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Partnership, Agency and Trusts 3B S.Y.

2017-2018

PART I: PARTNERSHIP

CONCEPT OF PARTNERSHIP AND ITS CLASSIFICATIONS


(ARTICLES 1767-1783)

Article 1767

Aranas, Janine Karla A.

COMMISSIONER OF INTERNAL REVENUE v. SUTER and THE COURT OF


TAX APPEALS
G.R. No. L-25532. February 28, 1969.
27 SCRA 152

Facts:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed by herein
respondent Suter as the general partner, and Spirig and Carlson, as the limited partners and such was
registered with the SEC. The partners contributed, respectively, P20,000.00, P18,000.00 and
P2,000.00 to the partnership. The firm engaged in importation, marketing, distribution and
operation of automatic phonographs, radios, television sets and amusement machines. It had
portrayed itself as a limited partnership through its office, letterheads, receipts and books of account
which used its name. Soon, Suter married Spirig and Carlson sold his share to the couple. The
limited partnership had been filing its income tax returns as a corporation, without objection by the
herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the partners-spouses Suter and
Spirig resulting in a determination of a deficiency income tax against respondent Suter in the amount
of P2, 678.06 for 1954 and P4, 567.00 for 1955. Suter protested the assessment but failed in his
request for its cancellation.

Commissioner of Internal Revenue contends that the marriage of Suter and Spirig and their
acquisition of Carlsons interests 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 they have exclusive ownership and control of the business. Suters ITR for the
years in question should have included his and his wife's individual incomes and that of the limited
partnership, in accordance with Section 45 (d) of the National Internal Revenue Code, which
provides as follows: (d) Husband and wife. In the case of married persons, whether citizens,
residents or non-residents, only one consolidated return for the taxable year shall be filed by either
spouse to cover the income of both spouses; ....

Suter on the other hand contends that, as the Court of Tax Appeals held, that his marriage
and the acquisition of Carlson's interests is not a ground for dissolution of the partnership, either in
the Code of Commerce or in the New Civil Code. Its juridical personality had not been affected and

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as a limited 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.

Issue:

Whether or not the CIRs contention is with merit.

Held:
It is without merit. The petitioner-appellant has evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but a particular one. According
to Articles 1674 and 1675 of the Spanish Civil Code, of 1889, a universal partnership requires either
that the object of the association be all the present property of the partners, as contributed by them
to the common fund, or else "all that the partners may acquire by their industry or work during the
existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not such a universal
partnership, since the contributions of the partners were fixed sums of money and neither one of
them was an industrial partner. William J. Suter "Morcoin" Co., Ltd. was not a partnership that
spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.

The marriage of two of the partners, which made the company became a single
proprietorship, is erroneous. The capital contributions of the married partners remain separately
owned before and after their marriage under the Spanish Civil Code (Article 1396) because they
brought it in to their marriage as their own. Under our law, a partnership has a juridical personality
of its own, distinct and separate from that of its partners. To require that income to be included in
the individual tax return of respondent Suter is to go beyond the intent of the law. It conflicts with
Section 24 of the NIRC which distinguishes treatment of general and limited partnership treatment.
The code taxes the latter on its income, but not the former, because it is the members, and not the
firm, are taxable in their individual capacities for any dividend or share of the profit derived from the
duly registered general partnership.

In Agapito vs. Molo and People's Bank vs. Register of Deeds of Manila, the fruits of the
wife's parapherna become conjugal only when no longer needed to defray the expenses for the
administration and preservation of the paraphernal capital of the wife. The appellant is again
mistaken in assuming that the conjugal partnership of gains is a taxable unit. What is taxable is the
"income of both spouses". Though the amount of income may be the same for a given taxable year,
their consequences would be different, because their contributions are not the same. The Revenue
Code does not authorize the limited partnership to pay tax on its own income. Consolidation of
income is not required.

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Aranas, Janine Karla A.

WOODHOUSE v. HALILI
G.R. No. L-4811. July 31, 1953.
93 Phil. 526

Facts:

Woodhouse and Halili entered into a written agreement. The most important provisions of
which are (1) that they shall organize a partnership for the bottling and distribution of Mision soft
drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing
the capital necessary therefor; (2) that the defendant was to decide matters of general policy
regarding the business, while the plaintiff was to attend to the operation and development of the
bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf
of the proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of
the business. A franchise agreement was soon after entered into by the parties and Mission Dry
Corporation to produce, bottle, distribute, and sell Mission beverages in the Philippines. When the
bottling plant was already in operation, plaintiff demanded from the defendant that the partnership
papers be executed but as time went by, none were executed and the defendant refused to give any
allowances to the plaintiff, hence, this complaint. The defendant countered that the plaintiff
consented to such agreement and that the latter even misrepresented that he had ownership of the
franchise but such was actually given to the defendant himself. He also contends that the contract of
partnership must be annulled due to such false representation or fraud. He also contended that the
plaintiff failed to do other undertakings such as perform duties as the managing partner (agreed
upon). Throughout the commencement stage of the company activities and during the bottling plant
construction, all that he suggested was about the toilet facilities for the laborers.

Issue:

Whether or not the false representation would amount to a fraud that would vitiate the
contract of partnership.

Held:

It was not. To be able to declare the partnership null and void, the fraud must be dolo
causante or that which induced the person to enter into a contract. Such was not the case; the
plaintiff no longer had the exclusive franchise at the time the contract was perfected. The plaintiff
assumed the obligation to secure said franchise for the partnership, as the bottler and distributor for
the Mission Dry Corporation when the contract was finally entered into. Therefore the plaintiffs
exclusive ownership was not the reason why the defendant entered into the contract. It was not dolo
causante or principal inducement.

It was dolo incedente. The plaintiff used his supposed exclusive ownership of the franchise
for a bigger share in profits, 30% of net profits to be exact. Having arrived at the conclusion that the
agreement may not be declared null and void, the issue of whether the agreement should be carried
out remains. The agreement states that the parties intended that the execution of the agreement to
form a partnership was to be carried out at a later date. They expressly agreed that they shall form a
partnership. The law also states that the defendant may not be forced to push through and execute
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the partnership papers. The defendant had an obligation to do and not to give therefore, his
freedom to do an act he has promised to do, or not to do it, as he pleases must be respected. The
defendant may not be forced to execute such partnership agreement but this does not mean that the
plaintiff is left with nothing. He is entitled to damages equivalent to actual loss that he suffered and
the profits reasonably expected to be received. Due to false representation, the 30% share in net
profits may not be given anymore. When defendant learned in Los Angeles that plaintiff did not
have the exclusive franchise which he pretended he had and which he had agreed to transfer to the
partnership, his spontaneous reaction was to reduce plaintiff's share from 30% to 15% only, to
which reduction defendant appears to have readily given his assent. It was under this understanding,
which amounts to a virtual modification of the contract, that the bottling plant was established and
plaintiff worked as Manager for the first three months. We may consider this as a fair estimate of
damages to be awarded.

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Balcueva, Ira Colleen E.

ORTEGA v. COURT OF APPEALS


G.R. No. 109248. July 3, 1995.
245 SCRA 529

Facts:

On February 17, 1988 petitioner-appellant Ortega, wrote the respondents-appellees a letter


stating his intention to withdraw from the firm of Bito, Misa and Lozada.

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and
Clearing Department (SICD) a petition for dissolution and liquidation of partnership. The hearing
officer rendered a decision ruling that: "Petitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are
hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the
liquidation of the shares of any retiring or withdrawing partner in the partnership interest."

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada."
The Commission ruled that, being a partnership at will, the law firm could be dissolved by any
partner at any time, such as by his withdrawal therefrom, regardless of good faith or bad faith, since
no partner can be forced to continue in the partnership against his will.

Issues:

1. Whether or not the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will; and

2. Whether or not the withdrawal of Misa dissolved the partnership regardless of his good or
bad faith

Held:

Yes. The partnership agreement provides that The partnership shall continue so long as
mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be
continued by the surviving partners." A partnership that does not fix its term is a partnership at will.
That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed
such a partnership need not be unduly belabored.

Yes. The withdrawal of Atty. Misa has dissolved the partnership, any one of the partners
may, at his sole pleasure, dictate 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.

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Balcueva, Ira Colleen E.

AURBACH v. SUNNY WARES MANUFACTURING CORPORTION


G.R. Nos. 75875, 75951 & 75975-76. December 15, 1989.
186 SCRA 130

Facts:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went
abroad to look for foreign partners, European or American who could help in its expansion plans.
On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into
an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors
agreed to participate in the ownership of an enterprise which would engage primarily in the business
of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares.
The parties agreed that the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares
Manufacturing Corporation."

The Agreement has the following provisions relevant to the issues in these cases on the
nomination and election of the directors of the corporation:

5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which
shall consist of nine individuals. As long as American-Standard shall own at least 30% of
the outstanding stock of the Corporation, three of the nine directors shall be designated by
American-Standard, and the other six shall be designated by the other stockholders of the
Corporation. (pp. 51 & 53, Rollo of 75875)

The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a deterioration of the
initially harmonious relations between the two groups. On March 8, 1983, the annual stockholders'
meeting was held. The meeting was presided by Baldwin Young. The minutes were taken by the
Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders
then proceeded to the election of the members of the board of directors. The ASI group nominated
three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine
investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr.,
George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar,
who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two
nominations out of order on the basis of section 5 (a) of the Agreement, the consistent practice of
the parties during the past annual stockholders' meetings to nominate only nine persons as nominees
for the nine-member board of directors, and the legal advice of Saniwares' legal counsel.

The ASI Group, Luciano E. Salazar and other stockholders, allegedly representing 53 or
54% of the shares of Saniwares, decided to continue the meeting at the elevator lobby of the
American Standard Building. The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the
meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David
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Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors
were certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the explanation
that there was a tie among the other six (6) nominees for the four (4) remaining positions of
directors and that the body decided not to break the tie.

Issue:

Whether the nature of the business entered into by the ASI and Saniwares is a joint venture
or a corporation.

Ruling:

The nature of the business entered into by ASI and Saniwares is a joint venture. The rule is
that whether the parties to a particular contract have thereby established among themselves a joint
venture or some other relation depends upon their actual intention which is determined in
accordance with the rules governing the interpretation and construction of contracts.

In the instant cases, the examination of important provisions of the Agreement as well as the
testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to
establish a joint venture and not a corporation. The history of the organization of Saniwares and the
unusual arrangements which govern its policy making body are all consistent with a joint venture
and not with an ordinary corporation.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the Agreement that "Nothing herein contained shall be
construed to constitute any of the parties hereto partners or joint venturers in respect of any
transaction hereunder" was merely to obviate the possibility of the enterprise being treated as
partnership for tax purposes and liabilities to third parties.

A corporation may enter into a joint venture with another where the nature of that venture is
in line with the business authorized by its charter.

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Calimlim, Jeninah A.

LIM TONG LIM v. PHILIPPINE FISHING GEAR INDUSTRIES, INC.


G.R. No. 136448. November 3, 1999.
317 SCRA 728

Facts:

Antonio Chua, Peter Yao and Petitioner Lim Tong Lim were engaged in the fishing
business. They purchased fishing nets and floats from Respondent Philippine Fishing Gear
Industries, Inc. The buyers, however, failed to pay for the items. Hence, Respondent filed a
collection suit against Chua, Yao and Petitioner, in their capacities as general partners, with a prayer
for a writ of preliminary attachment. The lower court issued a Writ of Preliminary Attachment and
the items were attached.

Upon motion of Respondent, the items were ordered sold at public auction wherein
Respondent was the sole and winning bidder. The proceeds of the sale paid for by Respondent were
deposited in court, and replaced the attached property as a guaranty in case Respondent gets a
favorable ruling.

The trial court eventually ruled that Respondent was entitled to the Writ of Attachment and
that Chua, Yao and Petitioner, as general partners, were jointly liable to pay respondent. The CA
affirmed the decision of the lower court. Hence, petitioner brought this petition for review on
certiorari.

Issue:

Whether by their acts, Petitioner, Chua and Yao could be deemed to have entered into a
partnership.

Ruling:

Yes. The facts as found by the two lower courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code.

It is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they
started by buying boats financed by a loan secured from Jesus Lim who was petitioner's brother. In
their Compromise Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats,
the purchase and the repair of which were financed with borrowed money, fell under the term
"common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets;
it could be an intangible like credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among them also shows that they had
indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but
also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were
obviously acquired in furtherance of their business. It would have been inconceivable for Lim to
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involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment,
without which the business could not have proceeded.

A partnership may be deemed to exist among parties who agree to borrow money to pursue
a business and to divide the profits or losses that may arise therefrom, even if it is shown that they
have not contributed any capital of their own to a "common fund." Their contribution may be in the
form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for
debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf
of an unincorporated association or ostensible corporation may lie in a person who may not have
directly transacted on its behalf, but reaped benefits from that contract.

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Article 1768

Calimlim, Jeninah A.

ALFREDO N. AGUILA, JR. v. COURT OF APPEALS and FELICIDAD S. VDA. DE


ABROGAR
G.R. No. 127347. November 25, 1999.
319 SCRA 246

Facts:

Petitioner is the manager of A.C. Aguila & Sons, Co. (ACASC), a partnership engaged in
lending activities. Private respondent, with the consent of her late husband, and ACASC,
represented by petitioner, entered into a Contract of Sale/Memorandum of Agreement with right to
repurchase. ACASC bought the property of Spouses Abrogar located in Marikina, and respondent
was given the option to repurchase the said property within 90 days from the execution of the
memorandum of agreement.

Respondent failed to redeem the property. Hence, pursuant to the agreement and a special
power of attorney, petitioner caused the cancellation of their title and the issuance of a new
certificate of title in the name of ACASC. Counsel for ACASC then demanded respondent to vacate
the premises and surrender its possession to ACASC. The demand went unheeded, thus, ACASC
filed an ejectment case against her in the MeTC.

The MeTC ruled in favor of ACASC. Private respondent appealed first to the RTC then to
the CA, and later to the SC, but she lost in all the cases. Respondent then filed a petition for
declaration of nullity of a deed of sale with the RTC, alleging that the signature of her husband on
the deed of sale was a forgery because he was already dead when the deed was supposed to have
been executed. She had also filed a criminal complaint for falsification against petitioner which was
dismissed.

The RTC dismissed respondents petition. However, on appeal, the CA reversed. Hence,
petitioner filed this present petition for review on certiorari.

Issue:

Whether petitioner is the real party in interest against whom this action should be
prosecuted.

Ruling:

No. Under Article 1768 of the Civil Code, a partnership "has a juridical personality separate
and distinct from that of each of the partners." The partners cannot be held liable for the obligations
of the partnership unless it is shown that the legal fiction of a different juridical personality is being
used for fraudulent, unfair, or illegal purposes.

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In this case, respondent has not shown that ACASC, as a separate juridical entity, is being
used for fraudulent, unfair, or illegal purposes. Moreover, the title to the subject property is in the
name of ACASC and the Memorandum of Agreement was executed between private respondent,
with the consent of her late husband, and ACASC, represented by petitioner. Hence, it is the
partnership, not its officers or agents, which should be impleaded in any litigation involving property
registered in its name. A violation of this rule will result in the dismissal of the complaint.

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Dela Cruz, Eileen Eika M.

ANG PUE & COMPANY, ET AL. v. SECRETARY OF COMMERCE AND INDUSTRY


G.R. No. L-17295. July 30, 1962.
5 SCRA 645

Facts:

On May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership
Ang Pue & Company for a term of five years from May 1, 1953, extendible by their mutual consent.
The purpose of the partnership was "to maintain the business of general merchandising, buying and
selling at wholesale and retail, particularly of lumber, hardware and other construction materials for
commerce, either native or foreign." The corresponding articles of partnership (Exhibit B) were
registered in the Office of the Securities & Exchange Commission on June 16, 1953.

On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It
provided, among other things, that, after its enactment, a partnership not wholly formed by Filipinos
could continue to engage in the retail business until the expiration of its term.

On April 15, 1958 prior to the expiration of the five-year term of the partnership Ang
Pue & Company, but after the enactment of the Republic Act 1180, the partners already mentioned
amended the original articles of part ownership (Exhibit B) so as to extend the term of life of the
partnership to another five years. When the amended articles were presented for registration in the
Office of the Securities & Exchange Commission on April 16, 1958, registration was refused upon
the ground that the extension was in violation of the aforesaid Act.

Issue:

Whether or not the extension for another five years of the term of the plaintiffs' partnership
is in violation of the provisions of Republic Act No. 1180.

Held:

Yes.

To organize a corporation or a partnership that could claim a juridical personality of its own
and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed
only under such terms as the State may deem necessary to impose. That the State, through Congress,
and in the manner provided by law, had the right to enact Republic Act No. 1180 and to provide
therein that only Filipinos and concerns wholly owned by Filipinos may engage in the retail business
can not be seriously disputed. That this provision was clearly intended to apply to partnership
already existing at the time of the enactment of the law is clearly showing by its provision giving
them the right to continue engaging in their retail business until the expiration of their term or life.

The agreement contain therein must be deemed subject to the law existing at the time when
the partners came to agree regarding the extension. In the present case, as already stated, when the
partners amended the articles of partnership, the provisions of Republic Act 1180 were already in
force, and there can be not the slightest doubt that the right claimed by appellants to extend the
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original term of their partnership to another five years would be in violation of the clear intent and
purpose of the law aforesaid.

WHEREFORE, the judgment appealed from is affirmed, with costs.

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Article 1769

Dela Cruz, Eileen Eika M.

HEIRS OF TAN ENG KEE v. COURT OF APPEALS and BENGUET LUMBER


COMPANY, represented by its President TAN ENG LAY
G.R. No. 126881. October 3, 2000.
341 SCRA 740

Facts:

Benguet Lumber has been around even before World War II but during the war, its stocks
were confiscated by the Japanese. After the war, the brothers Tan Eng Lay and Tan Eng Kee pooled
their resources in order to revive the business. In 1981, Tan Eng Lay caused the conversion of
Benguet Lumber into a corporation called Benguet Lumber and Hardware Company, with him and
his family as the incorporators. In 1983, Tan Eng Kee died. Thereafter, the heirs of Tan Eng Kee
demanded for an accounting and the liquidation of the partnership.

Tan Eng Lay denied that there was a partnership between him and his brother. He said that
Tan Eng Kee was merely an employee of Benguet Lumber. He showed evidence consisting of Tan
Eng Kees payroll; his SSS as an employee and Benguet Lumber being the employee. As a result of
the presentation of said evidence, the heirs of Tan Eng Kee filed a criminal case against Tan Eng
Lay for allegedly fabricating those evidence. Said criminal case was however dismissed for lack of
evidence.

Issue:

Whether or not Tan Eng Kee is a partner.

Held:

No.

There was no partnership whatsoever. Except for a firm name, there was no firm account,
no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to profits
and losses, and no time fixed for the duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the war until Kee's death in 1984.

It had no business book, no written account nor any memorandum for that matter and no
license mentioning the existence of a partnership.

Also, the trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint
venture, which it said is akin to a particular partnership.

A particular partnership is distinguished from a joint adventure, to wit:

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(a) A joint adventure (an American concept similar to our joint accounts) is a sort of
informal partnership, with no firm name and no legal personality. In a joint account, the
participating merchants can transact business under their own name, and can be individually
liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination may continue for a number of
years; a partnership generally relates to a continuing business of various transactions of a
certain kind.

A joint venture "presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital or property contributed,
and where each party exercises equal rights in the conduct of the business.

The evidence presented by petitioners falls short of the quantum of proof required to
establish a partnership. In the absence of evidence, we cannot accept as an established fact that Tan
Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing a
partnership. Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership
was allegedly in existence, Tan Eng Kee never asked for an accounting.

The essence of a partnership is that the partners share in the profits and losses .Each has
the right to demand an accounting as long as the partnership exists. A demand for periodic
accounting is evidence of a partnership.

During his lifetime, Tan Eng Kee appeared never to have made any such demand for
accounting from his brother, Tang Eng Lay. We conclude that Tan Eng Kee was only an employee,
not a partner since they did not present and offer evidence that would show that Tan Eng Kee
received amounts of money allegedly representing his share in the profits of the enterprise. There
being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of.

The Supreme Court also noted: In determining whether a partnership exists, these rules
shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are
not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such
co-owners or co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property which the
returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits
were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the
business;
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(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

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Dy, Czara Loraine F.

MARIANO P. PASCUAL and RENATO P. DRAGON v. THE COMMISSIONER OF


INTERNAL REVENUE and COURT OF TAX APPEALS
G.R. No. 78133. October 18, 1988.
166 SCRA 560

Facts:

On June 22, 1965, petitioners Mariano P. Pascual and Renato P. Dragon bought two (2)
parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3)
parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 to
Marenir Development Corporation, while the three parcels of land were sold by petitioners to
Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made
in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made
in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing
of the tax amnesties granted in the said years.

However, in March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners
were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate
income taxes for the years 1968 and 1970. He contended that petitioners as co-owners in the real
estate transactions formed an unregistered partnership or joint venture taxable as a corporation
under the National Internal Revenue Code, where such unregistered partnership became subject to
corporate income tax as distinguished from profits derived from the partnership by them which is
subject to individual income tax. He also averred that the availment of tax amnesty under P.D. No.
23, as amended, by petitioners relieved petitioners of their individual income tax liabilities but did
not relieve them from the tax liability of the unregistered partnership.

Petitioners filed a petition for review with the respondent Court of Tax Appeals, which
affirmed the decision and action taken by respondent commissioner. It ruled on the basis of the
principle enunciated in Evangelista1, where an unregistered partnership was in fact formed by
petitioners which, like a corporation, was subject to corporate income tax distinct from that imposed
on the partners. But in a separate dissenting opinion, Associate Judge Constante Roaquin stated that
considering the circumstances of this case, although there might in fact be a co-ownership between
the petitioners, there was no adequate basis for the conclusion that they thereby formed an
unregistered partnership which made them liable for corporate income tax under the Tax Code.

Hence, this petition.

Issue:

Whether or not the respondent court erred in making a finding, solely on the basis of
isolated sale transactions, that an unregistered partnership existed thus ignoring the requirements laid
down by law that would warrant the presumption/conclusion that a partnership exists.

Held:
1
Annex C of the Petition, citing Evangelista v. Collector, G.R. No. 9996, Oct. 15,1957,102 Phil. 140.

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Yes. Respondent Commissioner just assumed such unregistered partnership to be present on


the basis of the fact that petitioners purchased certain parcels of land and became co-owners
thereof.

Article 1769 of the new Civil Code lays down the rule for determining when a transaction
should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership,


whether such co-owners or co-possessors do or do not share any profits made by the
use of the property;

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

The sharing of returns does not in itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. There must be a clear intent
to form a partnership, the existence of a juridical personality different from the individual partners,
and the freedom of each party to transfer or assign the whole property.

In the present case, there is clear evidence of co-ownership between the petitioners but there
is no adequate basis to support the proposition that they thereby formed an unregistered
partnership, making them thereby liable for corporate income tax, as the respondent commissioner
proposes. The two isolated transactions whereby they purchased properties and sold the same a few
years thereafter did not thereby make them partners for the character of habituality, as enunciated in
Evangelista case, peculiar to business transactions for the purpose of gain was not present. They
shared in the gross profits as co-owners and paid their capital gains taxes on their net profits and
availed of the tax amnesty thereby.

And even assuming for the sake of argument that such unregistered partnership appears to
have been formed, since there is no such existing unregistered partnership with a distinct personality
nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can
be held individually liable as partners for this unpaid obligation of the partnership. However, as
petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions,
they are thereby relieved of any further tax liability arising therefrom.

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Dy, Czara Loraine F.

NOBIO SARDANE v. THE COURT OF APPEALS and ROMEO J. ACOJEDO


G.R. No. L-47045. November 22, 1988.
167 SCRA 524
Facts:

Petitioner Nobio Sardane is the owner of Sardane Trucking Services entering into contracts
with the government for the construction of wharfs and seawall. Sardane issued several promissory
notes and vales on different dates which were signed by him in favor of private respondent Romeo
J. Acojedo. When the dues came, on many occasions, the petitioner made extrajudicial demands for
the payment of the total amount of P5,217.25 which were not heeded by Sardane. This prompted
Acojedo to bring an action in the City Court of Dipolog for collection of a sum of money based on
the promissory notes and vales executed by Sardane.

Based on Acojedos evidence, the City Court of Dipolog rendered judgment by default in his
favor. Sardane, then, filed a motion to lift the order of default which was granted. After the trial on
the merits, the City Court of Dipolog rendered judgment in favor of the Acojedo.

Sardane appealed to the Court of First Instance of Zamboanga del Norte which reversed the
decision of the lower court. Based on Sardanes contentions that he has been misled into signing a
document containing terms which he did not mean them to be and that his contribution to the
alleged partnership were the promissory notes, the Court of First Instance held that "the pleadings
of the parties herein put in issue the imperfection or ambiguity of the documents in question", hence
"the appellant Sardane can avail of the parol evidence rule to prove his side of the case, that is, the
said amount taken by him from appellee Acojedo is or was not his personal debt to appellee, but
expenses of the partnership between him and appellee." Consequently, it concluded that the
promissory notes involved were merely receipts for the contributions to said partnership and,
therefore, upheld the claim that there was ambiguity in the promissory notes, hence parol evidence
was allowable to vary or contradict the terms of the represented loan contract.

Hence, this petition for review.

Issue:

Whether or not the oral testimony for Sardane that a partnership existed between him and
Acojedo are admissible to vary the meaning of the promissory notes.

Held:

No. As correctly pointed out by the respondent Court the exceptions to the rule in parol
evidence do not apply in this case as nothing appears to be vague or ambiguous, for the terms of the
promissory notes clearly show that it was incumbent upon the Sardane to pay the amount involved
therein if and when the Acojedo demands the same. It was clearly the intent of the parties to enter
into a contract of loan for an educated man like the Sardane cannot be deceived to sign a promissory
note yet intending to make such a writing to be mere receipts of the petitioner's supposed
contribution to the alleged partnership existing between the parties.

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The Court of Appeals held, which was agreed by the Court, that even if
evidence aliunde other than the promissory notes may be admitted to alter the meaning conveyed
thereby, still the evidence is insufficient to prove that a partnership existed between the private
parties hereto.

As manager of the basnig Sarcado naturally some degree of control over the operations and
maintenance thereof had to be exercised by Sardane. The fact that he had received 50% of the net
profits does not conclusively establish that he was a partner of the Acojedo.

Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of
the profits of a business is prima facie evidence that he is a partner in the business, no such
inference shall be drawn if such profits were received in payment as wages of an employee.
Furthermore, Sardane had no voice in the management of the affairs of the basnig.

There are other considerations noted by respondent Court which negate herein Sardane's
pretension that he was a partner and not a mere employee indebted to Acojedo. Thus, in an action
for damages filed by Acojedo against the North Zamboanga Timber Co., Inc. arising from the
operations of the business, Sardane did not ask to be joined as a party plaintiff. Also, although he
contends that Acojedo is the treasurer of the alleged partnership, yet it is the latter who is
demanding an accounting. The advertence of the Court of First Instance to the fact that the casco
bears the name of Sardane disregards the finding of the respondent Court that it was just a
concession since it was he who obtained the engine used in the Sardaco from the Department of
Local Government and Community Development. Further, the use by the parties of the pronoun
"our" in referring to "our basnig, our catch", "our deposit", or "our boseros" was merely indicative
of the camaraderie and not evidentiary of a partnership, between them.

