissolution of the
partnership but that it can result in a liability for
damages.
An unjustified dissolution by a partner can subject him to action for
damages because by themutual agency that arises in a partnership,
the doctrine of delectus personae allows the partners to have the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
power, although not necessarily the right to dissolve the
partnership.
In this case, petitioner Tocaos unilateral exclusion of
private respondent from the partnership is shown by her memo to
the Cubao office plainly stating that private respondent was, as of
October9, 1987, no longer the vice-president for sales of Geminesse
Enterprise. By that memo, petitioner Tocaoeffected her own
withdrawal from the partnership and considered herself as having
ceased to be associated with the partnership in the carrying on of
the business. Nevertheless, thepartnership was not terminated
thereby; it continues until the winding up of the business.
The winding up of partnership affairs has not yet been undertaken
by the partnership.
#3
COUNTRY BANKERS INSURANCE CORPORATION, PETITIONER, VS.
KEPPEL CEBU SHIPYARD, et. al., RESPONDENTS.
G.R. No. 166044, June 18, 2012, LEONARDO-DE CASTRO, J.
Unimarine Shipping Lines, Inc. (Unimarine), a corporation
engaged in the shipping industry, contracted the services of Keppel
Cebu Shipyard, formerly known as Cebu Shipyard and Engineering
Works, Inc. (Cebu Shipyard), for dry docking and ship repair works
on its vessel for the amount of P3,850,000.00. Based on their
agreement, Unimarine will deposit post-dated checks of two
different dates and in the event that it fails to make full payment on
the due dates stipulated, the post-dated checks will be deposited by
Cebu Shipyard in payment of the amounts owned by Unimarine.In
compliance with the agreement, Unimarine secured from Country
Bankers Insurance Corp. (CBIC), through the latters agent,
BethovenQuinain, a surety bond in the amount of P3,000,000.00. In
addition to this, Unimarine obtained another bond from Plaridel
Surety and Insurance Co. (Plaridel) in the amount of P1,620,000.00.
Because Unimarine failed to remit the first installment
when it became due, Cebu Shipyard was constrained to deposit the
peso check corresponding to the initial installment. The check,
however, was dishonored by the bank due to insufficient funds. Due
to the Unimarines failure to heed Cebu Shipyards repeated
demands, Cebu Shipyard wrote the sureties CBIC and Plaridel to
inform them of Unimarines nonpayment, and to ask them to fulfill
their obligations as sureties. However, even the sureties failed to
discharge their obligations, and so Cebu Shipyard filed a Complaint
with the RTC against Unimarine, CBIC, and Plaridel.
CBIC, in its Answer, alleged among others that the surety
bond was issued by its agent, Quinain, in excess of his authority as
stated in the Special Power of Attorney wherein he was authorized
to solicit business and issue surety bonds not exceeding P500,000.00
but only in favor of the Department of Public Works and Highways,
National Power Corporation, and other government agencies.
Moreover, the issuance of the surety bond was not reported, and
the corresponding premiums were not remitted to CBIC.
The RTC rendered a judgment in favor of Cebu Shipyard. In
applying Articles 1900 and 1911 of the Civil Code, it held that CBIC is
liable for the surety bond and the latter could not be allowed to
disclaim liability because Quinains actions were within the terms of
the SPA given to him.
Atty. Paolo Dimayuga
On appeal, the CA also did not allow CBIC to disclaim
liability on the ground that Quinain exceeded his authority because
third persons had relied on Quinainsrepresentations. It based its
decision on Article 1911 of the Civil Code and found CBIC to have
been negligent and less than prudent in conducting its insurance
business for its failure to supervise and monitor the acts of its
agents, to regulate the distribution of its insurance forms, and to
devise schemes to prevent fraudulent misrepresentations of its
agents.
In this petition, CBIC avers that the CA erred in interpreting
and applying the rules governing the contract of agency. It argued
that the SPA granted to Quinain clearly set forth the extent and
limits of his authority with regard to businesses he can transact for
and in behalf of CBIC. The latter said that the correct Civil Code
provision to apply in this case is Article 1898 in asserting that Cebu
Shipyard was charged with knowledge of the extent of the power
and authority conferred on Quinain by its failure to perform due
diligence investigations and that such power could not be simply
assumed or inferred from the mere existence of an agency even if
Quianain was granted the authority to transact in the business of
insurance in general. To strengthen its case, CBIC claims that in
order to hold the principal liable for transactions entered into by an
agent, the fact or existence of the agency and the nature and extent
of authority must first be established.
ISSUE: Is CBIC liable on the surety bond issued by its agent, Quinain,
to Unimarine?
RULING: NO.
In a contract of agency, a person, the agent, binds himself
to represent another, the principal, with the latters consent or
authority. Thus, agency is based on representation, where the agent
acts for and in behalf of the principal on matters within the scope of
the authority conferred upon him. Such acts have the same legal
effect as if they were personally done by the principal. By this legal
fiction of representation, the actual or legal absence of the principal
is converted into his legal or juridical presence.
Art. 1898. If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not
ratify the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the
principal. In this case, however, the agent is liable if he undertook to
secure the principals ratification.
Art. 1900. So far as third persons are concerned, an act is deemed
to have been performed within the scope of the agents authority, if
such act is within the terms of the power of attorney, as written,
even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the agent.
Art. 1902. A third person with whom the agent wishes to contract
on behalf of the principal may require the presentation of the power
of attorney, or the instructions as regards the agency. Private or
secret orders and instructions of the principal do not prejudice third
persons who have relied upon the power of attorney or instructions
shown to them.
Art. 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers.
Our law mandates an agent to act within the scope of his
authority. The scope of an agents authority is what appears in the
written terms of the power of attorney granted upon him. Under
Article 1878(11) of the Civil Code, an SPA is necessary to obligate the
principal as a guarantor or surety.
In the case at bar, CBIC could be held liable even if Quinain
exceeded the scope of his authority only if Quinains act of issuing
the surety bondis deemed to have been performed within the
written terms of the power of attorney he was granted.However,
contrary to what the RTC held, the SPA accorded to Quinain clearly
states the limits of his authority and particularly provides that in
case of surety bonds, it can only be issued in favor of the DPWH, the
NPC, and other government agencies; furthermore, the amount of
the surety bond is limited to P500,000.00.CBIC does not anchor its
defense on a secret agreement, mutual understanding, or any verbal
instruction to Quinain. CBICs stance is grounded on its contract
with Quinain, and the clear, written terms therein. This Court finds
that the terms of the contract specifically provided for the extent
and scope of Quinains authority, and Quinain has indeed exceeded
them.
Under Articles 1898 and 1910, an agents act, even if done
beyond the scope of his authority, may bind the principal if he
ratifies them, whether expressly or tacitly. It must be stressed
though that only the principal, and not the agent, can ratify the
unauthorized acts, which the principal must have knowledge
of.Ratification in agency is the adoption or confirmation by one
person of an act performed on his behalf by another without
authority. The substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority. Ordinarily,
the principal must have full knowledge at the time of ratification of
all the material facts and circumstances relating to the unauthorized
act of the person who assumed to act as agent. Thus, if material
facts were suppressed or unknown, there can be no valid
ratification and this regardless of the purpose or lack thereof in
concealing such facts and regardless of the parties between whom
the question of ratification may arise. Nevertheless, this principle
does not apply if the principals ignorance of the material facts and
circumstances was willful, or that the principal chooses to act in
ignorance of the facts. However, in the absence of circumstances
putting a reasonably prudent man on inquiry, ratification cannot
be implied as against the principal who is ignorant of the facts.
Neither Unimarine nor Cebu Shipyard was able to
repudiate CBICs testimony that it was unaware of the existence of
the surety bond. There were no allegations either that CBIC should
have been put on alert with regard to Quinains business
transactions done on its behalf. It is clear, and undisputed
therefore, that there can be no ratification in this case, whether
express or implied.
Article 1911, on the other hand, is based on the principle
of estoppel, which is necessary for the protection of third
persons. It states that the principal is solidarily liable with the agent
even when the latter has exceeded his authority, if the principal
Atty. Paolo Dimayuga
allowed him to act as though he had full powers. However, for an
agency by estoppel to exist, the following must be established:
1. The principal manifested a representation of the agents
authority or knowingly allowed the agent to assume such
authority;
2. The third person, in good faith, relied upon such
representation; and
3. Relying upon such representation, such third person has
changed his position to his detriment.
An agency by estoppel, which is similar to the doctrine of
apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.
This Court cannot agree with the CAs pronouncement of
negligence on CBICs part. CBIC not only clearly stated the limits of
its agents powers in their contracts, it even stamped its surety
bonds with the restrictions, in order to alert the concerned
parties. Moreover, its company procedures, such as reporting
requirements, show that it has designed a system to monitor the
insurance contracts issued by its agents. CBIC cannot be faulted for
Quinains deliberate failure to notify it of his transactions with
Unimarine. In fact, CBIC did not even receive the premiums paid by
Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower courts
was it stated that CBIC let the public, or specifically Unimarine,
believe that Quinain had the authority to issue a surety bond in
favor of companies other than the DPWH, the NPC, and other
government agencies. Neither was it shown that CBIC knew of the
existence of the surety bond before the endorsement extending the
life of the bond, was issued to Unimarine. For one to successfully
claim the benefit of estoppel on the ground that he has been misled
by the representations of another, he must show that he was not
misled through his own want of reasonable care and circumspection.
It is apparent that Unimarine had been negligent or less
than prudent in its dealings with Quinain.It is a settled rule that
persons dealing with an agent are bound at their peril, if they would
hold the principal liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it. The
basis for agency is representation and a person dealing with an
agent is put upon inquiry and must discover upon his peril the
authority of the agent. If he does not make such an inquiry, he is
chargeable with knowledge of the agents authority and his
ignorance of that authority will not be any excuse.
Unimarine undoubtedly failed to establish that it even
bothered to inquire if Quinain was authorized to agree to terms
beyond the limits indicated in his SPA. The former was not able to
show that he was misled by CBIC as to the extent of authority it
granted Quinain and did not even allege that it asked for documents
to prove Quinains authority to contract business for CBIC, such as
their contract of agency and power of attorney.
#4
LITONJA V ETERNIT CORP.
FACTS:
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
The Eternit Corporation (EC) is a corporation duly organized and
registered under Philippine laws. Its manufacturing operations were
conducted on eight parcels of land. 90% percent of the shares of
stocks of EC were owned by Eteroutremer S.A. Corporation
(ESACJack Glanville, was the General Manager and President of EC,
while Claude Frederick Delsaux was the Regional Director for Asia of
ESAC.
In 1986, the management of ESAC grew concerned about the
political situation in the Philippines and wanted to stop its
operations in the country. The Committee for Asia of ESAC
instructed Michael Adams, a member of ECs Board of Directors, to
dispose of the eight parcels of land. Adams engaged the services of
realtor/broker Lauro G. Marquez so that the properties could be
offered for sale to prospective buyers. Glanville later showed the
properties to Marquez.
Marquez offered the parcels of land and the improvements thereon
to Eduardo B. Litonjua, Jr. of the Litonjua& Company, Inc. In a Letter,
Marquez declared that he was authorized to sell the properties
for P27,000,000.00 and that the terms of the sale were subject to
negotiation.
The Litonjua siblings offered to buy the property for P20,000,000.00
cash. Marquez apprised Glanville of the Litonjua siblings offer and
relayed the same to Delsaux in Belgium, but the latter did not
respond. On October 28, 1986, Glanville telexed Delsaux in Belgium,
inquiring on his position/ counterproposal to the offer of the
Litonjua siblings. It was only on February 12, 1987 that Delsaux sent
a telex to Glanville stating that, the final offer was "US$1,000,000.00
and P2,500,000.00 to cover all existing obligations prior to final
liquidation."
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex
sent by Delsaux. Marquez confirmed that the Litonjua siblings had
accepted the counter-proposal of Delsaux. The Litonjua brothers
deposited the amount of US$1,000,000.00.
Meanwhile, with the assumption of Corazon C. Aquino that the
political situation in the Philippines had improved. Marquez received
a telephone call from Glanville, advising that the sale would no
longer proceed. Glanville was instructed to inform Marquez that
"the decision has been taken at a Board Meeting not to sell the
properties on which Eternit Corporation is situated."
When apprised of this development, the Litonjuas, through counsel,
wrote EC, demanding payment for damages they had suffered on
account of the aborted sale. EC, however, rejected their demand.
The Litonjuas then filed a complaint for specific performance and
damages against EC (now the Eterton Multi-Resources Corporation)
and the Far East Bank & Trust Company, and ESAC in the RTC of
Pasig City. EC and ESAC alleged that since Eteroutremer was not
doing business in the Philippines, it cannot be subject to the
jurisdiction of Philippine courts; the Board and stockholders of EC
never approved any resolution to sell subject properties nor
authorized Marquez to sell the same; and the telex dated October
28, 1986 of Jack Glanville was his own personal making which did
not bind EC.
The trial court rendered judgment in favor of defendants and
dismissed the amended complaint, on the ground that there is no
valid and binding sale between the plaintiffs and said defendants.
Atty. Paolo Dimayuga
The trial court declared that since the authority of the
agents/realtors was not in writing, the sale is void and not merely
unenforceable, and as such, could not have been ratified by the
principal.. The trial court also pointed out that the supposed sale
involves substantially all the assets of defendant EC which would
result in the eventual total cessation of its operation.
The Litonjuas appealed the decision to the CA, alleging that "(1) the
lower court erred in concluding that the real estate broker in the
instant case needed a written authority from appellee corporation
and/or that said broker had no such written authority; and (2) the
lower court committed grave error of law in holding that appellee
corporation is not legally bound for specific performance and/or
damages in the absence of an enabling resolution of the board of
directors." They claimed that an agency by estoppel was created
when the corporation clothed Marquez with apparent authority to
negotiate for the sale of the properties. However, since it was a
bilateral contract to buy and sell, it was equivalent to a perfected
contract of sale, which the corporation was obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the
Board of Directors to bind it; neither were Glanville and Delsaux
authorized by its board of directors to offer the property for sale.
Since the sale involved substantially all of the corporations assets, it
would necessarily need the authority from the stockholders.
The CA ruled that Marquez, who was a real estate broker, was a
special agent within the purview of Article 1874 of the New Civil
Code. Under Section 23 of the Corporation Code, he needed a
special authority from ECs board of directors to bind such
corporation to the sale of its properties. Delsaux, who was merely
the representative of ESAC (the majority stockholder of EC) had no
authority to bind the latter.
ISSUE:
WON the appellate court committed grave error of law in
holding that Marquez needed a written authority from respondent
Eternit before the sale can be perfected.
RULING:
NO.
By the contract of agency, a person binds himself to render some
service or to do something in representation on behalf of another,
with the consent or authority of the latter. Consent of both principal
and agent is necessary to create an agency. The principal must
intend that the agent shall act for him; the agent must intend to
accept the authority and act on it, and the intention of the parties
must find expression either in words or conduct between them.
An agency may be expressed or implied from the act of the principal,
from his silence or lack of action, or his failure to repudiate the
agency knowing that another person is acting on his behalf without
authority. Acceptance by the agent may be expressed, or implied
from his acts which carry out the agency, or from his silence or
inaction according to the circumstances. Agency may be oral unless
the law requires a specific form. However, to create or convey real
rights over immovable property, a special power of attorney is
necessary. Thus, when a sale of a piece of land or any portion
thereof is through an agent, the authority of the latter shall be in
writing, otherwise, the sale shall be void.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
In this case, the petitioners as plaintiffs below, failed to adduce in
evidence any resolution of the Board of Directors of respondent EC
empowering Marquez, Glanville or Delsaux as its agents, to sell, let
alone offer for sale, for and in its behalf, the eight parcels of land
owned by respondent EC including the improvements thereon.
The petitioners cannot feign ignorance of the absence of any regular
and valid authority of respondent EC empowering Adams, Glanville
or Delsaux to offer the properties for sale and to sell the said
properties to the petitioners. A person dealing with a known agent is
not authorized, under any circumstances, blindly to trust the agents;
statements as to the extent of his powers; such person must not act
negligently but must use reasonable diligence and prudence to
ascertain whether the agent acts within the scope of his authority.
The settled rule is that, persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent
of authority, and in case either is controverted, the burden of proof
is upon them to prove it. In this case, the petitioners failed to
discharge their burden; hence, petitioners are not entitled to
damages from respondent EC.
#5
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, vs.EDWIN
CUIZON and ERWIN CUIZON, Respondents.
FACTS
Petitioner is engaged in the business of importation and distribution
of various European industrial equipment for customers here in the
Philippines. It has as one of its customers Impact Systems Sales
("Impact Systems") which is a sole proprietorship owned by
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales
manager of Impact Systems and was impleaded in the court a quo in
said capacity.
From January to April 1995, petitioner sold to Impact Systems
various products allegedly amounting to ninety-one thousand three
hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents
sought to buy from petitioner one unit of sludge pump valued
at P250,000.00 with respondents making a down payment of fifty
thousand pesos (P50,000.00). When the sludge pump arrived from
the United Kingdom, petitioner refused to deliver the same to
respondents without their having fully settled their indebtedness to
petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto
de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part
of which states:
1.) That ASSIGNOR has an outstanding receivables from
Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as
payment for the purchase of one unit of Selwood Spate
100D Sludge Pump;
Allegedly unbeknownst to petitioner, respondents, despite the
existence of the Deed of Assignment, proceeded to collect from
Toledo Power Company the amount of P365,135.29. Alarmed by this
development, petitioner made several demands upon respondents
to pay their obligations. As a result, respondents were able to make
partial payments to petitioner. On 7 October 1996, petitioners
counsel sent respondents a final demand letter wherein it was
stated that as of 11 June 1996, respondents total obligations stood
at P295,000.00 excluding interests and attorneys fees. Because of
Atty. Paolo Dimayuga
respondents failure to abide by said final demand letter, petitioner
instituted a complaint for sum of money, damages, with application
for preliminary attachment against herein respondents before the
Regional Trial Court of Cebu City.
By way of special and affirmative defenses, respondent EDWIN
alleged that he is not a real party in interest in this case. According
to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter was
very much aware of this fact. In support of this argument, petitioner
points to paragraph 1.3 of petitioners Complaint stating
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino,
married, a resident of Cebu City. He is the Sales Manager
of Impact Systems and is sued in this action in such
capacity.
To support its argument, petitioner points to Article 1897 of the
New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party
sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate
the effect of ERWINs act of collecting the receivables from the
Toledo Power Corporation notwithstanding the existence of the
Deed of Assignment signed by EDWIN on behalf of Impact Systems.
While said collection did not revoke the agency relations of
respondents, petitioner insists that ERWINs action repudiated
EDWINs power to sign the Deed of Assignment. As EDWIN did not
sufficiently notify it of the extent of his powers as an agent,
petitioner claims that he should be made personally liable for the
obligations of his principal.