Hence, the factual findings belie the alleged partnership between the parties.

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Evangelista, Kevin B.

AFISCO INSURANCE CORP., ET AL. v. COURT OF APPEALS


G.R. No. 112675. January 25, 1999.
302 SCRA 1

Facts:

The petitioners are 41 non-life domestic insurance corporations. They issued risk insurance
policies for machines. The petitioners in 1965 entered into a Quota Share Reinsurance Treaty and a
Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called
Munich), a non-resident foreign insurance corporation. The reinsurance treaties required petitioners
to form a pool, which they complied with.

In 1976, the pool of machinery insurers submitted a financial statement and filed an
Information Return of Organization Exempt from Income Tax for 1975. On the basis of this, the
CIR assessed a deficiency of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39
and P89,438.68 on dividends paid to Munich and to the petitioners, respectively.

The Court of Tax Appeal sustained the petitioner's liability. The Court of Appeals dismissed
their appeal.

The CA ruled in that the pool of machinery insurers was a partnership taxable as a
corporation, and that the latters collection of premiums on behalf of its members, the ceding
companies, was taxable income.

Issue:

Whether or not the Pool Agreement is a partnership, and thereby taxable as a corporation.

Ruling:

YES. Pool Agreement or an association that would handle all the insurance businesses
covered under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich may
be considered a partnership because it contains the following elements: (1) The pool has a common
fund, consisting of money and other valuables that are deposited in the name and credit of the pool.
This common fund pays for the administration and operation expenses of the pool. (2) The pool
functions through an executive board, which resembles the board of directors of a corporation,
composed of one representative for each of the ceding companies. (3) While, the pool itself is not a
reinsurer and does not issue any policies; its work is indispensable, beneficial and economically
useful to the business of the ceding companies and Munich, because without it they would not have
received their premiums pursuant to the agreement with Munich. Profit motive or business is,
therefore, the primordial reason for the pools formation.

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Article 1770

Evangelista, Kevin B.

DELUAO v. CASTEEL
G.R. No. L-21906. December 24, 1968.
26 SCRA 475
Facts:

In 1940, Nicanor Casteel filed a fishpond application for a big tract of swampy land in
Malalag, Davao. No action was taken thereon by the authorities concerned. During the Japanese
occupation, he filed another fishpond application for the same area, but because of the conditions
then prevailing, it was not acted upon either. On December 12, 1945 he filed a third fishpond
application for the same area, which, after a survey, was found to contain 178.76 hectares. Upon
investigation conducted by a representative of the Bureau of Forestry, it was discovered that the area
applied for was still needed for firewood production. Hence on May 13, 1946 this third application
was disapproved.

Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised by the district forester of
Davao City that no further action would be taken on his motion, unless he filed a new application
for the area concerned. So he filed on May 27, 1947 his fishpond application 1717.

Meanwhile, several applications were submitted by other persons for portions of the area
covered by Casteel's application.

Because of the threat poised upon his position by the above applicants who entered upon
and spread themselves within the area, Casteel realized the urgent necessity of expanding his
occupation thereof by constructing dikes and cultivating marketable fishes, in order to prevent old
and new squatters from usurping the land. But lacking financial resources at that time, he sought
financial aid from his uncle Felipe Deluao who then extended loans totalling more or less P27,000
with which to finance the needed improvements on the fishpond. Hence, a wide productive
fishpond was built.

Moreover, upon learning that portions of the area applied for by him were already occupied
by rival applicants, Casteel immediately filed the corresponding protests.

However, despite the finding made in the investigation of the above administrative cases that
Casteel had already introduced improvements on portions of the area applied for by him in the form
of dikes, fishpond gates, clearings, etc., the Director of Fisheries nevertheless rejected Casteel's
application on October 25, 1949, required him to remove all the improvements which he had
introduced on the land, and ordered that the land be leased through public auction. Failing to secure
a favorable resolution of his motion for reconsideration of the Director's order, Casteel appealed to
the Secretary of Agriculture and Natural Resources.

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On November 25, 1949 Inocencia Deluao, wife of Felipe Deluao, as party of the first part,
and Nicanor Casteel as party of the second part, executed a contract denominated a "contract of
service". The salient provisions of which are as follows:
"That the Party of the First Part in consideration of the mutual covenants and agreements
made herein to the Party of the Second Part, hereby enter into a contract of service, whereby the
Party of the First Part hires and employs the Party of the Second Part on the following terms and
conditions, to wit:

"That the Party of the First Part will finance as she has hereby financed the sum of
TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the
Party of the Second Part who renders only his services for the construction and
improvements of a fishpond at barrio Malalag, Municipality of Padada, Province of
Davao, Philippines;
"That the Party of the Second Part will be the Manager and sole buyer of all the
produce of the fish that will be produced from -said fishpond;
"That the Party of the First Part will be the administrator of the same she having
financed the construction and improvement of said fishpond;
"That this contract was the result of a verbal agreement entered into between the
Parties sometime in the month of November, 1947, with all the abovementioned
conditions enumerated; x x x"

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative, Jesus Donesa, from the premises.

Alleging violation of the contract of service (exhibit A) entered into between Inocencia
Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in
the Court of First Instance of Davao for specific performance and damages against Nicanor Casteel
praying, inter alia, (a) that Casteel be ordered to respect and abide by the terms and conditions of
said contract and that Inocencia Deluao be allowed to continue administering the said fishpond and
collecting the proceeds from the sale of the fishes caught from time to time; and (b) that the
defendants be ordered to pay jointly and severally to plaintiffs the sum of P20,000 in damages.

On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary
injunction, praying among other things, that during the pendency of the case and upon their filling
the requisite bond as may be fixed by the court, a preliminary injunction be issued to restrain Casteel
from doing the acts complained of, and that after trial the said injunction be made permanent. The
lower court on April 26, 1951 granted the motion, and, two days later, it issued a preliminary
mandatory injunction addressed to Casteel.

On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others,
that he was the owner, lawful applicant and occupant of the fishpond in question. This motion,
opposed by the plaintiffs on June 15, 1951, was denied by the lower court in its order of June 26,
1961.

On the date of hearing, the lower court ruled in favor of the plaintiff. Hence, Casteel
appealed before the Supreme Court with pure questions of law.

Issue:
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Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary
injunction against defendant-appellant since he was the lawful owner of the subject fishpond as
evidenced by the fishpond permit issued upon him, and in not dismissing appellees' complaint."

Ruling:

The appellant contends that the lower court incurred an error in ordering the issuance ex
parte of a writ of preliminary injunction against him, and in not dismissing the appellee's complaint.
We find this contention meritorious.

Apparently, the court a quo relied on exhibit Athe so-called "contract of service"and
the appellees' contention that it created a contract of co-ownership and partnership between
Inocencia Deluao and the appellant over the fishpond in question.

Too well-settled to require any citation of authority is the rule that everyone is conclusively
presumed to know the law. It must be assumed, conformably to such rule, that the parties entered
into the so-called "contract of service" cognizant of the mandatory and prohibitory laws governing
the filing of applications for fishpond permits. And since they were aware of the said laws, it must
likewise be assumedin fairness to the partiesthat they did not intend to violate them. This view
must perforce negate the appellees' allegation that exhibit A created a contract of co-ownership
between the parties over the disputed fishpond. Were we to admit the establishment of a co-
ownership violative of the prohibitory laws which will hereafter be discussed, we shall be compelled
to declare altogether the nullity of the contract. This would certainly not serve the cause of equity
and justice, considering that rights and obligations have already arisen between the parties. We shall
therefore construe the contract as one of partnership, divided into two partsnamely, a contract of
partnership to exploit the fishpond pending its award to either Felipe Deluao or Nicanor Casteel,
and a contract of partnership to divide the fishpond between them after such award. The first is
valid, the second illegal.

A contract of partnership to exploit a fishpond pending its award to any qualified party or
applicant is valid, but a contract of partnership to divide the fishpond after such award is illegal. Act
4003, known as the Fishery Act, prohibits the holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to him without the previous consent or approval of
the Secretary of Agriculture and Natural Resources.

Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a
partnership, "x x x any event which makes it unlawful for the business of the partnership to be
carried on or for the members to carry it on in partnership." In the case at bar, the approval of the
appellant's fishpond application by the decisions in DANR Cases 353 and 353-B brought to the fore
several provisions of law which made the continuation of the partnership unlawful and therefore
caused its ipso facto dissolution.
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective
resolutions not to share the fishpond with each otherin direct violation of the undertaking for
which they have established their partnershipeach must be deemed to have expressly withdrawn
from the partnership, thereby causing its dissolution pursuant to Art. 1830(2) of the Civil Code
which provides, inter alia, that dissolution is caused "by the express will of any partner at any time.

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Article 1771

Gonzalez, Jed Nathaniel M.

AGAD v. MABATO
G.R. No. L-24193. June 28 1968.
23 SCRA 1223

Facts:

Mauricio Agad and Severino Mabato were partners in a fishpond business. Agad alleged that
he contributed P1,000 to the partnership capital with right to receive 50% of the profits, and that
Mabato, who handled the partnership funds, refused to render the partnerships operations
accounts. Mabato countered by denying the existence of a partnership between him and Agad,
alleging that their contract of partnership was void ab initio because of failure to attach an inventory
of the fishpond to it.

Mabato filed a Motion to Dismiss, which was granted by the lower court based on failure to
state a cause of action. Agad sought for reconsideration, however, it was denied. Hence, Agad
appealed.

Issue:

Whether or not immovable property or real rights have been contributed to the
partnership.

Ruling:

NO, there were none. Articles 1771 and 1773 provide:

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

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
inventory of said property is not made, signed by the parties; and attached to the public instrument.

The contention of Mabato that it is inconceivable to operate a fishpond business without


contributing a fishpond property to the partnership should not have been given credence since he
and Agad agreed to operate a fishpond, not to engage in a fishpond business. The partners
merely agreed to contribute a sum of P1,000 each. There was no need to contribute a fishpond or
any real right thereto since the operation of a fishpond was the purpose of the partnership.

The order appealed from is set aside and the case was remanded to the lower court. Costs
against Mabato.

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Article 1772

Gonzalez, Jed Nathaniel M.

COMMISSIONER OF INTERNAL REVENUE v. LEDESMA, ET. AL


G.R. No. L-17509. January 30, 1970.
31 SCRA 95

Facts:

Carlos Ledesma, Julieta Ledesma, and spouse Amparo Ledesma and Vicente Gustilo, Jr.,
purchased from their parents a sugar plantation named Hacienda Fortuna. Carlos, Julieta, and
spouses Gustilo acquire one-third undivided portion each of the plantation. After the purchase,
respondents took over the operation of the hacienda, sharing equally in the expenses of production
based on their respective portions.

On 11 July 1949, the respondents organized themselves into a general co-partnership for the
production of sugar cane for conversion into sugar, corn, palay, and other products as may be
profitably produced by the plantation. The articles of general co-partnership were registered 14 July
1949. A few years later, upon assessment, petitioner Commissioner found that profits realized by the
hacienda prior to the registration cannot be exempt from income tax. Respondents asked for
reconsideration from petitioner twice, alleging that they were co-owners, not co-partners. Petitioner
denied both requests.

Petitioner filed a complaint in the CFI before the respondents could appeal the formers
assessment to the CTA. The CTA dismissed the respondents petition. Respondents filed a petition
for Mandamus directing the CTA to annul its decision and proceed with the case. The Supreme
Court granted the petition, and the CTA was directed to proceed with the case.

The CTA rule in favour of the respondents.

Issue:

Whether or not the partnership, Hacienda Fortuna, should pay corporate income tax as an
unregistered partnership.

Ruling:

YES, it should pay.

The Supreme Court, citing the CTA, pronounced that the status or form of organization of a
partnership at the end of the taxable year will determine its income tax liability for that year. It is
precisely in the share of the profits and the salaries or wages that the partners would receive that the
government is interested in, because it is on these incomes that the assessment of the income tax is
based. It can happen that the profits realized by an unregistered partnership may be distributed to
other persons in addition to those who appear to the public as the partners. The government may

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not be able to trace exactly to whom the profits of an unregistered partnership go, nor can the
government determine the precise participation of the apparent partners in the profits of the
partnership. It is for this reason that the government imposes a corporate income tax against an
unregistered partnership as an entity, and an individual income tax against the apparent members
thereof. But once the partnership is duly registered the names of all the partners are known, the
proportional interest of the partners in the business of the partnership is known, and the
government can very well assess the income tax on the respective income of the partners whose
names appear in the articles of co-partnership. Once the partnership is registered its operation
during the taxable year may be ascertained in all matters regarding its management, its expenditures,
its earnings, and the participation of the partners in the net profits. If it can be ascertained that the
profits of the partnership have actually been given, or credited, to the partners, then there is no
reason why the partnership should be made to pay a corporate income tax on the profits realized by
the partnership, and at the same time assess an income tax on the income that the partners had
received from the partnership. Therefore, the CTA did not err in pronouncing that Hacienda
Fortuna should only pay income tax during the time it was unregistered.

A premium is given to a partnership that is registered by exempting it from the payment of


corporate income tax, and making only the individual partners pay income tax on the basis of their
respective shares in the partnership profits. On the other hand, the partnership that is not registered
is being penalized by making it pay corporate income tax on the profits it realizes during a taxable
year and at the same time making the partners thereof pay their individual income tax based on their
respective shares in the profits of the partnership. In other words, there is double assessment of
income tax against the partners of the unregistered partnership, but only one assessment against the
partners of registered partnership.

CTA Decision affirmed.

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Article 1773

Hernandez, Chad Jorel V.

FORTUNATA SOLIS v. MAXIMA BARROSO ET AL.


G.R. No. 27939. October 30, 1928.
53 Phil. 912

Facts:

The spouses Juan Lambino and Maria A. Barroso begot three children named Alejo, Eugenia
and Marciana Lambino. On June 2, 1919 said spouses made a donation of propter nuptias of the
lands described in the complaint in favor of their son Alejo Lambino and Fortunata Solis in a private
document in consideration of the marriage which the latter were about to enter into. One of the
conditions of this donation is that in case of the donees, one-half of these lands thus donated would
revert to the donors while the surviving donee would retain the other half.

On the 8th of the said month of June 1919, Alejo Lambino and Fortunata Solis were
married and immediately thereafter the donors delivered the possession of the donated lands to
them. On August 3,1919 donee Alejo Lambino died. In the same year donor Juan Lambino also
died. After the latter's death, his wife, Maxima Barroso recovered possession the donated lands.

The surviving donee Fortunata Solis filed the action against the surviving donor Maxima
Barroso and Eugenia And Marcelina Lambino, heirs of the deceased donor Juan Lambino, with their
respective husbands, demanding of the defendants the execution of the proper deed of donation
according to law, transferring one-half of the donated property, and moreover, to "proceed to the
partition of the donated property and its fruits.

Issue:

Whether or not there was a valid donation of proper nuptias that will vest the plaintiff a legal
title to the part of donated land assigned to her in the original donation?

Held:

No. The Court held that Article 1279 of the Civil Code, relating to contracts, is not
applicable to the present case. Donation propter nuptias, which, according to article 1328 of the
Civil Code, must be governed by the rules on donations of the Civil Code. Article 633 provides that
in order that a donation of real property may be valid, it must be made in a public instrument. This
is the article applicable to donation propter nuptias in so far as its formal validity is concerned.

The donation propter nuptias in this case is not valid and did not create any right, since it
was not made in a public instrument, and hence, article 1279 of the Civil Code which the lower
court applied is not applicable thereto. The latter article provides that, should the law require the
execution of an instrument or any other special form in order to make the obligations of a contract
effective, the contracting parties may compel each other to comply with such formality from the

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moment that consent has been given, and the other requirements for the validity of the contract
exist.

Donations for valuable consideration, as may be inferred from Article 619 of the Civil Code,
are such as compensate services which constitute debts recoverable from the donor, or which
impose a charge equal to the amount of the donation upon the donee, neither of which exists in the
present donation, which was made only in consideration of marriage.

The marriage is really a consideration but not in the sense of being necessary to give birth to
the obligation. This may be clearly inferred from Article 1333, which makes the fact that the
marriage did not take place a cause for the revocation of such donations, thus taking it for granted
that there may be a valid donation propter nuptias, even without marriage, since a thing that has not
existed cannot be revoked. Such valid donation would be forever valid, even if the marriage never
took place. This is because the marriage in a donation propter nuptias is rather a resolutory
condition which, as such, presupposes the existence of the obligation which may be resolved or
revoked, and it is not a condition necessary for the birth of the obligation.

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Hernandez, Chad Jorel V.

ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA


BARING v. COURT OF APPEALS and MANUEL TORRES
G.R. No. 134559. December 9, 1999.
320 SCRA 428

Facts:

Antonia Torres and Emeteria Baring entered into a "joint venture agreement" with
Respondent Manuel Torres for the development of a parcel of land into a subdivision.Pursuant to
the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent,
who then had it registered in his name. By mortgaging the property, respondent obtained from
Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for the
development of the subdivision. All three of them also agreed to share the proceeds from the sale of
the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.
According to petitioners, the project failed because of respondents lack of funds or means and
skills. They add that respondent used the loan not for the development of the subdivision, but in
furtherance of his own company, Universal Umbrella Company. On the other hand, respondent
alleged that he used the loan to implement the Agreement. He secured the Lapu Lapu City Councils
approval of the subdivision project which he advertised in a local newspaper. He also caused the
construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering
firm for the building of sixty low-cost housing units and actually even set up a model house on one
of the subdivision lots.

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who
were however acquitted. Thereafter, they filed the present civil case which, upon respondent's
motion, was later dismissed by the trial court in an order dated September 6, 1982. On appeal,
however, the appellate court remanded the case for further proceedings. The RTC issued its assailed
decision, which, as earlier stated, was affirmed by the CA. Hence, this case.

Issue:

Whether or not the Joint Venture Agreement is void under the Article 1773 of the Civil
Code?

Held:

No. Article 1773 was intended primarily to protect third persons. According to Arturo M.
Tolentino, as cited by the Court, the execution of a public instrument would be useless if there is no
inventory of the property contributed, because without its designation and description, they cannot
be subject to inscription in the Registry of Property, and their contribution cannot prejudice third
persons. This will result in fraud to those who contract with the partnership in the belief in the
efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by
the law when no such inventory is made. However, the case at bar does not involve third parties
who may be prejudiced.
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In addition, petitioners themselves invoke the allegedly void contract as basis for their claim
that respondent should pay them 60 percent of the value of the property. They cannot deny the
contract and in another recognize it, depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less
approve, such practice.

The alleged nullity of the partnership will not prevent courts from considering the Joint
Venture Agreement an ordinary contract from which the parties rights and obligations to each other
may be inferred and enforced.

Courts may not extricate parties from the necessary consequences of their acts. If the terms
of a contract turn out to be financially disadvantageous to them, the Court will not relieve them of
their obligations therein. The lack of an inventory of real property will not ipso facto release the
contracting partners from their respective obligations to each other arising from acts executed in
accordance with their agreement.

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Article 1775

Merrera, Raisa Victoria G.

E.J. SMITH and RAFAEL REYES, proprietors of the Philippine Gas Light Company v.
JACINTA LOPEZ AND IGNACIA LOPEZ DE PINEDA
G.R. No. 1472. September 30, 1905.
5 Phil. 78

Facts:

On November 19, 1902, Messrs. Smith and Reyes, as proprietors of the Philippine Gas Light
Company, brought an action against the defendants, Jacinta and Ignacia Lopez de Pineda, to recover
from them the sum of 3,270 pesos, Mexican currency, with interest due and costs of proceedings,
for the installation of a water system, urinals, closets, shower baths, and drain pipes in the
defendants house at No. 142 Calle Dulumbayan, Santa Cruz.

The plaintiffs alleged that they had complied with the agreement made with the father of the
defendants, the administrator of the property, and that the labor performed and the material used
were reasonably worth the sum of 4,020 pesos, Mexican currency, of which sum they acknowledged
having received 750 pesos.

The defendants, through their legal counsel, denied all the facts set out in the complaint, and
alleged among others that it did not appear from the pleadings that plaintiffs had ever entered into a
mercantile partnership under the aforesaid name and style, or that any such partnership legally
existed.

The court, after considering the allegations made and the evidence introduced by both
parties, entered judgment against the defendants and in favor of the complaints for the sum of
2,717.40 pesos, local currency, and accrued interest thereon at the legal rate of 6 per cent per annum,
from November 19, 1902, and costs of proceedings.

Issue:

Whether or not the court erred in recognizing plaintiffs capacity to sue as a partnership,
there being evidence to show that they were legally organized as such.

Held:

No, there was no such error. Where two or more persons having a common interest in a
certain business or property bring an action in court it must be presumed that they prosecute the
same in their individual capacity as co-owners and not in behalf of a partnership which does not
exist juridically.

The court ruled that Messrs. Smith and Reyes executed the contract in their own individual
capacity and not in the name of any partnership. They acted as co-owners of the Philippine Gas

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Light Company. In their complaint they sought to enforce a legitime right which they had as such
co-owners. (Arts. 392 et seq., and 1669 of the Civil Code.)

The plaintiffs were not seeking to enforce a right pertaining to a legal entity. They were not
obliged to register in the Mercantile Registry. They were merely merchants having a common
interest in the business. They were under no obligation to register. (Arts. 16 and 17 of the Code of
Commerce.)

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Articles 1776-1783

Merrera, Raisa Victoria G.

E. S. LYONS v. C. W. ROSENSTOCK,
Executor of the Estate of Henry W. Elser, deceased
G.R. No. L-35469. March 17, 1932.
56 Phil. 632

Facts:

Henry W. Elser was engaged in buying, selling, and administering real estate. E.S. Lyons
joined with him, the profits being shared by the two in equal parts.

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. Elser made 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.

The attention of Elser was drawn to a piece of land, referred to as the San Juan Estate. He
obtained the loan of P50,000 to complete the amount needed for the first payment on the San Juan
Estate. The lender insisted that he should procure the signature of the Fidelity & Surety Co. on the
note to be given for said loan. Elser mortgaged to the Fidelity & Surety Co. the equity of redemption
in the property owned by himself and Lyons on Carriedo Street to secure the liability thus assumed
by it.

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.

Issue:

Whether or not a general relation of partnership existed between Elser and Lyons.

Held:

No, 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 (Martinez vs. Martinez, 1 Phil.,

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647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of partnership had existed
in the money used, the case might be different; 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.

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PARTNERS RIGHTS AND OBLIGATIONS AMONG THEMSELVES


(ARTICLES 1784-1809)

Article 1784

Pascual, Aizen Paula DS.

GREGORIO ORTEGA, TOMAS DEL CASTILLO, JR. and BENJAMIN BACORRO v.


CA, SEC and JOAQUIN MISA
G.R. No. 109248. July 3, 1995.
245 SCRA 529

Facts:

On February 17, 1988 ,Gregorio Ortega, then one of the junior partners in the law firm Bito,
Misa, and Lozada withdrew in said firm by writing several letter of withdrawal and retirement from
the partnership. On June 30, 1988, he filed with the Commission's Securities Investigation and
Clearing Department (SICD) a petition for dissolution and liquidation of partnership.

On July 13, 1988, respondents-appellees filed their opposition to the petition.

On 31 March 1989, the hearing officer rendered a decision ruling that the Petitioner's
withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Hence,
the petitioner and respondents are enjoined to abide by the provisions of their Agreement relative to
the matter governing the liquidation of the shares of any retiring or withdrawing partner in the
partnership interest.

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada."
The Commission ruled that, being a partnership at will, the law firm could be dissolved by any
partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since
no partner can be forced to continue in the partnership against his will.

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked
for an appointment of a receiver to take over the assets of the dissolved partnership and to take
charge of the winding up of its affairs.

The parties filed with the appellate court separate appeals

Issue:

1. Whether or not the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will;

2. Whether or not the withdrawal of Misa dissolved the partnership regardless of his good or
bad faith.
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Held:

1. Yes. The partnership agreement of the firm provides that the partnership shall continue so
long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be
continued by the surviving partners. Furthermore, the partnership agreement does not provide for a
specified period or undertaking.

2. Yes. Any one of the partners may, at his sole pleasure, dictate 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. The
presence of a period for its specific duration or the statement of a particular purpose for its creation
can prevent the dissolution of any partnership by an act or will of a partner. Among partners, mutual
agency arises and the doctrine of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership.

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Article 1786

Pascual, Aizen Paula DS.

WILLIAM UY v. BARTOLOME PUZON, substituted by FRANCO PUZON


G.R. No. L-19819.October 26, 1977.
79 SCRA 598

Facts:

Bartolome Puzon entered into a contract with the Republic of the Philippines for the
construction of a road in Zamboanga del sur and 5 bridges. However, Puzon found difficulty in
accomplishing both projects, so he established a partnership with William Uy as sub-contractor of
the projects for financial assistance and the profits shall be divided equally between them; the
resulting partnership is UP Construction Company.

The partners agreed to contribute P50, 000 each as capital. However, Puzon failed to pay but
promised to contribute his share as soon as his application of loan with the PNB shall be approved.
On October 24, 1956, William Uy gave Puzon Php 10,000 as an advance contribution of his share in
partnership for Puzon to pay his obligations with PNB.

William Uy was entrusted with the management of the project since Puzon is busy with his
other projects; whatever expense Uy may incur shall be considered part of his contribution. Upon
approval of Puzons loan with the PNB, he gave Uy P60, 000 for reimbursement of Uys
contribution and Puzons contribution to the partnership capital.

To guarantee the payment of the loan, Puzon assigned to PNB all payments to be received
on account of the contracts with the Bureau of Public Highways for the
construction; this was done without the knowledge and consent of Uy.

Financial demands of the project increased, thus, Uy called on Puzon to place his capital
contribution; Puzon failed to do so. Uy thereafter sent letters of demand to which Puzon replied
that hes not capable of putting additional capital.

On November 27, 1957, Puzon wrote UP Construction Company terminating their


subcontract agreement. Uy was then not allowed in the office of UP Construction Company and his
authority to deal with Bureau of Public Highways was revoked. Hence, on May 20, 1958, he
instituted an action against Bartolome Puzon seeking the dissolution of the partnership and payment
of damages for the violation of the latter of the terms of their partnership agreement.

Issue:

Whether or not Puzon failed to comply with his obligation of paying the capital contribution
to the company.

Held:

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Yes. According to the court, there was failure on the part of Puzon to contribute capital to
the partnership. When his loan with PNB was approved, he only gave P60,000 to Uy; P40,000 was
for reimbursement to the payments made by Uy and the other P20,000 was for the capital
contribution. Thereafter, Puzon never made additional contribution.

Also, it was found by the SC that Puzon misapplied partnership funds by assigning all
payments for the projects to PNB.

Such assignment was prejudicial to the partnership since the partnership only received a
small share from the total payments made by the Bureau of Public Highways. As a result, the
partnership was unable to discharge its obligations.

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Article 1788

Perianes, Laurisse Marie T.