In his Comment, respondent EDWIN again posits the argument that
he is not a real party in interest in this case and it was proper for the
trial court to have him dropped as a defendant. He insists that he
was a mere agent of Impact Systems which is owned by ERWIN and
that his status as such is known even to petitioner as it is alleged in
the Complaint that he is being sued in his capacity as the sales
manager of the said business venture. Likewise, respondent EDWIN
points to the Deed of Assignment which clearly states that he was
acting as a representative of Impact Systems in said transaction.
RTC dropped EDWIN as party defendant which was affirmed by the
CA.
ISSUE
Whether or not EDWIN exceeded the limits of his authority as an
agent without giving sufficient notice of his powers thus making him
personally liable?
RULING
No. Edwin did exceed the limits of his authority as an agent
In a contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another
with the latters consent. The underlying principle of the contract of
agency is to accomplish results by using the services of others to
do a great variety of things like selling, buying, manufacturing, and
transporting. Its purpose is to extend the personality of the principal
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
or the party for whom another acts and from whom he or she
derives the authority to act. It is said that the basis of agency is
representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts
have the same legal effect as if they were personally executed by
the principal. By this legal fiction, the actual or real absence of the
principal is converted into his legal or juridical presence qui facit
per aliumfacit per se.
The elements of the contract of agency are: (1) consent, express or
implied, of the parties to establish the relationship; (2) the object is
the execution of a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself; (4) the agent acts
within the scope of his authority.
In this case, the parties do not dispute the existence of the agency
relationship between respondents ERWIN as principal and EDWIN as
agent. The only cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the Deed of
Assignment thereby binding himself personally to pay the
obligations to petitioner. Petitioner firmly believes that respondent
EDWIN acted beyond the authority granted by his principal and he
should therefore bear the effect of his deed pursuant to Article 1897
of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts
as such, is not personally liable to the party with whom he contracts.
The same provision, however, presents two instances when an agent
becomes personally liable to a third person. The first is when he
expressly binds himself to the obligation and the second is when he
exceeds his authority. In the last instance, the agent can be held
liable if he does not give the third party sufficient notice of his
powers. We hold that respondent EDWIN does not fall within any of
the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN
signed thereon as the sales manager of Impact Systems. As
discussed elsewhere, the position of manager is unique in that it
presupposes the grant of broad powers with which to conduct the
business of the principal, thus:
The powers of an agent are particularly broad in the case of one
acting as a general agent or manager; such a position presupposes a
degree of confidence reposed and investiture with liberal powers for
the exercise of judgment and discretion in transactions and concerns
which are incidental or appurtenant to the business entrusted to his
care and management. In the absence of an agreement to the
contrary, a managing agent may enter into any contracts that he
deems reasonably necessary or requisite for the protection of the
interests of his principal entrusted to his management.
Applying the foregoing to the present case, we hold that Edwin
Cuizon acted well-within his authority when he signed the Deed of
Assignment. To recall, petitioner refused to deliver the one unit of
sludge pump unless it received, in full, the payment for Impact
Systems indebtedness. We may very well assume that Impact
Systems desperately needed the sludge pump for its business since
after it paid the amount of fifty thousand pesos (P50,000.00) as
down payment on 3 March 1995, it still persisted in negotiating with
petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28
June 1995. The significant amount of time spent on the negotiation
for the sale of the sludge pump underscores Impact Systems
Atty. Paolo Dimayuga
perseverance to get hold of the said equipment. There is, therefore,
no doubt in our mind that respondent EDWINs participation in the
Deed of Assignment was "reasonably necessary" or was required in
order for him to protect the business of his principal. Had he not
acted in the way he did, the business of his principal would have
been adversely affected and he would have violated his fiduciary
relation with his principal.
We likewise take note of the fact that in this case, petitioner is
seeking to recover both from respondents ERWIN, the principal, and
EDWIN, the agent. It is well to state here that Article 1897 of the
New Civil Code upon which petitioner anchors its claim against
respondent EDWIN "does not hold that in case of excess of
authority, both the agent and the principal are liable to the other
contracting party." To reiterate, the first part of Article 1897
declares that the principal is liable in cases when the agent acted
within the bounds of his authority. Under this, the agent is
completely absolved of any liability. The second part of the said
provision presents the situations when the agent himself becomes
liable to a third party when he expressly binds himself or he exceeds
the limits of his authority without giving notice of his powers to the
third person. However, it must be pointed out that in case of excess
of authority by the agent, like what petitioner claims exists here, the
law does not say that a third person can recover from both the
principal and the agent.
As we declare that respondent EDWIN acted within his authority as
an agent, who did not acquire any right nor incur any liability arising
from the Deed of Assignment, it follows that he is not a real party in
interest who should be impleaded in this case. A real party in
interest is one who "stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the
suit." In this respect, we sustain his exclusion as a defendant in the
suit before the court a quo.
#6
G.R. No. 199990 February 4, 2015
SPOUSES ROLANDO and HERMINIA SALVADOR, Petitioners, vs.
SPOUSES ROGELIO AND ELIZABETH RABAJA and ROSARIO
GONZALES, Respondents.
Facts:
In 1998, Spouses Rabaja learned that Spouses Salvador
were looking for a buyer for a parcel of land situated at No. 25,
Merryland Village, 375 Jose Rizal Street, Mandaluyong City. The
Spouses Rabaja were leasing an apartment in the subject lot From
1994 until 2002. Petitioner Herminia Salvador personally introduced
Gonzales to them as the administrator of the said property.
On July, 3, 1998, Spouses Rabaja made an initial payment
of P48,000 to Gonzales in the presence of Herminia. Gonzales then
presented the SPA executed by Rolando Salvador. On the same day,
the parties executed the Contract to Sell which stipulated that for a
consideration of P 5 million, Spouses Salvador sold, transferred and
conveyed in favor of Spouses Rabaja the subject property. Spouses
Rabaja made several payments totalling P950,000, which were
received by Gonzales pursuant to the SPA provided earlier as
evidenced by the check vouchers signed by Gonzales and the
improvised receipts signed by Herminia.
In June 1999, Spouses Salvador complained to Spouses
Rabaja that they did not receive any payment from Gonzales. This
prompted Spouses Rabaja to suspend further payment of the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
purchase price; and as a consequence, they received a notice to
vacate the subject property from Spouses Salvador for non-payment
of rentals.
Thereafter, Spouses Salvador instituted an action for
ejectment against Spouses Rabaja. In turn, Spouses Rabaja filed an
action for rescission of contract against Spouses Salvador and
Gonzales, the subject matter of the present petition.
In the action for ejectment, the MeTC of Mandaluyong
City, ruled in favor of Spouses Salvador and ordered the Spouses
Rabaja to pay back rentals. Spouses Salvador were able to garnish
the amount of P593,400 from Spouses Rabajas time deposit
account pursuant to a writ of execution. The RTC reversed the
decision of the MeTC. However, on appeal, the CA reinstated the
decision of the MeTC. The CA decision became final and executory
on May 12, 2006.
Meanwhile, in the rescission case, the Spouses Salvador in
their answer alleged that there was no meeting of the minds
between the parties and that the SPA in favor of Gonzales was
falsified. In fact, they filed a case for falsification against Gonzales,
but it was dismissed because the original of the alleged falsified SPA
could not be produced. They further averred that they did not
receive any payment from Spouses Rabaja through Gonzales. In her
defense, Gonzales filed her answer stating that the SPA was not
falsified and that the payments of Spouses Rabaja amounting
to P950,000 were all handed over to Spouses Salvador.
Because of the failure of Spouses Salvador and their
counsel attend the pre-trial conference, the RTC issued the pre-trial
order declaring Spouses Salvador in default and allowing Spouses
Rabaja to present their evidence ex parte. A motion for
reconsideration was filed but it was subsequently denied. The trial
proceeded and Spouses Rabaja and Gonzales presented their
respective testimonial and documentary evidence.
The RTC ruled in favor of Spouses Rabaja and held that the
signature of Spouses Salvador affixed in the contract to sell
appeared to be authentic. It also held that the contract, although
denominated as "contract to sell," was actually a contract of sale
because Spouses Salvador, as vendors, did not reserve their title to
the property until the vendees had fully paid the purchase price.
Therefore, it could be validly rescinded by Spouses Rabaja, and in
the process, recover the amount of P950,000 jointly and severally
from Spouses Salvador and Gonzales. The RTC stated that Gonzales
was undoubtedly the attorney-in-fact of Spouses Salvador absent
any taint of irregularity. Spouses Rabaja could not be faulted in
dealing with Gonzales who was duly equipped with the SPA from
Spouses Salvador.
The RTC likewise ruled that the amount of P593,400
garnished from the time deposit account of Spouses Rabaja,
representing the award of rental arrearages in the separate
ejectment suit, should be returned by Spouses Salvador. The court
viewed that such amount was part of the purchase price of the
subject property which must be returned. It also awarded moral and
exemplary damages in favor of Spouses Rabaja and attorneys fees
in favor of Gonzales
The CA affirmed the decision of the RTC with
modifications. It ruled that the "contract to sell" was indeed a
contract of sale and that Gonzales was armed with an SPA and was,
Atty. Paolo Dimayuga
in fact, introduced to Spouses Rabaja by Spouses Salvador as the
administrator of the property. Spouses Rabaja could not be blamed
if they had transacted with Gonzales. The CA then held that Spouses
Salvador should return the amount of P593,400 pursuant to a
separate ejectment case, reasoning that Spouses Salvador misled
the court because an examination of CA-G.R. SP No. 89260 showed
that Spouses Rabaja were not involved in that case. CA-G.R. SP No.
89260 was an action between Spouses Salvador and Gonzales only
and involved a completely different residential apartment located at
302-C Jupiter Street, Dreamland Subdivision, Mandaluyong City.
The CA, however, ruled that Gonzales was not solidarily
liable with Spouses Salvador. The agent must expressly bind himself
or exceed the limit of his authority in order to be solidarily liable. It
was not shown that Gonzales as agent of Spouses Salvador exceeded
her authority or expressly bound herself to be solidarily liable.
Issue: WON Gonzales could validly receive payment of Spouses
Rabaja as agent of Spouses Salvador.
Held: Yes. The Supreme Court affirmed the ruling of the CA,
rescinding the sale, with modifications.
The Court agreed with the courts below in finding that the
contract entered into by the parties was essentially a contract of
sale which could be validly rescinded. Spouses Salvador insist that
they did not receive the payments made by Spouses Rabaja from
Gonzales which totalled P950,000 and that Gonzales was not their
duly authorized agent. These contentions, however, must fail in light
of the applicable provisions of the New Civil Code which state:
Art. 1900. So far as third persons are concerned,
an act is deemed to have been performed within
the scope of the agent's authority, if such act is
within the terms of the power of attorney, as
written, even if the agent has in fact exceeded
the limits of his authority according to an
understanding between the principal and the
agent.
Art. 1902. A third person with whom the agent
wishes to contract on behalf of the principal may
require the presentation of the power of
attorney, or the instructions as regards the
agency. Private or secret orders and instructions
of the principal do not prejudice third persons
who have relied upon the power of attorney or
instructions shown them.
Art. 1910. The principal must comply with all the
obligations which the agent may have
contracted within the scope of his authority.
Persons dealing with an agent must ascertain not only the
fact of agency, but also the nature and extent of the agents
authority. A third person with whom the agent wishes to contract on
behalf of the principal may require the presentation of the power of
attorney, or the instructions as regards the agency. The basis for
agency is representation and a person dealing with an agent is put
upon inquiry and must discover on his own peril the authority of the
agent.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
According to Art 1990, insofar as third persons are
concerned, an act is deemed to have been performed within the
scope of the agent's authority, if such act is within the terms of the
power of attorney, as written. In this case, Spouses Rabaja did not
recklessly enter into a contract to sell with Gonzales. They required
her presentation of the power of attorney before they transacted
with her principal. And when Gonzales presented the SPA to
Spouses Rabaja, the latter had no reason not to rely on it.
The law mandates an agent to act within the scope of his
authority which what appears in the written terms of the power of
attorney granted upon him. The Court holds that, indeed, Gonzales
acted within the scope of her authority. The SPA precisely stated
that she could administer the property, negotiate the sale and
collect any document and all payments related to the subject
property. As the agent acted within the scope of his authority, the
principal must comply with all the obligations. As correctly held by
the CA, considering that it was not shown that Gonzales exceeded
her authority or that she expressly bound herself to be liable, then
she could not be considered personally and solidarily liable with the
principal, Spouses Salvador.
Most importantly, it was Herminia herself who personally
introduced Gonzalez to Spouses Rabaja as the administrator of the
subject property. By their own ostensible acts, Spouses Salvador
made third persons believe that Gonzales was duly authorized to
administer, negotiate and sell the subject property. This fact was
even affirmed by Spouses Salvador themselves in their petition
where they stated that they had authorized Gonzales to look for a
buyer of their property. It is already too late in the day for Spouses
Salvador to retract the representation to unjustifiably escape their
principal obligation.
Considering that there was a valid SPA, then Spouses
Rabaja properly made payments to Gonzales, as agent of Spouses
Salvador; and it was as if they paid to Spouses Salvador. It is of no
moment, insofar as Spouses Rabaja are concerned, whether or not
the payments were actually remitted to Spouses Salvador. Any
internal matter, arrangement, grievance or strife between the
principal and the agent is theirs alone and should not affect third
persons. If Spouses Salvador did not receive the payments or they
wish to specifically revoke the SPA, then their recourse is to institute
a separate action against Gonzales.
On the issue of return of the amount of P593,400 awarded
pursuant to a separate ejectment case, the Supreme Court held that
it cannot be returned anymore since that decision has attained
finality. Likewise, the awards for moral and exemplary damages in
favor of Spouses Rabaja and attorneys fees in favor of Gonzales
should be deleted for failure to present evidence for their
entitlement.
#7
ALVIN PATRIMONIO vs. NAPOLEON GUTIERREZ and OCTAVIO
MARASIGAN III (June 4, 2014) Brion, J.
Patrimonio and Gutierrez (sports columnist) entered into a
business venture named Slam Dunk Corporation which
produced mini-concerts and shows related to basketball,
wherein Patrimonio entrusted to Gutierrez several pre-
signed checks w/o payees name, date or amount, to
answer for the expenses, with an instruction not to fill
them out without previous notification to and his
Atty. Paolo Dimayuga
approval, for him to verify the validity of the payment and
make the proper arrangements to fund it.
1993: Gutierrez went to Marasigan (Patrimonios
teammate) to secure a P200,000 loan, saying that
Patrimonio needed the money for the construction of his
house and that he would be paid an interest of 5%/month
from March to May 1994, without the Patrimonios
knowledge and consent.
FEB 1994: Marasigan gave P200,000.00 to Gutierrez, who
simultaneously delivered to him one of the blank checks
Patrimonio had pre-signed with Pilipinas Bank, Greenhills
Branch, Check No. 21001764 with the blank portions filled
out with the words "Cash" "Two Hundred Thousand Pesos
Only", amount of "P200,000.00", and "May 23, 1994" but
the Patrimonio contended that the same was not written
by Gutierrez.
MAY 24, 1994: Marasigan deposited the check but it was
dishonored for the reason "ACCOUNT CLOSED."since May
28, 1993. He sought recovery and sent demand letters to
Gutierrez, to no avail.
He filed a criminal case for violation of B.P. 22 against the
Patrimonio,
SEPT 10, 1997:Patrimonio filed before RTC, a Complaint
for Declaration of Nullity of Loan and Recovery of
Damages against Gutierrez (declared in default) and
Marasigan. He completely denied authorizing the loan or
the checks negotiation, and asserted that he was not privy
to the parties loan agreement.
RTC FEB 3, 2003:
1) Declared Marasigan as a holder in due course and dismissed
Patrimonios complaint, because Patrimonio, in issuing the pre-
signed blank checks, had the intention of issuing a negotiable
instrument, albeit with specific instructions. Under Sec 14, NIL,
Gutierrez had the prima facie authority to fill up the blanks, the
RTC ruled that he deliberately violated instructions and took
advantage of the trust reposed in him.
2) Ordered Patrimonio to pay Marasigan the face value of the
check with a right to claim reimbursement from Gutierrez.
CA SEPT 24, 2008: Patrimonio insisting that: 1)
Marasigan is not a holder in due course; 2) when
Marasigan received the check, he knew that the same was
without a date, and hence, incomplete; and, 3) loan was
between Marasigan and Gutierrez with his check being
used only as a security.
AFFIRMED RTC - CA agreed that Marasigan is not a holder in due
course as he did not receive the check in good faith but concluded
that the check had been strictly filled out by Gutierrez with
Patrimonios authority. The loan may not be nullified since it is
grounded on an obligation arising from law and ruled that
Patrimonio is still liable to pay Marasigan the sum of P200,000.00.
MR denied.
ISSUES:
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
1. Whether the contract of loan in the amount of P200,000.00
granted by respondent Marasigan to petitioner, through respondent
Gutierrez, may be nullified for being void;
2. Whether there is basis to hold the petitioner liable for the
payment of the P200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the
subject check strictly under the authority given by the petitioner;
and
4. Whether Marasigan is a holder in due course.
SC - The petition is impressed with merit.
I. Contracts of Agency May be Oral Unless the Law Requires a
Specific Form. Contract of Loan Should be Nullified for Being Void;
Petitioner is Not Bound by the Contract of Loan.
In accordance with Art.1868, Agency may be express, or implied
from the acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority.
Art.1878 (7), expressly requires a special power of
authority before an agent can loan or borrow money in
behalf of the principal, to wit:
(7) To loan or borrow money, unless the latter act be
urgent and indispensable for the preservation of the things
which are under administration.
It did not require being in writing. As long as the mandate is
express, such authority may be either oral or written. It refers to the
nature of the authorization and not to its form. The authority must
be duly established by competent and convincing evidence other
than the self serving assertion of the party claiming that such
authority was verbally given.
The requirements are met if there is a clear mandate from the
principal specifically authorizing the performance of the act.
Mandate may be either oral or written, the one vital thing being
that it shall be express. If the special authority is not written, then it
must be duly established by evidence.
Records do not show that the Patrimonio executed any SPA in favor
of Gutierrez. His testimony confirmed that he never authorized
Gutierrez or anyone, whether verbally or in writing, to borrow
money in his behalf, nor was he aware of any such transaction. In
the absence of any authorization, Gutierrez could not enter into a
contract of loan in behalf of the petitioner.
Furthermore, that the petitioner entrusted the blank pre-signed
checks to Gutierrez is not legally sufficient because the authority to
enter into a loan can never be presumed. The contract of agency
and the special fiduciary relationship inherent in this contract must
exist as a matter of fact. The person alleging it has the burden of
proof to show, not only the fact of agency, but also its nature and
extent.
The records show that Marasigan merely relied on the words of
Gutierrez without securing a copy of the SPA in favor of the latter
and without verifying from the Patrimonio whether he had
authorized the borrowing of money or release of the check. He was
thus bound by the risk accompanying his trust on the mere
assurances of Gutierrez.
Atty. Paolo Dimayuga
II: No Contract of Loan Was Perfected between Marasigan and
Patrimonio,
as the Latters Consent was not obtained.