CARMEN LIWANAG v. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES


G.R. No. 114398. October 24, 1997.
281 SCRA 1225

When money or property has been received by a partner for a specific purpose, and he later misappropriated
it, such partner is guilty of estafa.

Facts:

Petitioner Carmen Liwanag, together with Thelma Tabligan and Isidora Rosales entered into
a business of buying and selling cigarettes. Under their agreement, Rosales would give the money
needed to buy the cigarettes while Liwanag and Tabligan would act as her agents. Rosales gave
several cash advances to Liwanag and Tabligan amounting to P 633,650.00.

When Liwanag and Tabligans visits to Rosales stopped, and all efforts by the latter to obtain
information regarding the business proved futile, Rosales filed a case for estafa against Liwanag
believing that the amounts she advanced were misappropriated.

Both the trial court and the Court of Appeals found Liwanag guilty as charged, and ordered
her to reimburse the complainant.

Her motion for reconsideration having been denied, Liwanag filed the instant petition,
arguing that the non-return of the money of the complainant is purely civil in nature and not
criminal, and that the CA erred in affirming her conviction.

Issue:

Whether or not petitioner Liwanag is guilty of estafa.

Held:

YES. Estafa is a crime committed by a person who defrauds another causing him to suffer
damages, by means of unfaithfulness or abuse of confidence, or false pretenses of fraudulent acts.
Its elements are: (1) that the accused defrauded another by abuse of confidence or deceit; and (2)
that damage or prejudice capable of pecuniary estimation is caused to the offended party or third
party, and it is essential that there be a fiduciary relation between them either in the form of a trust,
commission or administration.

The language of the receipt signed by Liwanag is clear. It indicates that the money delivered
to Liwanag was for a specific purpose, that is, for the purchase of cigarettes, and in the event that
the cigarettes cannot be sold, the money must be returned to Rosales. It is evident that Liwanag

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could not dispose the money as she pleased because it was only delivered to her for a single purpose,
namely, for the purchase of cigarettes.

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Perianes, Laurisse Marie T.

UNITES STATES v. EUSEBIO CLARIN


G.R. No. 5840. September 17, 1910.
17 Phil. 84

The action that lies with the partner who furnished the capital for the recovery of his money is not a criminal
action of estafa, but a civil one arising from the partnership contract for a liquidation of the partnership and a levy on
its assets if there should be any.

Facts:

Pedro Larin formed a partnership with Pedro Tarug, Eusebio Clarin and Carlose de Guzman
in the business of buying and selling of mangoes. Larin contributed P 172.00. It was agreed upon by
the parties that the profits were to be divided equally among them.

Tarug, Clarin and De Guzman traded magoes and obtained P 203.00 from the business, but
did not deliver to Larin his share in the profits. As a result, Larin charged them with the crime of
estafa.

The CFI found Clarin guilty of the crime of estafa. Hence, this petition.

Issue:

Whether or not Clarin is guilty of estafa.

Held:

NO. The Revised Penal Code provides that those who are guilty of estafa who, to the
prejudice of another, shall appropriate or misapply money, goods, or any kind of personal property
which they may have received as deposit on commission for administration or in any other character
producing the obligation to deliver or return the same. It does not include money received for a
partnership, otherwise the result would be that, if the partnership, instead of obtaining profits,
suffered losses, as it could not be held liable civilly for the share of the capitalist partner who
reserved the ownership of the money brought in by him, it would have to answer the charge of
estafa, for which it would be sufficient to argue that the partnership had received the money under
obligation to return it.

When Larin put the P 172.00 into the partnership, he invested his capital in risks or benefits
of the business of the purchase and sale of mangoes, even though he had reserved the capital and
conveyed only the usufruct of his money, it would not devolve upon his three partners to return his
capital to him, but upon the partnership which he himself formed part. For the action that lies with
the partner who furnished the capital for the recovery of his money is not a criminal action of estafa,
but a civil one arising from the partnership contract for a liquidation of the partnership and a levy
on its assets if there should be any.

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Article 1796

Senique, Alyssa Paulina R.

PEDRO MARTINEZ v. ONG PONG CO and ONG LAY


G.R. No. L-5236. January 10, 1910.
14 Phil. 726

Facts:

Pedro Martinez delivered P1,500 to Ong Pong Co and Ong Lay, who, in a private
document, acknowledged that they had received the same with the agreement, as stated by them,
"that we are to invest the amount in a store, the profits or losses of which we are to divide with the
former, in equal shares."

The plaintiff filed a complaint on April 25, 1907, to compel the defendants to render him an
accounting of the partnership as agreed to, or else to refund him the P1,500 that he had given them
for the said purpose. Ong Pong Co alone appeared to answer the complaint; he admitted the fact of
the agreement and the delivery to him and to Ong Lay of the P1,500 for the purpose aforesaid, but
he alleged that Ong Lay, who was then deceased, was the one who had managed the business, and
that nothing had resulted therefrom save the loss of the capital of P1,500, to which loss the plaintiff
agreed.

The judge of the Court of First Instance of the city of Manila who tried the case ordered
Ong Pong Co to return to the plaintiff one-half of the said capital of P1,500.

Issue:

Whether or not the defendants are obliged to refund the money that they received for the
purpose of establishing the said store.

Ruling:

Yes.

They, in the absence of a special agreement vesting in one sole person the management of
the business, were the actual administrators thereof; as such administrators they were the agent of
the company and incurred the liabilities peculiar to every agent, among which is that of rendering
account to the principal of their transactions, and paying him everything they may have received by
virtue of the mandatum. Neither of them has rendered such account nor proven the losses referred
to by Ong Pong Co; they are therefore obliged to refund the money that they received for the
purpose of establishing the said store the object of the association.

Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on the
part of a partner who acted as agent in receiving money for a given purpose, for which he has
rendered no accounting, such agent is responsible only for the losses which, by a violation of the

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provisions of the law, he incurred. This being an obligation to pay in cash, there are no other losses
than the legal interest, which interest is not due except from the time of the judicial demand, or, in
the present case, from the filing of the complaint.

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Senique, Alyssa Paulina R.

JUAN AGUSTIN, ET AL., plaintiffs; VICTOR DEL ROSARIO, appellant, v.


BARTOLOME INOCENCIO, defendant-appellee.
G.R. No. L-3745. October 26, 1907.
9 Phil. 134

Facts:

Juan Agustin, Victor Del Rosario and Bartolome Inocencio have been conducting a
partnership as industrial partners without capital. They contributed from its profits the sum of
P807.28 as a fund toward the construction of a casco for use in their business. In the progress of the
work, the defendant called for additional funds; to which they added P3,500, borrowed from Maria
del Rosario, the wife of Bartolome Inocencio, as the managing partner. Furthermore, he advanced
the amount of P2,024.49 to continue the said construction. Although it would seem that he failed to
notify his partners of the various items to make up this sum, it is shown that the books were at all
times open to their inspection, and that, being asked to examine them, they omitted to do so, and
that the plaintiff Juan Agustin was actually present at the construction of the casco.

The note passed into the hands of the defendant by reason of the successive deaths of his
wife and of their only child, each without debts, and for the amount thereof he became a creditor,
subject, however, to the deduction therefrom of his proportionate part of the indebtedness.

The trial court treated his claim on this note, as well as the sum of P2,024.49 furnished by
him, as an addition to his capital in the firm, rather than as a loan.

Issue:

Whether or not Inocencio, in borrowing money and advancing funds, was acting within the
scope of his authority as a managing partner.

Ruling:

Yes.

On the adjustment of the accounts of a partnership, the managing partner may be allowed
funds borrowed or advanced and necessary to the completion of the work, within the scope of the
business and expressly provided for by agreement among the partners.

The work done in the casco having been within the scope of the association and necessary to
carry out its express object, the borrowing of the money required to carry it on, with the
acquiescence if not with the affirmative consent of his associates, was not outside the powers of the
managing partner and constitutes a debt for which all the associates are liable.

The claim being considered as a loan, the sum would place the defendant as a creditor in a
stronger position as against his associates than if regarded as a mere contribution to capital. The
error, if it be an error, is not, therefore, prejudicial to the plaintiff, but is rather beneficial to him.
The respondent did not except to it.
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Various small sums have been paid out of the profits to some of the partners and these were
properly allowed him in the judgment.

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Article 1797

Tan, Elma T.

RAMMANI v. COURT OF APPEALS


G.R. Nos. 85494, 85496 & 195071. July 10, 2001.
196 SCRA 731

Facts:

Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the full
blood. Ishwar and his spouse Sonya had their main business based in New York. Realizing the
difficulty of managing their investments in the Philippines they executed a general power of attorney
on January 24, 1966 appointing Navalrai and Choithram as attorneys-in-fact, empowering them to
manage and conduct their business concern in the Philippines

On February 1, 1966 and on May 16, 1966, Choithram entered into two agreements for the
purchase of two parcels of land located in Barrio Ugong, Pasig, Rizal, from Ortigas & Company,
Ltd. Partnership. A building was constructed thereon by Choithram in 1966. Three other buildings
were built thereon by Choithram through a loan of P100,000.00 obtained from the Merchants Bank
as well as the income derived from the first building.

Sometime in 1970 Ishwar asked Choithram to account for the income and expenses relative
to these properties during the period 1967 to 1970. Choithram failed and refused to render such
accounting. Thereafter, Ishwar revoked the general power of attorney. Choithram and Ortigas were
duly notified of such revocation on April 1, 1971 and May 24, 1971, respectively. Said notice was
also registered with the Securities and Exchange Commission on March 29, 1971 and was published
in the April 2, 1971 issue of The Manila Times for the information of the general public.

Nevertheless, Choithram, transferred all rights and interests of Ishwar and Sonya in favor of
his daughter-in-law, Nirmla Ramnani, on February 19, 1973.

On October 6, 1982, Ishwar and Sonya filed a complaint against Choitram and/or spouses
Nirmla and Moti and Ortigas for reconveyance of said properties or payment of its value and
damages.

Issue:

Whether or not there should be a valid distribution of profits and losses and whether or not
Ishram can recover the entire properties subject in the litigation?

Held:

No, Ishram cannot recover the entire properties subject.

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The Supreme Court held that despite the fact that Choithram, et al., have committed acts
which demonstrate their bad faith and scheme to defraud spouses Ishwar and Sonya of their rightful
share in the properties in litigation, the Court cannot ignore the fact that Choithram must have been
motivated by a strong conviction that as the industrial partner in the acquisition of said assets he has
as much claim to said properties as Ishwar, the capitalist partner in the joint venture.

Choithram in turn decided to invest in the real estate business. He bought the two (2) parcels
of land in question from Ortigas as attorney-in-fact of Ishwar. Instead of paying for the lots in cash,
he paid in installments and used the balance of the capital entrusted to him, plus a loan, to build two
buildings. Although the buildings were burned later, Choithram was able to build two other
buildings on the property. He rented them out and collected the rentals. Through the industry and
genius of Choithram, Ishwar's property was developed and improved into what it is now.

Justice and equity dictate that the two share equally the fruit of their joint investment and
efforts. Perhaps this Solomonic solution may pave the way towards their reconciliation. Both would
stand to gain. No one would end up the loser.

The trial court is ordered to speedily enforce and execute this Courts final and executory
Decision dated May 7, 1991 and the Resolution dated February 26, 1992; and to expeditiously
resume and complete the proceedings in execution, including the valuation of the parcels of land
covered by TCT Nos. 403150 and 403152 of the Registry of Deeds of Pasig City for the purpose of
determining the final and total monetary entitlement of spouses Ishwar Jethmal and Sonya Jethmal
Ramnani, less the the amount advanced to them, strictly according to the tenor of the above
Decision and Resolution of the Court.

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Article 1800

Tan, Elma T.

JOSE GARCIA RON v. LA COMPAIA DE MINAS DE BATAN


G.R. No. L-459. November 23, 1908.
12 Phil. 130

Facts:

This was an action brought by the plaintiff to recover from the defendant the sum of 9,558
1/3 Spanish pesetas for services rendered. The trial judge found, and the evidence of record fully
sustains his finding, that the plaintiff was employed as foreman or capataz by one Genaro
Ansuategui, the local manager of certain mines of the defendant company, situated on the Islands of
Bataan from November 1, 1903 until August 4, 1904. While the plaintiff failed to establish
satisfactorily his claim that the salary promised him by the company's manager was 1,000 pesestas
per month, nevertheless he is entitled to reasonable compensation for the services rendered which
were fixed at P5 per day, or P150 per month.

The defendant denied the fact of the employment, but evidence of record affirmatively
establishes the finding of the trial judge that the services were indeed rendered. The only evidence
introduced by the defendant in this connection being the testimony of the general manager of the
company, who lived in Manila, to the effect that it does not appear from the books of the company
that the plaintiff was employed by the defendants, or that any record of the employment was
forwarded to the central office in Manila.

Counsel for the defendant company insists, however, that, granting that the plaintiff did in
fact work in the mines of the defendant company and was employed by its local manager,
nevertheless, defendant is not indebted to the plaintiff for these service, because the local manager at
the mines was not authorized to enter into the alleged contract of employment, such authority not
having been granted to him under his letter of instructions, a copy of which appears in the record.

Issue:

Whether or not the Local Manager of the defendant company is authorized to enter into the
alleged contract of employment with the plaintiff.

Ruling:

The court is of the opinion that the authority to contract for the employment of the plaintiff
was clearly conferred upon Ansuategui by the terms of this letter of instructions.

These transactions, which were introduced into the record, were dated in Manila,
May 23, 1903, and among other provisions contain the following:

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(The salaries which it is said are paid to the faginantes and the excess of employees
for little work is also a waste. The necessary employees should be kept and paid
reasonably, and he who is not needed [satisfied], let him go. The cutting of logs and
wood of all kinds ought to be done by contract, and the persons employed in digging
the barracones and other work at wages which your good judgment may dictate, but
on account permitting abuses.)

And at the conclusion of the letter of instructions, the court found the following:

(We trust you to correct and supply anything which is not noted herein, in
accordance with your good judgment, and finally we urgently request that you keep
us informed of everything.)

Other provisions of the letter of instructions expressly authorized Ansuategui, as the local
manager of the defendant company at the mines, to discharge employees who did not prove
satisfactory, and leave no room for doubt that he was duly authorized to represent the company at
the mines so far as this was necessary for their proper local management.

Also, taking into consideration the location and distance of the mines of the defendant
company from its in Manila, that the only communication therewith was by mail a few times per
month, and that in the very nature of the enterprise, it was necessary, in order that the local manager
might successfully perform his duties, to confer upon him wide scope in the employment and
discharge of labor. The court thinks that there can be no doubt that Genaro Ansuategui was fully
and expressly authorized by the terms of this letter of instructions to enter into the alleged contract
of employment with the plaintiff on behalf of the defendant company.

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Urbano, Mary Yasmine

TAI TONG v. INSURANCE


G.R. No. L-55397. February 29, 1988.
158 SCRA 366

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. (Art. 1800)

Facts:

Complainants acquired a parcel of land and a building and 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. Azucena Palomo obtained a loan from Tai Tong Chuache Inc. A mortgage was executed,
to secure the payment of the loan, over the land and the building in favor of Tai Tong Chuache &
Co. Arsenio Chua, representative of Tai Tong Chuache & Co. insured the latter's interest with
Travellers Multi-Indemnity Corporation.

Pedro Palomo secured a Fire Insurance Policy covering the building with respondent Zenith
Insurance Corporation. Five days later, another Fire Insurance Policy was procured from respondent
Philippine British Assurance Company, covering the same building and its contents thereof.

Not even two months after securing such insurance policy, the building and the contents
were totally razed by fire. Zenith Insurance, Phil. British Assurance and S.S.S. Accredited Group of
Insurers, paid their corresponding shares of the loss, but Travellers Multi-Indemnity refused.
Travellers Insurance alleged that the Fire Policy covering the furniture and building of complainants
was secured and paid by a certain Arsenio Chua, mortgage creditor, not Tai Tong Chuache &
Company.

The Insurance Commission dismissed spouses Palomos' complaint stating that the insurance
policy subject of the complaint was taken out by Tai Tong Chuache & Company 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 the respondent.

Issue:

Whether or not Tai Tong Chuache & Co. has insurable interest even though the Fire
Insurance Policy was endorsed to Arsenio Chua.

Ruling:

Yes. Tai Tong Chuache & Co. has insurable interest.

Respondent pointed out that the action must be brought in the name of the real party in
interest that of which the Court agrees. Nevertheless, it must be noted that the petitioner is a
partnership. Thus, it may sue and be sued in its name or by its duly authorized representative.
Arsenio Chua being the representative of petitioner was never questioned. Arsenio Chua was not
acting spouses Palomos personal creditor. Chua was acting as the managing partner of the
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partnership and was further verified by respondent insurance company. Hence, 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. At the very least, Chua being a partner of petitioner Tai Tong Chuache & Company, is
an agent of the partnership. As an agent, it is understood that he acted for and in behalf of the firm.

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Urbano, Mary Yasmine

FORTIS v. HERMANOS
G.R. No. L-2484. April 11, 1906.
6 Phil. 100

Appointed managers in the articles of partnership have full power to transact all of the business. (Art. 1800)

Facts:

Plaintiff Fortis was an employee of the defendants from 1900 to 1902. Plaintiff brought an
action to recover a balance due to him as salary for the year 1902. He alleged that he was entitled, as
salary, to 5 percent 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 lower court ruled in favor of Fortis. The total judgment
rendered against the defendants in favor of the plaintiff was reduced to P13,025.40 (Philippine
currency). The defendants brought the case to the Supreme Court through bill of exceptions and
claimed that the contract alleged in the complaint made the plaintiff a co-partner of the defendants
in the business which they were carrying on.

Issue:

1. Whether or not a contract has been made as claimed by the plaintiff.


2. Whether or not plaintiff Fortis was a co-partner of the defendants in the business.

Ruling:

1. Yes. The evidence is adequate to support the finding of the lower court that the plaintiff
worked for the defendants during 1902 under a contract by which he was to receive as
compensation 5 percent of the net profits of the business.

The contract was made on the part of the defendants by Miguel Alonzo Gutierrez and by
the provisions of the articles of partnership, he was appointed as one of the managers of the
company, with full power to transact all of the business thereof. Thus, as manager, he had authority
to make a contract of employment with the plaintiff.

2. No. Fortis was not a co-partner, he was merely an employee. Fortis 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
make the plaintiff a partner. 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 Miguel Alonzo Gutierrez, the then manager of the defendant partnership,
did not change this provision of the articles of partnership.

It was 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.
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Article 1803

Vicencio, Carmel Louise Q.

E. M. BACHRACH v. LA PROTECTORA, ET AL.


G.R. No. L-11624. January 21, 1918.
37 Phil. 441

Summary: Several members of a civil partnership executed a document authorizing one of the members to buy two
automobile trucks in the name and representation of the rm. The partner holding this authority eected the purchase
and signed the name of the partnership to the purchase money notes and added his own name as an individual, thereby
assuming, as to himself, joint and several liability with the rm. The court held that the partners who emitted the
authority were not liable on the note, as the document in question contained no authority to bind them personally and
in fact the notes did not purport to do so; but they were liable in their capacity as partners.

Facts:

Defendants Marcelo Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto
Serrano formed a civil partnership called La Protectora for the purpose of engaging in the
business of transporting passengers and freight. The defendants executed a document in which they
declared that they were members of La Protectora and that they had granted Barba full authority
"in the name and representation of said partnership to contract for the purchase of two
automobiles".

Marcelo Barba, acting as manager, negotiated for the purchase of two automobile trucks
from plaintiff E. M. Bachrach for the price of P16, 500. Barba paid P3, 000 in cash and for the
balance executed promissory notes. One of these promissory notes was signed in the following
manner:

P.P La Protectora
By Marcelo Barba
Marcelo Barba.

The other 2 notes were signed in the same way but the word by was omitted. It was
obvious that in signing the notes, Barba intended to bind both the partnership and himself.

From time to time after this purchase was made, Marcelo Barba purchased of the plaintiff
various automobile effects and accessories to be used in the business of "La Protectora." Thereafter,
the indebtedness resulting from these additional purchases amounted to the sum of P2, 916.57

The plaintiff foreclosed a chattel mortgage which he had retained on the trucks in order to
secure the purchase price. To recover the balance, together with the sum due for additional
purchases, the present action was instituted "La Protectora" and the five individuals Marcelo Barba,
Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano.

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Issues:

a) Whether or not Barba had the authority to incur expenses for the partnership.
b) Whether or not Segundo, Adiarte, Flores, and Serrano are liable for the debt incurred by Barba.

Ruling:

a) Yes.

The authority of Marcelo Barba to bind the partnership, in the purchase of the trucks, is fully
established by the document executed by the four appellants. The transaction by which Barba
secured these trucks was in conformity with the tenor of this document. There is no proof in the
record showing what the agreement, if any, was made with regard to the form of management.
Under these circumstances it is declared in article 1695 of the Civil Code that all the partners are
considered agents of the partnership. Barba therefore must be held to have had authority to incur
these expenses. But in addition to this he is shown to have been in fact the president or manager,
and there can be no doubt that he had actual authority to incur this obligation.

b) Yes.

The business conducted under the name of "La Protectora" was evidently that of a civil
partnership; and the liability of the partners to this association must be determined under the
provisions of the Civil Code. The promissory notes constitute the obligation exclusively of "La
Protectora" and of Marcelo Barba; and they do not in any sense constitute an obligation directly
binding on the four appellants. Their liability is based on the fact that they are members of the civil
partnership and as such are liable for its debts.

The document executed by the defendants constituted an authority for Marcelo Barba to
bind them personally, as contemplated in the second clause of article 1698 of the Civil Code. That
cause says that no member of the partnership can bind the others by a personal act if they have not
given him authority to do so. The court thinks that the document referred to was intended merely as
an authority to enable Barba to bind the partnership and that the parties to that instrument did not
intend thereby to confer upon Barba an authority to bind them personally. It is obvious that the
contract which Barba in fact executed in pursuance of that authority did not by its terms profess to
bind the appellants personally at all, but only the partnership and himself. It follows that the four
appellants cannot be held to have been personally obligated by that instrument; but their liability
rests upon the general principles underlying partnership liability.

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Vicencio, Carmel Louise Q.

THE GREAT COUNCIL OF THE UNITED STATES OF THE IMPROVED ORDER


OF RED MEN v. THE VETERAN ARMY OF THE PHILIPPINES
G.R. No. 3186. March 07, 1907.
7 Phil. 685

Summary: The constitution of the Veteran Army of the Philippines makes provision for the management of its
affairs, so that article 1695 of the Civil Code, making each member an agent of the partnership in the absence of such
provision, is not applicable to that organization.

Facts:

Article 5 of the constitution of the Veteran Army of the Philippines provides as follows:

"This association shall be composed of


"(a) A department.
"(b) Two or more posts."

It is provided in article 6 that the department shall be composed of a department


commander, fourteen officers, and the commander of each post, or some member of the post
appointed by him. Six members of the department constitute a quorum for the transaction of
business. The constitution also provides for the organization of posts. Among the posts thus
organized is the General Henry W. Lawton Post, No. 1.

On March 1903, a contract of lease of parts of a certain buildings in the City of Manila was
signed by W.W. Lewis, E.C. Stovall, and V.O., Hayes, as trustees of the Apache Tribe, No. 1,
Improved Order of Red Men, as lessors, and Albert E. McCabe, citing for and on behalf of Lawton
Post, Veteran Army of the Philippines as lessee. The lease was for the term of two years.

The Lawton Post occupied the premises in controversy for thirteen months, and paid the
rent for that time. It then abandoned them and this action was commenced to recover the rent for
the unexpired term.

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

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

Issue:

Whether or not the contract of lease is binding on the Veteran Army of the Philippines.

Ruling:

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Article 1695 of the Civil Code provides as follows:

"Should no agreement have been made with regard to the form of management, the following rules
shall be observed:
"1. All the partners shall be considered as agents, and whatever any one of them may do by himself
shall bind the partnership; but each one may oppose the act of the others before they may have
produced any legal effect."

One partner, therefore, is empowered to contract in the name of the partnership only when
the articles of partnership make no provision for the management of the partnership business. In
the case at bar, the articles of the Veteran Army of the Philippines do so provide. It is true that an
express disposition to that effect is not found therein, but one may be fairly deduced from the
contents of those articles. They declare what the duties of the several officers are.

In these various provisions there is nothing said about the power of making contracts, and
that faculty is not expressly given to any officer. It was, therefore, reserved to the department as a
whole; that is, that in any case not covered expressly by the rules prescribing the duties of the
officers, the department could not be bound unless by resolution adopted by it at some meeting
where at least six members of the department were present.

It is hardly conceivable that the members who formed this organization should have had
the intention of giving to any one of the sixteen or more persons who composed the department the
power to make any contract relating to the society which that particular officer saw fit to make, or
that a contract when so made without consultation with, or knowledge of the other members of the
department should bind it.

The court held that no contract, such as the one in question, is binding on the Veteran Army
of the Philippines unless it was authorized at a meeting of the department. No evidence was offered
to show that the department had ever taken any such action. In fact, the proof shows that the
transaction in question was entirely between Apache Tribe, No. 1, and the Lawton Post, and there is
nothing to show that any member of the department ever knew anything about it, or had anything
to do with it.

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Article 1805

Satar, Mohammad Ajrin D.

ANTONIO PARDO v. THE HERCULES LUMBER CO., INC.


G.R. No. L-22442. August 1, 1924.
47 Phil. 964

Facts:

Petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company, Inc., one of the
respondents herein, seeks by this original proceeding in the Supreme Court to obtain a writ
of mandamus to compel the respondents to permit the plaintiff and his duly authorized agent and
representative to examine the records and business transactions of said company. To this petition
the respondents interposed an answer, in which, after admitting certain allegations of the petition,
the respondents set forth the facts upon which they mainly rely as a defense to the petition. To this
answer the petitioner in turn interposed a demurrer. Petitioner acting as secretary of the said
company, has refused to permit the petitioner or his agent to inspect the records and business
transactions of the said Hercules Lumber Company, Inc., at times desired by the petitioner. The
board resolved to call a meeting of shareholders for March 30 of the present year, with notice to the
shareholders that the books of the company are at their disposition from the 15th to 25th of the
same month for examination, in appropriate hours. The contention for the respondent is that this
resolution of the board constitutes a lawful restriction on the right conferred by statute; and it is
insisted that as the petitioner has not availed himself of the permission to inspect the books and
transactions of the company within the ten days thus defined, his right to inspection and
examination is lost, at least for this year.

Issue:

Whether or not the right to inspect records and business transactions of a stockholder is
imprescriptible.

Held:

It may be admitted that the officials in charge of a corporation may deny inspection when
sought at unusual hours or under other improper conditions; but neither the executive officers nor
the board of directors have the power to deprive a stockholder of the right altogether. A by-law
unduly restricting the right of inspection is undoubtedly invalid. Our statute declares that the right of
inspection can be exercised "at reasonable hours." This means at reasonable hours on business days
throughout the year, and not merely during some arbitrary period of a few days chosen by the
directors.

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Article 1806

Aranas, Janine Karla A.

PANG LIM v. LO SENG


G.R. No. L-16318. October 21, 1921.
42 Phil. 282

Facts:

Lo Seng and Pang Lim were partners, in the business of running a distillery, known as "El
Progreso," in Paombong, Bulacan. The land on which said distillery is located as well as the
buildings and improvements used in the business were owned by Lo Yao, who, in September, 1911,
leased the same to the firm of Lo Seng and Co. for the term of three years. Upon the expiration of
this lease, a new written contract was executed extending the previous lease to fifteen years. The
Bureau of Internal Revenue had required sundry expensive improvements to be made in the
distillery, and it was agreed that these improvements should be effected at the expense of the lessees.
Pang Lim sold all his interest in the distillery to his partner Lo Seng and Lo Shui, acting as attorney
in fact of Lo Yao, conveyed to Lo Seng and Benito Galvez the entire distillery plant including the
land it stands on. The lease and the deed of conveyance were never recorded in the property registry.
Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter refused. An action
of unlawful detainer was therefore instituted against Lo Seng.

Pang Lims contends that as a purchaser of a leased estate he shall be entitled to terminate
any lease in force at the time of making the sale, unless the contrary is stipulated, and subject to the
provisions of the Mortgage Law (Art. 1571). Under the Mortgage Law, as regards the personal
obligations expressed therein, the lease in question was from the beginning, and has remained,
binding upon all the parties, Which Pang Lim is. This does not address the issue at hand directly.

The court, under a different light, has found out that Pang Lim has occupied an
incompatible double role in the transactions which gave rise to this case: first, as one of the lessees;
and second, as one of the purchasers now seeking to terminate the lease.

Issue:

Whether or not Pang Lim, having been a participant in the execution of the contract of lease
is in a position to buy and terminate it

Held:

No. Pang Lim, having been a participant in the contract of lease now in question, is not in a
position to terminate it. While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in
the creation of this lease, and when he sold out his interest in that firm to Lo Seng this operated as a
transfer to Lo Seng of Pang Lim's interest in the firm assets, including the lease; and Pang Lim
cannot now be permitted, in the guise of a purchaser of the estate, to destroy an interest derived
from himself, and for which he has received full value. Pang Lim knew that the original lease had

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been extended for fifteen years and he knew the extent of valuable improvements that had been
made thereon. It would be wrong to allow Pang Lim to confiscate for his own benefit the property
which he had sold for a valuable consideration to Lo Seng. When he sold his share in the
partnership to Lo Seng, he knew that it included his interest in the lease. He had obviously been in
bad faith.

Above all other persons in business relations, partners are required to exhibit towards each
other the highest degree of good faith. In fact the relation between partners is essentially fiduciary,
each being considered in law, as he is in fact, the confidential agent of the other. It is therefore
accepted as fundamental in equity jurisprudence that one partner cannot, to the detriment of
another, apply exclusively to his own benefit the results of the knowledge and information gained in
the character of partner. Thus, it has been held that if one partner obtains in his own name and for
his own benefit the renewal of a lease on property used by the firm, to commence at a date
subsequent to the expiration of the firm's lease, the partner obtaining the renewal is held to be a
constructive trustee of the firm as to such lease.

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Aranas, Janine Karla A.

CATALAN v. GATCHALIAN
G.R. No. L-11648. April 22, 1950.
105 Phil. 1270

Facts:

Catalan and Gatchalian formed a partnership engaged in business. To secure additional


resources, the two of them mortgaged two lots together with the improvements thereon to Dr.
Marave. The said properties were in the partnerships name. The mortgage was foreclosed due to
failure of Catalan and Gatchalian to pay the loan secured by mortgage. The properties were sold in a
public auction and Dr. Marave won as the highest bidder for the properties.

Catalan bought back the property paying the redemption price and other costs in relation to
the public auction. He now contends that since he alone has redeemed or bought back the property,
he was not acting for the partnership, the old title of the two lots should be cancelled and a new one
should be issued in his name as the new buyer.

Issue:

Whether or not Catalans lone redemption of the property makes him the absolute owner
thereof

Held:

No. When partnership real property had been mortgaged and foreclosed, the redemption by
any of the partners, even when using his separate funds, does not allow such redemption to be in his
sole favor. Under the general principle of law, a partner is an agent of the partnership. Art. 1818
states that every partner is an agent of the partnership for the purpose of its business, and the act of
every partner, including the execution in the partnership name of any instrument, for apparently
carrying on in the usual way the business of the partnership of which he is a member binds the
partnership, unless the partner so acting has in fact no authority to act for the partnership in the
particular matter, and the person with whom he is dealing has knowledge of the fact that he has no
such authority.

According to Art.1807, Every partner must account to the partnership for any benefit, and
hold as trustee for it any profits derived by him without the consent of the other partners from any
transaction connected with the formation, conduct, or liquidation of the partnership or from any use
by him of its property. When Catalan redeemed the properties of the partnership, he became a
trustee and held the same in trust for his copartner Gatchalian. Catalan would only have the right to
demand from Gatchalian the latters share in the properties redemption costs.

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Article 1807

Balcueva, Ira Colleen E.

HANLON vs. HAUSSERMANN and BEAM


G.R. No. L-14617. February 18, 1920.
40 Phil. 796

Facts:

This action was originally instituted by R. Y. Hanlon to compel the defendants, John
W.Haussermann and A. W. Beam, to account for a share of the profits gained by them in
rehabilitating the plant of the Benguet Consolidated Mining Company and in particular to compel
them to surrender to the plaintiff 50,000 shares of the stock of said company, with dividends paid
thereon.

It was initially agreed by Hanlon, Haussermann, Beam and Sellner that P75,000.00 was
needed to rehabilitate the mine; P50,000.00 would come from Hanlon by securing and obtaining
subscriptions for the companys stocks, P25,000.00 would come from Haussermann and Beam.
They were to receive compensation in the form of shares of stock for the services rendered in the
flotation of this proposition. The funds were needed on a certain date. It was also stated in the
contract that Haussermann and Beam would be discharged if Sellner could not provide the amount
due from him within the time frame stipulated.

Hanlon was unable to raise the P75,000.00, so that Haussermann and Beam made
arrangements to finance the rehabilitation of the mine. Because of this new arrangement, the
company became profitable that it was able to pay dividends. Because of this, the value of the
companys stocks appreciated.

Issue:

Whether or not Hanlon is entitled to an accounting for his share in the profits of the
company.

Held:

Hanlon is not entitled to an accounting for his share in the profits of the company;
Haussermann and Beam are absolved. Under the equitable doctrine, if the contracting parties have
treated time as of the essence of the contract, the delinquency will not be excused and specific
performance will not be granted; but on the other hand, if it appears that time has not been made of
the essence of the contract, equity will relieve from the delinquency and specific performance may
be granted, due compensation being made for the damage caused by the delay. Time is of the
essence of the contract for the sale of an option on mining property, or a contract for the sale
thereof, even though there is no express stipulation to that effect. The same idea is clearly applicable
to a contract like that now under consideration which provides for the rehabilitation of a mining
plant with funds to be supplied by the contractor within a limited period.

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Articles 1808-1809

Balcueva, Ira Colleen E.

FUE LEUNG v. INTERMEDIATE APPELLATE COURT


G.R. No. 70926. January 31, 1989.
169 SCRA 796

Facts:

The petitioner asks for the reversal of the decision of the Appellate Court in which affirmed
the decision of the lower court declaring private respondent Leung Yiu a partner of petitioner Dan
Fue Leung in the business of Sun Wah Panciteria and ordering the petitioner to pay to the private
respondent his share in the annual profits of the said restaurant.

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

The Sun Wah Panciteria was registered as a single proprietorship and its licenses and permits
were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung
Yiu adduced evidence during the trial of the case to show that Sun Wah Panciteria was actually a
partnership and that he was one of the partners having contributed P4,000.00 to its initial
establishment.

Lower court ruled in favor of the private respondent. Petitioner appealed the trial court's
amended decision. However, the questioned decision was further modified and affirmed by the
appellate court. Both the trial court and the appellate court declared that the private petitioner is a
partner and is entitled to a share of the annual profits of the restaurant. Hence, an appeal to the SC.
The petitioner argues that private respondent extended 'financial assistance to herein petitioner at
the time of the establishment of the Sun Wah Panciteria, in return of which private respondent
allegedly will receive a share in the profits of the restaurant. It was, therefore, error for the Appellate
Court to construe 'financial assistance' to mean the contribution of capital by a partner to a
partnership.

Issues:

1. Whether or not the private respondent is a partner of the petitioner in the establishment
of Sun Wah Panciteria.

2. Whether or not private respondent is entitled to the accounting of his interests in the
partnership.

Ruling:

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

Therefore, the lower courts did not err in construing the complaint as one wherein the private
respondent asserted his rights as partner of the petitioner in the establishment of the Sun Wah
Panciteria, notwithstanding the use of the term financial assistance therein.SC affirmed appellate
courts decision and ordered the dissolution of the partnership.

The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of
a partnership which are 1)two or more persons bind themselves to contribute money, property, or
industry to a common fund; and 2) intention on thepart of the partners to divide the profits among
themselves have been established. As stated by the respondent, a partner shares not only in profits
but also in the losses of the firm. If excellent relations exist among the partners at the start of
business and all the partners are more interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly plausible. It would be incorrect to state that
if a partner does not assert his rights anytime within ten years from the start of operations, such
rights are irretrievably lost.

2. Yes. The private respondent's cause of action is premised upon the failure of the
petitioner to give him the agreed profits in the operation of Sun Wah Panciteria. In effect the private
respondent was asking for an accounting of his interests in the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is
applicable. Article 1842 states:

The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the
absence or any agreement to the contrary.

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

The records sufficiently establish that there was a partnership, therefore, private respondent
is entitled to the accounting of his interest in the partnership.

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Calimlim, Jeninah A.

SERGIO V. SISON v. HELEN J. MCQUAID


G.R. No. L-6304. December 29, 1953.
94 Phil. 201

Facts:

McQuaid obtained a loan from Sison in the aggregate amount of P2,210, to enable the
former to pay her obligation to the Bureau of Forestry and to add to her capital in her lumber
business. As McQuaid was not able to pay the loan and as she had promised, she proposed to take
in Sison as a partner in her lumber business, Sison to contribute to the partnership the said sum of
P2,210 due him in addition to his personal services. Sison agreed to McQuaids proposal and, as a
result, there was formed a partnership in which they were to share alike in the income or profits of
the business, each to get one-half thereof.

Then, the partnership sold to the United States Army 230,000 board feet of lumber for
P13,800. McQuaid refused to deliver one-half of it, or P6,900, to Sison notwithstanding repeated
demands. Thus, Sison filed the present action with the then CFI of Manila, praying for judgment
declaring the existence of the alleged partnership and requiring McQuaid to pay him P6,900, plus
damages and costs.

The trial court dismissed the case. Sison appealed to the CA; but the latter court certified the
case to the SC on the ground that the appeal involved only questions of law.

Issue:

Whether or not Sison is entitled to recover one-half of the purchase price of lumber sold by
the partnership to the United States Army.

Ruling:

No. Sisons complaint does not show why he should be entitled to the sum he claims. It
does not allege that there has been a liquidation of their partnership business and the said sum has
been found to be due him as his share of the profits. Hence, the complaint states no cause of action.
The proceeds from the sale of a certain amount of lumber cannot be considered profits until costs
and expenses have been deducted. Moreover, the profits of a business cannot be determined by
taking into account the result of one particular transaction instead of all the transactions had. Hence,
the need for a general liquidation before a member of a partnership may claim a specific sum as his
share of the profits.

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Calimlim, Jeninah A.

JOSE FERNANDEZ vs. FRANCISCO DE LA ROSA


G.R. No. 413. February 2, 1903.
1 Phil. 671

Facts:

Plaintiff Fernandez alleges that he entered into a verbal agreement with defendant De la
Rosa to form a partnership for the purchase of cascoes and the carrying on of the business of letting
the same for hire. Defendant bought the cascoes in question in different occasions, using the money
furnished by plaintiff. Plaintiff furnished defendant some further sums for repairs on this cascoes.

Then the parties undertook to draw up articles of partnership for the purpose of embodying
the same in an authentic document, but they were unable to come to any understanding and no
written agreement was executed. After the defendant had been operating the cascoes for some time,
he returned to plaintiff P1,125 representing the amount of the cascoes.

Plaintiff brought this present action to obtain a declaration that a partnership exists between
them, that he has a consequent interest in certain cascoes which are alleged to be partnership
property, and that defendant is bound to render an account of his administration of the cascoes and
the business carried on with them.

Issue:

Did a partnership exist between the parties? If such partnership existed, was it terminated as
a result of the act of the defendant in receiving back the P1,125?

Ruling:

A partnership was formed between the parties, the existence of which the defendant is
bound to recognize. The cascoes constitute partnership property, and the plaintiff is entitled to an
accounting of the defendants administration of such property, and of the profits derived therefrom.

The amount returned by defendant fell short of that which the plaintiff had contributed to
the capital of the partnership, since it did not include the sum which he had furnished for the repairs
of the casco. Moreover, it is quite possible, as claimed by the plaintiff, that a profit may have been
realized from the business during the period in which the defendant had been administering it prior
to the return of the money, and if so he still retained that sum in his hands. For these reasons the
acceptance of the money by the plaintiff did not have the effect of terminating the legal existence of
the partnership.

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Dela Cruz, Eileen Eika M.

JOSE GARRIDO v. AGUSTIN ASENCIO


G.R. No. L-4281. March 30, 1908.
10 Phil. 691

Facts:

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

As proof, Asencio presented the books which admittedly were kept and made jointly by
him and Garrido. Garrido charged however that the books should not be admitted in evidence
because they were not kept strictly in accordance with with the provisions of Title III, Book I, of the
Code of Commerce.

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

Issue:

Whether or not the books are admissible in evidence?

Held:

Yes, for after all the entries had been jointly made, and therefore their correctness must be
taken to be admitted by Garrido (and Asencio) except so far as it is made to appear that they are
erroneous as a result of fraud or mistake. Garrido has failed to prove that he has been misled by
fraud or mistake.

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

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Dela Cruz, Eileen Eika M.

JOSE ORNUM and EMERENCIANA ORNUM v. MARIANO, LASALA, ET AL.


G.R. No. L-47823. July 26, 1943.
74 Phil. 242

An approval of statement of accounts precludes the right to further liquidation, unless the latter can show the
existence of fraud, deceit, error, and mistake in said appeal.

Facts:

In 1908 Pedro Lasala, father of the respondents, and Emerenciano Ornum formed a
partnership. Lasala as capitalist while Ornum will be the industrial partner. Lasala delivered the sum
of P1,000 to Ornum who will conduct a business at his place of residence in Romblon.

In 1912, when the assets of the partnership consisted ofoutstanding accounts and old stock
of merchandise,Emerenciano Ornum, following the wishes of his wife, asked for
the dissolution of the Lasala,Emerenciano. Ornum looked for some one who could take his place
and he suggested the names of the petitioners who accordingly became the new partners.

After twenty years the business had grown to such an extent that is total value, including
profits, amounted to P44,618.67. Statements of accounts were periodically prepared by the
petitioners and sent to the respondents who invariably did not make any objection thereto.

Ornum submitted a statement of accounts to respondents, his copartner. Instead of


objecting to said statement, respondent Lasala promised to sign the same as soon as he received his
shares as shown in said statement. After said shares had been paid by Ornum and accepted by
respondents without reservation, the latter refused to sign the statement .Lasala demanded a new
liquidation, claiming that he was entitled to more than what the statement of account shows.

Issue:

Is the respondent entitled to a further liquidation?

Held:

No. After accepting his shares without any reservation, respondent virtually confirmed his
approval of the statement of accounts, and its signing thereby became a mere formality to be
complied with by Lasala exclusively. His refusal to sign, after receiving the shares, amounted to
a waiver of that formality in favor of Ornum who had already performed his obligation. This
approval precludes any right on the part of respondent to a further liquidation, unless he can show
there was fraud or mistake in said approval.

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PROPRIETARY RIGHTS AND OBLIGATIONS


(ARTICLES 1810-1814)

Article 1811

Dy, Czara Loraine F.

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees, v. NICANOR


CASTEEL and JUAN DEPRA, defendants, NICANOR CASTEEL, defendant-appellant.
G.R. No. L-21906. December 24, 1968.
29 SCRA 350

Facts:

In 1940, Nicanor Casteel filed a fishpond application for a swampy land in Malalag, Davao
three consecutive times, where none of those applications had been taken action by the authorities
concerned. Later on, he filed for another application as compliance with the condition advised by
the district forester.

Meanwhile, several applications were submitted by other persons for portions of the same
land, where some of those applications were granted fishpond permit. Because Casteel was
threatened, he expanded his occupation and made some improvements thereon. He sought financial
aid from his uncle Felipe Deluao in the amount of P27,000.

Casteel immediately filed the corresponding protests upon learning that portions of the area
were already occupied. The Director of Fisheries nevertheless rejected Casteel's application despite
improvements made and was required to remove all them. Casteel appealed to the Secretary of
Agriculture and Natural Resources.

In 1949, Inocencia Deluao (wife of Felipe Deluao) and Nicanor Casteel executed a "contract
of service" whereby Deluao hired and employed Casteel upon condition that Deluao, as the
Manager, administrator and sole buyer of all the produce of the fish, will finance and that Casteel
will render only his services for the construction and improvements of a fishpond.

Subsequently, the Director of Fisheries rejected the application filed by Felipe Deluao. Later
on, the Secretary of Agriculture and Natural Resources issued a decision reinstating Casteel, rejecting
Carpios application, and revoking Aradillos and Cacams fishpond permits. Hence, Casteel forbade
Inocencia Deluao from further administering the fishpond, and ejected the latter's representative,
Jesus Donesa, from the premises.

For the alleged violation of the contract of service, Sps. Deluao filed an action in the Court
of First Instance of Davao, which rendered a decision in their favor. Hence, Casteel appealed to the
Court of Appeals which certified the case to us for final determination on the ground that it involves
only questions of law.

Issue:
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Whether or not the partnership was dissolved upon reinstatement of Casteel on the subject
fishpond by the Secretary of Agriculture and Natural Resources thereby justifying Casteels
forbiddance of Spouses from administering the same.

Held:

YES. The Court construed the contract of service as one of partnership, divided into two
parts namely, a contract of partnership to exploit the fishpond pending its award to either Felipe
Deluao or Nicanor Casteel, and a contract of partnership to divide into two equal parts the
remaining capital and such portion of the fishpond as might have been developed by the amount
extended by the plaintiffs-appellees, with the further provision that Casteel should reimburse the
expenses incurred by the appellees over one-half of the fishpond that would pertain to him.
Although it did not specify any wage or share appertaining to the Cesteel as industrial partner, he
was so entitled this being one of the conditions he specified for the execution of the document
of partnership.

The contract continued until the decisions issued by the Secretary of Agriculture and Natural
Resources, which brought about the dissolution of the partnership. Moreover, subsequent events
likewise reveal the intent of both parties to terminate the partnership because each refused to share
the fishpond with the other, a direct violation of their undertaking as partners. Hence, both deemed
to have withdrawn from their partnership causing its ipso facto dissolution.

By reason of the object of the parties partnership, it envisaged the unauthorized transfer of
one-half thereof to parties other than the applicant Casteel, it was dissolved by the approval of his
application and the award to him of the fishpond. The approval was an event which made it
unlawful for the business of the partnership to be carried on or for the members to carry it on in
partnership. Besides, since Inocencia Deluao continued in possession and enjoyment, she did so no
longer in the concept of a capitalist partner but merely as creditor of the appellant.

DISPOSITIVE PORTION:

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby
rendered: (1) dissolving the injunction issued against the appellant, (2) placing the latter back in
possession of the fishpond in litigation, and (3) remanding this case to the court of origin for the
reception of evidence relative to the accounting that the parties must perforce render in the
premises, at the termination of which the court shall render judgment accordingly. The appellant's
counterclaim is dismissed. No pronouncement as to costs.

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Article 1812

Dy, Czara Loraine F.

THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI v. SULPICIO V. CEA, in


his capacity as Judge of the Court of First Instance of Leyte and OLEGARIO LASTRILLA
G.R. No. L-5963. May 20, 1953.
93 Phil. 100

Facts:

Leyte-Samar Sales Co. (hereinafter called LESSCO) and Raymond Tomassi filed a suit for
damages against Far Eastern Lumber & Commercial Co. (unregistered commercial partnership
hereinafter called FELCO), Arnold Hall, Fred Brown and Jean Roxas before the Court of First
Instance of Leyte. The lower court rendered judgment in favor of LESSCO, which the Court of
Appeals affirmed with modifications deleting the attorneys fees.

The decision having become final, the sheriff sold at auction in 1951 to Robert Dorfe and
Pepito Asturias "all the rights, interests, titles and participation" of the FELCO, et.al. in certain
buildings and properties described in the certificate, for P8,100.00.

But on June 4, 1951 Olegario Lastrilla filed in the case a motion, wherein he claimed to be
the owner by purchase in 1949, of all the "shares and interests" of Fred Brown in the FELCO, and
requested "under the law of preference of credits" that the sheriff be required to retain in his
possession so much of the deeds of the auction sale as may be necessary "to pay his right". Such
motion was granted by requiring the sheriff to retain 17% of the money "for delivery to the assignee,
administrator or receiver" of the FELCO. The court modified its order of delivery and merely
declared that Lastrilla was entitled to 17% of the properties sold.

Issue:

Whether or not Lastrilla has any proper claim to the proceeds of the sale.

Held:

No. On June 9, 1951 when the sale was effected of the properties of FELCO to Roberto
Dorfe and Pepito Asturias, Lastilla was already a partner of FELCO. He was not a creditor of
FELCO. The partner of a partnership is not a creditor of such partnership for the amount of his
shares. Lastrilla's theory, and the lower court's seems to be: inasmuch as Lastrilla had acquired the
shares of Brown is September, 1949, i.e., before the auction sale and he was not a party to the
litigation, such shares could not have been transferred to Dorfe and Austrilla.

Granting arguendo that the auction sale and not included the interest or portion of the
FELCO properties corresponding to the shares of Lastrilla in the same partnership (17%), the
resulting situation would be at most that the purchasers Dorfe and Austrias will have to
recognize dominion of Lastrillas over 17 per cent of the properties awarded to them. So Lastrilla

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acquired no right to demand any part of the money paid by Dorfe and Austrias to the sheriff for the
benefit of FELCO and Tomassi, the plaintiffs in that case, for the reason that, as he says, his shares
(acquired from Brown) could not have been and were not auctioned off to Dorfe and Austrias.
Supposing that Lastrillas shares have been actually sold by the sheriff to Dorfe and Austrias,
the proper remedy for him is to claim the property, not the proceeds of the sale which the sheriff
is directed by Sec. 14, Rule 39 to deliver unto the judgment creditor.

DISPOSITIVE PORTION:

In view of the foregoing, it is our opinion, and we so hold, that all orders of the respondents judge
requiring delivery of 17 per cent of the proceeds of the auction sale to respondent Olegario Lastrilla
are null and void; and the costs of this suit shall be taxed against the latter. The preliminary
injunction heretofore issued is made permanent. So ordered.

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PARTNERS RELATIONSHIP WITH THIRD PERSONS


(ARTICLES 1815-1827)

Article 1815

Evangelista, Kevin B.

IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF


THE FIRM NAME OZAETA, ROMULO, DE LEON, MABANTA & REYES.
RICARDO J. ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE
MA. REYES, JESUS S. J. SAYOC, EDUARDO DE LOS ANGELES, and JOSE F.
BUENAVENTURA
92 SCRA 1. July 30, 1979.

Facts:

Two separate Petitions were filed before this Court 1.) by the surviving partners of Atty.
Alexander Sycip, who died on May 5, 1975, and 2.) by the surviving partners of Atty. Herminio
Ozaeta, who died on February 14, 1976, praying that they be allowed to continue using, in the
names of the firms, the names of partners who had passed away. In the Court's Resolution of
September2, 1976, both Petitions were ordered consolidated.

Petitioners base their petitions on the following arguments:

1. Under the law, a partnership is not prohibited from continuing its business under a
firm name which includes the name explicitly sanctions the practice when it provides
in the last paragraph that:

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 partner-ship.

2. In regulating other professions, such as accountancy and engineering, the


legislature has authorized the adoption of firm names without any restriction as to the
use, in such firm name, of the name of a deceased partner;2 the legislative
authorization given to those engaged in the practice of accountancya profession
requiring the same degree of trust and confidence in respect of clients as that implicit
in the relationship of attorney and clientto acquire and use a trade name, strongly
indicates that 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,
at least where such firm name has acquired the characteristics of a trade name.

3. No local custom prohibits the continued use of a deceased partners name in a


professional firms name; there is no custom or usage in the Philippines, or at least in

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the Greater Manila Area, which recognizes that the name of a law firm necessarily
identifies the individual members of the firm.

Issue:

Whether or not the continued use of a deceased partners name in the firm name of law
partnerships is legal

Ruling:

Use in the partnership name of the names of deceased partners is contrary to Art. 1815 of
the Civil Code. Names in a firm name of a partnership must be living partners. Inasmuch as Sycip,
Salazar, Feliciano, Hernandez and Castillo and Ozaeta, Romulo, De Leon, Mabanta and Reyes
are partnerships, the use in their partnership names of the names of deceased partners will run
counter to Article 1815 of the Civil Code. x x x It is clearly tacit in the above provision that 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. In fact, Article 1825 of the Civil Code
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. Thus, 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 lawyers 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.
Accordingly, 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.

A partnership for the practice of law cannot be likened to partnerships formed by other
professionals or for business. For one thing, 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. x x x It is not a
partnership formed for the purpose of carrying on a trade or business or of holding property. Thus,
it has been stated that the use of a nom de plume, assumed or trade name in law practice is
improper.

Continued use of a deceased or former partners name in the firm names of law partnerships
is not sanctioned by local custom because of the possibility of deception upon the public where the
name of a deceased partner continues to be used. It is true that Canon 33 does not consider as
unethical the continued use of the name of a deceased or former partner in the firm name of a law
partnership 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 through this use. It must be conceded
that in the Philippines, no local custom permits or allows the continued use of a deceased or former
partners name in the firm names of law partnerships. Firm names, under our custom, identify the
more active and/or more senior members or partners of the law firm. A glimpse at the history of
the firms of petitioners and of other law firms in this country would show how their firm names
have evolved and changed from time to time as the composition of the partnership changed. The
possibility of deception upon the public, real or consequential, where the name of a deceased partner
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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.

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Evangelista, Kevin B.

TECK SEING & CO., LTD., SANTIAGO JO CHUNG CANG ET AL., partners, v.
PACIFIC COMMERCIAL COMPANY ET AL.
G.R. No. 19892. September 6, 1923.
45 Phil. 142

Facts:

In an insolvency proceedings of the petitioner-


establishment, Sociedad Mercantil, Teck Seing &Co., ltd., creditors, "Pacific Commercial and
others filed a motion before the Court to declare the
individual partners parties to the proceeding, for each to file an inventory, and for each to be
adjudicated as insolvent debtors.

The Regional Trial Court granted the motion but subsequently denied the same. Hence, this
petition.