Accdg to Art.1318, the essential requisites for a valid contract,
namely:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the
contract; and
3. Cause of the obligation which is established.
Patrimonio denied liability on the ground that the contract lacked
the essential element of consent. The court agreed, Gutierrez did
not have the petitioners written/verbal authority to enter into a
contract of loan. While there may be a meeting of the minds
between Gutierrez and Marasigan, such agreement cannot bind the
Patrimoniowhose consent was not obtained and who was not privy
to the loan agreement. Hence, only Gutierrez is bound by the
contract of loan.
The fact that Patriminio issued several pre-signed checks to
Gutierrez, one of which fell into the hands of Marasigan does not
constitute sufficient authority to borrow money in his behalf and
neither should it be construed as petitioners grant of consent to the
parties loan agreement. Without any evidence to prove Gutierrez
authority, the Patrimoniossignature in the check cannot be taken as
sufficientauthorization or consent to the contract of loan. Without
the consent given by one party in a purported contract, such
contract could not have been perfected; there simply was no
contract to speak of.
III. Liability under the instrument
Sec 14, NIL applies to an incomplete but delivered instrument. If the
maker or drawer delivers a pre-signed blank paper to another
person for the purpose of converting it into a negotiable instrument,
that person is deemed to have prima facie authority to fill it up. It
merely requires that the instrument be in the possession of a person
other than the drawer or maker and from such possession, together
with the fact that the instrument is wanting in a material particular,
the law presumes agency to fill up the blanks.
However, in order that the one who is not a holder in due course
can enforce the instrument against a party prior to the instruments
completion, two requisites must exist, that the blank must be filled:
1) strictly in accordance with the authority given; and (2) within a
reasonable time.
If it was proven that the instrument had not been filled up strictly in
accordance with the authority given and within a reasonable time,
the maker can set this up as a personal defense and avoid liability.
However, if the holder is a holder in due course, there is a
conclusive presumption that authority to fill it up had been given
and that the same was not in excess of authority
Since Marasigan knew that the underlying obligation was not
actually for Patrimonio, the rule that a possessor of the instrument
is prima facie a holder in due course is inapplicable. His inaction and
failure to verify, despite knowledge of that the petitioner was not a
party to the loan, may be construed as gross negligence amounting
to bad faith. It does not mean that Marasigan is totally barred from
recovery, the only disadvantage of a holder who is not in due course
is that the negotiable instrument is subject to defenses as if it were
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
non-negotiable. Among such defenses is the filling up blank not
within the authority.
IV: Marasigan is Not a Holder in Due Course
Sec. 52, NIL: A holder in due course is a holder who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue,
and without notice that it had been previously dishonored,
if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no
notice of any infirmity in the instrument or defect in the
title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice
of equities of any sort which could be set up against a prior holder of
the instrument. It means that he does not have any knowledge of
fact which would render it dishonest for him to take a negotiable
paper. The absence of the defense, when the instrument was taken,
is the essential element of good faith.
Marasigans knowledge that the petitioner is not a party or a privy to
the contract of loan, and correspondingly had no obligation or
liability to him, renders him dishonest, hence, in bad faith. (deduced
from AmbetNabus testimony)
V. Check Was Not Completed Strictly Under the Authority Given by
The Petitioner
Gutierrez has exceeded the authority to fill up the blanks and use
the check. Instruction could not be any clearer as Gutierrez
authority was limited to the use of the checks for the operation of
their business, and on the condition that the petitioners prior
approval be first secured.
Although, Gutierrez had a prima facie authority to complete the
check, such prima facie authority does not extend to its use (i.e.,
subsequent transfer or negotiation)once the check is completed.
Only the authority to complete the check is presumed. Further, the
law used the term "prima facie" to underscore the fact that the
authority which the law accords to a holder is a presumption
juristantumonly; hence, subject to subject to contrary proof to avoid
liability.
No evidence that Gutierrez ever secured prior approval from the
Patrimonio to fill up the blank or to use the check.
RULING: Marasigan has no right to enforce payment against the
Patrimonio, who cannot be obliged to pay the face value of the
check.
CA Decision - ANNULLED AND SET ASIDE. Costs against the
respondents.
#8
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS
and AURORA QUEAO, respondents.
FACTS
Queao applied with Naguiat for a loan in the amount of Two
Hundred Thousand Pesos (P200,000.00), which Naguiat granted.
On 11 August 1980, Naguiat indorsed to Queao Associated Bank
Check for the amount of Ninety Five Thousand Pesos
Atty. Paolo Dimayuga
(P95,000.00), which was earlier issued to Naguiat by the
Corporate Resources Financing Corporation. She also issued her
own Filmanbank Check to the order of Queao, also dated 11
August 1980 and for the amount of Ninety Five Thousand Pesos
(P95,000.00). The proceeds of these checks were to constitute
the loan granted by Naguiat to Queao.
To secure the loan, Queao executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and
surrendered to the latter the owners duplicates of the titles
covering the mortgaged properties. On the same day, the
mortgage deed was notarized, and Queao issued to Naguiat a
promissory note for the amount of TWO HUNDRED THOUSAND
PESOS (P200,000.00), with interest at 12% per annum, payable
on 11 September 1980. Queao also issued a Security Bank and
Trust Company check, postdated 11 September 1980, for the
amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and
payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check
was dishonored for insufficiency of funds. On the following day,
12 September 1980, Queao requested Security Bank to stop
payment of her postdated check, but the bank rejected the
request pursuant to its policy not to honor such requests if the
check is drawn against insufficient funds.
On 16 October 1980, Queao received a letter from Naguiats
lawyer, demanding settlement of the loan. Shortly thereafter,
Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with
Naguiat. At the meeting, Queao told Naguiat that she did not
receive the proceeds of the loan, adding that the checks were
retained by Ruebenfeldt, who purportedly was Naguiats agent.
Ruebenfeldt was not a stranger or an unauthorized person.
Naguiat instructed Ruebenfeldt to withhold from Queao the
checks she issued or indorsed to Queao, pending delivery by the
latter of additional collateral. Ruebenfeldt served as agent of
Naguiat on the loan application of Queaos friend, Marilou
Farralese, and it was in connection with that transaction that
Queao came to know Naguiat. It was also Ruebenfeldt who
accompanied Queao in her meeting with Naguiat and on that
occasion, on her own and without Queao asking for it,
Reubenfeldt actually drew a check for the sum ofP220,000.00
payable to Naguiat, to cover for Queaos alleged liability to
Naguiat under the loan agreement.
ISSUE
Whether or not Ruebenfeldt was an agent of Naguiat?
RULING
Yes. Ruebenfeldt was an agent of Naguiat.
Naguiat questions the admissibility of the various written
representations made by Ruebenfeldt on the ground that they
could not bind her following the res inter alia acta alteri nocere
non debet rule. The Court of Appeals rejected the argument,
holding that since Ruebenfeldt was an authorized representative
or agent of Naguiat the situation falls under a recognized
exception to the rule. Still, Naguiat insists that Ruebenfeldt was
not her agent.
The Court of Appeals recognized the existence of an "agency by
estoppel" citing Article 1873 of the Civil Code.Apparently, it
considered that at the very least, as a consequence of the
interaction between Naguiat and Ruebenfeldt, Queao got the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
impression that Ruebenfeldt was the agent of Naguiat, but
Naguiat did nothing to correct Queaos impression. In that
situation, the rule is clear. One who clothes another with
apparent authority as his agent, and holds him out to the public
as such, cannot be permitted to deny the authority of such person
to act as his agent, to the prejudice of innocent third parties
dealing with such person in good faith, and in the honest belief
that he is what he appears to be. The Court of Appeals is correct
in invoking the said rule on agency by estoppel.
Side Issue
Queao never actually received the proceeds of the loan because
the checks were withheld by Ruebenfeldt. That being the case, it
follows that the mortgage which is supposed to secure the loan is
null and void. The consideration of the mortgage contract is the
same as that of the principal contract from which it receives life,
and without which it cannot exist as an independent contract. A
mortgage contract being a mere accessory contract, its validity
would depend on the validity of the loan secured by it.
#9
PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners, vs.
INTERMEDIATE APPELLATE COURT and TERESITA
NACIANCENO, respondents.
G.R. No. L-67889 October 10, 1985
FACTS:
This is a petition for review of the decision of the Intermediate
Appellate Court affirming in toto the judgment of the Court of
First Instance of Manila, Branch XXI, which ordered the petitioner
to pay respondent the thirty percent (30%) commission on
15,666 pieces of Philippine flags worth P936,960.00, moral
damages, attorney's fees and the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in
convincing officials of the then Department of Education and
Culture, hereinafter called Department, to purchase without
public bidding, one million pesos worth of national flags for the
use of public schools throughout the country. The respondent
was able to expedite the approval of the purchase by hand-
carrying the different indorsements from one office to another, so
that by the first week of September, 1974, all the legal
requirements had been complied with, except the release of the
purchase orders. When Nacianceno was informed by the Chief of
the Budget Division of the Department that the purchase orders
could not be released unless a formal offer to deliver the flags in
accordance with the required specifications was first submitted
for approval, she contacted the owners of the United Flag
Industry on September 17, 1974. The next day, after the
transaction was discussed, the following document (Exhibit A)
was drawn up:
Mrs. Tessie Nacianceno,
This is to formalize our agreement for you to
represent United Flag Industry to deal with
any entity or organization, private or
government in connection with the marketing
of our products-flags and all its accessories.
For your service, you will be entitled to a
commission of thirty
(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen. Manager
Atty. Paolo Dimayuga
On October 16, 1974, the first delivery of 7,933 flags was made by
the United Flag Industry. The next day, on October 17, 1974, the
respondent's authority to represent the United Flag Industry was
revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after
receiving the payment of P469,980.00 on October 23, 1974 for
the first delivery, tendered the amount of P23,900.00 or five
percent (5%) of the amount received, to the respondent as
payment of her commission. The latter allegedly protested. She
refused to accept the said amount insisting on the 30%
commission agreed upon. The respondent was prevailed upon to
accept the same, however, because of the assurance of the
petitioners that they would pay the commission in full after they
delivered the other half of the order. The respondent states that
she later on learned that petitioner Siasat had already received
payment for the second delivery of 7,833 flags. When she
confronted the petitioners, they vehemently denied receipt of the
payment, at the same time claiming that the respondent had no
participation whatsoever with regard to the second delivery of
flags and that the agency had already been revoked.
The respondent originally filed a complaint with the Complaints
and Investigation Office in Malacaang but when nothing came of
the complaint, she filed an action in the Court of First Instance of
Manila to recover the following commissions: 25%, as balance on
the first delivery and 30%, on the second delivery. The trial court
decided in favor of the respondent. Ordered Primitivo Siasat to
pay to the plaintiff the sum of P281,988.00, with legal interest
from the date of this decision, and ordering the defendants to pay
jointly and solidarily the sum of P25,000.00 as moral damages,
and P25,000.00 as attorney's fees, also with legal interest from
the date of this decision, and the costs.
The decision was affirmed in toto by the Intermediate Appellate
Court. the petitioners went to this Court on a petition for review
on August 6, 1984.
ISSUE:WON Respondent Teresita Nacianceno is entitled to
recover the remaining 25% balance of her commission on her
first delivery and the 30% commission on Second delivery?
RULING:
The decision of IAC is MODIFIED. Ordered petitioners to pay
the respondent the amount of P140,994.00 as her
commission on the second delivery of flags with legal
interest from the date of the trial court's decision. No
pronouncement as to costs.
In assailing the appellate court's decision, the petition tenders the
following arguments: first, the authorization making the
respondent the petitioner's representative states that she could
deal with any entity of their products for a commission of 30%.
There was no specific authorization for the sale of 15,666
Philippine flags to the Department; second, there were two
transactions involved evidenced by the separate purchase orders
and separate delivery receipts, one for the purchase and deliver
on October 16, 1974, and another for the purchase and delivery
on November 6, 1974. The revocation of agency effected by the
parties with mutual consent on October 17, 1974, therefore,
forecloses the respondent's claim of 30% commission on the
second transaction; and last, there was no basis for the granting
of attorney's fees and moral damages because there was no
showing of bad faith on the part of the petitioner. It was
respondent who showed bad faith in denying having received her
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
commission on the first delivery. The petitioner's counterclaim,
therefore, should have been granted.
We find respondent's argument regarding respondent's
incapacity to represent them in the transaction with the
Department untenable. There are several kinds of agents. To
quote a commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A
universal agent is one authorized to do all acts for his principal
which can lawfully be delegated to an agent. So far as such a
condition is possible, such an agent may be said to have universal
authority. A general agent is one authorized to do all acts
pertaining to a business of a certain kind or at a particular place,
or all acts pertaining to a business of a particular class or series.
He has usually authority either expressly conferred in general
terms or in effect made general by the usages, customs or nature
of the business which he is authorized to transact. An agent,
therefore, who is empowered to transact all the business of his
principal of a particular kind or in a particular place, would, for
this reason, be ordinarily deemed a general agent. A special
agent is one authorized to do some particular act or to act upon
some particular occasion. lie acts usually in accordance with
specific instructions or under limitations necessarily implied
from the nature of the act to be done.
The power granted to the respondent was so broad that it
practically covers the negotiations leading to, and the execution
of, a contract of sale of petitioners' merchandise with any entity
or organization.
There is no merit in petitioners' allegations that the contract of
agency between the parties was entered into under fraudulent
representation because respondent "would not disclose the
agency with which she was supposed to transact and made the
petitioner believe that she would be dealing with The Visayas",
and that "the petitioner had known of the transactions and/or
project for the said purchase of the Philippine flags by the
Department of Education and Culture and precisely it was the
one being followed up also by the petitioner."
Sec 7 Rule 130 of RRC states that "when the terms of an
agreement have been reduced to writing, it is to be considered as
containing all such terms, and, therefore, there can be between
the parties and their successors-in-interest, no evidence of the
terms of the agreement other than the contents of the writing",
except in cases specifically mentioned in the same rule.
Petitioners have failed to show that their agreement falls under
any of these exceptions. The respondent was given ample
authority to transact with the Department in behalf of the
petitioners
There is merit, in the petitioners' contention that the agent's
commission on the first delivery was fully paid. The evidence
does not sustain the respondent's claim that the petitioners paid
her only 5% and that their right to collect another 25%
commission on the first delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints
and Investigation Office to help her collect her commission, her
statement under oath referred exclusively to the 30%
commission on the second delivery. The statement was emphatic
that "now" her demand was for the 30% commission on the
(second) release of P469,980.00. The demand letter of the
respondent's lawyer dated November 13, 1984 asked petitioner
Siasat only for the 30% commission due from the second
Atty. Paolo Dimayuga
delivery. The fact that the respondent demanded only the
commission on the second delivery without reference to the
alleged unpaid balance which was only slightly less than the
amount claimed can only mean that the commission on the first
delivery was already fully paid.Moreover, the respondent's
authorization letter (Exhibit "5") bears her signature with the
handwritten words "Fully Paid", inscribed above it.
The respondent contested her signature as a forgery,
Handwriting experts from two government agencies testified on
the matter. The reason given by the trial court in ruling for the
respondent is too flimsy to warrant a finding of forgery. The
court stated that the private respondent signed her name as
"Tessie Nacianceno" while in this particular instance, she signed
as "T. Nacianceno." The stated basis is inadequate to sustain the
respondent's allegation of forgery. The mere fact that the
respondent signed thirteen documents using her full name does
not rule out the possibility of her having signed the notation
"Fully Paid", with her initial for the given came and the surname
written in full. What she was signing was a mere
acknowledgment.
This leaves the expert testimony as the sole basis for the verdict
of forgery. In support of their allegation of full payment, the
petitioners presented as witness Mr. Francisco Cruz. Jr., a senior
document examiner of the Philippine Constabulary Crime
laboratory. In rebuttal, the respondent presented Mr. Arcadio
Ramos, a junior document examiner of the National Bureau of
Investigation.
While the experts testified in a civil case, the principles in
criminal cases involving forgery are applicable. Forgery cannot
be presumed. It must be proved. the circumstances mentioned
taken with the testimony of the PC senior document examiner
lead us to rule against forgery.
We also rule against the respondent's allegation that the
petitioners acted in bad faith when they revoked the agency
given to the respondent. Fraud and bad faith are matters not to
be presumed but matters to be alleged with sufficient facts. To
support a judgment for damages, facts which justify the inference
of a lack or absence of good faith must be alleged and proven.
There is no evidence on record from which to conclude that the
revocation of the agency was deliberately effected by the
petitioners to avoid payment of the respondent's commission.
What appears before us is only the petitioner's use in court of
such a factual allegation as a defense against the respondent's
claim. This alone does not per se make the petitioners guilty of
bad faith for that defense should have been fully litigated. Moral
damages cannot be awarded in the absence of a wrongful act or
omission or of fraud or bad faith.
We therefore, rule that the award of P25,000.00 as moral
damages is without basis. The additional award of P25,000.00
damages by way of attorney's fees, was given by the courts below
on the basis of Article 2208, Paragraph 2, of the Civil Code, which
provides: "When the defendant's act or omission has compelled
the plaintiff to litigate with third persons or to incur expenses to
protect his interests;" attorney's fees may be awarded as
damages.
The underlying circumstances of this case lead us to rule out any
award of attorney's fees. For one thing, the respondent did not
come to court with completely clean hands. For another, the
petitioners apparently believed they could legally revoke the
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

agency in the manner they did and deal directly with education
officials handling the purchase of Philippine flags. Issue:
whether or not there was a valid sale of the subject property?
There is no reason why a shocking 30% of the taxpayers' money
should go to an agent or facilitator who had no flags to sell and Held:
whose only work was to secure and handcarry the indorsements YES.
of education and budget officials. If public bidding was deemed We found, however, that the basis presented by the petitioner was
unnecessary, the Department should have negotiated directly inadequate to sustain his allegation of forgery. Mere variance of the
with flag manufacturers. A P300,000.00 fee for a P1,000,000.00 signatures cannot be considered as conclusive proof that the same
purchase of flags is not only clearly unnecessary but a scandalous were forged. Forgery cannot be presumed.
waste of public funds as well.
We agree with the conclusion of the lower court that private
#10
respondent was an innocent purchaser for value. Respondent
FRANCISCO A. VELOSO, vs. COURT OF APPEALS, AGLALOMA B.
Aglaloma relied on the power of attorney presented by petitioners
ESCARIO, Et. Al
wife, Irma. Being the wife of the owner and having with her the title
of the property, there was no reason for the private respondent not
Doctrine:
to believe in her authority. Moreover, the power of attorney was
Whether the instrument be denominated as general power of
notarized and as such, carried with it the presumption of its due
attorney or special power of attorney, what matters is the extent of
execution. Thus, having had no inkling on any irregularity and having
the power or powers contemplated upon the agent or attorney in
no participation thereof, private respondent was a buyer in good
fact. If the power is couched in general terms, then such power
faith.
cannot go beyond acts of administration.However, where the power
to sell is specific, it not being merely implied, much less couched in
An examination of the records showed that the assailed power of
general terms, there can not be any doubt that the attorney in fact
attorney was valid and regular on its face. It was notarized and as
may execute a valid sale.
such, it carries the evidentiary weight conferred upon it with respect
to its due execution.