The issue in the case relates to a determination of the nature of the mercantile establishment
which operated under the name of Teck Seing & Co., Ltd., and this issue requires us to look into,
and analyze, the document constituting Teck Seing & Co., Ltd, It reads:

"LIMITED MERCANTILE COMPANY SCRIPTURE"

"Know all for the present: "That we, Santiago Jo Chung Cang, of legal age,
merchant, resident and resident of the municipality of Tabogon, Province of Cebu,
Philippines, Go Tayco, of legal age, merchant, resident and resident of Cebu
municipality, Cebu Province , Philippine Islands, Yap Gueco, of legal age, merchant,
resident and resident of the municipality and Province of Cebu, Philippine Islands,
Lim Yogsing, of legal age, merchant, resident and resident of Cebu municipality,
Cebu Province, Philippines, And Jo Ybec, of legal age, merchant, resident and
resident of the municipality of Jagna, Province of Bohol, Philippine Islands, hereby
state that we constitute and form a limited trading company under the laws in force
in the Philippine Islands; To be registered in accordance with the current regulations
of the Code of Commerce in the Philippines.
"That the name shall be known as" Teck Seing & Co., Ltd. "and shall have its
principal place of business at Magallanes Street No. 94, of the City of Cebu, Province
of Cebu, Philippine Islands. "That the capital stock shall be thirty thousand pesos
(P30,000) legal currency of the Philippine Islands, divided into five shares of a
P6,000 as follows:

Santiago Jo Chung Cang ............................................ P6,000.00


Go Tayco .................................................................. 6,000.00
Yap Gueco ................................................................ 6,000.00
Jo Ybec ..................................................................... 6,000.00
Lim Yogsing ............................................................. 6,000.00
____________
Total .......................................................... 30,000.00
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"The duration of the partnership shall be six years, counting from the date of this
deed, and this time may be extended to the unanimous discretion of all shareholders.
"The object of the company will be the purchase and sale of merchandise in general.
"The directors or managers of the company may, after the shareholders have agreed,
establish such branches or establishments as may be necessary to facilitate their
business and the further development of the business to which the company is
engaged, verifying all transactions which they deem fit for the Promotion of its
capital.
"The profits or losses that result during each business year shall be distributed
proportionally among the shareholders, according to the capital contributed by each
one of them.
"The profits that result in each commercial year, if they result in some profits, can
not be withdrawn by the shareholders until within the term of three years, starting
from the date of the first annual balance of the business, thus leaving these earnings
in reserve, To increase the capital contributed by the shareholders and expand by
both the sphere of action undertaken by the same society. Upon expiration or
expiration of the term of three years, each shareholder may withdraw or deposit in
the company's possession the profits that should correspond to it during said three-
year term.
"That the shareholders may not at any time extract or dispose of any quantity or
quantities of the company that has been contributed by them, to meet their particular
expenses or even paying any income on the amount that they attempt to dispose of
or extract from said company.
"The shareholder Mr. Lim Yogsing will be in charge of the management of the
Company, in union with Mr. Vicente Jocson Jo, who may use the social signature
indistinctly, thus being authorized both to make on their behalf all kinds of
transactions , Business and commercial speculation, practicing judicially and
extrajudicially what acts are required for the good of society, appoint attorneys or
lawyers for claims and collection of credits and propose before the courts the claims,
conventions, transactions and exceptions. , Illness or any other impediment of the
shareholder, Mr. Lim Yogsing, may grant general or special power to the shareholder
he deems convenient so that, in union with the auxiliary administrator, Mr. Vicente
Jocson Jo, they may both conveniently manage the business of the company.
Managers will be able to have the necessary employees for the best management of
The business of the company, and will determine the salaries that these employees
should receive for services rendered to society.
"That both administrators may have one thousand two hundred pesos (P1,200)
Philippine currency, annually, for their particular expenses, being that amount of
P1,200 that corresponds to each one of said administrators, as emoluments and
salaries that are assigned to them.

For his work in the administration of society. It is understood that, at the end of each year,
shareholders will be entitled to receive the bonus that will be granted to each director, if the business
of the year is buoyant and justifies the granting of a special bonus, other than the salary specified and
specified herein:

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"That after the expiration of six years, and it is in the convenience of the
shareholders, the continuation of the business of this company, said term shall be
extended for an equal number of years, without the need for the granting of
subsequent deeds, remaining in force until Term set by all shareholders.
"That any differences that may arise between the shareholders, whether by reason of
what is stipulated in this deed, or by acts in the course and direction of the
businesses included therein, shall endeavor to arrange between them amicably and
extrajudicially, and if not An arrangement is thus obtained, such shareholders shall
appoint an arbitrator, whose resolution is all bound and hereby undertakes and
undertakes to abide by it in all its parts, renouncing further remedies.
"In terms of which we have formalized this deed of limited mercantile society, and
promise to fulfill it faithfully and strictly according to the covenants we have
established. "In testimony of all of which, we signed in the City of Cebu, Province of
Cebu, Philippine Islands, today, October 31, nineteen hundred and nine.

Issue:

Whether or not the nature of the mercantile establishment, Teck Seing & Co., ltd. is a
limited partnership

Ruling:

No. The contract of partnership established a general partnership.

By process of elimination, Teck Seing & Co., ltd. is not a corporation nor an accidental
partnership (joint account association).

To establish a limited partnership, there must be, at least, one general partner and the name
of at least one of the general partners must appear in the firm name. this requirement has not been
fulfilled. Those who seek to avail themselves of the protection of laws permitting the creation of
limited partnerships must show a substantially full compliance with such laws. It must be noted that
all the requirements of the Code have been met with the sole exception of that relating to the
composition of the firm name.

The legal intention deducible from the acts of the parties controls in determining the
existence of a partnership. If they intend to do a thing which in law constitutes a partnership, they
are partners although their very purpose was to avoid the creation of such relation. Here the
intention of the persons making up Teck Seing & Co., ltd. Was to establish partnership which they
erroneously denominated as a limited partnership.

Wherefore, the order appealed from is reversed, and the record shall be returned to the court
of origin for further proceedings pursuant to the motion presented by the creditors, in conformity
with the provisions of the Insolvency Law. Without special finding as to the costs in this instance, it
is so ordered.

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Gonzalez, Jed Nathaniel M.

PHILIPPINE NATIONAL BANK v. LO, ET. AL


G. R. No. L-26937. October 5, 1927.
50 Phil. 802

Facts:

Severino Eugenio Lo, Ng Khey Ling, J.A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam
and Co Sieng Peng formed a commercial partnership, named Tai Sing and Co. Its purpose was to
do business in Iloilo, buying and selling Japanese and Chinese merchandise.

Ping, the general manager, authorized one A.Y. Kelam to be manager and administrator of
the partnership. Ping obtained a loan, and mortgaged chattels of the partnership as security. This
credit was renewed several times, and later a new credit line was secured by some of the partners.

Issues:

Whether or not the anomalous adoption of Tai Sing and Co. as a partnership affect the
liability of the partnership.

Ruling:

NO, it does not.

The anomalous adoption of a firm name does not affect the liability of the partners to third
persons. The inclusion of the partners names in the firm name is mandatory, and must be complied
with. This is for the protection of creditors and the public from possible fraud and imposition on
the part of the partnership.

Contracts entered into by commercial associations defectively organized are valid when
voluntarily executed by the parties.

Judgment appealed from is affirmed.

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Gonzalez, Jed Nathaniel M.

SHARRUF & CO. v. BALOISE FIRE INSURANCE CO., ET. AL


G. R. No. 44119. March 30, 1937.
64 Phil. 258

Facts:

Plaintiffs Salomon Sharruf and Elias Eskenazi were doing business under the firm name of
Sharruf & Co. They had applied to the defendant companies for insurance of the merchandise they
had in stock. the plaintiffs executed a contract of partnership between themselves wherein they
substituted the name of Sharruf & Co. with that of Sharruf & Eskenazi. The partners contributed
money and property, such as silk, porcelain, and glass products, to the partnership. The property
contributed were stored in some 40 boxes and were left by the plaintiffs in a building. The boxes
were relocated, and were destroyed due to fire that destroyed the building in which the boxes were
located.

Issues:

1. Whether or not Salomon Sharruf and Elias Eskenazi had juridical personality to
bring this action, either individually or collectively, and whether or not they had insurable interest,
and
2. Whether or not the claim of loss filed by the plaintiffs is fraudulent.

Ruling:

1. YES, it should pay.

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

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

2. YES, it was.

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

The plaintiffs, upon whom devolve the legal obligation to prove the existence, at the time of
the fire, of the articles and merchandise for the destruction of which they claim indemnity from the
defendant companies, have not complied with their duty because they have failed to prove by a
preponderance of evidence that when the fire took place there were in the burnt building articles
and merchandise in the total amount of the insurance policies or that the textiles and other damaged
and undamaged goods found in the building after the fire were worth P40,000. So great is the
difference between the amount of articles insured, which the plaintiffs claim to have been in the
building before the fire, and the amount thereof shown by the vestige of the fire to1 have1 been
therein, that the most liberal human judgment cannot attribute such difference to a mere innocent
error in estimate or counting but to a deliberate intent to demand of the insurance companies
payment of an indemnity for goods not existing at the time of the fire, thereby constituting the so-
called "fraudulent claim" which, by express agreement between the insurers and the insured, is a
ground for exemption of the insurers from civil liability.

Therefore, as the herein plaintiffs-appellees have acted in bad faith in presenting a fraudulent
claim, they are not entitled to the indemnity claimed by them by virtue of the insurance policies
issued by the defendant companies in their favor.

Appealed judgment has been reversed.

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Article 1816

Hernandez, Chad Jorel V.

LA COMPAIA MARITIMA, v. FRANCISCO MUOZ, ET AL.


G.R. No. L-3704. December 12, 1907.
9 Phil. 326

Facts:

This action was brought in the Court of First Instance of Manila against the partnership of
Franciso Muoz & Sons, and against Francisco Muoz de Bustillo, Emilio Muoz de Bustillo, and
Rafael Naval to recover the sum of P26,828.30, with interest and costs. On the 31st day of March,
1905, the defendants Francisco Muoz, Emilio Muoz, and Rafael Naval formed on ordinary
general mercantile partnership under the name of Francisco Muoz & Sons for the purpose of
carrying on the mercantile business in the Province of Albay which had formerly been carried on by
Francisco Muoz. Francisco Muoz was a capitalist partner and Emilio Muoz and Rafael Naval
were industrial partners.

In the articles of partnership signed by the partners it is expressly stated that they have
agreed to form, and do form, an ordinary, general mercantile partnership. The object of the
partnership, as stated in the fourth paragraph of the articles, is a purely mercantile one and all the
requirements of the Code of Commerce in reference to such partnership were complied with. The
articles of partnership were recorded in the mercantile registry in the Province of Albay.

In support of their appeal, appellees alleged that Emilio Muoz contributed nothing to the
partnership, either in property, money, or industry and that he was entirely excluded from the
management of the business. In accordance to these circumstances, Emilio Muoz, as an industrial
partner cannot be held liable to third persons like the petitioner in this case.

Issue:

Whether or not an industrial partner like Emilio Muoz can be held liable to third persons
for the debts or obligations incurred by the partnership?

Held:

Yes. Article 127 of the Code of Commerce (now governed by Article 1816 of the Civil Code
of the Philippines) states that:

All the members of the general copartnership, be they or be they not managing
partners of the same, are liable personally and in solidum with all their property for the
results of the transactions made in the name and for the account of the partnership,
under the signature of the latter, and by a person authorized to make use thereof.

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It is not disputed by the appellees that by the terms of article 127 each one of the capitalist
partners is liable for all of the debts, regardless of the amount of his contribution, but the
construction which they put upon article 141 makes such capitalist partners liable for only a
proportionate part of the debts.

There is no injustice in imposing this liability upon the industrial partners. They have a voice
in the management of the business, if no manager has been named in the articles; they share in the
profits and as to third persons it is no more than right that they should share in the obligations. It is
admitted that if in this case there had been a capitalist partner who had contributed only P100 he
would be liable for this entire debt of P26,000.

The Court stated in its decision that an examination of the works of Manresa and Sanchez
Roman on the Civil Code, and of Blanco's Mercantile Law, will shows that no one of these mentions
in any way the irregular general partnership spoken of by Dr. Benito, nor is there anything found in
any one of these commentaries which in any way indicates that an industrial partner is not liable to
third persons for the debts of the partnership. An examination of the French law will also show that
no distinction of that kind is therein anywhere made and nothing can be found therein which
indicates that the industrial partners are not liable for the debts of the partnership. Neither on
principle nor on authority can the industrial partner be relieved from liability to third persons for the
debts of the partnership.

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Hernandez, Chad Jorel V.

TEODORO DE LOS REYES v. VICENTE LUKBAN and ESPERIDION BORJA


G.R. No. 10695. December 15, 1916.
35 Phil. 757

Facts:

On December 5, 1913, Teodoro de los Reyes brought suit in the Court of First Instance of
this city against Vicente Lukban and Esperidion Borja, to recover from them individually the sum of
P853, the balance of a debt of P1,086.65 owing for merchandise bought on credit in October and
November, 1904, by the firm Lukban & Borja, from the plaintiff's ship supply store, named La
Industria.

One of the partner, Esperidion Borja, paid P522.69 on account of the debt. There still
remains to be paid P610.21, and this sum, together with the costs and legal interest thereon from
July 14, 1905, to the date of the complaint, December 5, 1913, aggregates the total sum of P894.17.
The plaintiff prayed the court to order the defendants jointly or severally to pay him, the plaintiff,
the said amount, together with the legal interest thereon from the date of the complaint, and the
costs.
Vicente Lukban, in his amended answer said that he was merely an industrial partner in the
firm of Lukban & Borja, Espiridion Borja being the partner thereof who furnished the capital and
that the assets of the firm of Lukban & Borja had not been exhausted (by attachment), wherefore
the present action is premature.

Issue:

Whether or not Teodoro de los Reyes is entitled to collect individually from the partners
Lukban and Borja the amount of the debt that the dissolved partnership owed at the time of its
dissolution?

Held:

Yes. The Court stated that it is unquestionable that a right has given rise to the
corresponding right of action to demand the payment of the debt from the partners individually, or
from each of them, by the insolvency of the partnership, inasmuch as they are personally and
severally liable with all their property for the results of the operations of the partnership which they
conducted.

Article 127 of the Code of Commerce (now governed by Article 1816 of the Civil Code of
the Philippines) provides that:

All the members of the general copartnership, be they or be they not managing
partners of the same, are liable personally and in solidum with all their property for the
results of the transactions made in the name and for the account of the partnership,
under the signature of the latter, and by a person authorized to make use thereof.

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Merrera, Raisa Victoria G.

PACIFIC COMMERCIAL COMPANY v. ABOITIZ & MARTINEZ, ET AL., JOSE


MARTINEZ
G.R. No. L-25007. March 2, 1926.
48 Phil. 841

Facts:

In 1919, Arnaldo F. de Silva, Guillermo Aboitiz, Vidal Aboitiz and Jose Martinez formed a
"regular, collective, merchantile partnership" with a capital of P40,000 of which each of the
partners,, Aboitiz and De Silva furnished one-third. Martinez was an industrial partner and furnished
no capital; it was provided in the partnership that he was to receive 30 percent of the profits and
that his responsibility for losses should not exceed the amount of the profits received by him.

In 1922, the partnership, executed a promissory note in favor of Pacific Commercial


Company and as security for the payment of the note, the partnership executed a chattel mortgage in
favor of the plaintiff on certain personal property. For failure of the partnership to pay the debt, the
chattel mortgage was foreclosed and sold. This action was brought for the recovery of the unpaid
balance with interest. The trial the court rendered judgment in favor of the plaintiff and provided
that execution should first be issued against the property of the partnership. In the event of
insolvency of the partnership, it might issue against the property of the partners, De Silva and
Aboitiz and in the event of their insolvency, against the property of the industrial partner, Martinez.
From this judgment, Martinez appealed and maintains that under art. 141 of the Code of Commerce
he, as a mere industrial partner, cannot be held responsible for the partnership's debt.

Issue:

Whether or not Jose Martinez, as an industrial partner, can be liable for the partnerships
debt.

Held:

Yes, Art. 127 of the Code of Commerce provides that All the members of the general
copartnership, be they or be they not managing partners of the same are liable personally and in
solidum with all their property for the results of the transaction made in the name and for the account
of the partnership, under the signature of the later, and by a person authorized to make use thereof.

The language of this article is clear and specific that all the members of a general
copartnership are liable with all their property for the results of the duly authorized transactions
made in the name and for the account of the partnership. On the other hand, art. 141 provides that
"losses shall be computed in the same proportion among the capitalist partners without including
the industrial partners, unless by special agreement the latter have been constituted as participants
therein," is susceptible of two different interpretations of which that given it in the Compania
Maritima case, supra, i.e., that it relates merely to the distribution of losses among the partners
themselves in the settlement of the partnership affairs and has no reference to partnership
obligations to third parties, appears to us to be the more logical.

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There is a marked distinction between a liability and a loss and the inability of a partnership
to pay a debt to a third party at a particular time does not necessarily mean that the partnership
business as a whole, has been operated at a loss. The partnership may have outstanding credits
which for the moment may have be unavailable for the payment of debts, but which eventually may
be realized upon and yield profits more than sufficient to cover all losses. Bearing this in mind it will
be found that there in reality is no conflict between the two articles quoted; one speaks of liabilities,
the other of losses.

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Merrera, Raisa Victoria G.

ISLAND SALES, INC. v. UNITED PIONEERS GENERAL CONSTRUCTION


COMPANY, ET. AL, BENJAMIN C. DACO
G.R. No. L-22493. July 31, 1975.
65 SCRA 544

Facts:

In 1961, the defendant company, a general partnership duly registered under the Philippine
law, purchased from the plaintiff a motor vehicle on the installment basis with the condition that
failure to pay any of said installments as they fall due would render the whole unpaid balance
immediately due and demandable.

Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant
company for the unpaid balance. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B.
Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general partners
of the defendant company. Guizona failed to file an answer and was consequently declared in
default. Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the
defendant Lumauig is concerned.

The defendants, Daco and Sim moved to reconsider the decision claiming that since there
are five (5) general partners, the joint and subsidiary liability of each partner should not exceed one-
fifth of the obligations of the defendant company. But the trial court denied the said motion
notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and Sim
to only one-fifth of the obligations of the defendant company.

Issue:

Whether or not the dismissal of the complaint to favor one of the general partners of a
partnership increases the joint and subsidiary liability of each of the remaining partners for the
obligations of the partnership.

Held:

No, Art. 1816 of the Civil Code provides that All partners including industrial ones, shall be
liable pro rata with all their property and after all the partnership assets have been exhausted, for the
contracts which may be entered into in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership. However, any partner may enter into
a separate obligation to perform a partnership contract.

In the case of Co-Pitco vs. Yulo (8 Phil. 544), the Court held: The partnership of Yulo and
Palacios was engaged in the operation of a sugar estate in Negros. It was, therefore, a civil
partnership as distinguished from a mercantile partnership. Being a civil partnership, by the express
provisions of articles l698 and 1137 of the Civil Code, the partners are not liable each for the whole
debt of the partnership. The liability is pro rata and in this case Pedro Yulo is responsible to plaintiff
for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left the country
cannot increase the liability of Pedro Yulo.
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In the instant case, there were five (5) general partners when the promissory note was
executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the
liability of the appellant Daco shall be limited to only one-fifth of the obligations of the defendant
company. The fact that the complaint against the defendant Lumauig was dismissed, upon motion
of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company.
In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability
to the plaintiff.

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Pascual, Aizen Paula DS.

ELMO MUASQUE v. COURT OF APPEALS,CELESTINO GALAN TROPICAL


COMMERCIAL COMPANY and RAMON PONS
G.R. No. L-39780. November 11, 1985.
139 SCRA 533

Facts:

Petitioner Muasque in behalf of the partnership of "Galan and Muasque" as Contractor


entered into a written contract with respondent Tropical for remodelling the Cebu branch building.
A total amount of P25,000.00 was to be paid under the contract for the entire services of the
Contractor. The terms of payment were as follows: thirty percent (30%) of the whole amount upon
the signing of the contract and the balance thereof divided into three equal installments at the lute of
Six Thousand Pesos (P6,000.00) every fifteen (15) working days.

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

Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so
that when the second check in the amount of P6,000.00 came and Galan asked the petitioner to
indorse it again, the petitioner refused.

Since Galan informed the Cebu branch of Tropical that there was a"misunderstanding"
between him and petitioner, respondent Tropical changed the name of the payee in the second
check from Muasque to "Galan and Associates" which was the duly registered name of the
partnership between Galan and petitioner and under which name a permit to do construction
business was issued by the mayor of Cebu City. This enabled Galan to encash the second check.

Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts.
The construction work was finished ahead of schedule with the total expenditure reaching
P34,000.00.

The two remaining checks, each in the amount of P6,000.00,were subsequently given to the
petitioner alone with the last check being given pursuant to a court order.

The petitioner filed a complaint for payment of sum of money and damages against the
respondents,seeking to recover the following: the amounts covered by the first and second checks
which fell into the hands of respondent Galan, the additional expenses that the petitioner incurred in
the construction, moral and exemplary damages, and attorney's fees.

Both the trial and appellate courts not only absolved respondents Tropical and its Cebu
Manager, Pons, from any liability but they also held the petitioner together with respondent Galan,
liaable to the intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for
the credit which the intervenors extended to the partnership of petitioner and Galan.

Issues:
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i. Whether or not there existed a partners between Celestino Galan and Elmo
Muasque
ii. Whether or not the liability of petitioner and Galan to pay the credits of Blue
Diamond and Cebu Southern Hardware should be "jointly and severally"

Held:
i. Yes. The records will show that the petitioner entered into a con-tract with Tropical
for the renovation of the latter's building on behalf of the partnership of "Galan and Muasque.
There is nothing in the records to indicate that the partner-ship organized by the two men was not a
genuine one. If there was a falling out or misunderstanding between the partners, such does not
convert the partnership into a sham organization.

Likewise, when Muasque received the first payment of Tropical in the amount of P7,000.00
with a check made out in his name, he indorsed the check in favor of Galan. Respondent Tropical
therefore, had every right to presume that the petitioner and Galan were true partners. If they were
not partners as petitioner claims, then he has only himself to blame for making the relationship
appear otherwise, not only to Tropical but to their other creditors as well. The payments made to
the partnership were, therefore, valid payments

ii. No. While it is true that under Article 1816 of the Civil Code,"All partners, including
industrial ones, shall be liable prorate with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into the name and fm the account cd the
partnership, under its signature and by a person authorized to act for the partner-ship. ...". this
provision should be construed together with Article 1824 which provides that: "All partners are
liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822
and 1823." In short, while the liability of the partners are merely joint in transactions entered into by
the partnership, a third person who transacted with said partnership can hold the partners solidarily
liable for the whole obligation if the case of the third person falls under Articles 1822 or 1823.

Articles 1822 and 1823 of the Civil Code provide:

Art. 1822. Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partner-ship or with the authority of his
co-partners, loss or injury is caused to any person, not being a partner in the
partnership or any penalty is incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act.

Art. 1823. The partnership is bound to make good:


(1) Where one partner acting within the scope of his apparent authority receives
money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or property of
a third person and t he money or property so received is misapplied by any partner
while it is in the custody of the partnership.

The obligation is solidary, because the law protects him, who in good faith relied upon the
authority of a partner, whether such authority is real or apparent. That is why under Article 1824 of
the Civil Code all partners, whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable.
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Article 1818

Pascual, Aizen Paula DS.

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


ENRIQUE ORTEGA GO-COTAY
G.R. No. L-24243. January 15, 1926.
48 Phil. 605

Facts:

Chinamen Go-Lio and Vicente Go-Sengco formed a society for the purchase and sale of
articles of commerce, they opened a store in the town of San Isidro, Nueva Ecija. Later Go-Lio
went to China. Vicenyte Go-Sengco died and his son Enrique Ortega Go-Cotay took charge of the
businesses. On October 1916 Go-Lio died in China. tOne of his three children came to the
Philippines and filed a petition for the appointment of Ildefonso de la Rosa as administrator of the
intestate estate of his deceased father.

Ildefonso de la Rosa, in his capacity as administrator of the intestate estate of the deceased
Go-Lio, requested Enrique Go-Cotay to wind up the business and to deliver to him the portion
corresponding to the deceased Go-Lio. Enrique Ortega Go-Cotay denied the petition, alleging that
the business was his exclusively. In view of this denial, Ildefonso de la Rosa, as administrator, on
July 2, 1918, filed with the Court of First Instance of Nueva Ecija a complaint against Enrique
Ortega Co-Cotay in which he prayed that the defendant be sentenced to deliver to the plaintiff one-
half of all the property of the partnership formed by Go-lIo and Vicente Go-Sengco, with costs
against the defendant, and that the said plaintiff be appointed receiver for the property of the said
partnership.

The assets of the partnership, as well as the value of its property, could not be determined
when making the liquidation because there was no inventory and for this reason it was not possible
to determine the capital of the partnership.

Issue:

Whether or not the partnership should bear the losses incurred under the management of
defendant alone.

Held:

No. Go-Cotay assumed complete responsibility for the business by objecting the
appointment of a receiver as prayed for by the plaintiff, and giving a bond therefor. Until that date
his acts were those of s managing partner, binding against the partnership; but thereafter his acts
were those of a receiver whose authority is contained in Sec. 175 of the Civil Procedure.

A receiver has no right to carry on and conduct a business unless he is authorized or directed
by the court to do some, and such authority is not derived from an order of appointment to take

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and preserve the property. It does not appear that the defendant as a receiver was authorized
authorized by the court to continue the business of the partnership in liquidation. This being so, he
is personally liable for the losses that the business may have sustained.

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Perianes, Laurisse Marie T.

GEORGE LITTON v. HILL & CERON, et al.


G.R. No. L-45624. April 25, 1939.
67 Phil. 509

The public need not make inquiries as to the agreements had between the partners. Its knowledge is enough
that it is contracting with the partnership which represented by one of the managing partners.

Facts:

The plaintiff sold and delivered to Carlos Ceron, who is one of the managing partners of Hill
& Ceron, a certain number of mining claims. Ceron paid to the plaintiff the sum of P 1,150.00,
leaving an unpaid balance of P 720.00, and unable to collect this sum either from Hill & Ceron, or
from its surety Visayan Surety & Insurance Corporation, Litton filed a complaint in the Court of
First Instance of Manila against the said defendants for the recovery of the said balance.

The trial court ordered Carlos Ceron to personally pay the amount claimed and absolved the
partnership Hill & Ceron, Robert Hill, and the Visayan Surety & Insurance Corporation. On appeal,
the Court of Appeals latter affirmed the decision of the CFI, having reached the conclusion that
Ceron did not intend to represent and did not act for the firm Hill & Ceron in the transaction
involved in this litigation.

Issue:

Whether or not Carlos Ceron should be held personally liable, and not the firm Hill & Ceron
for the unpaid balance of P 720.00 to George Litton.

Held:

No. The transaction made by Ceron with the plaintiff should be understood in law as
effected by Hill & Ceron and binding upon it. It is an admitted fact by Robert Hill when he testified
at the trial that he and Ceron, during the partnership, had the same power to buy and sell; that in
said partnership Hill as well as Ceron made the transaction as partners in equal parts; that on the
date of the transaction, the partnership between Hill and Ceron was in existence. When the
transaction was entered into with Litton, it was neither published in the newspaper nor stated in the
commercial registry that the partnership Hill & Creton had been dissolved.