Facts:
Francisco Veloso was the owner of a parcel of land situated in the
2. To buy or sell, hire or lease, mortgage or otherwise hypothecate
district of Tondo, Manila, with an area of one hundred seventy
lands, tenements and hereditaments or other forms of real
seven (177) square meters and covered by Transfer Certificate of
property, more specifically TCT No. 49138, upon such terms and
Title.
conditions and under such covenants as my said attorney shall deem
fit and proper.[16]
The title was registered in the name of Francisco A. Veloso, single,on
October 4, 1957.] The said title was subsequently canceled and a
Thus, there was no need to execute a separate and special
new one, Transfer Certificate of Title No. 180685, was issued in the
power of attorney since the general power of attorney had expressly
name of Aglaloma B. Escario, married to Gregorio L. Escario, on May
authorized the agent or attorney in fact the power to sell the subject
24, 1988.
property. The special power of attorney can be included in the
general power when it is specified therein the act or transaction for
Veloso filed an action for annulment of documents, reconveyance of
which the special power is required.
property with damages and preliminary injunction and/or
restraining order.
Whether the instrument be denominated as general power of
attorney or special power of attorney, what matters is the extent of
Petitioner alleged therein that he was the absolute owner of the
the power or powers contemplated upon the agent or attorney in
subject property and he never authorized anybody, not even his
fact. If the power is couched in general terms, then such power
wife, to sell it. He alleged that he was in possession of the title but
cannot go beyond acts of administration.However, where the power
when his wife, Irma, left for abroad, he found out that his copy was
to sell is specific, it not being merely implied, much less couched in
missing. He then verified with the Registry of Deeds of Manila and
general terms, there can not be any doubt that the attorney in fact
there he discovered that his title was already canceled in favor of
may execute a valid sale. An instrument may be captioned as special
defendant Aglaloma Escario. The transfer of property was supported
power of attorney but if the powers granted are couched in general
by a General Power of Attorney.
terms without mentioning any specific power to sell or mortgage or
to do other specific acts of strict dominion, then in that case only
The transfer of property was supported by a General Power of
acts of administration may be deemed conferred.
Attorney dated November 29, 1985 and Deed of Absolute Sale,
dated November 2, 1987, executed by Irma Veloso, wife of the
#11
petitioner and appearing as his attorney-in-fact, and defendant
DR. TERESITO V. ORBETA, et al. v.PAUL B. SENDIONG (G.R. No.
AglalomaEscario. Francisco also denied having seen or even known
155236, July 8, 2005)
Rosemarie Reyes and Imelda Santos, the supposed witnesses in the
execution of the power of attorney.
FACTS:
1925:Simeona Montenegro sold to the spouses MaximoOrbeta and
Defendant AglalomaEscario in her answer alleged that she was a
BasilisaTeves (spouses Orbeta) the subject land, comprised of 4,622
buyer in good faith and denied any knowledge of the alleged
square meters, designated as Lot 606 of the Cadastral Survey of the
irregularity.
Municipality of Dumaguete. The subject land was exclusive of a 884-
TC ruled in favour of Escario. CA affirmed the decision in toto.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
square meter site occupied by the house of Simeona Montenegros
grandmother which was not included in the sale.
1934:MaximoOrbeta, in turn, sold to the spouses Juan Sendiong and
ExequilaCastellanes the subject land.
1968: Upon the instance of the heirs of the spouses Orbeta,
Simeona Montenegro executed in their favor a Deed of Confirmation
of Sale and Quitclaim, acknowledging and ratifying the sale of the
subject land to the spouses Orbeta. On the same occasion, the said
heirs executed an Extra-judicial Settlement and Partition pertaining
to the estate of their mother, Basilisa Teves-Orbeta, which deed
included the latters alleged conjugal share in the subject land
consisting of 2,311 square meters.
In the meantime, the spouses Juan Sendiong and Exequila
Castellanes donated the subject land in favor of Luis Sendiong who
thereafter sold the easternmost (1/2) undivided portion thereof to
the spouses Pretzylou Sendiong1 in 1973. Apparently, Luis Sendiong
kept the other undivided half for himself.
1972:Simeona Montenegro, having apparently lost possession over
the 884-square meter portion that was excluded in the 1925 sale,
filed a complaint against Luis Sendiong for recovery of possession of
the said portion, and damages. The heirs of BasilisaTeves-Orbeta,
filed a complaint-in-intervention praying for the recovery of
possession of their portion in the subject land. However, during the
pendency of the case, the case records were destroyed in a fire
which razed the sala of the RTC hearing the complaint. Said records
were not reconstituted, and the complaint was never pursued.
1992:Petitioners (the heirs of Simeona Montenegro & the heirs of
the spouses Orbeta) filed before the RTC of Negros Oriental a
complaint (Civil Case No. 10173) against Mr. & Mrs.
BenedictoPajulas, otherwise known as the spouses
PretzylouSendiong, for recovery of possession, quieting of title and
damages, with a prayer for the issuance of a writ of preliminary
injunction. Petitioners asserted that MaximoOrbeta, whom they
claim as having sold the subject property to the spouses Juan
Sendiong and ExequilaCastellanes without the consent of his wife,
could have conveyed only his conjugal share in the property which
comprised of 2,311 square meters or one-half of 4,622 square
meters of the subject land that Simeona Montenegro had actually
sold to spouses Orbeta. The heirs of Simeona Montenegro also
reiterated their claim over the 884-square meter portion that had
been excluded in the 1925 sale.
In their Answer, defendant spouses claimed that in the 1925 sale,
Simeona Montenegro had actually sold Lot 606 in its entirety,
including the aforementioned 884-square meters. Defendant
spouses likewise claimed that since 1934, they, together with the
1Also identified in the records as spouses BenedictoPajulas.Pretzylou also
appears in other parts of the record as PretzyLou.It is alleged by
PretzylouSendiong that he (or she) is a child of Luis Sendiong, but the Court
could not definitively ascertain such fact. Private respondent Paul Sendiong,
a son of Luis Sendiong, does not aver before this Court that
PretzylouSendiong is an issue of Luis. Moreover, there is a genuine mystery
as to the identity of PretzylouSendiong. It appears from the records that
PretzylouSendiong is apparently married to Genisa (or Genosa) Sendiong, but
petitioners claimed in their complaint that PretzylouSendiong is actually
BenedictoPajulas. The mystery is further heightened by the unusual names of
the spouses Sendiong. In any event, the identity of PretzylouSendiong is not
material to the resolution of this petition, and this observation is adduced for
clarificatory purposes only.
Atty. Paolo Dimayuga
estate of Luis Sendiong, had been in possession of the entire Lot
606. Pertinently to the present petition, they further alleged that
Lourdes Sendiong and herein respondent, Paul Sendiong, being the
heirs of Luis Sendiong, should be impleaded as party defendants.
Lourdes and Paul Sendiong were children of Luis Sendiong.
Defendant spouses filed a motion to dismiss on the ground of lack of
cause of action, in view of the fact that the heirs of Luis Sendiong
have not been impleaded as indispensable parties. In their
opposition, petitioners alleged that the heirs of Luis Sendiong are
not indispensable parties as they are not in possession of the subject
land which was the very issue in said case. The trial court denied the
motion to dismiss.
Defendant spouses filed a Motion to Include Indispensable Parties,
which was denied by the trial court. After petitioners had rested
their case, defendant spouses again filed a Motion to Include
Indispensable Parties, which was denied again by the trial court.
Thereafter, the trial ensued.
RTC: found that what Simeona Montenegro had actually sold in
1935 was the subject land, which did not include the 884-square
meter portion claimed by her heirs. Accordingly, it recognized the
absolute ownership of the Montenegro heirs over the said portion.
The trial court also found that the spouses Juan Sendiong and
Exequila Castellanes could have only acquired ownership over the
conjugal share of Maximo Orbeta in the subject land considering
that the latter had sold the same in 1934 without the consent of his
spouse, Basilia Teves-Orbeta. The trial court also declared null and
void the sale made by Maximo Orbeta with respect to the conjugal
share of his spouse, and ordered the spouses Pretzylou and Genosa
Sendiong to restore to petitioners the title to and possession of their
respective shares in the subject land.
Pretzylou and Genosa Sendiong filed a Notice of Appeal,
but the same was denied by the RTC on the ground that the
certificate of non forum-shopping was signed by counsel and not by
the Sendiongs themselves. The disallowance of the Notice of
Appeal was challenged before the CA in a Petition for Certiorari(CA-
G.R. SP No. 48943), but the petition was denied. The appeal not
having been given due course, the decision in Civil Case No. 10173
lapsed into finality.
2000: Respondent, represented by his attorney-in-fact and daughter
Mae A. Sendiong, filed a Petition for Annulment of Decision with a
Prayer for a Temporary Restraining Order and Writ of Preliminary
Injunction with the Court of Appeals, in respect to the decision in
Civil Case No. 10173. Respondent, as petitioner therein, alleged
having learned of the decision sought to be annulled only in 1999, as
he was not made a party thereto. Asserting his right to the property
as an heir of Luis Sendiong, respondent noted that the petitioners
did not implead him as a defendant in Civil Case No. 10173, and that
the trial court had refused to implead him as an indispensable party
despite repeated motions to that effect by the defendants in the
civil case. Private respondent argued that the decision in Civil Case
No. 10173 encroached on the hereditary rights of himself and
Lourdes Sendiong without having even given the elementary
courtesy of due process. Respondent invoked Rule 3, Section 7 of
the Rules of Civil Procedure and jurisprudence in positing that the
RTC decision was null and void.
Petitioners argued that the petition for annulment of judgment was
fatally infirm as the certification on non-forum shopping was signed
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
by the attorney-in-fact by virtue of a General Power of Attorney.
Petitioners also alleged that the rule on res judicatashould apply
considering that the issue on whether respondent is an
indispensable party had already been passed upon by the CA in the
petition for certiorari filed by Pretzylou and GenosaSendiong.
CA: granted the petition for annulment of judgment and nullified the
decision in Civil Case No. 10173. It ruled that respondent and
Lourdes Sendiong were indeed indispensable parties in Civil Case
No. 10173, considering that the complaint had prayed that
petitioners be declared as absolute co-owners of the subject
property. Moreover, petitioners had challenged the validity of the
donation of the subject property to Luis Sendiong, predecessor-in-
interest of respondent, and accordingly, any judgment regarding
petitioners claims would affect respondents interests in the subject
land. The appellate court ruled that the absence of an indispensable
party in a case renders ineffectual all the proceedings subsequent to
the filing of the complaint, including the judgment, and that all
subsequent actuations of the court are null and void for want of
authority to act, not only as to the absent parties, but even as to
those present.The CA also ruled that the petition for annulment of
judgment was barred neither by estoppel, laches, res judicata nor
forum-shopping, contrary to the stance of petitioners.
ISSUE: WON the CA erred in granting the petition for annulment of
judgment.
HELD: NO. CAs Decision is AFFIRMED.
To be certain, annulment of judgment is not a relief to be
granted indiscriminately by the courts. Annulment of judgment is a
recourse equitable in character, allowed only in exceptional cases as
where there is no available or other adequate remedy. Under
Section 2, Rule 47 of the 1997 Rules of Civil Procedure, the only
grounds for annulment of judgment are extrinsic fraud and lack of
jurisdiction. If the action is based on extrinsic fraud, it must be
brought within four (4) years from discovery, and if based on lack of
jurisdiction, before it is barred by laches or estoppel.
Respondents petition for annulment is grounded on lack
of jurisdiction, owing to the failure to implead the indispensable
parties. The cited ground is ample basis for annulment of judgment.
It has been held that the joinder of all indispensable parties is a
condition sine qua non ofthe exercise of judicial power. The absence
of an indispensable party renders all subsequent actions of the court
null and void for want of authority to act, not only as to the absent
parties but even as to those present.
Respondents Paul Sendiong and Lourdes Sendiong were
indispensable parties to Civil Case No. 10173. Paul and Lourdes
Sendiong derived their rights to the subject property from their
father Luis Sendiong, who acquired the property by way of donation
from the spouses Juan Sendiong and Exequila Castellanes, who in
turn purchased the property from Maximo Orbeta in 1934. The
central thrust of the complaint in Civil Case No. 10173 was that
Orbeta could have sold only his one-half conjugal share, which of
course is undivided, in the subject land as his wife did not consent to
the sale. Accordingly, the prayer in the complaint was that
petitioners be declared as the absolute co-owners of the subject
land, minus 2,311 square meters which they claimed was the
maximum which Maximo Orbeta could have conveyed to Juan
Sendiong and Exequila Castellanes. If such thrust and prayer were to
be upheld, as it was by the RTC, then all the subsequent
Atty. Paolo Dimayuga
transmissions of the subject land from 1934 would be affected, and
the rights of ownership acquired by the various successors-in-
interest accordingly diminished. This includes the rights of Paul
Sendiong and Lourdes Sendiong, who derived their hereditary shares
in the property from Luis Sendiong.
The Court could not see how or why respondent and
Lourdes Sendiong could not have been impleaded in Civil Case No.
10173 before the RTC. In the answer filed by the defendants in Civil
Case No. 10173, the matter of the indispensable inclusion of Paul
and Lourdes Sendiong was already raised. Petitioners could have
easily amended their complaint to that effect, but they did not. The
RTC could have required the inclusion of Paul and Lourdes Sendiong
as party-defendants, as prayed for by the defendants in Civil Case
No. 10173, but it refused to do so. The shared intransigence of
petitioners and the RTC in refusing to implead Paul and Lourdes
Sendiong has resulted in the ignominy of a void decision.
Petitioners allege that the question in Civil Case No. 10173
involves only the recovery of possession from Pretzylou Sendiong of
property which they allege is rightfully theirs. However, such
allegation is belied by the very complaint, which plainly prays that
petitioners be adjudged absolute co-owners of half of the subject
land. Besides, as pointed out by the Court of Appeals, the RTC itself
ruled against the validity of the conveyance by Maximo Orbeta to
Juan Sendiong and Exequila Castellanes of the whole property, a
declaration that indubitably affects the rights of all the successors-
in-interests, including respondent.
Neither laches nor estoppel serves as a bar. The petition
for annulment alleges that respondent learned of the existence of
Civil Case No. 10173 only in 1999, or one year after the decision
therein had been rendered. Since he was not impleaded in Civil Case
No. 10173, there is no basis to presume that respondent was aware
of the civil case during its pendency before the RTC. Moreover, at
the time respondent according to petitioners learned of the civil
case, there was no pending appeal from the RTC decision therein,
the Notice of Appeal having been earlier denied. Under these
circumstances, it would be difficult to discern how in 1999
respondent could have still participated in Civil Case No. 10173.
There was no pending appeal to speak of which he could have
involved himself. Nor could have he participated in the special civil
action for certiorari, an original action, then pending before the
Court of Appeals.
Indeed, a petition for annulment of judgment was, at that
point, the only viable remedy for respondent to avail of, and it was
utilized only one year after respondent learned of the existence of
Civil Case No. 10173. Laches has been defined as the failure or
neglect for an unreasonable and unexplained length of time, to do
that which, by exercising due diligence, could or should have been
done earlier negligence or omission to assert a right within a
reasonable time, warranting presumption that the party entitled to
assert it has abandoned it or declined to assert it. Considering that a
petition for annulment of judgment based on extrinsic fraud may be
filed within four (4) years from discovery of the fraud, a similar
petition based on lack of jurisdiction is generally not barred by
laches or estoppel if the petition is filed within one year after
petitioner learns of the questioned decision. This moreover holds
true, as in this case, since respondent is a foreign resident restrained
by time and distance to undertake an immediate and proximate
response, such as judicial recourse.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
ISSUE ON RES JUDICATA: There is no way the petition for annulment
of judgment could be barred by res judicata.To begin with, it is the
height of sophistry to argue that res judicata would bar a petition for
annulment of judgment whose, as in this case, prior judgment
happens to be that which is sought to be annulled. The petition for
annulment of judgment precisely challenges the validity of the first
judgment, and to adopt petitioners argument would lead to
permanent preclusion of annulment of judgment as a remedy.
Significantly, the reverse is true for the rationale underlying
annulment of judgment is incongruent with the concept of res
judicata. Hence, the action for annulment of judgment precludes the
defense of res judicata. The grounds for annulment of judgment are
either lack of jurisdiction or the presence of extrinsic fraud in the
rendition of the judgment sought to be annulled. On the other hand,
among the requisites of res judicata are jurisdiction on the part of
the court rendering the first judgment over the parties and identity
of causes of action between the first and the second
actions. Ineluctably, said requisites are absent. The first judgment, in
Civil Case No. 10173, pertains to the merits of the action for
recovery of possession, quieting of title, and recovery of damages,
whereas the cause of action in the petition for annulment relates to
the lack of jurisdiction that marred the rendition of the first
judgment.The element of identity of parties is likewise not present.
Respondent was not a party to either Civil Case No. 10173 or CA-
G.R. SP No. 48943.
The judgment in CA-G.R. SP No. 48943 is no bar to the
petition for annulment as well. There is neither identity of parties or
identity of causes of action as between the certiorari petition and
the petition for annulment of judgment. Petitioners claim that the
alleged exclusion of indispensable party Paul Sendiong had already
been ventilated before the [Court of Appeals] in CA-G.R. SP No.
48943 which was TERSELY DISMISSED. The Decision of the CAin CA-
G.R. SP No. 48943 hardly constitutes a terse dismissal except
perhaps in the land of the long-winded, but a perusal of the
said Decision reveals no discussion at all about impleading Paul
Sendiong in Civil Case No. 10173.In fact, the only mention made of
respondent in the aforesaid Decision was in the narration of facts.
The adjudication of CA-G.R. SP No. 48943, as expressed in
the Decision, was limited to the propriety of the denial of the Notice
of Appeal in Civil Case No. 10173. The appellate court upheld the
denial on the ground that there was no written explanation as to
why the Notice of Appeal was served by registered mail instead of
personal service. No other matter was discussed by the Court of
Appeals therein, certainly none on the merits of the Civil Case. In
fact, the Decision ends with the caveat: This Court is confronted only
with the procedural aspect of the case.
PAT-RELATED ISSUE:
Petitioners assert that respondent submitted a false certification
on non-forum shopping, primarily on the ground that the said
certification was signed not by respondent, but by his daughter,
Mae Sendiong, by authority of a General Power of Attorney, which
petitioners claim was not specified for the purpose of filing
thepetition. However, a perusal of the General Power of
Attorney shows that Mae Sendiong is empowered, among others,
to execute, sign, authenticate, and enter into any and all contracts
and agreements for me and in my name with any person or
entity, and to bring suit, defend and enter into compromises in
my name and stead, in connection with actions brought for or
against me, of whatever nature and kind.
Atty. Paolo Dimayuga
The signing of the verification and certification of non-
forum shopping are covered under the said provisions of
the General Power of Attorney. A special power of attorney simply
refers to a clear mandate specifically authorizing the performance
of a specific power and of express acts subsumed therein, and
there is a specific authority given to Mae Sendiong to sign her
name in behalf of Paul Sendiong in contracts and agreements and
to institute suits in behalf of her father. Neither would the fact that
the document is captioned General Power of Attorney militate
against its construction as granting specific powers to the agent
pertaining to the petition for annulment of judgment she instituted
in behalf of her father. As Justice Paras has noted, a general power
of attorney may include a special power if such special power is
mentioned or referred to in the general power.
The certification of non-forum shopping in the petition for
annulment did not mention any other pending case or claim,
notwithstanding the fact that there was a pending motion for
reconsideration lodged before the Court ofAppeals in CA-G.R. SP No.
48943. Yet the Court of Appeals also adequately discussed, in
disputing the claim that respondent had committed forum-
shopping, why there was no identity in rights or causes of action in
the petition for annulment of judgment and in the special civil action
for certiorari. Its conclusion is in concurrence with the earlier
discussion on this point in relation to res judicata. Accordingly,
owing to the segregate identity in rights and causes of action and
the fact that respondent was not a party to the certiorari petition,
there was no indubitable need for him to mention CA-G.R. SP No.
48943 in the certification of non-forum shopping. In fact, there really
is no cause to definitively presume that he was aware of the said
case considering that he was not a party to its antecedent civil case.
Petitioners argue that the petition for annulment should
have been dismissed outright for failing to cite the docket number of
the case in the lower court,pursuant to A.C. No. 28-91, promulgated
as it was to prevent forum-shopping or multiple filing of petitions
and complaints.This claim relies upon the mother of all
technicalities, but one which is not even supported by A.C. No. 28-
91, which provides that any violation of this Circular shall be cause
for the summary dismissal of the multiple petition or complaint. In
short, dismissal of a petition for violation of A.C. No. 28-91 obtains
only if the petition can be considered a multiple petition or
complaint, and not simply because the docket number of the lower
court case was not mentioned in the complaint. Besides, as pointed
out by respondent, the docket number of the lower court case is
mentioned in the body of the petition.
And even if A.C. No. 28-91 could be construed as
authorizing the dismissal of a petition for failing to state the docket
number of the lower court decision, the relative weight of all things
must be considered, particularly the degree of distress on
respondent due to the deprivation of his property without being
afforded the opportunity to defend his claims. When gauged against
the denial of respondents right to due process of law, the purported
violation by Paul Sendiong of A.C. No. 28-91 does not amount to a
hill of beans.
#12
LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN
MERCADO, JR., represented by their Attorney-In-Fact, ALFREDO M.
PEREZ, v. ALLIED BANKING CORPORATION
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
FACTS
Perla Mercado executed a Special Power of Attorney in favor of her
husband, Julian, authorizing the latter to sell, alienate, mortgage,
lease and deal with the different pieces of real and personal
property enumerated therein. Julian obtained a loan from
Respondent Allied Banking which was secured by a property, with
TCT A (TCT No. RT 18206). As Julian defaulted on the payment of his
loan obligations, Allied Banking initiated an extra-judicial foreclosure
proceedings and was then declared as the highest bidder.
Petitioner Mercado as the heir of Perla, initiated an action
for the annulment of REM constituted over the subject property on
the ground that the same was not covered by the SPA and that the
said SPA, at the time the loan obligations were contracted, no longer
had force and effect since it was previously revoked by Perla as
evidenced by the Revocation of SPA signed by the latter. Perla, in a
letter, notified the Registry of Deeds of Quezon City that any
attempt to mortgage or sell the subject property must be with her
full consent documented in the form of an SPA duly authenticated
before the Philippine Consulate General in New York. The
respondents averred that TCT A is merely a reconstitution of TCT B
(TCT No. 106338), which is indicated in the SPA, thus the property
referred in the two TCTs are one and the same.
The RTC declared the REM null and void on the ground
that Julian was not authorized to mortgage the subject property.
The Court of Appeals however, reversed the said decision and
upheld the validity of the REM constituted over the subject property
on the strength of the SPA, on the ground that Perlas subsequent
revocation of the said SPA, not being contained in a public
instrument, cannot bind third persons.
ISSUE: Is the mortgage enforceable?
HELD: No. The court is not convinced that the property covered
by TCT No. 106338 registered with the Registry of Deeds of Pasig
(now Makati) is the same as the subject property covered by TCT
No. RT-18206 (106338) registered with the Registry of Deeds of
Quezon City. The records of the case are stripped of supporting
proofs to verify the respondents claim that the two titles cover the
same property. It failed to present any certification from the
Registries of Deeds concerned to support its assertion. Neither did
respondent take the effort of submitting and making part of the
records of this case copies of TCTs No. RT-106338 of the Registry of
Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry
of Deeds of Quezon City, and closely comparing the technical
descriptions of the properties covered by the said TCTs.
Under Article 1878 of the Civil Code, a special power of attorney is
necessary in cases where real rights over immovable property are
created or conveyed. In the SPA executed by Perla in favor of Julian
on 28 May 1992, the latter was conferred with the authority to sell,
alienate, mortgage, lease and deal otherwise the different pieces of
real and personal property registered in Perlas name.
However, there was nothing in the language of the SPA from which
we could deduce the intention of Perla to include the subject
property therein. We cannot attribute such alleged intention to
Perla who executed the SPA when the language of the instrument is
bare of any indication suggestive of such intention. Contrariwise, to
adopt the intent theory advanced by the respondent, in the absence
Atty. Paolo Dimayuga
of clear and convincing evidence to that effect, would run afoul of
the express tenor of the SPA and thus defeat Perlas true intention.
A power of attorney must be strictly construed and pursued. The
instrument will be held to grant only those powers which are
specified therein, and the agent may neither go beyond nor deviate
from the power of attorney. Where powers and duties are specified
and defined in an instrument, all such powers and duties are limited
and are confined to those which are specified and defined, and all
other powers and duties are excluded. This is but in accord with the
disinclination of courts to enlarge the authority granted beyond the
powers expressly given and those which incidentally flow or derive
therefrom as being usual and reasonably necessary and proper for
the performance of such express powers.
ISSUE: Is the revocation valid?
HELD: Yes.
Assuming arguendo that the subject property was indeed included
in the SPA executed by Perla in favor of Julian, the said SPA was
revoked by virtue of a public instrument executed by Perla on 10
March 1993.
The court quote with approval the following ruling of the RTC:
The Register of Deeds of Quezon City was even notified that any
attempt to mortgage or sell the property covered by TCT No.
The non-annotation of the revocation of the Special Power of
Attorney on TCT No. RT-18206 is of no consequence as far as the
revocations existence and legal effect is concerned since actual
notice is always superior to constructive notice.
Given that Perla revoked the SPA as early as 10 March 1993, and
that she informed the Registry of Deeds of Quezon City of such
revocation in a letter dated 23 January 1996 and received by the
latter on 7 February 1996, then third parties to the SPA are
constructively notified that the same had been revoked and Julian
no longer had any authority to mortgage the subject
property. Although the revocation may not be annotated on TCT No.
RT-18206 (106338), as the RTC pointed out, neither the Registry of
Deeds of Quezon City nor respondent denied that Perlas 23 January
1996letter was received by and filed with the Registry of Deeds of
Quezon City. Respondent would have undoubtedly come across said
letter if it indeed diligently investigated the subject property and the
circumstances surrounding its mortgage.
ISSUE: Is the respondent a mortgagee-in-good faith?
HELD: No. By putting blinders on its eyes, and by refusing to see the
patent defect in the scope of Julians authority, easily discernable
from the plain terms of the SPA, respondent cannot now claim to be
an innocent mortgagee.
The property listed in the real estate mortgages Julian executed in
favor of PNB is the one covered by TCT#RT-18206(106338). On the
other hand, the Special Power of Attorney referred to TCT No. RT-
106338 805 Square Meters of the Registry of Deeds
of Pasig now Makati. The palpable difference between the TCT
numbers referred to in the real estate mortgages and Julians SPA,
coupled with the fact that the said TCTs are registered in the
Registries of Deeds of different cities, should have put respondent
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
on guard. Respondents claim of prudence is debunked by the fact
that it had conveniently or otherwise overlooked the inconsistent
details appearing on the face of the documents, which it was relying
on for its rights as mortgagee, and which significantly affected the
identification of the property being mortgaged.
Moreover, where the mortgagee does not directly deal
with the registered owner of real property, the law requires that a
higher degree of prudence be exercised by the mortgagee. This
principle is applied more strenuously when the mortgagee is a bank
or a banking institution.
#13
LAUREANO ANGELES v. PHILIPPINE NATIONAL RAILWAYS
G.R. No. 150128, 31 August 2006, SECOND DIVISION, (Garcia, J.)
FACTS:
- Philippine National Railways (PNR) accepted
GaudencioRomualdezs/San JuanicoEnterprisess AS IS, WHERE
IS offer to buy PNRs scrap/unserviceable rails in Del Carmen
and Lubao, Pampanga for P96,600. After paying the purchase
price, Gaudencio sent a letter to PNR, authorizing Lizette
Angeles to be his lawful representative in the w/drawal of the
scraps. He has also given her the original copy of the award,
indicating his waiver of rights, interests and participation in her
favor. Lizette requested PNR to transfer the location of
w/drawal to Murcia, Carpas and San Miguel, Tarlac because
those in Pampanga were not ready for hauling. Initially, PNR
granted the request, but it subsequently suspended the
w/drawal in view of documentary discrepancies and reported
pilferages of over P500,000 worth of PNR scrap in Tarlac.
- Lizette demanded the refund of P96,600, but PNR refused to
pay on the ground that as per delivery receipt duly signed by
Lizette, she has already w/drawn P114,781.80 worth of scraps,
an amount exceeding the claim for refund. Lizette, w/ her
husband, Laureano Angeles, filed suit against PNR for specific
performance and damages before the RTC of Q.C., alleging the
delivery of 46 metric tons of scraps, among others. Since Lizette
passed away as the trial ensued, Laureano substituted her. RTC
dismissed the complaint on the ground of lack of cause of
action, postulating that the spouses were not the real parties-
in-interest in the case. The CA affirmed. Motion for
Reconsideration denied.
ISSUE: Was Lizette an agent or an assignee of Gaudencio?
RULING: AGENT ONLY.
- RIGHTS OF AN AGENT: Where agency exists, the 3rd party's (in
this case, PNR's) liability on a contract is to the principal and not
to the agent and the relationship of the 3rd party to the
principal is the same as that in a contract in w/c there is no
agent. Normally, the agent has neither rights nor liabilities as
against the 3rd party. He cannot thus sue/be sued on the
contract. Since a contract may be violated only by the parties
thereto as against each other, the real party-in-interest, either
as plaintiff/defendant in an action upon that contract must,
generally, be a contracting party.
- RIGHTS OF AN ASSIGNEE:The legal situation is, however,
different where an agent is constituted as an assignee. In this
case, the agent may, in his own behalf, sue on a contract made
Atty. Paolo Dimayuga
for his principal, as an assignee of such contract. The rule
requiring every action to be prosecuted in the name of the real
party-in-interest recognizes the assignment of rights of action
and also recognizes that when one has a right assigned to him,
he is then the real party-in-interest and may maintain an action
upon such claim or right.
- LETTER INDICATES AGENCY:Upon scrutiny of Gaudencios
letter, it is apparent that Lizette was to act just as a
"representative" of Gaudencio in the "w/drawal of rails," and
not an assignee. Laureano makes much of the fact that the
terms "agent"/"attorney-in-fact" were not used in Gaudencios
letter. It bears to stress, however, that the words "principal"
and "agent," are not the only terms used to designate the
parties in an agency relation. The agent may also be called an
attorney, proxy, delegate or, as here, representative. It cannot
be over emphasized that Gaudencio's use of the active verb
"authorized," instead of "assigned," indicated intent on his part
to keep and retain his interest in the subject matter. Thus, he
intended to limit Lizettes role in the scrap transaction to being
the representative of his interest therein.
- LETTER TO ENABLE AGENCY:Laureano submits that the 2nd
paragraph of Gaudencios letter, stating - "I have given Lizette
the original copy of the awardw/c will indicate my waiver of
rights, interests and participation in favor of Lizette - clarifies
that Lizette was intended to be an assignee, and not a mere
agent. However, Laureano conveniently omitted an important
phrase preceding the paragraph w/c would have put the whole
matter in context. The phrase is "For this reason," and the
antecedent thereof is Gaudencio having appointed Lizette as
his representative in the matter of the w/drawal of the scrap
items. In fine, the key phrase clearly conveys the idea that
Lizette was given the original copy of the contract award to
enable her to withdraw the rails as Romualdezs authorized
representative.
- LETTER AS A WHOLE MUST BE READ: Art. 1374 of the Civil
Code provides that the various stipulations of a contract shall
be read and interpreted together, attributing to the doubtful
ones that sense w/c may result from all of them taken jointly. In
fine, the real intention of the parties is primarily to be
determined from the language used and gathered from the
whole instrument. When put into the context of the letter as a
whole, it is abundantly clear that the rights which Gaudencio
waived/ceded in favor of Lizette were those in furtherance of
the agency relation that he had established for the w/drawal of
the rails.
- ACTS OF MAIN PARTIES INDICATE AGENCY:At any rate, any
doubt as to the intent of Gaudencio generated by the way his
letter was couched could be clarified by the acts of the main
players themselves. Art. 1371 of the Civil Code provides that to
judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered. In other words, in case of doubt, resort may be
made to the situation, surroundings, and relations of the
parties. The fact of agency was confirmed in subsequent letters
from Angeles spouses in w/c they themselves refer to Lizette as
"authorized representative" of San Juanico Enterprises.
Mention may also be made that the w/drawal receipt w/c
Lizette had signed indicated that she was doing so in a
representative capacity. One professing to act as agent for
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
another is estopped to deny his agency both as against his
asserted principal and 3rd persons interested in the transaction
w/c he engaged in.
- POWER OF ATTY. IS AN AGENCY:Laureano maintains that
Gaudencios letter was not in the form of a special power of
attorney, implying that the latter had not intended to merely
authorize his wife to perform an act for Gaudencio. The
contention is specious. In the absence of statute, no
form/method of execution is required for a valid power of
attorney; it may be in any form clearly showing on its face the
agents authority. A power of attorney is only but an
instrument in writing by w/c a person, as principal, appoints
another as his agent and confers upon him the authority to
perform certain specified acts on behalf of the principal. The
written authorization itself is the power of attorney, and this is
clearly indicated by the fact that it has also been called a "letter
of attorney." Its primary purpose is not to define the authority
of the agent as between himself and his principal but to
evidence the authority of the agent to 3rd parties with whom
the agent deals. The letter under consideration is sufficient to
constitute a power of attorney. Except as may be required by
statute, a power of attorney is valid although no notary public
intervened in its execution.
- POWER OF ATTY. SPECIFIES AGENCY:A power of attorney must
be strictly construed and pursued. The instrument will be held
to grant only those powers which are specified therein, and the
agent may neither go beyond nor deviate from the power of
attorney. Contextually, all that Lizette was authorized to do was
to w/draw the unserviceable/scrap railings. Allowing her
authority to sue therefor, especially in her own name, would be
to read something not intended, let alone written in
Gaudencios letter.
#14
SHOPPERS PARADISE REALTY & DEVELOPMENT
CORPORATIONvs.EFREN P. ROQUE
G.R. No. 148775 January 13, 2004
FACTS:
Petitioner Shoppers Paradise Realty & Development
Corporation, represented by its president,
VeredignoAtienza, entered into a twenty-five year lease
with Dr. Felipe C. Roque, now deceased, over a parcel of
land, with an area of two thousand and thirty six (2,036)
square meters, situated at Plaza Novaliches, Quezon City,
covered by TCT No. 30591 of the RD of Quezon City in the
name of Dr. Roque.
Petitioner issued to Dr. Roque a check for P250,000.00 by
way of "reservation payment." Simultaneously, petitioner
and Dr. Roque likewise entered into a MOA for the
construction, development and operation of a commercial
building complex on the property. Conformably with the
agreement, petitioner issued a check for another
P250,000.00 "downpayment" to Dr. Roque.
The contract of lease and the MOA, both notarized, were
to be annotated on the TCT within 60 days. The
annotations, however, were never made because of the
untimely demise of Dr. Felipe C. Roque. The death of Dr.
Atty. Paolo Dimayuga
Roque constrained petitioner to deal with respondent
Efren P. Roque, one of the surviving children of the late Dr.
Roque, but the negotiations broke down due to some
disagreements. In a letter, respondent advised petitioner
"to desist from any attempt to enforce the
aforementioned contract of lease and memorandum of
agreement".
Respondent filed a case for annulment of the contract of
lease and the memorandum of agreement, with a prayer
for the issuance of a preliminary injunction, before RTC of
Quezon City.
Efren P. Roque alleged that:
1. He had long been the absolute owner of the
subject property by virtue of a deed of
donation inter vivos executed in his favor by
his parents, Dr. Felipe Roque and Elisa
Roque, and;
2. That the late Dr. Felipe Roque had no
authority to enter into the assailed
agreements with petitioner. The donation
was made in a public instrument duly
acknowledged by the donor-spouses before
a notary public and duly accepted on the
same day by respondent before the notary
public in the same instrument of donation.
The title to the property, however, remained
in the name of Dr. Felipe C. Roque, and it
was only transferred to and in the name of
respondent 16 years later, under TCT of the
RD of Quezon City. Respondent, while he
resided in the United States of America,
delegated to his father the mere
administration of the property. Respondent
came to know of the assailed contracts with
petitioner only after retiring to the
Philippines upon the death of his father.
RTC dismissed the complaint of respondent. RTC ordered
respondent to surrender TCT for the annotation of the
questioned Contract of Lease and Memorandum of
Agreement.
CA reversed the decision of the TC and held to be invalid
the Contract of Lease and Memorandum of Agreement. It
concluded that petitioner was not a lessee in good faith
having had prior knowledge of the donation in favor of
respondent, and that such actual knowledge had the effect
of registration insofar as petitioner was concerned. The
appellate court based its findings largely on the testimony
of Veredigno Atienza during cross-examination.
ISSUES:
1. WON presumption of good faith it so enjoys as a party dealing in
registered land has not been overturned by the aforequoted
testimonial evidence.
2. WON respondent is barred by laches and estoppel from denying
the contracts.
RULING:
1. NO.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
The existence, albeit unregistered, of the donation in favor of
respondent is undisputed. TC and CA have not erred in holding that
the non-registration of a deed of donation does not affect its
validity. As being itself a mode of acquiring ownership, donation
results in an effective transfer of title over the property from the
donor to the done. In donations of immovable property, the law
requires for its validity that it should be contained in a public
document, specifying therein the property donated and the value of
the charges which the donee must satisfy. The Civil Code provides,
however, that "titles of ownership, or other rights over immovable
property, which are not duly inscribed or annotated in the Registry
of Property shall not prejudice third persons."It is enough, between
the parties to a donation of an immovable property, that the
donation be made in a public document but, in order to bind third
persons, the donation must be registered in the registry of Property.