Under Article 226 of the Code of Commerce, the dissolution of a commercial association
shall not cause any prejudice to third parties until it has been recorded in the commercial registry.
Also, the Supreme Court of Spain held that the dissolution of a partnership by the will of the
partners which is not registered in the commercial registry does not prejudice third persons.

The articles of partnership of Hill & Ceron provides that the management of the business of
the partnership has been entrusted to both partners thereof. Third persons, like plaintiff are not
bound in entering into a contract with any of the two partners to ascertain whether or not this
partner with whom the transaction is made has the consent of the other partner. The public need

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not make inquiries as to the agreements had between the partners. Its knowledge is enough that it is
contracting with the partnership which represented by one of the managing partners.

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Perianes, Laurisse Marie T.

ELMO MUNASQUE v. COURT OF APPEALS, CELESTINO GALAN TROPICAL


COMMERCIAL COMPANY and RAMON PONS
G.R. No. L-39780. November 11, 1985.
139 SCRA 533

When two persons were partners when the debts were incurred, they are also both liable to third persons who
extended credit to their partnership. Also, there is a general presumption that each individual partner is authorized
agent for the firm and that he has authority to bind the firm in carrying on the partnership transactions. The
presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by one of the
members of the firm acting apparently in its behalf and within the scope of his authority.

Facts:

Petitioner Elmo Munasque filed a complaint for payment of sum of money and damages
against respondents Celestino Galan, Tropical Commercial, Co., Inc. and Ramos Pons, alleging that
the petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager
Pons for remodeling a portion of its building without exchanging or expecting any consideration
from Galan although the latter was casually name as partner in the contract; that by virtue of his
having introduced the petitioner to the employing company, Tropical. Tropical agreed to give
petitioner the amount of P 7,000.00 soon after the construction began and thereafter, the amount of
P 6,000.00 every fifteen days during the construction to make a total sum of P 25,000.00.

Tropical and/or Pons delivered a check for P 7,000.00 not to the plaintiff but to a stranger
to the contract, Galan, who succeeded in getting petitioners indorsement on the same check
persuading the latter that the same be deposited in a joint account. When the second check for P
6,000.00 was due, petitioner refused to indorse said check presented to him by Galan, but through
the latters manipulations, respondent Pons succeeded in changing the payees name from Elmo
Munasque to Galan and Associates, thus enabling Galan to cash the same at the Cebu Branch of the
PCIB placing the petitioner in great financial difficulty in his construction business and subjecting
him to demands of creditors to pay for the construction materials, the payment of which should
have been made from the P 13,000 received by Galan. Petitioner undertook the construction at his
own expense, completing it prior to the deadline.

Issues:

(1) Whether or not petitioner Munasque and respondent Galan are partners.
(2) Whether or not the payment made by Tropical through its manager Pons to Galan was
good payment.

Held:

(1) Yes. The records showed that the petitioner entered into a contract with Tropical for the
renovation of the latters building on behalf of the partnership of Galan and Munasque.
There is nothing in the records to indicate that the partnership organized by the two men
was not a genuine one. If there was a falling out or misunderstanding between the partners,
such does not convert the partnership into a sham organization.
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Likewise, when Muasque received the first payment of Tropical in the amount of
P7,000.00 with a check made out in his name, he indorsed the check in favor of Galan.
Respondent Tropical therefore, had every right to presume that the petitioner and Galan
were true partners. If they were not partners as petitioner claims, then he has only himself to
blame for making the relationship appear otherwise, not only to Tropical but to their other
creditors as well. The payments made to the partnership were, therefore, valid payments.

(2) Yes. No error was committed by the appellate court in holding that the payment made by
Tropical to Galan was a good payment which binds both Galan and the petitioner. Since the
two were partners when the debts were incurred they are also both liable to third persons
who extended credit to their partnership.

As the Court ruled in Litton v. Gill and Ceron, et al., there is a general presumption that
each individual partner is authorized agent for the firm and that he has authority to bind the
firm in carrying on the partnership transactions. The presumption is sufficient to permit
third persons to hold the firm liable on transactions entered into by one of the members of
the firm acting apparently in its behalf and within the scope of his authority.

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Article 1819

Rosero, Sheron

SANTIAGO SYJUCO, INC. v. CASTRO


G.R. No. 70403. July 7, 1989.
175 SCRA 171

Facts:

The private respondents, Eugenio Lim, et al., borrowed from petitioner Santiago Syjuco,
Inc., the sum of P800,000.00. The loan was given on the security of a first mortgage on property
registered in the names of said borrowers as owners in common under Transfer Certificates of Title
Numbered 75413 and 75415 of the Registry of Deeds of Manila. Thereafter, additional loans on the
same security were obtained by the private respondents from Syjuco, so that as of May 8, 1967, the
aggregate of the loans stood at P2,460,000.00, exclusive of interest, and the security had been
augmented by bringing into the mortgage other property, also registered as owned pro indiviso by
the private respondents under two titles: TCT Nos. 75416 and 75418 of the Manila Registry.

The private respondents failed to pay it despite demands therefore; that Syjuco consequently
caused extra-judicial proceedings for the foreclosure of the mortgage to be commenced by the
Sheriff of Manila; and that the latter scheduled the auction sale of the mortgaged property on
December 27, 1968. The attempt to foreclose triggered off a legal battle that has dragged on for
more than twenty years now, fought through five (5) cases in the trial courts, two (2) in the Court of
Appeals, and three (3) more in the Supreme Court.

One of the complaints filed by the private respondents was filed not in their individual
names, but in the name of a partnership of which they themselves were the only partners: "Heirs of
Hugo Lim." The complaint advocated the theory that the mortgage which they, together with their
mother, had individually constituted (and thereafter amended during the period from 1964 to 1967)
over lands standing in their names in the Property Registry as owners pro indiviso, in fact no longer
belonged to them at that time, having been earlier deeded over by them to the partnership, "Heirs of
Hugo Lim," more precisely, on March 30, 1959, hence, said mortgage was void because executed by
them without authority from the partnership. Syjuco filed an instant petition for certiorari,
prohibition and mandamus. It prays in its petition that the default judgment rendered against it by
Judge Castro be annulled on the ground of, among others, estoppel, res judicata, and Article 1819 of
the Civil Code.

Issue:

Whether or not the private respondents are estopped to avoid the aforementioned mortgage.

Held:

Yes. The Supreme Court ruled that the respondent partnership was inescapably chargeable
with knowledge of the mortgage executed by all the partners thereof, its silence and failure to

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impugn said mortgage within a reasonable time, let alone a space of more than 17 years, brought
into play the doctrine of estoppel to preclude any attempt to avoid the mortgage as allegedly
unauthorized. Equally or even more preclusive of the respondent partnerships claim to the
mortgaged property is the last paragraph of Art. 1819 of the Civil Code, which contemplates a
situation similar to the case at bar. It states that where the title to real property is in the names of all
the partners, a conveyance executed by the entire partners pass all their rights in such property.
Consequently, those members' acts, declarations and omissions cannot be deemed to be simply the
individual acts of said members, but in fact and in law, those of the partnership. Finally, the
Supreme Court emphasizes that the right of the private respondents to assert the existence of the
partnership could have been stressed at the time they instituted their first action, considering that the
actions involved property supposedly belonging to it, and therefore, the partnership was the real
party in interest. What was done by them was to split their cause of action in violation of the well-
known rule that only one suit may be instituted for a single cause of action.

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Rosero, Sheron

ALFREDO N. AGUILA, JR. v. COURT OF APPEALS and FELICIDAD S. VDA. DE


ABROGAR
G.R. No. 127347. November 25, 1999.
319 SCRA 246

Facts:

In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan agreement with
a lending firm called A.C. Aguila & Sons, Co., a partnership. The loan was for P200k. To secure the
loan, the spouses mortgaged their house and lot located in a subdivision. The terms of the loan
further stipulate that in case of non-payment, the property shall be automatically appropriated to the
partnership and a deed of sale be readily executed in favor of the partnership. She does have a 90-
day redemption period.

Ruben died, and Felicidad failed to make payment. She refused to turn over the property and
so the firm filed an ejectment case against her (wherein she lost). She also failed to redeem the
property within the period stipulated. She then filed a civil case against Alfredo Aguila, manager of
the firm, seeking for the declaration of nullity of the deed of sale. The RTC retained the validity of
the deed of sale. The Court of Appeals reversed the RTC. The CA ruled that the sale is void for it is
a pactum commissorium sale which is prohibited under Art. 2088 of the Civil Code (note the disparity of
the purchase price, which is the loan amount, with the actual value of the property which is after all
located in a subdivision).

Issue:

Whether or not the case filed by Felicidad shall prosper.

Held:

No. Unfortunately, the civil case was filed not against the real party in interest. As pointed
out by Aguila, he is not the real party in interest but rather it was the partnership A.C. Aguila &
Sons, Co. The Rules of Court provide that every action must be prosecuted and defended in the
name of the real party in interest. A real party in interest is one who would be benefited or injured
by the judgment, or who is entitled to the avails of the suit. Any decision rendered against a person
who is not a real party in interest in the case cannot be executed. Hence, a complaint filed against
such a person should be dismissed for failure to state a cause of action, as in the case at bar.

Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate and
distinct from that of each of the partners. The partners cannot be held liable for the obligations of
the partnership unless it is shown that the legal fiction of a different juridical personality is being
used for fraudulent, unfair, or illegal purposes. In this case, Felicidad has not shown that A.C. Aguila
& Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal purposes.
Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. It is the
partnership, not its officers or agents, which should be impleaded in any litigation involving property
registered in its name. A violation of this rule will result in the dismissal of the complaint.

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Article 1820

Senique, Alyssa Paulina R.

MANUEL ORMACHEA TIN-CONGCO, deceased, represented by the Chinaman Tiu


Tusay, judicial administrator of his estate, v. SANTIAGO TRILLANA
G.R. No. L-4776. March 18, 1909.
13 Phil. 194

Facts:

In 1902, the plaintiff Manuel Ormachea Tin-Congco and Luis Vizmanos Ong Queco were
engaged in business in the pueblos in the Province of Bulacan, and that in the course thereof the
defendant purchased from them merchandise to the value of 4,000 pesos. However, the partnership
was dissolved and the business was divided up between the partners; all accounts and debts of the
defendant were allotted to the plaintiff, and became the individual property of Ormachea Tin-
Congco. Tin-Congco filed a complaint against Santiago Trillana, praying that the indebtedness of
P5,500.00, as proven by the documents signed by the defendant or his agents in favor of Ormachea
or of Vizmanos Ong Queco or their agent named Lawa in charge of the business, be paid.

The defendant filed a written answer setting forth that he had already paid his accounts and
obligations contracted in favor of the said Ormachea and Vizmanos by means of periodical
deliveries of tuba or liquor of the nipa palm, and alleged that, if any amount was still pending
payment, it should be paid not in money but in tuba, at such time and under such circumstances as
are customary in the town of Hagonoy. In evidence of this, while testifying under oath, he
introduced the following document marked "A" which appears at folio 248:

I, Jose R. Lopez (Lawa), a Christian Chinese, do hereby declare that D. Santiago


Trillana has no outstanding debt whatever with the distillery situated in the barrio of
San Sebastian in this town, which in past times was under my management. What I
have stated is the truth.

The trial judge rendered judgment ordering the defendant, Santiago Trillana, to pay the
judicial administrator of the estate of the deceased plaintiff, Ormachea Tin-Congco.

Issue:

Whether or not the manager of a business is still authorized to release debtors after a definite
dissolution of partnership.

Ruling:

No.

If the business jointly carried on by Ormachea and Vizmanos was dissolved, and its
transactions ceased in 1901, Jose Lopez Lawa, who managed the distillery on behalf of the owners

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of the same, also ceased to act as such manager in said year, and for said reason the document
Exhibit A, which he issued to the debtor on the 19th of November, 1903, two years after ceasing to
be manager, can not serve to relieve the debtor from paying what he owed by virtue of the
documents or vales that he had issued in order to obtain money from the owners of the said
distillery; that is to say, as agreed upon by them, the right to recover the debts of the defendant still
belonged to Ormachea when the business was dissolved, as Lawa was not authorized by Ormachea
to deliver to the debtor an acquittance releasing him from the obligations that he had contracted, to
the prejudice of the real creditor, the only person entitled to condone a debt in the event of waiving
the right to recover the same.

Hence, as the document was made out and issued two years afterwards, without a previous
payment of the amounts secured on the said vales, when the business no longer existed, when the
owners had entirely withdrawn from it, and when Lawa, who then acted as manager of the distillery,
had no express authority to issue such a document, it is not proper nor lawful to admit the said
document as possessing a force and effect that would fully exempt the defendant from the payment
of his obligation.

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Article 1821-1824

Senique, Alyssa Paulina R.

BENITO LIWANAG and MARIA LIWANAG REYES v. WORKMEN'S


COMPENSATION COMMISSION, ET AL.
G.R. No. L-12164. May 22, 1959.
105 Phil. 741

Facts:

Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto
Supply; one of their commercial guards, while in line of duty, was skilled by criminal hands. Thus,
his widow, Ciriaca Vda. de Balderama and minor children, Genara, Carlos and Leogardo, all
surnamed Balderama, in due time filed a claim for compensation with the Workmen's Compensation
Commission, which was granted in an award worded as follows:

WHEREFORE, the order of the referee under consideration should be, as it is


hereby, affirmed and respondents Benito Liwanag and Maria Liwanag Reyes,
ordered. 1. To pay jointly and severally the amount of three thousand Four Hundred
Ninety Four and 40/100 (P3,494.40) Pesos to the claimants in lump sum; and 2. To
pay to the Workmen's Compensation Funds the sum of P4.00 (including P5.00 for
this review) as fees, pursuant to Section 55 of the Act.

In appealing the case to this Tribunal, the appellants argue that there is nothing in the
compensation Act which provides that the obligation of an employer arising from compensable
injury or death of an employee should be solidary obligation, the same should have been specifically
provided, and that, in absence of such clear provision, the responsibility of appellants should not be
solidary but merely joint.

Issue:

Whether or not the liability of the partners is merely joint, and not solidary.

Ruling:

No. The liability of partners must be solidary.

The law governing the liability of partners is not applicable to the case at bar wherein a claim
for compensation by dependents of an employee who died in line of duty is involved. And although
the Workmen's Compensation Act does not contain any provision expressly declaring solidary
obligation of business partners like the herein appellants, there are other provisions of law from
which it could be gathered that their liability must be solidary. Arts. 1711 and 1712 of the new Civil
Code provide:

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ART. 1711. Owners of enterprises and other employers are obliged to pay compensation for the
death of or injuries to their laborers, workmen, mechanics or other employees, even though the event
may have been purely accidental or entirely due to a fortuitous cause, if the death or personal injury
arose out of and in the course of the employment. . . . .
ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the
employer shall be solidarily liable for compensation. . . . .

And section 2 of the Workmen's Compensation Act, as amended reads in part as follows:

. . . The right to compensation as provided in this Act shall not be defeated or impaired on the
ground that the death, injury or disease was due to the negligence of a fellow servant or employee,
without prejudice to the right of the employer to proceed against the negligence party.

The provisions of the new Civil Code above quoted taken together with those of Section 2
of the Workmen's Compensation Act, reasonably indicate that in compensation cases, the liability of
business partners, like appellants, should be solidary; otherwise, the right of the employee may be
defeated, or at least crippled. If the responsibility of appellants were to be merely joint and solidary,
and one of them happens to be insolvent, the amount awarded to the appellees would only be
partially satisfied, which is evidently contrary to the intent and purposes of the Act.
Wherefore, finding no error in the award appealed from, the same is hereby affirmed, with costs
against appellants.

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Article 1825

Tan, Elma T.

ADRIANO MIRASOL v. THE MUNICIPALITY OF TABACO, ALBAY


G.R. No. L-17877. July 10, 1922.
43 Phil. 610

Facts:

Sometime in 1916, the defendant municipality decided to have an artesian well drilled in the
central portion of the town. Plaintiff's lot is one of those included in the project, he interposed no
objection, and thus, the project was started. After the machinery were installed but before the
drilling actually begun, the plaintiff objected the continuation of the work and whereupon, the
operations were immediately suspended. The acting president talked to the plaintiff and again the
plaintiff gave his consent to its being drilled on his lot, the well was completed without any further
obligation on the part of the plaintiff.

The plaintiff later on filed an action in ejectment and for damages, alleging that the
defendant municipality, without his consent, caused an artesian well to be bored on a building lot
owned by him thereby rendering the land unserviceable for the uses to which it was to be devoted
by the plaintiff. The trial court rendered a decision absolving the defendant from the complaint.

Issue:

Does the defendant municipality has the right over the land?

Ruling:

The defendant municipality has acquired no title to the land occupied by the well nor even
easement therein; its interest can only be regarded as mere license. Ordinarily, a license is revocable
at the pleasure of the licensor, but it has been held in most jurisdictions in the United States that
where the licensee has entered upon land under a license and has with the express and implied
consent of the owner expended money or labor for extensive improvements on the strength of such
license, the owner is estopped from revoking the license.

The doctrine of estoppel having its origin in equity and therefore being based on moral right
and natural justice, its applicability to any particular case depends, to a very large extent, upon the
special circumstances of the case. In the present case the plaintiff is a participant in the benefits of
the well in question; he gave his express consent to the boring of the well upon the premises and
thereby led the defendant to believe that the license would not be revoked. Acting upon this belief,
the defendant caused the well to be bored and incurred large expenses. We doubt that any
authoritative judicial decision will be found where upon such or similar facts the applicability of the
doctrine of estoppel has been denied.

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To hold that under the circumstances stated the license might be revoked, would be putting
a premium upon fraud and deception which equity will not tolerate and would also be in conflict
with the provisions of subsection 1 of the section 333 of the Code of Civil Procedure, which reads:

Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act, or omission, be permitted to falsify its.

The court therefore hold that not only upon the general principles of equity, but also under
subsection 1 of section 333 of the Code of Civil Procedure, is the plaintiff estopped from revoking
the license in question without first reimbursing the defendant for the expenditures incurred upon
the strength of said license.

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Tan, Elma T.

LIM TONG LIM v. PHILIPPINE FISHING GEAR INDUSTRIES, INC.


G.R. No. 136448. November 3, 1999.
317 SCRA 728

Facts:

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into
a Contract for the purchase of fishing nets and floats from respondent Philippine Fishing Gear
Industries, Inc. They claimed that they were engaged in a business venture with Petitioner Lim Tong
Lim, who however was not a signatory to the agreement.

The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for
a writ of preliminary attachment. The suit was brought against the three in their capacities as general
partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation
as shown by a Certification from the Securities and Exchange Commission.

The trial court maintained the Writ, and upon motion of private respondent, ordered the sale
of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and
deposited with the said court the sales proceeds of P900,000.

Thereafter, the trial court ruled that Philippine Fishing Gear Industries was entitled to the
Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent. It also ruled that a partnership among Lim, Chua and Yao existed based
(1) on the testimonies of the witnesses presented and (2) on a Compromise Agreement executed by
the three in a civil case which provides that the proceeds of the sale of four (4) vessels including the
fishing net shall be applied as full payment in favor of JL Holdings Corporation and/or Lim Tong
Lim; and to divide equally among them the excess or loss.

The CA affirmed the decision of the RTC ruling that petitioner was a partner of Chua and
Yao in a fishing business and may thus be held liable as such for the fishing nets and floats
purchased by and for the use of the partnership.

Hence, petitioner brought this recourse before this Court.

Issue:

Whether by their acts, Lim, Chua and Yao could be deemed to have entered into a
partnership.

Ruling:

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale
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of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term "common fund" under
Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also shows that they had indeed
formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but
also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were
obviously acquired in furtherance of their business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment,
without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They purchased the boats, which constituted the main
assets of the partnership, and they agreed that the proceeds from the sales and operations thereof
would be divided among them.

Unquestionably, Lim Tong Lim benefited from the use of the nets found in his boats, the
boat which has earlier been proven to be an asset of the partnership. Lim Tong Lim cannot argue
that the principle of corporation by estoppels can only be imputed to Yao and Chua. Lim, Chua and
Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this
fact alone does not preclude the liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general partners.

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Urbano, Mary Yasmine V.

PIONEER INSURACE v. COURT OF APPEALS.


G.R. Nos. 84197 & 84157. July 28, 1989.
175 SCRA 668

FACTS:

Jacob S. Lim was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a
single proprietorship. Japan Domestic Airlines (JDA) and Lim entered into and executed a sales
contract for the sale and purchase of two aircrafts and one set of necessary spare parts for the total
agreed price of US $109,000.00 to be paid in installments.

Pioneer Insurance and Surety Corporation (Pioneer) as surety executed and issued its Surety Bond
No. 6639 in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and
spare parts. Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and
Modesto Cervantes (Cervanteses) and Constancio Maglana contributed some funds used in the
purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions
to a new corporation proposed by Lim to expand his airline business.

Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel
mortgage as security for the latter's suretyship in favor of the former. It was stipulated therein that
Lim transfer and convey to the surety the two aircrafts.

Lim defaulted on his subsequent installment payments prompting JDA to request payments from
the surety. Pioneer filed an action for judicial foreclosure with an application for a writ of
preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
After trial on the merits, the appellate court held Lim liable to pay Pioneer but dismissed Pioneer's
complaint against all other defendants.

ISSUE:

Whether or not Cervanteses, Bormaheco and Maglana must share in the loss as partners.

RULING:

No. The petition is dismissed. The questioned decision of the Court of Appeals is affirmed.

Pioneer believes that a de facto partnership was formed since the co-investors agreed to do business
but failed to incorporate. If such is the case, the partners must share in the losses and/or gains of
the business.

But the court ruled that there was no de facto partnership because Lim never had the intention to
form a corporation with the respondents despite his representations to them. This gives credence to
the cross-claims of the respondents to the effect that they were induced and lured by the petitioner
to make contributions to a proposed corporation which was never formed because the petitioner

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reneged on their agreement. The record shows that the petitioner was acting on his own and not in
behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts.

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Article 1826-1827

Urbano, Mary Yasmine V.

VIUDA de CHAN DIACO v. PENG


G.R. No. L-29182. October 24, 1928.
53 Phil. 905

Facts:

The San Miguel Brewery, Porta Pueco & Co., and Ruiz & Rementaria S. en C. instituted
insolvency proceedings against Leoncia Vda. de Chan Diaco (alias Lao Liong Naw), alleged to be the
owner of a grocery store known as the store of "La Viuda de G. G. Chan Diaco." The
aforementioned firms alleged, among other things, that Leoncia was indebted to them in the sum of
P26,234.47.

The court declared her insolvent and ordered the sheriff to take possession of her property,
the visible part of which at that time consisting of some merchandise, afterwards sold at public
auction for P3,300. After various hearings and the taking of considerable testimony, the referee,
Ricardo Summers, the clerk of the Court of First Instance of Manila, recommended that the
insolvent deliver to the assignee sums of money which the Judge Del Rosario approved.

More than a year later, 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 Liong Naw & Co.," of which she was only a member. In view of the motion, Judge
Del Rosario suspended for the time being the effects of the decision and set the motion down for
hearing. His Honor again appointed Summers as referee. The referee 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 recommended that the motion of the insolvent to
dismiss the proceedings against her be denied.

The matter was submitted to Judge Zandueta, who had been temporarily assigned to take the
place of Judge Del Rosario, for the latter was the absent on leave, and a decision was rendered
disapproving the report of the referee. The court, affirmed the suspension of the decision of Judge
Del Rosario, and dismissed the insolvency proceedings. A motion for reconsideration was presented
by the assignee but was denied.

Issue:

Whether or not the partners are individually liable to the amount of debt.

Ruling:

YES. The decision appealed from is hereby reversed.

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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 has no visible assets that,
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, the
court finds no reason for the dismissal of the proceedings against her. 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 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.

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DISSOLUTION OF PARTNERSHIP
(ARTICLES 1828-1837)

Article 1828

Vicencio, Carmel Louise Q.

BENJAMIN YU v. NATIONAL LABOR RELATIONS COMMISSION and JADE


MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D.
BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU
G.R. No. 97212. June 30, 1993.
223 SCRA 75

Not only the retiring partners but also the new partnership itself which continued the business of the old, dissolved,
one, are liable for the debts of the preceding partnership.

Facts:

Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying
and export business operated by Jade Mountain. Petitioner Yu received only half of his stipulated
monthly salary, since he had accepted the promise of the partners that the balance would be paid
when the firm shall have secured additional operating funds from abroad. Benjamin Yu actually
managed the operations and finances of the business; he had overall supervision of the workers at
the marble quarry and took charge of the preparation of papers relating to the exportation of the
firm's products.

However, in 1988 without his knowledge the general partners as well as one of the limited
partners sold and transferred their interest to Willy Co and Emmanuel Zapanta. Thus, the new
partners decided to transfer the firms main office but opted to continue the operation of the old
partnership under its old firm name and with all its employees and workers except for the petitioner.

Upon knowledge of the changes in the partnership, petitioner went to the new main office
to meet the new partners and demand the payment of his unpaid salaries, but the latter refused to
pay him and instead informed him that since he bought the business from the original partners, it
was for him to decide whether or not he was responsible for the obligations of the old partnership
including petitioners unpaid salaries. Hence, petitioner was dismissed from said partnership.

Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing
from against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and
Willy Co denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an
employee by the present or new partnership

Issues:

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a) Whether or not the partnership which had hired petitioner Yu as Assistant General
Manager had been extinguished and replaced by a new partnerships composed of Willy Co and
Emmanuel Zapanta
b) Whether or not petitioner Yu could assert his rights under his employment contract
as against the new partnership

Ruling:

a) Yes.

The legal effect of the changes in the membership of the partnership was the dissolution of
the old partnership which had hired the petitioner in 1984 and the emergence of the new firm
composed of Willy Co and Emmanuel Zapanta in 1988. Article 1828 of the Civil Code provides as
follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.

Art. 1830. Dissolution is caused:


(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when no definite term or particular
undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where the circumstances do not permit a
dissolution under any other provision of this article, by the express will of any partner at any time;

The occurrence of events which precipitate the legal consequence of dissolution of a


partnership do not, however, automatically result in the termination of the legal personality of the
old partnership. The new partnership simply continued the operations of the old partnership under
its old firm name without winding up the business affairs of the old partnership, paying off its debts,
liquidating and distributing its net assets, and then re-assembling the said assets or most of them and
opening a new business enterprise.

b) Yes.

Under Art. 1840, creditors of the old partnership are also creditors of the new partnership
which continued the business of former without liquidation of the partnership affairs. Thus, a
creditor of the old Jade Mountain, such as the petitioner is entitled to enforce his claim for unpaid
salaries, as well as other claims relating to his employment with the old partnership against the new
Jade Mountain.

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Vicencio, Carmel Louise Q.

IRMA IDOS v. COURT OF APPEALS AND PEOPLE OF THE PHILIPPINES


G.R. No. 110782. SEPTEMBER 25, 1998.
296 SCRA 194

Prior to the selling of the goods and collecting of the receivables, a partner could not, as of yet, demand his
proportionate share in the business. This situation would hold true until after the winding up, and subsequent
termination of the partnership. For only then, when the goods were already sold and receivables paid that cash money
could be availed of by the erstwhile partners.