Consistently, Section 50 of Act No. 496 (Land Registration Act), as so
amended by Section 51 of P.D. No. 1529 (Property Registration
Decree), states:
"SECTION 51. Conveyance and other dealings by
registered owner.- An owner of registered land may
convey, mortgage, lease, charge or otherwise deal with
the same in accordance with existing laws. He may use
such forms of deeds, mortgages, leases or other voluntary
instruments as are sufficient in law. But no deed,
mortgage, lease, or other voluntary instrument, except a
will purporting to convey or affect registered land shall
take effect as a conveyance or bind the land, but shall
operate only as a contract between the parties and as
evidence of authority to the Register of Deeds to make
registration.
"The act of registration shall be the operative act to convey
or affect the land insofar as third persons are
concerned, and in all cases under this Decree, the
registration shall be made in the office of the Register of
Deeds for the province or city where the land lies."
A person dealing with registered land may thus safely rely on the
correctness of the certificate of title issued therefore, and he is not
required to go beyond the certificate to determine the condition of
the property but, where such party has knowledge of a prior
existing interest which is unregistered at the time he acquired a
right thereto, his knowledge of that prior unregistered interest
would have the effect of registration as regards to him.
The appellate court was not without substantial basis when it
found petitioner to have had knowledge of the donation at the
time it entered into the two agreements with Dr. Roque. During
their negotiation, petitioner, through its representatives, was
apprised of the fact that the subject property actually belonged to
respondent.
It was not shown that Dr. Felipe C. Roque had been an authorized
agent of respondent.
In a contract of agency, the agent acts in representation or in behalf
of another with the consent of the latter. Article 1878 of the Civil
Code expresses that a special power of attorney is necessary to
lease any real property to another person for more than one year.
The lease of real property for more than one year is considered not
merely an act of administration but an act of strict dominion or of
ownership. A special power of attorney is thus necessary for its
execution through an agent.
Atty. Paolo Dimayuga
2. NO.
The Court cannot accept petitioners argument that respondent is
guilty of laches. Laches, in its real sense, is the failure or neglect, for
an unreasonable and unexplained length of time, to do that which,
by exercising due diligence, could or should have been done earlier;
it is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it
either has abandoned or declined to assert it.
Respondent learned of the contracts only after the death of his
father, and in the same year, during November, he assailed the
validity of the agreements. Hardly, could respondent then be said
to have neglected to assert his case for unreasonable length of
time.
Neither is respondent estopped from repudiating the contracts.
The essential elements of estoppel in pais, in relation to the party
sought to be estopped, are: 1) a clear conduct amounting to false
representation or concealment of material facts or, at least,
calculated to convey the impression that the facts are otherwise
than, and inconsistent with, those which the party subsequently
attempts to assert; 2) an intent or, at least, an expectation, that
this conduct shall influence, or be acted upon by, the other party;
and 3) the knowledge, actual or constructive, by him of the real
facts. With respect to the party claiming the estoppel, the
conditions he must satisfy are: 1) lack of knowledge or of the
means of knowledge of the truth as to the facts in question; 2)
reliance, in good faith, upon the conduct or statements of the
party to be estopped; and 3) action or inaction based thereon of
such character as to change his position or status calculated to
cause him injury or prejudice. It has not been shown that
respondent intended to conceal the actual facts concerning the
property; more importantly, petitioner has been shown not to be
totally unaware of the real ownership of the subject property.
#15
MACARIA ARGUELLES AND THE HEIRS OF THE DECEASED PETRONIO
ARGUELLES VS. MALARAYAT RURAL BANK INC.
Facts:
Fermina M. Guia was the registered owner of a parcel of agricultural
land in Barrio Pinagkurusan, Alitagtag, Batangas, with an area of
4,560 square meters. She sold the south portion of the land with an
approximate area of 1,350 square meters to the spouses Petronio
and Macaria Arguelles.Although the spouses Arguelles immediately
acquired possession of the land, the Deed of Sale was neither
registered with the Register of Deeds nor annotated on the title. At
the same time, Fermina M. Guia ordered her son Eddie Guia and the
latter's wife TeresitaGuia to subdivide the land covered by the OCT
into three lots and to apply for the issuance of separate titles
therefore, to wit: Lot 3-A, Lot 3-B, and Lot 3-C. Thereafter, she
directed the delivery of the TCT corresponding to Lot 3-C to the
vendees of the unregistered sale or the spouses Arguelles. However,
despite their repeated demands, the spouses Arguelles claimed that
they never received the TCT corresponding to Lot 3-C from the
spouses Guia.Nevertheless, in accordance with the instructions of
Fermina M. Guia, the spouses Guia succeeded in cancelling the OCT
and in subdividing the lot into three.
The spouses Guia obtained a loan in the amount of P240,000 from
the respondent Malarayat Rural Banlc and secured the loan with a
real estate mortgage over Lot 3-C, which were purportedly executed
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
by the registered owner of Lot 3-C, Fermina M. Guia, in favor of the
mortgagors, spouses Guia. Moreover, the Real EstateMortgage and
Special Power of Attorney were duly annotated in the
memorandum of encumbrances of the TCT covering Lot 3-C.
The spouses Arguelles alleged that it was only after seven years from
the date of the unregistered sale that they discovered from the
Register of Deeds of Batangas City the following facts: (1)
subdivision of Lot 3 into Lots 3-A, 3-B, and 3-C; (2) issuance of
separate TCTs for each lot; and (3) the annotation of the Real Estate
Mortgage and Special Power of Attorney over Lot 3-C covered by the
TCT. Two years thereafter, the spouses Arguelles registered their
adverse claim based on the unregistered sale over Lot 3-C.
The spouses Arguelles filed a complaint for Annulment of Mortgage
and Cancellation of Mortgage Lien with Damages against the
respondent Malarayat Rural Bank with the RTC of Taal, Batangas.
They alleged ownership over the land that had been mortgaged in
favor of the respondent Malarayat Rural Bank. Malarayat Rural Bank
filed an Answer with Counterclaim and Cross-claim wherein it
argued that the failure of the spouses Arguelles to register the Deed
of Sale dated December 1, 1990 was fatal to their claim of
ownership.
The RTC found that the spouses Guia were no longer the absolute
owners of the land described as Lot 3-C and covered by the TCT at
the time they mortgaged the same to the respondent Malarayat
Rural Bank in view of the unregistered sale in favor of the vendee
spouses Arguelles. The RTC annulled the real estate mortgage, the
subsequent foreclosure sale, and the corresponding issuance of the
certificate of title. The RTC declared that the respondent Malarayat
Rural Bank was not a mortgagee in good faith as it failed to exercise
the exacting degree of diligence required from banking institutions.
The CA reversed and set aside the decision of the RTC, and held that
because of the failure of the spouses Arguelles to register their deed
of sale, the unregistered sale could not affect the respondent
Malarayat Rural Bank. Thus, the respondent Malarayat Rural Bank
has a better right to the land mortgaged as compared to spouses
Arguelles who were the vendees in the unregistered sale. The CA
found that the respondent Malarayat Rural Bank was a mortgagee in
good faith as it sufficiently demonstrated due diligence in approving
the loan application of the spouses Guia.
Issue:
WON Malarayat Rural Bank is a mortgagee in good faith who is
entitled to protection on its mortgage lien.
Held:
The petition is meritorious.
Petitioners imputed negligence on the part of respondent Malarayat
Rural Bank when it approved the loan application of the spouses
Guia. They pointed out that the bank failed to conduct a thorough
ocular inspection of the land mortgaged and an extensive
investigation of the title of the registered owner. And since the
respondent Malarayat Rural Bank cannot be considered a
mortgagee in good faith, petitioners argued that the unregistered
sale in their favor takes precedence over the duly registered
mortgage lien. Malarayat Rural Bank claimed that it exercised the
required degree of diligence before granting the loan application. In
particular, it asserted the absence of any facts or circumstances that
can reasonably arouse suspicion in a prudent person. Malarayat
Rural Bank argued that it is a mortgagee in good faith with a better
Atty. Paolo Dimayuga
right to the mortgaged land as compared to the vendees to the
unregistered sale.
At the outset, we note that the issue of whether a mortgagee is in
good faith generally cannot be entertained in a petition filed under
Rule 45 of the 1997 Rules of Civil Procedure, as amended. This is
because the ascertainment of good faith or the lack thereof, and the
determination of negligence are factual matters which lay outside
the scope of a petition for review on certiorari. However, a
recognized exception to this rule is when the RTC and the CA have
divergent findings of fact as in the case at bar. We find that the
respondent Malarayat Rural Bank is not a mortgagee in good faith.
Therefore, the spouses Arguelles as the vendees to the unregistered
sale have a superior right to the mortgaged land.
In Cavite Development Bank v. Spouses Lim, the Court explained the
doctrine of mortgagee in good faith, thus:
There is, however, a situation where, despite the fact that the
mortgagor is not the owner of the mortgaged property, his title
being fraudulent, the mortgage contract and any foreclosure sale
arising therefrom are given effect by reason of public policy. This is
the doctrine of "mortgagee in good faith" based on the rule that all
persons dealing with the property covered by a TCT, as buyers or
mortgagees, are not required to go beyond what appears on the
face of the title. The public interest in upholding the indefeasibility
of a certificate of title, as evidence of lawful ownership of the land
or of any encumbrance thereon, protects a buyer or mortgagee
who, in good faith, relied upon what appears on the face of the
certificate of title.
In Bank of Commerce v. Spouses San Pablo, Jr., we declared that
indeed, a mortgagee has a right to rely in good faith on the
certificate of title of the mortgagor of the property offered as
security, and in the absence of any sign that might arouse suspicion,
the mortgagee has no obligation to undertake further investigation.
However, in Bank of Commerce v. Spouses San Pablo, Jr., we also
ruled that "[i]n cases where the mortgagee does not directly deal
with the registered owner of real property, the law requires that a
higher degree of prudence be exercised by the mortgagee."
Specifically, we cited Abad v. Sps. Guimbci where we held, "x xx
While one who buys from the registered owner does not need to
look behind the certificate of title, one who buys from one who is
not the registered owner is expected to examine not only the
certificate of title but all factual circumstances necessary for [one]
to determine if there are any flaws in the title of the transferor, or
in [the] capacity to transfer the land. " Although the instant case
does not involve a sale but only a mortgage, the same rule applies
inasmuch as the law itself includes a mortgagee in the term
"purchaser."
Thus, where the mortgagor is not the registered owner of the
property but is merely an attorney-in-fact of the same, it is
incumbent upon the mortgagee to exercise greater care and a
higher degree of prudence in dealing with such mortgagor.
In Bank of Commerce v. San Pablo, Jr., we held that when "the
person applying for the loan is other than the registered owner of
the real property being mortgaged, [such fact] should have already
raised a red flag and which should have induced the Bank xx x to
make inquiries into and confirm x xx [the] authority to mortgage x
xx. A person who deliberately ignores a significant fact that could
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
create suspicion in an otherwise reasonable person is not an
innocent purchaser for value."
Moreover, in a long line of cases, we have consistently enjoined
banks to exert a higher degree of diligence, care, and prudence than
individuals in handling real estate transactions.
In Cruz v. Bancom Finance Corporation, we declared:
Respondent, however, is not an ordinary mortgagee; it is a
mortgagee-bank. As such, unlike private individuals, it is expected to
exercise greater care and prudence in its dealings, including those
involving registered lands. A banking institution is expected to
exercise due diligence before entering into a mortgage contract. The
ascertainment of the status or condition of a property offered to it
as security for a loan must be a standard and indispensable part of
its operations.
In Ursal v. Court of Appeals, we held that where the mortgagee is a
bank, it cannot rely merely on the certificate of title offered by the
mortgagor in ascertaining the status of mortgaged properties. Since
its business is impressed with public interest, the mortgagee-bank is
duty-bound to be more cautious even in dealing with registered
lands. Indeed, the rule that person dealing with registered lands can
rely solely on the certificate of title does not apply to banks. Thus,
before approving a loan application, it is a standard operating
practice for these institutions to conduct an ocular inspection of the
property offered for mortgage and to verify the genuineness of the
title to determine the real owners thereof. The apparent purpose of
an ocular inspection is to protect the "true owner" of the property
as well as innocent third parties with a right, interest or claim
thereon from a usurper who may have acquired a fraudulent
certificate of title thereto.
In Metropolitan Bank and Trust Co. v. Cabilzo, we explained the
socio-economic role of banks and the reason for bestowing public
interest on the banking system:
We never fail to stress the remarkable significance of a banking
institution to commercial transactions, in particular, and to the
country's economy in general. The banking system is an
indispensable institution in the modem world and plays a vital role
in the economic life of every civilized nation. Whether as mere
passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard
them with respect and even gratitude and, most of all, confidence.
In this case, we find that the respondent Malarayat Rural Bank fell
short of the required degree of diligence, prudence, and care in
approving the loan application of the spouses Guia.
Respondent should have diligently conducted an investigation of the
land offered as collateral. Although the Report of Inspection and
Credit Investigation found at the dorsal portion of the Application
for Agricultural Loan proved that the respondent Malarayat Rural
Bank inspected the land, the respondent turned a blind eye to the
finding therein that the "lot is planted [with] sugarcane with annual
yield (crops) in the amount of P15,000."
We disagree with respondent's stance that the mere planting and
harvesting of sugarcane cannot reasonably trigger suspicion that
there is adverse possession over the land offered as mortgage.
Atty. Paolo Dimayuga
Indeed, such fact should have immediately prompted the
respondent to conduct further inquiries, especially since the spouses
Guia were not the registered owners of the land being mortgaged.
They merely derived the authority to mortgage the lot from the
Special Power of Attorney allegedly executed by the late Fermina M.
Guia. Hence, it was incumbent upon the respondent Malarayat Rural
Bank to be more cautious in dealing with the spouses Guia, and
inquire further regarding the identity and possible adverse claim of
those in actual possession of the property.
Pertinently, in Land Bank of the Philippines v. Poblete, we ruled that
"[w]here the mortgagee acted with haste in granting the mortgage
loan and did not ascertain the ownership of the land being
mortgaged, as well as the authority of the supposed agent executing
the mortgage, it cannot be considered an innocent mortgagee."
Since the subject land was not mortgaged by the owner thereof and
since the respondent Malarayat Rural Bank is not a mortgagee in
good faith, said bank is not entitled to protection under the law. The
unregistered sale in favor of the spouses Arguelles must prevail over
the mortgage lien of respondent Malarayat Rural Bank.
#16
LEONARDO C. CASTILLO, represented by LENNARD V. CASTILLO,
Petitioner,
vs.
SECURITY BANK CORPORATION, JRC POULTRY FARMS or SPOUSES
LEON C. CASTILLO, JR., and TERESITA FLORESCASTILLO,
Respondents.
FACTS:
Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr.
are siblings. Leon and Teresita Flores-Castillo (the Spouses Castillo)
were doing business under the name of JRC Poultry Farms.
Sometime in 1994, the Spouses Castillo obtained a loan from
respondent SBC in the amount of P45,000,000.00. To secure said
loan, they executed a real estate mortgage on August 5, 1994 over
eleven (11) parcels of land belonging to different members of the
Castillo family and which are all located in San Pablo City. They also
procured a second loan amounting to P2,500,000.00, which was
covered by a mortgage on a land in Pasay City. Subsequently, the
Spouses Castillo failed to settle the loan, prompting SBC to proceed
with the foreclosure of the properties. SBC was then adjudged as the
winning bidder in the foreclosure sale held on July 29, 1999.
Thereafter, they were able to redeem the foreclosed properties,
with the exception of the lots covered by Torrens Certificate of
Title(TCT) Nos. 28302 and 28297.
On January 30, 2002, Leonardo filed a complaint for the partial
annulment of the real estate mortgage. He alleged that he owns the
property covered by TCT No. 28297 and that the Spouses Castillo
used it as one of the collaterals for a loan without his consent. He
contested his supposed Special Power of Attorney (SPA) in Leons
favor, claiming that it is falsified. According to him, the date of
issuance of his Community Tax Certificate (CTC) as indicated on the
notarization of said SPA is January 11, 1993, when he only secured
the same on May 17, 1993. He also assailed the foreclosure of the
lots under TCT Nos.20030 and 10073 which were still registered in
the name of their deceased father. Lastly, Leonardo attacked SBCs
imposition of penalty and interest on the loans as being arbitrary
and unconscionable.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
On the other hand, the Spouses Castillo insisted on the validity of
Leonardos SPA. They alleged that they incurred the loan not only
for themselves, but also for the other members of the Castillo family
who needed money at that time. Upon receipt of the proceeds of
the loan, they distributed the same to their family members, as
agreed upon. However, when the loan became due, their relatives
failed to pay their respective shares such that Leon was forced to
use his own money until SBC had to finally foreclose the mortgage
over the lots.
In a Decision dated October 16, 2006, the RTC of San Pablo City
ruled in Leonardos favor.
Both parties elevated the case to the CA. On November 26, 2010,
the CA denied Leonardos appeal and granted that of the Spouses
Castillo and SBC. It reversed and set aside the RTC Decision,
essentially ruling that the August 5, 1994 real estate mortgage is
valid.
ISSUE:
The main issue sought to be resolved here is whether or not the real
estate mortgage constituted over the property under TCT No. T-
28297 is valid and binding.
RULING:
The Court finds the petition to be without merit.
The following are the legal requisites for a mortgage to be valid:
(1) It must be constituted to secure the fulfillment of a
principal obligation;
(2) The mortgagor must be the absolute owner of the
thing mortgaged;
(3) The persons constituting the mortgage must have the
free disposal of their property, and in the absence thereof,
they should be legally authorized for the purpose.
Leonardo asserts that his signature in the SPA authorizing his
brother, Leon, to mortgage his property covered by TCT No. T-28297
was falsified. He claims that he was in America at the time of its
execution. As proof of the forgery, he focuses on his alleged CTC
used for the notarization of the SPA on May 5, 1993 and points out
that it appears to have been issued on January 11, 1993 when, in
fact, he only obtained it on May 17, 1993.
But it is a settled rule that allegations of forgery, like all other
allegations, must be proved by clear, positive, and convincing
evidence by the party alleging it. It should not be presumed, but
must be established by comparing the alleged forged signature with
the genuine signatures.
Here, Leonardo simply relied on his self-serving declarations and
refused to present further corroborative evidence, saying that the
falsified document itself is the best evidence. He did not even bother
comparing the alleged forged signature on the SPA with samples of
his real and actual signature. What he consistently utilized as lone
support for his allegation was the supposed discrepancy on the date
of issuance of his CTC as reflected on the subject SPAs notarial
acknowledgment. On the contrary, in view of the great ease with
which CTCs are obtained these days, there is reasonable ground to
believe that, as the CA correctly observed, the CTC could have been
issued with the space for the date left blank and Leonardo merely
filled it up to accommodate his assertions. Also, upon careful
examination, the handwriting appearing on the space for the date of
issuance is different from that on the computation of fees, which in
Atty. Paolo Dimayuga
turn was consistent with the rest of the writings on the document.