Facts:

Eddie Alarilla supplied chemicals and rawhide to the accused-appellant Irma Idos for use in
the latter's business of manufacturing leather. In 1985, he joined the accused-appellant's business
and formed with her a partnership under the style "Tagumpay Manufacturing.

However, the partnership was short lived. In January 1986 the parties agreed to terminate
their partnership. Upon liquidation of the business, the partnership had as of May 1986 receivables
and stocks worth P1, 800,000.00. The complainant's share of the assets was P900, 000.00 to pay for
which the accused-appellant issued four postdated checks.

The complainant was able to encash the first, second, and fourth checks, but the third check
which is the subject of this case, was dishonored for insufficiency of funds. The complainant
demanded payment from the accused-appellant but the latter failed to pay. The accused-appellant
denied liability. She claimed that the check had been given upon demand of complainant only as
"assurance" of his share in the assets of the partnership and that it was not supposed to be deposited
until the stocks had been sold.

Complainant denied that the checks issued to him by accused-appellant were subject to the
disposition of the stocks and the collection of receivables of the business. But the accused-appellant
insisted that the complainant had known that the checks were to be funded from the proceeds of
the sale of the stocks and the collection of receivables. She claimed that the complainant himself
asked for the checks because he did not want to continue in the tannery business and had no use for
a share of the stocks.

Issues:

Whether or not the private complainant has the right to demand payment of his
proportionate share in the partnership prior to the selling of goods and collecting of receivables

Ruling:

No.

Though the parties had agreed to dissolve the partnership, such agreement did not
automatically put an end to the partnership, since they still had to sell the goods on hand and collect

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the receivables from debtors. In short, they were still in the process of "winding up" the affairs of
the partnership, when the check in question was issued.

Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up;
and (3) termination. These stages are distinguished, to wit:

(1) Dissolution Defined


Dissolution is the change in the relation of the partners caused by any partner ceasing
to be associated in the carrying on of the business (Art. 1828). It is that point of time the time
the partners cease to carry on the business together.

(2) Winding Up Defined


Winding up is the process of settling business affairs of dissolution.

(3) Termination Defined


Termination is the point in time after all the partnership affairs have been wound up.

These final stages in the life of a partnership are recognized under the Civil Code that
explicitly declares that upon dissolution, the partnership is not terminated, to wit:

Art 1828. The dissolution of a partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.

Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.

The best evidence of the existence of the partnership, which was not yet terminated (though
in the winding up stage), were the unsold goods and uncollected receivables. Since the partnership
has not been terminated, the petitioner and private complainant remained as co-partners. The check
was thus issued by the petitioner to complainant, as would a partner to another, and not as payment
from a debtor to a creditor.

The subject check was issued for the mere purpose of evidencing the private complainants
share or interest in a partnership he entered into with the drawer of the check. The check was simply
meant to show the drawers commitment that when the receivables of the partnership are collected
and goods are sold and only when such collection and sale were realized, would the drawer give to
the private complainant the net amount due him representing his interest in the partnership; it did
not involve a debt of or any amount due and payable by the drawer.

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Article 1828

Satar, Mohammad Ajrin D.

TESTATE ESTATE OF LAZARO MOTA, ET AL., v. SALVADOR SERRA


G.R. No. L-22825. February 14, 1925.
47 Phil. 464

Facts:

On February 1, 1919, 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." On January 29, 1920, 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 under the contract of January 29, 1920, in favor of Messrs. Venancio
Concepcion and Phil. C. Whitaker. This gave rise to the fact that on July 17, 1920, Venancio
Concepcion and Phil. C. Whitaker and the herein defendant executed another deed of absolute sale
of the said "Palma" Estate for the amount of P1,695,961.90, of which the vendor received at the
time of executing the deed the amount of P945,861.90, and the balance was payable by installments
in the form and manner stipulated in the contract. 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. On January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the
plaintiffs the one-half of the railroad line pertaining to the latter. he plaintiffs and Concepcion and
Whitaker agreed, among other things, that the partnership "Palma" and "San Isidro," formed by the
agreement of February 1, 1919, 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 the contract, and that the said partnership agreement should be
totally cancelled and of no force and effect whatever. 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 praying: (1) That the deed of February 1, 1919, be declared valid and binding; (2)
that after the execution of the said document the defendant improved economically so as to be able
to pay the plaintiffs the amount owed, but that he refused to pay either in part or in whole the said
amount notwithstanding the several demands made on him for the purpose; and (3) that the
defendant be sentenced to pay plaintiffs the aforesaid sum of P113,046.46, with the stipulated
interest at 10 per cent per annum beginning June 4, 1920, until full payment thereof, with the costs
of 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 the rights of
the creditor and debtor; and (3) the extinguishment of the contract. The court a quo in its decision
held that there was a novation of the contract by the substitution of the debtor, and therefore
absolved the defendant from the complaint with costs against the plaintiffs. With regard to the

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prayer that the said contract be declared valid and binding, the court held that there was no way of
reviving the contract which the parties themselves in interest had spontaneously and voluntarily
extinguished. Plaintiffs have appealed from this judgment and as causes for the review.

Issue:

Whether there was a novation of the contract by the substitution of the debtor with the
consent of the creditor, as required by article 1205 of the Civil Code.

Held:

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.

We are not holding that the creditor's consent must necessarily be given in the same
instrument between the first and the new debtor. The consent of the creditor may be given
subsequently, but in either case it must be expressly manifested. In the present case, however, the
creditor makes judicial demand upon the first debtor for the fulfillment of his obligation, evidently
showing by this act that he does not give his consent to the substitution of the new debtor.

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.

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Satar, Mohammad Ajrin D.

SY YONG HU & SONS, et al. v. HONORABLE COURT OF APPEALS


G.R. No. 100313. August 31, 1999.
313 SCRA 328

Facts:

Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose Sy, Jayme Sy,
Marciano Sy, Willie Sy, Vicente Sy, and Jesus Sy, registered with the SEC on March 29, 1962, with
Jose Sy as managing partner. The partners and their respective shares are reflected in the Amended
Articles of Partnership. Partners Sy Yong Hu, Jose Sy, Vicente Sy, and Marciano Sy died on May 18,
1978, August 12, 1978, December 30, 1979 and August 7, 1987, respectively.[6] At present, the
partnership has valuable assets such as tracts of lands planted to sugar cane and commercial lots in
the business district of Bacolod City. During the lifetime of all the partners, Keng Sian brought an
action against the partnership as well as against the individual partners for accounting of all the
properties allegedly owned in common by Sy Yong Hu and the plaintiff (Keng Sian), and for the
delivery or reconveyance of her one-half (1/2) share in said properties and in the fruits
thereof. Keng Sian averred that she was the common law wife of partner Sy Yong Hu, that Sy Yong
Hu, together with his children. Hearing Officer Tongco ordered the placing of the he partnership
under a receivership committee, explaining that it is the most equitable fair and just manner to
preserve the assets of the partnership during the pendency of the civil case in the Regional Trial
Court of Bacolod City.

Petitioner Sy Yong Hu & Sons through its Managing Partner, Jesus Sy, applied for a building
permit to reconstruct its building called Sy Yong Hu & Sons Building, located in the central business
district of Bacolod City, which had been destroyed by fire in the late 70s. On July 5, 1988,
respondent City Engineer issued Building Permit No. 4936 for the reconstruction of the first two
floors of the building.Soon thereafter, reconstruction work began. In January, 1989, upon
completion of its reconstruction, the building was occupied by the herein petitioners, Bacolod and
Upholstery Supply Company and Negros Isuzu Sales, which businesses are owned by successors-in-
interest of the deceased partners Jose Sy and Vicente Sy. Petitioner John Tan, who is also an
occupant of the reconstructed building, is the brother-in-law of deceased partner Marciano Sy. On
October 10, 1988, respondent Intestate Estate sent a letter to the City Engineer claiming that Jesus
Sy is not authorized to act for petitioners Sy Yong Hu & Sons with respect to the reconstruction or
renovation of the property of the partnership. This was followed by a letter dated November 11,
1988, requesting the revocation of Building Permit No. 4936.

Respondent City Engineer inquired later from Jesus Sy for an authority to sign for and on
behalf of Sy Yong Hu & Sons to justify the latters signature in the application for the building
permit, informing him that absent any proof of his authority, he would not be issued an occupancy
permit. On December 27, 1988, respondent Intestate Estate reiterated its objection to the authority
of Jesus Sy to apply for a building permit and pointing out that in view of the creation of a
receivership committee, Jesus Sy no longer had any authority to act for the partnership.

In reply, Jesus Sy informed the City Engineer that the Tongco Order had been elevated to
the SEC en banc, making him still the authorized manager of the partnership. He then requested that

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an occupancy permit be issued as Sy Yong Hu & Sons had complied with the requirements of the
City Engineers Office and the National Building Code.

Unable to convince the respondent City Engineer to revoke subject building permit,
respondent Intestate Estate brought a Petition for Mandamus with prayer for a Writ of Preliminary Injunction
which was later granted. Petitioners Sy Yong Hu & Sons, the owners of the building sought to be
padlocked were not impleaded as party to the petition dated February 22, 1989. Neither were the
lessees-occupants thereon so impleaded.Thus, they were not notified of the hearing scheduled for
April 5, 1989, on which date the Petition was heard. Subsequently, however, the Regional Trial
Court issued an order dated April 19, 1989 for the issuance of a Writ of Preliminary Mandatory
Injunction ordering the City Engineer to padlock the building. pon learning of the issuance of the
Writ of Preliminary Injunction petitioners immediately filed the: (1) Motion for Intervention; (2)
Answer in Intervention; and (3) Motion to set aside order of mandatory injunction. In its order
dated June 22, 1989, the Motion for Intervention was granted by the lower court through Acting
Presiding Judge Porfirio A. Parian. petitioner Sy Yong Hu & Sons again wrote the respondent City
Engineer to reiterate its request for the immediate issuance of a certificate of occupancy, alleging
that the Court of Appeals in its Decision of January 15, 1990 in CA-G. R. No. 17070 had reversed
the SEC decision which approved the appointment of a receivership committee. However, the City
Engineer refused to issue the Occupancy Permit without the conformity of the respondent Intestate
Estate and one John Keng Seng who claims to be an Illegitimate son of the Late Sy Yong Hu. An an
order issued on January 24, 1991 upon an Ex Parte Motion to Have All Pending Incidents Resolved
filed by respondent Intestate Estate, an order modifying the Writ of Preliminary Mandatory
Injunction, and directing the respondent City Engineer to immediately order stoppage of any work
affecting the construction of the said building.

Issue:

Whether failure to implead a real party in interest constitutes violation of the due process.

Held:

For failure to observe due process, the herein respondent court acted without
jurisdiction. As a result, petitioners cannot be bound by its orders. Generally accepted is the
principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to
a case are not bound by judgment rendered by the court.

To be sure, the petitioners are indispensable parties in Civil Case No. 5326, which sought to
close subject building. Such being the case, no final determination of the claims there over could be
had. That the petition for mandamus with a prayer for the issuance of a writ of preliminary
mandatory injunction was only directed against the City Engineer is of no moment. No matter how
private respondent justifies its failure to implead the petitioners, the alleged violation of the
provisions of the Building Code relative to the reconstruction of the building in question, by
petitioners, did not warrant an ex parte and summary resolution of the petition. The violation of a
substantive law should not be confused with punishment of the violator for such violation. The
former merely gives rise to a cause of action while the latter is its effect, after compliance with the
requirements of due process.

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Article 1830

Aranas, Janine Karla A.

DOMINGO BEARNEZA v. BALBINO DEQUILLA


G.R. No. 17024. March 24, 1922.
43 Phil. 237

Facts:

Balbino Dequilla and Perpetua Bearneza formed a partnership for the purpose of exploiting
a fish pond in Iloilo. Perpetua obligating herself to contribute to the payment of the expenses of the
business and both of them agreeing to divide the profits between themselves until Perpetua died.
The deceased left a will where she appointed Domingo Bearneza, the herein plaintiff, as her heir to
succeed to all her rights and interests in the fish pond in question. When Domingo demanded
Perpetuas share, Balbino refused. The former brought this action recover said part of the fish pond
and one-half of the profits received from the fishpond.

Balbino contends that no partnership was ever formed because Perpetua failed to make
good her obligation because she refused to defray expenses of reconstruction and exploitation of
said fish pond. Aside from this, the petitioners action has already prescribed.

The trial court declared Domingo as the owner of one-half of the fish pond, which was
composed of the portions known as "Alimango" and "Dalusan," but without awarding any damages.

Issue:

Whether or not Domingo has any right to maintain an action for the recovery of one-half of
the said fish pond

Held:

No. The partnership did not continue to exist after the death of Perpetua, also, there was no
stipulation to that effect has ever been made by her or Balbino.

There was no issue as to whether there was a partnership or not. There was one because
such was the intention of the parties. It was a particular partnership, as defined in article 1678 of the
Civil Code, it having had for its subject-matter a specified thing, the exploitation of the
aforementioned fish pond. Such partnership was dissolved when Perpetua died. Its subsequent legal
status was that of a partnership in liquidation, and the only rights inherited by her testamentary heir,
the herein plaintiff, were those resulting from the said liquidation in favor of the deceased partner,
and nothing more. Before this liquidation is made, it is impossible to determine what rights or
interests, if any, the deceased still had.

There is no sufficient ground for holding that a community of property existed between the
plaintiff and the defendant, it not being known whether the deceased still had any interest in the

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partnership property which could have been transmitted by will to the plaintiff. There being no
community of property, article 395 of the Civil Code cited by the plaintiff in support of his
contention has no application to the case at bar. The partnership did not continue although the
defendant required the heirs of Perpetua to contribute to the payment of the expenses of
exploitation. There was no action to show such intent from any of the parties. The plaintiff has not
sufficiently shown his right of action.

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Aranas, Janine Karla A.

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


C. GOQUIOLAY v. WASHINGTON Z. SYCIP
G.R. No. L-11840. July 26, 1960.
9 SCRA 663

Facts:

Tan Sin An and Antonio C. Goquiolay", entered into a general commercial partnership
under the partnership name "Tan Sin An and Antonio C. Goquiolay", for the purpose in dealing in
real state. The partnership had a capital of P30,000.00, P18,000.00 of which was contributed by
Goquiolay and P12,000.00 by Tan Sin An. Tan Sin An is the sole managing and partner and Antonio
C. Goquiolay as co-partner. The following are the important stipulations: The affairs of co-
partnership shall be managed exclusively by the managing and partner or by his authorized agent. It
is expressly stipulated that the managing partner may appoint an agent and delegate the entire
management of the affairs of the co-partnership by irrevocable power of attorney to any person,
firm or corporation. The co-partner shall have no voice or participation in the management of the
affairs of the co-partnership. The lifetime of the partnership was fixed at ten (10) years and in the
event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership. The partnership could be dissolved and its
affairs liquidated at any time upon mutual agreement in writing of the partners.

Tan Sin An and Goquiolay" purchased the three lots assuming the payment of a mortgage
obligation of P25,000.00, payable to "La Urbana Sociedad Mutua de Construccion y Prestamos" for
a period of ten (10) years, with 10% interest per annum. Another 46 parcels were purchased by Tan
Sin An in his individual capacity, and he assumed payment of a mortgage debt thereon for
P35,000.00 with interest. The two separate obligations were consolidated in an instrument executed
by the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the
"Banco Hipotecario de Filipinas". Tan Sin An died, leaving as surviving heirs his widow, Kong Chai
Pin, and four minor children. Thereafter, repeated demands for payment were made by Banco
Hipotecario.

Kong Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels
of land to Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the
aforesaid debts of Tan Sin An and the partnership. Learning about the sale to Sycip and Lee, the
surviving partner Antonio Goquiolay filed, a petition in the intestate proceedings seeking to set aside
the order of the probate court approving the sale in so far as his interest over the parcels of land
sold was concerned.

Issues:

1) Whether or not Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole
management of the partnership, upon the latter's death.
2) Whether or not the consent of the other partners was necessary to perfect the sale of
the partnership properties.

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Held:

1) Yes, she succeeded in the sole management of the partnership. Even if it was the
intention of the original partners to pass only the decedents interest in the partnership to the heirs
and not the management power, Goquilay never repudiated or refused to be bound under the said
provision in the articles, became individual partners with Antonio Goquiolay upon Tan's demise.
Even if Goquiolay contends that "new" members' liability in the partnership was limited merely to
the value of the share or estate left by the deceased Tan Sin An, they became no more than limited
partners and, as such, were disqualified from the management of the business. This was not the case
with Kong Chai Pin, manifested her intent to be bound by the partnership agreement not only as a
limited but as a general partner. Thus, she managed and retained possession of the partnership
properties and was admittedly deriving income therefrom up to and until the same were sold to
Washington Sycip and Betty Lee. In fact, by executing the deed of sale of the parcels of land in
dispute in the name of the partnership, she was acting no less than as a managing partner. Having
thus preferred to act as such, she could be held liable for the partnership debts and liabilities as a
general partner, beyond what she might have derived only from the estate of her deceased husband.
By allowing her to retain control of the firm's property from, Goquiolay estopped himself to deny
her legal representation of the partnership, with the power to bind it by the proper contracts.

2) No, the consent of the other partners was necessary to perfect the sale of the
partnership properties. Strangers dealing with a partnership have the right to assume, in the absence
of restrictive clauses in the co-partnership agreement, that every general partner has power to bind
the partnership, especially those partners acting with ostensible authority. In one case it was said
that there is a general presumption that each individual partner is an agent for the firm and that he
has authority to bind the firm in carrying on the partnership transactions Mills vs. Riggle.
Goquiolay did not object to the widows actions.

The sale, leaving the partnership with no real property would result to dissolution and
therefore needs consent of all the partners is incorrect. The firm was not organized to exploit these
precise lots but to engage in buying and selling real estate, and "in general real estate agency and
brokerage business."

Goquilays final contention that the sale of the real property was for a fraudulent scheme to
oust Goquilay is also umerituous. The prices of the lots were not to be considered unfair because
the appellant did not show any proof of the lots market value at the time of sale. The widow had no
choice but to sell said properties because the partnership has no properties nor cash to answer for
its obligations.

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Balcueva, Ira Colleen E.

ORTEGA v. COURT OF APPEALS


G.R. No. 109248. July 3, 1995.
245 SCRA 529

Facts:

On February 17, 1988 petitioner-appellant Ortega, wrote the respondents-appellees a letter


stating his intention to withdraw from the firm of Bito, Misa and Lozada.

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and
Clearing Department (SICD) a petition for dissolution and liquidation of partnership. The hearing
officer rendered a decision ruling that: "Petitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are
hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the
liquidation of the shares of any retiring or withdrawing partner in the partnership interest."

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada."
The Commission ruled that, being a partnership at will, the law firm could be dissolved by any
partner at any time, such as by his withdrawal therefrom, regardless of good faith or bad faith, since
no partner can be forced to continue in the partnership against his will.

Issues:

1. Whether or not the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will; and

2. Whether or not the withdrawal of Misa dissolved the partnership regardless of his good or
bad faith

Held:

Yes. The partnership agreement provides that The partnership shall continue so long as
mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be
continued by the surviving partners." A partnership that does not fix its term is a partnership at will.
That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed
such a partnership need not be unduly belabored.

Yes. The withdrawal of Atty. Misa has dissolved the partnership, any one of the partners
may, at his sole pleasure, dictate 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.

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Balcueva, Ira Colleen E.

DELUAO v. CASTEEL
G.R. No. L-21906. December 24, 1968.
26 SCRA 475

Facts:

In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the
then Sitio of Malalag (now the Municipality of Malalag), Municipality of Padada, Davao. No action
was taken thereon by the authorities concerned. During the Japanese occupation, he filed another
fishpond application for the same area, but because of the conditions then prevailing, it was not
acted upon either. On December 12, 1945 he filed a third fishpond application for the same area,
which, after a survey, was found to contain 178.76 hectares. Upon investigation conducted by a
representative of the Bureau of Forestry, it was discovered that the area applied for was still needed
for firewood production. Hence on May 13, 1946 this third application was disapproved.

Meanwhile, several applications were submitted by other persons for portions of the area
covered by Casteel's application.

Because of the threat poised upon his position by the applicants who entered upon and
spread themselves within the area, Casteel realized the urgent necessity of expanding his occupation
thereof by constructing dikes and cultivating marketable fishes, in order to prevent old and new
squatters from usurping the land. But lacking financial resources at that time, he sought financial aid
from his uncle Felipe Deluao who then extended loans totalling more or less P27,000 with which to
finance the needed improvements on the fishpond. Hence, a wide productive fishpond was built.

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part,
and Nicanor Casteel as party of the second part, executed a contract denominated a "contract of
service". On the same date the above contract was entered into, Inocencia Deluao executed a special
power of attorney in favor of Jesus Donesa.

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe
Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same
area in the two administrative cases and asked for reinvestigation of the application of Nicanor
Casteel over the subject fishpond.

The Secretary of Agriculture and Natural Resources rendered a decision ordering Casteel to
be reinstated in the area and that he shall pay for the improvement made thereupon. Sometime in
January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond,
and ejected the latter's representative (encargado), Jesus Donesa, from the premises.

Issue:

1. Whether the agreement made by the parties created a contract of co-ownership or


partnership.
2. Whether the reinstatement of Casteel over the subject land constitute a dissolution
of the partnership between him and Deluao
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Held:

1. Yes, the agreement made by the parties in the contract of service created a contract
of partnership. The evidence preponderates in favor of the view that the initial intention of the
parties was not to form a co-ownership but to establish a partnership Inocencia Deluao as
capitalist partner and Casteel as industrial partner the ultimate undertaking of which was to divide
into two equal parts such portion of the fishpond as might have been developed by the amount
extended by the plaintiffs-appellees, with the further provision that Casteel should reimburse the
expenses incurred by the appellees over one-half of the fishpond that would pertain to him.

2. Yes, the reinstatement of Casteel dissolved his partnership with Deluao.

The Supreme Court ruled that the arrangement under the so-called "contract of service"
continued until the decision both dated Sept. 15, 1950 were issued by the Secretary of Agriculture
and Natural Resources in DANR Cases 353 and 353-B.

This development, by itself, brought about the dissolution of the partnership. Since the
partnership had for its object the division into two equal parts of the fishpond between the appellees
and the appellant after it shall have been awarded to the latter, and therefore it envisaged the
unauthorized transfer of one half thereof to parties other than the applicant Casteel, it was dissolved
by the approval of his application and the award to him of the fishpond.

Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a
partnership, "... any event which makes it unlawful for the business of the partnership to be carried
on or for the members to carry it on in partnership." The approval of the appellant's fishpond
application by the decisions in DANR Cases 353 and 353-B brought to the fore several provisions
of law which made the continuation of the partnership unlawful and therefore caused its ipso
facto dissolution.

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Calimlim, Jeninah A.

MAXIMO GUIDOTE v. ROMANA BORJA


G.R. No. 28920. October 24, 1928.
53 Phil. 900

Facts:

A partnership under the name of "Taller Sinukuan," had been formed, on or about June 15,
1918, in which deceased Narciso Santos was the capitalist partner and Maximo Guidote the
industrial partner. Santos died on April 6, 1920, leaving Guidote as the surviving partner.

Then, Guidote brought an action against Romana Borja, the administratrix of the estate of
Santos, to recover the sum of P9,534.14, a part of which was alleged to be the net profits due
Guidote in the partnership business. It was found during the trial that Guidote failed to liquidate the
affairs of the partnership and to render an account thereof to the administratrix of Santos estate.
The court, therefore, dismissed Guidotes complaint, and ordered him to render a full and complete
accounting, verified by vouchers, of the partnership business from June 15, 1918, until September 1,
1922.

Guidote thereupon rendered an account prepared by one Tomas Alfonso, a public


accountant. However, the court disapproved the account and ordered that Borja submit to the court
an accounting of the partnership business from June 15, 1918, up to the time the business was
closed.

Borja presented an account and liquidation prepared by a public accountant, Santiago


Lindaya, showing a balance of P29,088.95 in favor of the estate. Borja then 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 had prepared a separate accounting or liquidation similar in results to
that prepared by Lindaya, but with a few differences in the sums total. According to his examination,
the total amount due the estate of Santos, which Guidote must pay is P26,020.89.

To contradict the aforementioned findings, Guidote presented Alfonso and the bookkeeper,
Pio Gaudier, as witnesses in his favor. But the lower court found their testimonies confusing,
contradictory and unreliable. The court, therefore, found that the conclusions reached by Lindaya as
modified by Santiago were just and correct and ordered Guidote to pay the estate of Santos the sum
of P26,020.89 with legal interest.

Issue:

Whether or not the court erred in dismissing Guidotes complaint and ordering him to
present a liquidation of the operations and accounts of the partnership.

Ruling:

No. Guidote argues that as Santos, up to the time of his death, generally took care of the
payments and collections of the partnership, his legal representatives were under the obligation to
render accounts of the operations of the partnership, notwithstanding the fact that Guidote was in
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charge of the business subsequent to the death of Santos. This argument is without merit. In the
case of Wahl v. Donaldson Sim & Co. (5 Phil., 11, 14), it was held that the death of one of the
partners dissolves the partnership, but the liquidation of its affairs is by law entrusted, not to the
executors of the deceased partner, but to the surviving partners or to liquidators appointed by them.

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Calimlim, Jeninah A.

URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as Administrator of the


Estate of Urbano Lota) v. BENIGNO TOLENTINO
G.R. No. L-3518. February 29, 1952.
90 Phil. 829

Facts:

A partnership was formed in 1918 between Urbano Lota and Benigno Tolentino, wherein
the latter was the industrial and managing partner. Urbano alleged that from 1918 until 1928,
Tolentino had rendered an annual accounting, but had refused to do so from 1929 to 1937. Hence,
on March 3, 1937, Urbano Lota filed an action with the then CFI of Batangas against Tolentino to
order the latter (a) to render an accounting of his management of their partnership, and (b) to
deliver to Urbano his share in the assets of the partnership after the liquidation has been approved
by the Court.

While the action for accounting and liquidation was pending, Urbano died in 1938. He was
substituted by the administrator of his estate, Solomon Lota. Then, Tolentino died in 1939, which
said fact was made of record by his attorney. On January 9, 1940, the lower court gave Solomon 30
days to amend the complaint by substituting the administrator or legal representative of the deceased
Tolentino. On January 28, 1941, the lower court dismissed the case for lack of prosecution on the
part of the plaintiff, but the order of dismissal was reconsidered, upon a showing by Solomon that
on March 28, 1941, an administration proceeding for the estate of Tolentino was instituted by
Solomon. On August 8, 1941, the lower court issued, at the instance of Solomon, letters of
administration to Tolentinos surviving spouse, Marta Sadiasa, who however failed to qualify.
Accordingly, the court dismissed the administration proceeding on January 3, 1949, for lack of
interest. It was only as late as April 6, 1949, that Solomon filed the motion to substitute, not even
the legal representative of Benigno Tolentino, but his heirs. The lower court decided against
Solomon. Hence, this present appeal.