He did not likewise attempt to show any evidence that would back
up his claim that at the time of the execution of the SPA on May 5,
1993, he was actually in America and therefore could not have
possibly appeared and signed the document before the notary.
And even if the Court were to assume, simply for the sake of
argument, that Leonardo indeed secured his CTC only on May 17,
1993, this does not automatically render the SPA invalid. The
appellate court aptly held that defective notarization will simply
strip the document of its public character and reduce it to a private
instrument, but nonetheless, binding, provided its validity is
established by preponderance of evidence. Article 1358 of the Civil
Code requires that the form of a contract that transmits or
extinguishes real rights over immovable property should be in a
public document, yet the failure to observe the proper form does
not render the transaction invalid. The necessity of a public
document for said contracts is only for convenience; it is not
essential for validity or enforceability. Even a sale of real property,
though not contained in a public instrument or formal writing, is
nevertheless valid and binding, for even a verbal contract of sale or
real estate produces legal effects between the parties.
Consequently, when there is a defect in the notarization of a
document, the clear and convincing evidentiary standard originally
attached to a duly notarized document is dispensed with, and the
measure to test the validity of such document is preponderance of
evidence.
Here, the preponderance of evidence indubitably tilts in favor of the
respondents, still making the SPA binding between the parties even
with the aforementioned assumed irregularity.1wphi1 There are
several telling circumstances that would clearly demonstrate that
Leonardo was aware of the mortgage and he indeed executed the
SPA to entrust Leon with the mortgage of his property. Leon had
inhis possession all the titles covering the eleven (11) properties
mortgaged, including that of Leonardo. Leonardo and the rest of
their relatives could not have just blindly ceded their respective TCTs
to Leon. It is likewise ridiculous how Leonardo seemed to have been
totally oblivious to the status of his property for eight (8) long years,
and would only find outabout the mortgage and foreclosure from a
nephew who himself had consented to the mortgage of his own lot.
Considering the lapse of time from the alleged forgery on May 5,
1993 and the mortgage on August 5, 1994, to the foreclosure on July
29, 1999, and to the supposed discovery in 2001, it appears that the
suit is a mere afterthought or a last-ditch effort on Leonardos part
to extend his hold over his property and to prevent SBC from
consolidating ownership over the same. More importantly,
Leonardo himself admitted on cross-examination that he granted
Leon authority to mortgage, only that, according to him, he thought
it was going to be with China Bank, and not SBC. But as the CA
noted, there is no mention of a certain bank in the subject SPA with
which Leon must specifically deal. Leon, therefore, was simply acting
within the bounds of the SPAs authority when he mortgaged the lot
to SBC.
-------------END 4TH-----------------
VICTORIAS MILLING CO., INC., petitioner,
vs.
COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION,
respondents.
G.R. No. 117356 June 19, 2000
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
St. Therese Merchandising (hereafter STM) regularly
bought sugar from petitioner Victorias Milling Co., Inc., (VMC). In the
course of their dealings, petitioner issued several Shipping
List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among
these was SLDR No. 1214M, which gave rise to the instant case.
Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of
sugar. Each bag contained 50 kilograms and priced at P638.00 per
bag as "per sales order VMC Marketing No. 042 dated October 16,
1989." The transaction it covered was a "direct sale." The SLDR also
contains an additional note which reads: "subject for (sic) availability
of a (sic) stock at NAWACO (warehouse)."
On October 25, 1989, STM sold to private respondent
Consolidated Sugar Corporation (CSC) its rights in SLDR No. 1214M
for P 14,750,000.00. CSC issued one check dated October 25, 1989
and three checks postdated November 13, 1989 in payment. That
same day, CSC wrote petitioner that it had been authorized by STM
to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the
letter were a copy of SLDR No. 1214M and a letter of authority
from STM authorizing CSC "to withdraw for and in our behalf the
refined sugar covered by Shipping List/Delivery Receipt-Refined
Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity
of 25,000 bags."
On October 27, 1989, STM issued 16 checks in the total
amount of P31,900,000.00 with petitioner as payee. The latter, in
turn, issued Official Receipt No. 33743 dated October 27, 1989
acknowledging receipt of the said checks in payment of 50,000 bags.
Aside from SLDR No. 1214M, said checks also covered SLDR No.
1213.
Private respondent CSC surrendered SLDR No. 1214M to
the petitioner's NAWACO warehouse and was allowed to withdraw
sugar. However, after 2,000 bags had been released, petitioner
refused to allow further withdrawals of sugar against SLDR No.
1214M. CSC then sent petitioner a letter dated January 23, 1990
informing it that SLDR No. 1214M had been "sold and endorsed" to
it but that it had been refused further withdrawals of sugar from
petitioner's warehouse despite the fact that only 2,000 bags had
been withdrawn. CSC thus inquired when it would be allowed to
withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not
allow any further withdrawals of sugar against SLDR No. 1214M
because STM had already withdrawn all the sugar covered by the
cleared checks.
On March 2, 1990, CSC sent petitioner a letter demanding
the release of the balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar
corresponding to the amount of STM's cleared checks had been fully
withdrawn and hence, there would be no more deliveries of the
commodity to STM's account. Petitioner also noted that CSC had
represented itself to be STM's agent as it had withdrawn the 2,000
bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific
performance against Defendants were Teresita Ng Sy (doing
business under the name of St. Therese Merchandising) and herein
petitioner. Since the former could not be served with summons, the
case proceeded only against the latter. During the trial, it was
discovered that Teresita Ng Go who testified for CSC was the same
Teresita Ng Sy who could not be reached through summons. CSC,
however, did not bother to pursue its case against her, but instead
used her as its witness.
Atty. Paolo Dimayuga
CSC's complaint alleged that STM had fully paid petitioner
for the sugar covered by SLDR No. 1214M. Therefore, the latter had
no justification for refusing delivery of the sugar. CSC prayed that
petitioner be ordered to deliver the 23,000 bags covered by SLDR
No. 1214M and sought the award of P1,104,000.00 in unrealized
profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as
attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an
unpaid seller for the 23,000 bags. Since STM had already drawn in
full all the sugar corresponding to the amount of its cleared checks,
it could no longer authorize further delivery of sugar to CSC.
Petitioner also contended that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued,
were not documents of title, but mere delivery receipts issued
pursuant to a series of transactions entered into between it and
STM. The SLDRs prescribed delivery of the sugar to the party
specified therein and did not authorize the transfer of said party's
rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR
and was actually STM's co-conspirator to defraud it through a
misrepresentation that CSC was an innocent purchaser for value and
in good faith.
The trial court rendered its judgment favoring private
respondent CSC ordering defendant Victorias Milling Company to
deliver to the plaintiff 23,000 bags of refined sugar due under SLDR
No. 1214.
On appeal, petitioner averred that the dealings between it
and STM were part of a series of transactions involving only one
account or one general contract of sale. Pursuant to this contract,
STM or any of its authorized agents could withdraw bags of sugar
only against cleared checks of STM. SLDR No. 21214M was only one
of 22 SLDRs issued to STM and since the latter had already
withdrawn its full quota of sugar under the said SLDR, CSC was
already precluded from seeking delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar
purchases involving SLDR No. 1214M were separate and
independent transactions and that the details of the series of
purchases were contained in a single statement with a consolidated
summary of cleared check payments and sugar stock withdrawals
because this a more convenient system than issuing separate
statements for each purchase.
The appellate court considered the following issues: (a)
Whether or not the transaction between petitioner and STM
involving SLDR No. 1214M was a separate, independent, and single
transaction; (b) Whether or not CSC had the capacity to sue on its
own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from
STM of the rights to 25,000 bags of sugar covered by SLDR No.
1214M could compel petitioner to deliver 23,000 bags allegedly
unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its
decision modifying the trial court's judgment, to wit:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar
covered by SLDR No. 1214M;
Both parties then seasonably filed separate motions for
reconsideration.
In its resolution dated September 30, 1994, the appellate
court modified its decision to read:
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
"WHEREFORE, the Court hereby modifies the assailed judgment and
orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined
sugar under SLDR No. 1214M
ISSUE:
(1)....Whether or not the Court of Appeals erred in not
ruling that CSC was an agent of STM and hence, estopped
to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in
applying the law on compensation to the transaction
under SLDR No. 1214M so as to preclude petitioner from
offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not
ruling that the sale of sugar under SLDR No. 1214M was a
conditional sale or a contract to sell and hence freed
petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an
error of law in not applying the "clean hands doctrine" to
preclude CSC from seeking judicial relief.
RULING:
Anent the first issue, we find from the records that
petitioner raised this issue for the first time on appeal. It is settled
that an issue which was not raised during the trial in the court below
could not be raised for the first time on appeal as to do so would be
offensive to the basic rules of fair play, justice, and due process.
Nonetheless, the Court of Appeals opted to address this issue,
hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority
allowing CSC to withdraw sugar against SLDR No. 1214M to show
that the latter was STM's agent. The pertinent portion of said letter
reads:
"This is to authorize Consolidated Sugar Corporation or its
representative to withdraw form and in our behalf (stress supplied)
the refined sugar covered by Shipping List/Delivery Receipt = parts of one account, petitioner insists that its debt has been offset
Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total
quantity of 25, 000 bags."
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds
himself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter."
It is clear from Article 1868 that the basis of agency is
representation. On the part of the principal, there must be an
actual intention to appoint or an intention naturally inferable from
his words or actions; and on the part of the agent, there must be
an intention to accept the appointment and act on it, and in the
absence of such intent, there is generally no agency. One factor
which most clearly distinguishes agency from other legal concepts is
control; one person - the agent - agrees to act under the control or
direction of another - the principal. Indeed, the very word "agency"
has come to connote control by the principal. The control factor,
more than any other, has caused the courts to put contracts
between principal and agent in a separate category. The Court of
Appeals, in finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is
dependent upon the acts of the parties, the law makes no
Atty. Paolo Dimayuga
presumption of agency, and it is always a fact to be proved, with the
burden of proof resting upon the persons alleging the agency, to
show not only the fact of its existence, but also its nature and extent
(Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant
failed to sufficiently establish the existence of an agency relation
between plaintiff-appellee and STM. The fact alone that it (STM) had
authorized withdrawal of sugar by plaintiff-appellee "for and in our
(STM's) behalf" should not be eyed as pointing to the existence of an
agency relation ...It should be viewed in the context of all the
circumstances obtaining. Although it would seem STM represented
plaintiff-appellee as being its agent by the use of the phrase "for and
in our (STM's) behalf" the matter was cleared when on 23 January
1990, plaintiff-appellee informed defendant-appellant that SLDFR
No. 1214M had been "sold and endorsed" to it by STM. Further,
plaintiff-appellee has shown that the 25, 000 bags of sugar covered
by the SLDR No. 1214M were sold and transferred by STM to it ...A
conclusion that there was a valid sale and transfer to plaintiff-
appellee may, therefore, be made thus capacitating plaintiff-
appellee to sue in its own name, without need of joining its imputed
principal STM as co-plaintiff."
In the instant case, it appears plain to us that private
respondent CSC was a buyer of the SLDFR form, and not an agent of
STM. Private respondent CSC was not subject to STM's control. The
question of whether a contract is one of sale or agency depends on
the intention of the parties as gathered from the whole scope and
effect of the language employed. That the authorization given to
CSC contained the phrase "for and in our (STM's) behalf" did not
establish an agency. Ultimately, what is decisive is the intention of
the parties. That no agency was meant to be established by the CSC
and STM is clearly shown by CSC's communication to petitioner that
SLDR No. 1214M had been "sold and endorsed" to it. The use of the
words "sold and endorsed" means that STM and CSC intended a
contract of sale, and not an agency. Hence, on this score, no error
was committed by the respondent appellate court when it held that
CSC was not STM's agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the
transactions entered into between petitioner and STM are but serial
by its claim for STM's unpaid purchases, pursuant to Article 1279 of
the Civil Code. However, the trial court found, and the Court of
Appeals concurred, that the purchase of sugar covered by SLDR No.
1214M was a separate and independent transaction; it was not a
serial part of a single transaction or of one account contrary to
petitioner's insistence. Evidence on record shows, without being
rebutted, that petitioner had been paid for the sugar purchased
under SLDR No. 1214M. Petitioner clearly had the obligation to
deliver said commodity to STM or its assignee. Since said sugar had
been fully paid for, petitioner and CSC, as assignee of STM, were not
mutually creditors and debtors of each other. No reversible error
could thereby be imputed to respondent appellate court when, it
refused to apply Article 1279 of the Civil Code to the present case.
Regarding the third issue, petitioner contends that the sale
of sugar under SLDR No. 1214M is a conditional sale or a contract to
sell, with title to the sugar still remaining with the vendor.
Noteworthy, SLDR No. 1214M contains the following terms and
conditions:
"It is understood and agreed that by payment by
buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to
buyer/trader and delivery to him/it is deemed effected and
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
completed (stress supplied) and buyer/trader assumes full
responsibility therefore"
The aforequoted terms and conditions clearly show that
petitioner transferred title to the sugar to the buyer or his assignee
upon payment of the purchase price. Said terms clearly establish a
contract of sale, not a contract to sell. Petitioner is now estopped
from alleging the contrary. The contract is the law between the
contracting parties. And where the terms and conditions so
stipulated are not contrary to law, morals, good customs, public
policy or public order, the contract is valid and must be upheld.
Having transferred title to the sugar in question, petitioner is now
obliged to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and
private respondent CSC have entered into a conspiracy to defraud it
of its sugar. This conspiracy is allegedly evidenced by: (a) the fact
that STM's selling price to CSC was below its purchasing price; (b)
CSC's refusal to pursue its case against Teresita Ng Go; and (c) the
authority given by the latter to other persons to withdraw sugar
against SLDR No. 1214M after she had sold her rights under said
SLDR to CSC. Petitioner prays that the doctrine of "clean hands"
should be applied to preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here the records bare of
convincing evidence whatsoever to support the petitioner's
allegations of fraud. We are now constrained to deem this matter
purely speculative, bereft of concrete proof.
REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M.
CALIMLIM, in his capacity as former Chief of the Intelligence
Service, Armed Forces of the Philippines (ISAFP), and former
Commanding General, Presidential Security Group (PSG), and MAJ.
DAVID B. DICIANO, in his capacity as an Officer of ISAFP and former
member of the PSG, Petitioners,
vs.
HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge,
Regional Trial Court, Branch 223, Quezon City, and DANTE LEGASPI,
represented by his attorney-in-fact, Paul Gutierrez, Respondent.
G.R. No. 156015. August 11, 2005
Private respondent Dante Legaspi is the owner of a land
located in Bigte, Norzagaray, Bulacan. In November 1999, petitioner
Jose Calimlim, representing the Republic of the Philippines, and as
then head of the Intelligence Service of the Armed Forces of the
Philippines and the Presidential Security Group, entered into a
Memorandum of Agreement (MOA) with one Ciriaco Reyes. The
MOA granted Reyes a permit to hunt for treasure in a land in Bigte,
Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a
witness. It was further alleged that thereafter, Reyes, together with
petitioners, started, digging, tunneling and blasting works on the
said land of Legaspi. The complaint also alleged that petitioner
Calimlim assigned about 80 military personnel to guard the area and
encamp thereon to intimidate Legaspi and other occupants of the
area from going near the subject land.
On February 15, 2000, Legaspi executed a special power of
attorney (SPA) appointing his nephew, private respondent Gutierrez,
as his attorney-in-fact. Gutierrez was given the power to deal with
the treasure hunting activities on Legaspis land and to file charges
against those who may enter it without the latters authority.
Atty. Paolo Dimayuga
Legaspi agreed to give Gutierrez 40% of the treasure that may be
found in the land.
On February 29, 2000, Gutierrez filed a case for damages
and injunction against petitioners for illegally entering Legaspis
land. He hired the legal services of Atty. Homobono Adaza. Their
contract provided that as legal fees, Atty. Adaza shall be entitled to
30% of Legaspis share in whatever treasure may be found in the
land. In addition, Gutierrez agreed to pay Atty. Adaza P5,000.00 as
appearance fee per court hearing and defray all expenses for the
cost of the litigation. Upon the filing of the complaint, then
Executive Judge Perlita J. Tria Tirona issued a 72-hour temporary
restraining order (TRO) against petitioners.
The case was subsequently raffled to the RTC of Quezon
City, Branch 223, then presided by public respondent Judge
Victorino P. Evangelista. On March 2, 2000, respondent judge issued
another 72-hour TRO and a summary hearing for its extension was
set on March 7, 2000.
On March 14, 2000, petitioners filed a Motion to Dismiss
contending: first, there is no real party-in-interest as the SPA of
Gutierrez to bring the suit was already revoked by Legaspi on March
7, 2000, as evidenced by a Deed of Revocation, and, second,
Gutierrez failed to establish that the alleged armed men guarding
the area were acting on orders of petitioners.
On March 23, 2000, the trial court granted private
respondents application for a writ of preliminary injunction on the
following grounds: (1) the diggings and blastings appear to have
been made on the land of Legaspi, hence, there is an urgent need to
maintain the status quo to prevent serious damage to Legaspis land;
and, (2) the SPA granted to Gutierrez continues to be valid.
On even date, the trial court issued another Order denying
petitioners motion to dismiss and requiring petitioners to answer
the complaint. On April 4, 2000, it likewise denied petitioners
motion for inhibition. On appeal, the Court of Appeals affirmed the
decision of the trial court.
ISSUE:
WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND
PRIVATE RESPONDENT GUTIERREZ HAS BEEN EFFECTIVELY REVOKED
BY LEGASPI.
RULING:
On the first issue, petitioners claim that the special power
of attorney of Gutierrez to represent Legaspi has already been
revoked by the latter. Private respondent Gutierrez, however,
contends that the unilateral revocation is invalid as his agency is
coupled with interest.
We agree with private respondent.
Art. 1868 of the Civil Code provides that by the contract of agency,
an agent binds himself to render some service or do something in
representation or on behalf of another, known as the principal,
with the consent or authority of the latter.
A contract of agency is generally revocable as it is a
personal contract of representation based on trust and confidence
reposed by the principal on his agent. As the power of the agent to
act depends on the will and license of the principal he represents,
the power of the agent ceases when the will or permission is
withdrawn by the principal. Thus, generally, the agency may be
revoked by the principal at will.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

However, an exception to the revocability of a contract of In the case at bar, we find that respondent judge had
agency is when it is coupled with interest, i.e., if a bilateral sufficient basis to issue the writ of preliminary injunction. It was
contract depends upon the agency. The reason for its irrevocability established, prima facie, that Legaspi has a right to peaceful
is because the agency becomes part of another obligation or possession of his land, pendente lite. Legaspi had title to the subject
agreement. It is not solely the rights of the principal but also that of land. It was likewise established that the diggings were conducted
the agent and third persons which are affected. Hence, the law by petitioners in the enclosed area of Legaspis land. Whether the
provides that in such cases, the agency cannot be revoked at the land fenced by Gutierrez and claimed to be included in the land of
sole will of the principal. Legaspi covered an area beyond that which is included in the title
of Legaspi is a factual issue still subject to litigation and proof by
In the case at bar, we agree with the finding of the trial
the parties in the main case for damages. It was necessary for the
and appellate courts that the agency granted by Legaspi to Gutierrez
trial court to issue the writ of preliminary injunction during the
is coupled with interest as a bilateral contract depends on it. It is
pendency of the main case in order to preserve the rights and
clear from the records that Gutierrez was given by Legaspi, inter
interests of private respondents Legaspi and Gutierrez.
alia, the power to manage the treasure hunting activities in the
subject land; to file any case against anyone who enters the land We have carefully examined the records and we find no
without authority from Legaspi; to engage the services of lawyers sufficient basis to hold that respondent judge should have recused
to carry out the agency; and, to dig for any treasure within the land himself from hearing the case. There is no discernible pattern of bias
and enter into agreements relative thereto. on the rulings of the respondent judge. Bias and partiality can never
be presumed. Bare allegations of partiality will not suffice in an
It was likewise agreed upon that Gutierrez shall be
absence of a clear showing that will overcome the presumption that
entitled to 40% of whatever treasure may be found in the land.
the judge dispensed justice without fear or favor. It bears to stress
Pursuant to this authority and to protect Legaspis land from the
again that a judges appreciation or misappreciation of the
alleged illegal entry of petitioners, agent Gutierrez hired the services
sufficiency of evidence adduced by the parties, or the correctness of
of Atty. Adaza to prosecute the case for damages and injunction
a judges orders or rulings on the objections of counsels during the
against petitioners. As payment for legal services, Gutierrez agreed
hearing, without proof of malice on the part of respondent judge, is
to assign to Atty. Adaza 30% of Legaspis share in whatever
not sufficient to show bias or partiality.
treasure may be recovered in the subject land. It is clear that the
treasure that may be found in the land is the subject matter of the As we held in the case of Webb vs. People, the adverse
agency; that under the SPA, Gutierrez can enter into contract for the and erroneous rulings of a judge on the various motions of a party
legal services of Atty. Adaza; and, thus Gutierrez and Atty. Adaza do not sufficiently prove bias and prejudice to disqualify him. To be
have an interest in the subject matter of the agency, i.e., in the disqualifying, it must be shown that the bias and prejudice stemmed
treasures that may be found in the land. from an extrajudicial source and result in an opinion on the merits
on some basis other than what the judge learned from his
This bilateral contract depends on the agency and thus
participation in the case. Opinions formed in the course of judicial
renders it as one coupled with interest, irrevocable at the sole will of
proceedings, although erroneous, as long as based on the evidence
the principal Legaspi. When an agency is constituted as a clause in a
adduced, do not prove bias or prejudice. We also emphasized that
bilateral contract, that is, when the agency is inserted in another
repeated rulings against a litigant, no matter how erroneously,
agreement, the agency ceases to be revocable at the pleasure of the
vigorously and consistently expressed, do not amount to bias and
principal as the agency shall now follow the condition of the bilateral
prejudice which can be a bases for the disqualification of a judge.
agreement. Consequently, the Deed of Revocation executed by
Legaspi has no effect. The authority of Gutierrez to file and continue
with the prosecution of the case at bar is unaffected.
GENEVIEVE LIM, petitioner,
OTHER ISSUES: vs.
FLORENCIO SABAN, respondents.
On the second issue, we hold that the issuance of the writ
of preliminary injunction is justified. A writ of preliminary injunction FACTS
is an ancilliary or preventive remedy that is resorted to by a litigant
The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square
to protect or preserve his rights or interests and for no other
meter lot in Cebu City (the "lot"), entered into anAgreement and
purpose during the pendency of the principal action. It is issued by
Authority to Negotiate and Sell (Agency Agreement) with
the court to prevent threatened or continuous irremediable injury to
respondent Florencio Saban (Saban) on February 8, 1994. Under the
the applicant before his claim can be thoroughly studied and
Agency Agreement, Ybaez authorized Saban to look for a buyer of
adjudicated. Its aim is to preserve the status quo ante until the
the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark
merits of the case can be heard fully, upon the applicants showing
up the selling price to include the amounts needed for payment of
of two important conditions, viz.: (1) the right to be protected prima
taxes, transfer of title and other expenses incident to the sale, as
facie exists; and, (2) the acts sought to be enjoined are violative of
well as Sabans commission for the sale.
that right.
Through Sabans efforts, Ybaez and his wife were able to sell the lot
It is crystal clear that at the hearing for the issuance of a
to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and
writ of preliminary injunction, mere prima facie evidence is needed
Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the
to establish the applicants rights or interests in the subject matter
lot as indicated in theDeed of Absolute Sale is Two Hundred
of the main action. It is not required that the applicant should
Thousand Pesos (P200,000.00). It appears, however, that the
conclusively show that there was a violation of his rights as this
vendees agreed to purchase the lot at the price of Six Hundred
issue will still be fully litigated in the main case. Thus, an applicant
Thousand Pesos (P600,000.00), inclusive of taxes and other
for a writ is required only to show that he has an ostensible right to
incidental expenses of the sale. After the sale, Lim remitted to Saban
the final relief prayed for in his complaint.
the amounts of One Hundred Thirteen Thousand Two Hundred Fifty
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Seven Pesos (P113,257.00) for payment of taxes due on the
transaction as well as Fifty Thousand Pesos (P50,000.00) as brokers
commission. Lim also issued in the name of Saban four postdated
checks in the aggregate amount of Two Hundred Thirty Six Thousand
Seven Hundred Forty Three Pesos (P236,743.00).
Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to
Lim. In the letter Ybaez asked Lim to cancel all the checks issued by
her in Sabans favor and to "extend another partial payment" for the
lot in his (Ybaezs) favor.
After the four checks in his favor were dishonored upon
presentment, Saban filed a Complaint for collection of sum of money
and damages against Ybaez and Lim with the Regional Trial Court
(RTC) of Cebu City.
Saban alleged that Ybaez told Lim that he (Saban) was not entitled
to any commission for the sale since he concealed the actual selling
price of the lot from Ybaez and because he was not a licensed real
estate broker. Ybaez was able to convince Lim to cancel all four
checks.
Saban further averred that Ybaez and Lim connived to deprive him
of his sales commission by withholding payment of the first three
checks. He also claimed that Lim failed to make good the fourth
check which was dishonored because the account against which it
was drawn was closed.
Ybaez died during the pendency of the case before the RTC. Upon
motion of his counsel, the trial court dismissed the case only against
him without any objection from the other parties.
On May 14, 1997, the RTC rendered its Decision dismissing Sabans
complaint, declaring the four (4) checks issued by Lim as stale and
non-negotiable, and absolving Lim from any liability towards Saban.
Saban appealed the trial courts Decision to the Court of Appeals.
On October 27, 2003, the appellate court promulgated
its Decision reversing the trial courts ruling. It held that Saban was
entitled to his commission amounting to P236,743.00.
The Court of Appeals ruled that Ybaezs revocation of his contract
of agency with Saban was invalid because the agency was coupled
with an interest and Ybaez effected the revocation in bad faith in
order to deprive Saban of his commission and to keep the profits for
himself.
ISSUE
Whether or not the contract of agency between Ybaez and Saban is
coupled with interest?
RULING
No.
The Court gives due course to the petition, but agrees with the
result reached by the Court of Appeals.
The Court affirms the appellate courts finding that the agency was
not revoked since Ybaez requested that Lim make stop payment
orders for the checks payable to Saban only after the consummation
of the sale on March 10, 1994. At that time, Saban had already
performed his obligation as Ybaezs agent when, through his
(Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the
lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which
was consummated through his efforts would be a breach of his
contract of agency with Ybaez which expressly states that Saban
Atty. Paolo Dimayuga
would be entitled to any excess in the purchase price after
deducting the P200,000.00 due to Ybaez and the transfer taxes and
other incidental expenses of the sale.
Saban had completely performed his obligations under his contract
of agency with Ybaez by finding a suitable buyer to preparing
the Deed of Absolute Sale between Ybaez and Lim and her co-
vendees. Moreover, the contract of agency very clearly states that
Saban is entitled to the excess of the mark-up of the price of the lot
after deducting Ybaezs share of P200,000.00 and the taxes and
other incidental expenses of the sale.
However, the Court does not agree with the appellate courts
pronouncement that Sabans agency was one coupled with an
interest. Under Article 1927 of the Civil Code, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means
of fulfilling an obligation already contracted, or if a partner is
appointed manager of a partnership in the contract of partnership
and his removal from the management is unjustifiable. Stated
differently, an agency is deemed as one coupled with an interest
where it is established for the mutual benefit of the principal and
of the agent, or for the interest of the principal and of third
persons, and it cannot be revoked by the principal so long as the
interest of the agent or of a third person subsists. In an agency
coupled with an interest, the agents interest must be in the
subject matter of the power conferred and not merely an interest
in the exercise of the power because it entitles him to
compensation. When an agents interest is confined to earning his
agreed compensation, the agency is not one coupled with an
interest, since an agents interest in obtaining his compensation as
such agent is an ordinary incident of the agency relationship.
Sabans entitlement to his commission having been settled, the
Court must now determine whether Lim is the proper party against
whom Saban should address his claim.
Sabans right to receive compensation for negotiating as broker for
Ybaez arises from the Agency Agreement between them. Lim is not
a party to the contract. However, the record reveals that she had
knowledge of the fact that Ybaez set the price of the lot
at P200,000.00 and that the P600,000.00the price agreed upon by
her and Sabanwas more than the amount set by Ybaez because it
included the amount for payment of taxes and for Sabans
commission as broker for Ybaez.
Considering the circumstances surrounding the case, and the
undisputed fact that Lim had not yet paid the balance
of P200,000.00 of the purchase price of P600,000.00, it is just and
proper for her to pay Saban the balance ofP200,000.00.
Furthermore, since Ybaez received a total of P230,000.00 from Lim,
or an excess of P30,000.00 from his asking price of P200,000.00,
Saban may claim such excess from Ybaezs estate, if that remedy is
still available, in view of the trial courts dismissal of Sabans
complaint as against Ybaez, with Sabans express consent, due to
the latters demise on November 11, 1994.
RAMON RALLOS, Administrator of the Estate of CONCEPCION
RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
APPEALS, respondents.
FACTS
 [PARTNERSHIP, AGENCY & TRUSTS: 3B]
Concepcion and Gerundia both surnamed Rallos were sisters and
registered co-owners of a parcel of land known as Lot No. 5983 of
the Cadastral Survey of Cebu covered by Transfer Certificate of Title
No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters
executed a special power of attorney in favor of their brother,
Simeon Rallos, authorizing him to sell for and in their behalf lot
5983. On March 3, 1955, Concepcion Rallos died. On September 12,
1955, Simeon Rallos sold the undivided shares of his sisters
Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty
Corporation for the sum of P10,686.90. The deed of sale was
registered in the Registry of Deeds of Cebu, TCT No. 11118 was
cancelled, and a new transfer certificate of Title No. 12989 was
issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate
Estate of Concepcion Rallos filed a complaint docketed as Civil Case
No. R-4530 of the Court of First Instance of Cebu, praying (1) that
the sale of the undivided share of the deceased Concepcion Rallos in
lot 5983 be d unenforceable, and said share be reconveyed to her
estate; (2) that the Certificate of 'title issued in the name of Felix Go
Chan & Sons Realty Corporation be cancelled and another title be
issued in the names of the corporation and the "Intestate estate of
Concepcion Rallos" in equal undivided and (3) that plaintiff be
indemnified by way of attorney's fees and payment of costs of suit.
While the case was pending in the trial court, both Simon and his
sister Gerundia died and they were substituted by the respective
administrators of their estates.
What is the legal effect of an act performed by an agent after the
death of his principal? Applied more particularly to the instant case,
We have the query. is the sale of the undivided share of Concepcion
Rallos in lot 5983 valid although it was executed by the agent after
the death of his principal? What is the law in this jurisdiction as to
the effect of the death of the principal on the authority of the agent
to act for and in behalf of the latter? Is the fact of knowledge of the
death of the principal a material factor in determining the legal
effect of an act performed after such death?
ISSUE
Whether or not the sale of Simeon Rallos (Agent) is valid after the
death of his sister Concepcion (Principal)?
RULING
No.
The Civil Code, expressly provides for two exceptions to the general
rule that death of the principal revokes ipso jure the agency, to wit:
(1) that the agency is coupled with an interest (Art 1930), and (2)
that the act of the agent was executed without knowledge of the
death of the principal and the third person who contracted with the
agent acted also in good faith.
It is a basic axiom in civil law embodied in our Civil Code that no one
may contract in the name of another without being authorized by
the latter, or unless he has by law a right to represent him. A
contract entered into in the name of another by one who has no
authority or the legal representation or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party. Article 1403 (1)
of the same Code also provides:
ART. 1403. The following contracts are unenforceable,
unless they are justified:
Atty. Paolo Dimayuga
(1) Those entered into in the name of another person by
one who hi - been given no authority or legal
representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and
acceptance of the relationship of agency whereby one party, caged
the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third
persons. The essential elements of agency are: (1) there is consent,
express or implied of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person;
(3) the agents acts as a representative and not for himself, and (4)
the agent acts within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature.
The authority of the agent to act emanates from the powers granted
to him by his principal; his act is the act of the principal if done
within the scope of the authority. Qui facit per alium facit se. "He
who acts through another acts himself".
There are various ways of extinguishing agency, but here, we are
concerned only with one cause death of the principal Paragraph 3
of Art. 1919 of the Civil Code which was taken from Art. 1709 of the
Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or
insolvency of the principal or of the agent; ...
By reason of the very nature of the relationship between Principal
and agent, agency is extinguished by the death of the principal or
the agent. This is the law in this jurisdiction.
Manresa commenting on Art. 1709 of the Spanish Civil Code explains
that the rationale for the law is found in the juridical basis of agency
which is representation Them being an in. integration of the
personality of the principal integration that of the agent it is not
possible for the representation to continue to exist once the death
of either is establish. Pothier agrees with Manresa that by reason of
the nature of agency, death is a necessary cause for its
extinction. Laurent says that the juridical tie between the principal
and the agent is severed ipso jure upon the death of either without
necessity for the heirs of the fact to notify the agent of the fact of
death of the former.
The same rule prevails at common law the death of the principal
effects instantaneous and absolute revocation of the authority of
the agent unless the Power be coupled with an interest. This is the
prevalent rule in American Jurisprudence where it is well-settled
that a power without an interest confer. red upon an agent is
dissolved by the principal's death, and any attempted execution of
the power afterward is not binding on the heirs or representatives of
the deceased.
Is the general rule provided for in Article 1919 that the death of the
principal or of the agent extinguishes the agency, subject to any
exception, and if so, is the instant case within that exception? That is
the determinative point in issue in this litigation. It is the contention
of respondent corporation which was sustained by respondent court
that notwithstanding the death of the principal Concepcion Rallos
the act of the attorney-in-fact, Simeon Rallos in selling the former's
sham in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
 [PARTNERSHIP, AGENCY & TRUSTS: 3B] Atty. Paolo Dimayuga

Articles 1930 and 1931 of the Civil Code provide the exceptions to In case of a general power which does not specify the
the general rule afore-mentioned. persons to whom represents' on should be made, it is the
general opinion that all acts, executed with third persons
ART. 1930. The agency shall remain in full force
who contracted in good faith, Without knowledge of the
and effect even after the death of the principal,
revocation, are valid. In such case, the principal may
if it has been constituted in the common interest
exercise his right against the agent, who, knowing of the
of the latter and of the agent, or in the interest
revocation, continued to assume a personality which he no
of a third person who has accepted the
longer had.
stipulation in his favor.
The above discourse however, treats of revocation by an act of the
ART. 1931. Anything done by the agent, without
principal as a mode of terminating an agency which is to be
knowledge of the death of the principal or of any
distinguished from revocation by operation of law such as death of
other cause which extinguishes the agency, is
the principal which obtains in this case. On page six of this Opinion
valid and shall be fully effective with respect to
We stressed that by reason of the very nature of the relationship
third persons who may have contracted with him
between principal and agent, agency is extinguished ipso jure upon
in good. faith.
the death of either principal or agent. Although a revocation of a
Article 1930 is not involved because admittedly the special power of power of attorney to be effective must be communicated to the
attorney executed in favor of Simeon Rallos was not coupled with an parties concerned, yet a revocation by operation of law, such as by
interest. death of the principal is, as a rule, instantaneously effective
inasmuch as "by legal fiction the agent's exercise of authority is
Article 1931 is the applicable law. Under this provision, an act done regarded as an execution of the principal's continuing will. With
by the agent after the death of his principal is valid and effective death, the principal's will ceases or is the of authority is
only under two conditions, viz: (1) that the agent acted without extinguished.
knowledge of the death of the principal and (2) that the third person
who contracted with the agent himself acted in good faith. Good The Civil Code does not impose a duty on the heirs to notify the
faith here means that the third person was not aware of the death agent of the death of the principal. What the Code provides in
of the principal at the time he contracted with said agent. These two Article 1932 is that, if the agent die his heirs must notify the principal
requisites must concur the absence of one will render the act of the thereof, and in the meantime adopt such measures as the
agent invalid and unenforceable. circumstances may demand in the interest of the latter. Hence, the
fact that no notice of the death of the principal was registered on
In the instant case, it cannot be questioned that the agent, Simeon the certificate of title of the property in the Office of the Register of
Rallos, knew of the death of his principal at the time he sold the Deeds, is not fatal to the cause of the estate of the principal
latter's share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings
filed by Simon Rallos before the trial court. That Simeon Rallos knew
of the death of his sister Concepcion is also a finding of fact of the
court a quo and of respondent appellate court when the latter
stated that Simon Rallos 'must have known of the death of his sister,
and yet he proceeded with the sale of the lot in the name of both his
sisters Concepcion and Gerundia Rallos without informing appellant
(the realty corporation) of the death of the former.
On the basis of the established knowledge of Simon Rallos
concerning the death of his principal Concepcion Rallos, Article 1931
of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death
of his principal; it is not enough that the third person acted in good
faith.
Another argument advanced by respondent court is that the vendee
acting in good faith relied on the power of attorney which was duly
registered on the original certificate of title recorded in the Register
of Deeds of the province of Cebu, that no notice of the death was
aver annotated on said certificate of title by the heirs of the principal
and accordingly they must suffer the consequences of such
omission.
To support such argument reference is made to a portion
in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of
contracting with certain persons, the revocation must be
made known to them. But if the agency is general iii
nature, without reference to particular person with whom
the agent is to contract, it is sufficient that the principal
exercise due diligence to make the revocation of the
agency publicity known.