Issue:

Whether or not, after the death of Tolentino, Solomon Lotas action for accounting and
liquidation of the partnership may be continued against the heirs of Tolentino.

Ruling:

No. The applicable authority is the case of Po Yeng Cheo v. Lim Ka Yam (44 Phil. 172). It is
well settled that when a member of mercantile partnership dies, the duty of liquidating its affairs
devolves upon the surviving member, or members, of the firm, not upon the legal representatives of
the deceased partner.

The heirs may not be substituted for the deceased Tolentino simply because they are in
possession of the property alleged to belong to the partnership. Apart from the fact that such
allegation seems to refer to a cause of action foreign to the claim for accounting and liquidation
against Tolentino and which should have been made in a proper pleading to be duly admitted by the
lower court, the filing of the motion for substitution more than twelve years after the institution of
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the complaint came too late and already called for the application of the rule requiring dismissal for
lack of prosecution.

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Article 1831

Dela Cruz, Eileen Eika M.

JOSUE SONCUYA v. CARMEN DE LUNA


G.R. No. L-45464. April 28, 1939.
67 Phil. 646

Facts:

Josue SONCUYA, Carmen DE LUNA and Librado Avelino were partners in the business
called "Centro Escolar de Seoritas." DELUNA was its managing partner.

Claiming fraudulent administration of the partnership, SONCUYA filed with the CFI Manila
an amended complaint against DE LUNA in her own name and as administratrix of the estate of the
deceased partner Avelino, in which he prayed that DE LUNA be sentenced to pay him the sum of
P700,432 as damages and cost.

DE LUNA interposed a demurrer based on the following grounds:(1) no cause of action;


and (2) that the complaint is ambiguous ,unintelligible and vague.

CFI sustained DE LUNAs demurrer and ordered SONCUYA to amend his amended
complaint. SONCUYA refused, thus, DE LUNA filed a motion to dismiss which the CFI granted.
From this order of dismissal, SONCUYA filed this appeal.

Issue:

Whether or not SONCUYAs amended complaint states a cause of action.

Held:

NO, it does not state a cause of action. The order of dismissal is AFFIRMED.

For the purpose of adjudicating SONCUYAs claim to damages which he alleges to have
suffered as a partner by reason of the supposed fraudulent management of the partnership by
DELUNA, it is first necessary that a liquidation of the business thereof be made so that the profits
and losses may be known and the liabilities of DE LUNA as well as the damages which each partner
may have suffered, may be determined.

It is not alleged in the complaint that such a liquidation has been effected nor is it prayed
that it be made. Consequently, there is no reason or cause for SONCUYA to institute the action for
damages which he claims from the managing partner DE LUNA.

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For a partner to be able to claim from another partner who manages the general co-
partnership, damages allegedly suffered by him by reason of the fraudulent administration of the
latter, a previous liquidation of said partnership is necessary.

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LIQUIDATION AND WINDING UP


(ARTICLES 1833-1842)

Article 1834

Dela Cruz, Eileen Eika M.

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L.


ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN,
INC., plaintiffs-appellees,
v.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO
SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL
SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and
her husband CECILIO SALDAJENO, defendants-appellants.
G.R. No. L-27343. February 28, 1979.
88 SCRA 623

Facts:

In 1951, defendants entered into a contract of partnership under the firm name Isabela
Sawmill. In 1956 the plaintiff sold to the partnership a motor truck and two tractors. The
partnership was not able to pay their whole balance even after demand was made. One of the
partners withdrew from the partnership but instead of terminating the said partnership it was
continued by the two remaining partners under the same firm name.

Plaintiffs also seek the annulment of the assignment of right with chattel mortgage entered
into by the withdrawing partner and the remaining partners.

The appellants contend that the chattel mortgage may no longer be nullified because it had
been judicially approved and said chattel mortgage had been judicially foreclosed.

Issue:

Whether the withdrawal of one of the partners dissolved the partnership.

Ruling:

It does not appear that the withdrawal of the partner was not published in the newspapers.
The appellees and the public in general had a right to expect that whatever, credit they extended to
the remaining partners could be enforced against the properties of the partnership.

The withdrawing partner cannot be relieved from her liability to the creditor of the
partnership due to her own fault by not insisting on the liquidation of the partnership. Though she
had acted in good faith, the appellees also acted in good faith in extending credit to the partnership.

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Where one of two innocent persons must suffer, that person who gave occasion for the
damages to be caused must bear the consequences.

Technically, the partnership was dissolved by the withdrawal of one of the partners.
Through her acts of entering into a memorandum with the remaining partners misled the creditors
that they were doing business with the partnership. Hence, from the order of the lower court
ordering the withdrawing partner to pay the plaintiffs, she is thus entitled for reimbursement from
the remaining partners.

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Article 1835

Dy, Czara Loraine F.

URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as Administrator of the


Estate of Urbano Lota) v. BENIGNO TOLENTINO
G.R. No. L-3518. February 29, 1952.
90 Phil. 829

Facts:

Urbano Lota and Benigno Tolentino entered into a partnership where they agreed to engage
in general business, both to divide the profits and losses share alike, and defendant to be the
manager thereof. Lota alleges that from 1918 until 1928 defendant had rendered an annual
accounting, but has refused to do so from 1929 to 1937.

Lota filed an action against Tolentino for accounting and delivery of his share in the assets
of the partnership. However, Tolentino alleged that he was the industrial partner and that he
rendered accounting and liquidation thereof from 1918 to 1932, and that in 1932, the partnership
was dissolved and defendant delivered all its properties and assets to the plaintiff.

The plaintiff died in 1938, and on September 28, 1939, he was substituted by the
administrator of his estate, Solomon Lota. Subsequently, on December 8, 1939, Tolentino's counsel
informed the court that defendant died. 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 entitled "Intestate Estate of the late Benigno Tolentino, Solomon Lota,
petitioner." This 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, praying that defendant's heirs be substituted for him as parties
defendant because they are in possession of property allegedly belonging to the partnership in
question, and the appellant seeks the recovery thereof.

Issue:

Whether or not, after the death of the defendant Benigno Tolentino on November 22, 1939,
plaintiff's action for accounting and liquidation of the partnership formed in l918 between Urbano

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Lota and Benigno Tolentino, of which the latter was the industrial and managing partner, may be
continued against the heirs of Benigno Tolentino.

Held:

No, the said action should have been discontinued as it could no longer be maintained
against deceased defendant.

In the first place, it is well settled, based on the applicable authority in the case of Po Yeng
Cheo vs. Lim Ka Yam, 44 Phil. 172, 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. And the same rule must be equally applicable to a civil
partnership clothed with the form of the commercial association. (ART. 1670, Civil Code)

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. 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 hardly in a position and hardly called upon to effect an accounting of
said partnership.

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, which sufficiently implies
indifference to or desistance from its suit. If the principle of laches is ever to be applied, it should be
applied to this case. 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.

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Article 1836

Dy, Czara Loraine F.

DR. SIMEON S. CLARIDADES, plaintiff and appellant, v.


VICENTE C. MERCADER and PERFECTO FERNANDEZ, defendants and appellees,
GUILLERMO REYES, intervenor and appellant,
ARMANDO H. ASUNCION, intervenor and appellee,
ALFREDO J. ZULUETA and YAP LEDING, intervenors and appellees.
G.R. No. L-20341. May 14, 1966.
17 SCRA 1
Facts:

Plaintiff Dr. Simeon S. Claridades brought an action against Defendants Vicente C.


Mercader and Perfecto Fernandez for the dissolution of a partnership and an accounting of its
operation, with a fishpond in Sta. Cruz, Marinduque, as their main asset.

Defendants alleged that its operation had been so far unproductive and that there is an
impending auction sale of said fishpond due to delinquency in the payment of taxes owing to lack of
funds and plaintiff's failure to contribute what is due from him.

Subsequently, Guillermo Reyes intervened to recover a sum of money allegedly due him for
services rendered as foreman. Later, one Armando Asuncion succeeded in intervening as the alleged
assignee of the interest of defendant Mercader in said partnership and fishpond.

The lower court appointed a receiver of the fishpond. Meanwhile, Alfredo Zulueta and his
wife Yap Leding intervened alleging that they are the owners of said fishpond, having bought one-
half () of it from Benito Regencia, who, in turn, had acquired it from Asuncion, who had
purchased the fishpond from defendant Mercader, and the other half having been assigned to him
directly by Asuncion.

Thereafter, the Zuluetas filed a motion to dismiss upon the grounds failure to state cause of
action, improper venue and that plaintiffs complaint is moot and academic. The lower court granted
the same upon the ground of improper venue.

Issue:

Whether or not venue is material in an action for liquidation of partnership involving a


fishpond.

Held:

NO. Plaintiff's complaint merely seeks the liquidation of his partnership with defendants
Fernandez and Mercader. This is obviously a personal action, which may be brought in the place of
residence of either the plaintiff or the defendants. Since plaintiff is a resident of Bulacan, he had the
right to bring the action in the court of first instance of that province. 1 What is more, although

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defendants Fernandez and Mercader reside in Marinduque, they did not object to the venue. In
other words, they waived whatever rights they had, if any, to question it.

The fact that plaintiff prays for the sale of the assets of the partnership, including the
fishpond in question, did not change the nature or character of action, such sale being merely a
necessary incident of the liquidation of the partnership, which should precede and/or is part of its
process of dissolution. Neither plaintiff's complaint nor the answer filed by defendants Fernandez
and Mercader questioned the title to said property or the possession thereof.

Again, the situation was not changed materially by the Intervention either of Asuncion or of
the Zuluetas, for, as alleged successors to the interest Mercader in the fishpond, they, at best,
stepped into his shoes.

Hence, the case was remanded to the lower court for further proceedings, with costs against
intervenors appellees, Armando H. Asuncion and Mr. and Mrs. Alfredo J. Zulueta.

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Article 1839

Evangelista, Kevin B.

SERGIO V. SISON v. HELEN J. MCQUAID


G.R. No. L-6304. December 29, 1953.
94 Phil. 201

Facts:

Plaintiff brought an action before the CFI of Manila against defendant, alleging that the
latter borrowed from him various sums of money, aggregating P2,210 to enable her to pay her
obligation to the Bureau of Forestry and to add to her capital in her lumber business. There was a
receipt acknowledged by the defendant of the amounts advanced attached to the complaint and that
as defendant was not able to pay the loan, as she had promised, she proposed to take in plaintiff as a
partner in her lumber business, plaintiff to contribute to the partnership the said sum of P2,210 due
him from defendant in addition to his personal services; that plaintiff agreed to defendant's proposal
and, as a result, there was formed between them, under the provisions of the Civil Code, a
partnership in which they were to share alike in the income or profits of the business, each to get
one-half thereof; that in accordance with said contract, plaintiff, together with defendant, rendered
services to the partnership without compensation from June 15, 1938 to December, 1941; that
before the last World War, the partnership sold to the United States Army 230,000 board feet of
lumber for P13,800, for the collection of which sum defendant, as manager of the partnership, filed
the corresponding claim with the said army after the war; that the claim was "finally" approved and
the full amount paidthe complaint does not say whenbut defendant has persistently refused to
deliver one-half of it, or P6,900, to plaintiff notwithstanding repeated demands, investing the whole
sum of P13,800 for her own benefit. Plaintiff, therefore, prays for judgment declaring the existence
of the alleged partnership and requiring defendant to pay him the said sum of P6,900, in addition to
damages and costs.

Issue:

Whether or not the plaintiff, as a partner, is entitled to his claim

Ruling:

Plaintiff seeks to recover from defendant one-half of the purchase price of lumber sold by
the partnership to the United States Army. But his complaint does not show why he should be
entitled to the sum he claims. It does not allege that there has been a liquidation of the partnership
business and the said sum has been found to be due him as his share of the profits. The proceeds
from the sale of a certain amount of lumber cannot be considered profits until costs and expenses
have been deducted. Moreover, the profits of a business cannot be determined by taking into
account the result of one particular transaction instead of all the transactions had. Hence, the need f
or a general liquidation before a member of a partnership may claim a specific sum as his share of
the profits.

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In view of the foregoing, the order of dismissal is affirmed, but on the ground that the complaint
states no cause of action and without prejudice to the filing of an action for accounting or
liquidation should that be what plaintiff really wants. Without costs in this instance.

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Evangelista, Kevin B.

PO YENG CHEO v. LIM KA YAM


G.R. No. L-18707. December 9, 1922.
44 Phil. 172

Facts:

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

In the year 1910 Kwong Cheong Tay ceased to do business, owing principally to the fact
that the plaintiff ceased at that time to transmit merchandise from Hongkong, where he then
resided. Lim Ka Yam appears at no time to have submitted to the partners any formal liquidation of
the business, though repeated demands to that effect have been made upon him by the plaintiff.

The trial judge rendered judgment in favor of the plaintiff, Po Yeng Cheo, to recover of the
defendant Lim Yock Tock, as administrator of Lim Ka Yam, the sum of P60,000, constituting the
interest of the plaintiff in the capital of Kwong Cheong Tay. From this judgment the defendant
appealed.

Issue:

Whether or not the trial judge was correct in ruling in favor of the plaintiff despite lack of
liquidation

Ruling:

The judgment cannot be sustained. In the first place, it was erroneous in any event to give
judgment in favor of the plaintiff to the extent of his share of the capital of Kwong Cheong Tay.
The managing partner of a mercantile enterprise is not a debtor to the shareholders for the capital
embarked by them in the business; and he can only be made liable for the capital when, upon
liquidation of the business, there are found to be assets in his hands applicable to capital account.

That the sum of one hundred and sixty thousand pesos P160,000 was embarked in this
business many years ago reveals nothing as to the condition of the capital account at the time the
concern ceased to do business; and even supposing--as the court possibly did--that the capital was
intact in 1908, this would not prove it was intact in 1910 when the business ceased to be a going
concern; for in that precise interval of time the capital may have been diminished or dissipated from
causes in no wise chargeable to the negligence or misfeasance of the manager.

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It was erroneous to give judgment in favor of the plaintiff for his aliquot part of the par
value of said shares. It is elementary that one partner, suing alone, cannot recover of the managing
partner the value of such partner's individual interest; and a liquidation of the business is an essential
prerequisite. It is true that in Lichauco vs. Lichauco (33 Phil., 350), this court permitted one partner
to recover of the manager the plaintiff's aliquot part of the proceeds of the business, then long since
closed; but in that case the affairs of the defunct concern had been actually liquidate by the manager
to the extent that he had apparently converted all its properties into money and had pocketed the
same--which was admitted;--and nothing remained to be done except to compel him to pay over the
money to the persons in interest. In the present case, the shares referred to--constituting the only
assets of Kwong Cheong Tay--have not been converted into ready money and doubtless still remain
in the name of Kwong Cheong Tay as owner. Under these circumstances it is impossible to sustain a
judgment in favor of the plaintiff for his aliquot part of the par value of said shares, which would be
equivalent to allowing one of several coowners to recover from another, without process of division,
a part of an undivided property.

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Gonzalez, Jed Nathaniel M.

VILLANUEVA v. DE LEON
G.R. No. 23726. August 27, 1925.
47 Phil. 780

Facts:

Domingo Florentino died at Vigan, Ilocos Sur, on January 16, 1924, leaving a considerable
estate. Shortly thereafter, the will of the late Florentino was admitted to probate and Jose Villanueva
named executor.

Roberta De Leon filed a motion to intervene in the settlement of the estate alleging that she
and Florentino lived together as husband and wife, and that the formed a partnership where both
contributed P1,000 each to be used to engage in business. She also alleged that the partnership was
not properly liquidated after Florentinos death. The motion was denied.

De Leon filed another motion alleging that Villanueva, as executor, made it appear that the
estate was only worth P50,000, when in fact, it should have been P300,000 on account of the jewelry
and tobacco leaves left by the decedent. De Leons motion was granted.

Issues:

Whether or not an alleged partner of a deceased person has such interest in the estate of the
deceased as to allow her to take part in the approval of the accounts.

Ruling:

YES, she has.

It is the right of all the creditors and distributees of the estate to be present and, if so
disposed, to contest the account of the executor or administrator. Only a prima facie right at the time
of filing the petition is sufficient to entitle the applicant to intervene in the accounts of the executor
or administrator. Any doubt as to the interest of the petitioner ought, however, to be resolved in
favor of the petitioner, and any doubt arising in the appellate court ought to be resolved in favor of
the action taken by the trial judge. Administrators and executors instead of opposing the
intervention of interested parties should welcome the participation of the same for their own
protection.

Judgment affirmed.

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Article 1840

GONZALEZ, Jed Nathaniel M.

YU v. NATIONAL LABOR RELATIONS COMMISSION


G.R. No. 97212. June 30, 1993.
223 SCRA 75

Facts:

Benjamin Yu was formerly the Assistant General Manager of "Jade Mountain Products
Company Limited," a partnership engaged in the marble quarrying and export business. The
partnership was originally organized with Lea Bendal and Rhodora Bendal as general partners and
Chiu Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of Taiwan, as limited partners. The
partnership business consisted of exploiting a marble deposit found on land owned by the Sps.
Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum Agreement.

Yu was paid only half of his stipulated salary, and was promised the payment of the balance
once funds from abroad are secured. Both general partners and Yu Chang sold their respective
interests to Willy Co and Emmanuel Zapanta. All workers of the partnership were retained except
Yu.
Yu reported for work, and met Co for the first time. Co informed him that he will decided
whether or not he will honor the old partnerships obligations. The unpaid balance of Yus salary
remained unpaid.

Issues:

(1) Whether or not the partnership which had hired petitioner Yu as Assistant General
Manager had been extinguished and replaced by a new partnership composed of Willy Co and
Emmanuel Zapanta; and

(2) Whether or not Yu could nonetheless assert his rights under his employment
contract as against the new partnership.

Ruling:

(1) YES, it was.

The legal consequence of dissolution of a partnership do not, however, automatically result


in the termination of the legal personality of the old partnership. Article 1829 of the Civil Code
states that:

"[o]n dissolution the partnership is not terminated, but continues until the winding
up of partnership affairs is completed."

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In the ordinary course of events, the legal personality of the expiring partnership persists for
the limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, it
is important to underscore the fact that the business of the old partnership was simply continued by
the new partners, without the old partnership undergoing the procedures relating to dissolution and
winding up of its business affairs. In other words, the new partnership simply took over the business
enterprise owned by the preceding partnership, and continued using the old name of Jade Mountain
Products Company Limited, without winding up the business affairs of the old partnership, paying
off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or most
of them and opening a new business enterprise.

Under the above described situation, not only the retiring partners but also the new
partnership itself which continued the business of the old, dissolved, one, are liable for the debts of
the preceding partnership.

(2) YES, he can.

Creditors of the old Jade Mountain are also creditors of the new Jade Mountain which
continued the business of the old one without liquidation of the partnership affairs. Indeed, a
creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid
wages, is entitled to priority vis-a-vis any claim of any retired or previous partner insofar as such
retired partner's interest in the dissolved partnership is concerned. It is clear to the Court that under
Article 1840, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims
relating to his employment with the previous partnership, against the new Jade Mountain.

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Hernandez, Chad Jorel V.

LAGUNA TRANSPORTATION CO., INC. v. SOCIAL SECURITY SYSTEM


G.R. No. L-14606. April 28, 1960.
107 Phil. 883

Facts:

Petitioner is a domestic corporation duly organized and existing under the laws of the
Philippines, with principal place of business at Bian, Laguna. That respondent is an agency created
under Republic Act No. 1161, as amended by Republic Act No. 1792, with the principal place of
business at the new GSIS Bldg., corner Arroceros and Concepcion Streets, Manila.

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. 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.

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.

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.

Issue:

Whether or not the plaintiff is within the coverage of the Social Security Act?

Held:

Yes. It is not disputed that the Laguna Transportation Company, an unregistered partnership
composed of Gonzalo Mercado, Artemio Mercado, Florentina Mata, and Dominador Vera Cruz,
commenced the operation of its business as a common carrier on April 1, 1949.

The corporation continued the same transportation business of the unregistered partnership,
using the same lines and equipment. There was, in effect, only a change in the form of the
organization of the entity engaged in the business of transportation of passengers. Hence, said entity
as an employer engaged in business, was already in operation for at least 3 years prior to the
enactment of the Social Security Act on June 18, 1954 and for at least two years prior to the passage
of the amendatory act on June 21, 1957.

Section 9 of the Social Security Act, in part, provides:

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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.

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.

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. The reason for the rule is that the members of the partnership may
be said to have simply put on a new coat, or taken on a corporate cloak, and the corporation is a
mere continuation of the partnership.

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Hernandez, Chad Jorel V.

PHILIPPINE AIR LINES, INC., v. ANTONIO BALANGUIT, ET AL., (PUBLIC


UTILITIES EMPLOYEES ASSOCIATION [FEATI CHAPTER] and THE COURT OF
INDUSTRIAL RELATIONS
GR No. L-8715. June 30, 1956.
99 Phil. 486

Facts:

Sometime before May 21, 1947, the Philippine Air Lines, Inc. purchased and acquired a
majority of the shares of the Far Eastern Air Transport, Inc. Those two airlines were, previous to
the said purchases, then competing in various air routes through the Philippines, with the result that
both companies were losing and it became necessary to maintain only one airline. The purchase gave
rise to the problem of what to do with the FEATI employees. After some negotiations between the
representatives of the FEATI Employees Association and the PAL, the parties finally reached an
agreement on May 21, 1947, whereby the PAL agreed to absorb some 70 per cent of the FEATI
employees, and the said employees agreed to work for PAL under the same terms and conditions as
they worked for the FEATI until such time as they come to a definite understanding.

On November 11, 1952, almost six years from the time they were laid off, the Public
Utilities Employees Association aforesaid filed a petition with the Court of Industrial Relations
praying that the PAL be ordered to pay them the twelve (12) days vacation leave and twelve (12)
days sick leave with pay, from August 1, 1946, which had already accrued at the time they were laid
off on June 15, 1947. The PAL, in its Answer to the Employees petition, denied liability, alleging
that it was not a party to the Agreement of August 1, 1946. The said employees were absorbed by
the PAL only on May 21, 1947 and were laid off on June 15, 1947.

Issue:

Whether or not the PAL is legally liable for the payment of the money equivalent of the
vacation and sick leave?

Held:

No. Nothing is said in the agreement of July 9, 1947. The employees claim and also the CIR,
though indirectly, that when the PAL bought out the FEATI the former assumed all the rights and
obligations of the latter. In some cases, when one company buys out another and continues the
business of the latter company, the buyer may be said to assume the obligations of the company
bought out when said obligations are not of considerable amount or value, especially when incurred
in the ordinary course of trade, and when the business of the latter company is continued. However,
when said obligation is of extraordinary value, as in this case, amounting to about P100,000, and the
FEATI was bought out not to continue its business but to stop its operation in order to eliminate
competition, as shown by the fact that all the employees of the FEATI were laid-off, we cannot say
that the vendee assumed all the obligations of the rival airline.

What the employees should have done at the time of the, negotiation among the PAL, the
FEATI and themselves preparatory to the execution of the agreement of July 9, 1947, was to raise
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the question as to who would pay them the equivalent of the vacation and sick leave already earned
by them under the FEATI. Had they insisted on its payment, the FEATI could perhaps have been
made to pay unless, of course, the PAL agreed to assume the obligation. When the employees failed
to raise that question, or have it embodied in the agreement, said failure may be regarded as a waiver
of their right.

Even assuming for a moment that the employees were entitled to the payment of said leave,
they were guilty of laches. It would be unfair now to demand this payment from the PAL after more
than five years when the papers and the records of the service of said employees from August 1,
1946 to May or June, 1947, may no longer exist when the FEATI has long ceased operations and
has long ceased to exist and when its officials who were in a position to determine which employees
because of their faithful, efficient and continuous service were entitled to leave and for how many
days, may no longer be available.

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Jumagdao, Chrismaire D.

LINO P. BERNARDO v. EUFERMIA PASCUAL, ET AL., and WORKMEN'S


COMPENSATION COMMISSION
G.R. No. L-13260. October 31, 1960.
109 Phil. 936

A partner in a lumber concession who acquires the interests of his co-partners becomes the sole concessionaire and
becomes liable to all creditors of the partnership. (Art. 1840, New Civil Code)

Facts:

The record shows that on March 9, 1955, the deceased Pedro Pascual was, together with
Rogelio Bacane and Martin Quinto, in the woods at Corona, San Miguel, Bulacan. Bacane and
Quinto, both loggers admittedly in the employ of herein petitioner, were cutting timber, while fifty
meters away from them the deceased was felling a tree which he had started hewing three days
before. When Bacane and Quinto heard the sound of the falling tree and following the practice
among loggers they shouted to Pascual to find out if he was alright. As the latter did not answer,
they rushed to where he was and there found him prostrate on the ground with blood trickling from
his mouth. Shortly thereafter, he died from a fractured skull and his companions took his body
home in petitioners truck.

On March 31, 1955, the widow of the deceased on behalf of herself and their children filed a
claim for compensation with the Workmens Compensation Commission. Originally filed against the
Bernardo Sawmill, the claim was on February 6, 1956 amended to include herein petitioner Lino P.
Bernardo, the timber concessionaire and owner and operator of the sawmill, as party Respondent. In
his answer, the latter denied that he was a timber concessionaire before October 13, 1955, or that he
had an employer-employee relationship with the deceased. He also objected to the claim on the
ground of prescription.

Issue:

Whether or not the petitioner is liable to the creditors of the partnership.

Held:

Yes.

With respect to petitioners claim that he became a lumber concessionaire only on October
13, 1955, since it to say that prior to that date, he was a partner to several persons owning the
concession in San Miguel, Bulacan, and subsequent thereto, he acquired the interest of his partners
and became the sole concessionaire. Under those circumstances he became liable to the creditors of
the partnership. (Art. 1840, new Civil Code.)

A partner in a lumber concession who acquires the interests of his co-partners becomes the
sole concessionaire and becomes liable to all creditors of the partnership. (Art. 1840, New Civil
Code)

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Article 1841

Jumagdao, Chrismaire D.

CRISTOBAL BONNEVIE, ET AL. v. JAIME HERNANDEZ


G.R. No. L-5837. May 31, 1954.
95 Phil. 175

Facts:

This is an action for the recovery of the sum of P115, 312.50, with interests, as plaintiffs'
alleged share in the profits of a partnership.

It appears that prior to January, 1947, plaintiffs with other associates formed a syndicate or
secret partnership for the purpose of acquiring the plants, franchises and other properties of the
Manila Electric Co. hereinafter called the Meralco in the provinces of Camarines Sur, Albay,
and Sorsogon, with the idea of continuing that company's business in that region. No formal articles
were drawn for it was the purpose of the members to incorporate once the deal had been
consummated. But in the meantime they elected Pedro Serranzana and David Serrano general
manager and secretary-treasurer, respectively, of the partnership.

About the latter half of the following month the members of the partnership proceeded with
the formation of the proposed corporation, apportioning among themselves its shares of stock in
proportion to their respective contributions to the capital of the partnership and their individual
efforts in bringing about the acquisition of the Meralco properties. But before the incorporation
papers could be perfected, several partners, not satisfied with the way matters were being run and
fearful that the venture might prove a failure because the business was not going well and there was
a possibility of their being assessed more than their original investments when the time came to
meet the two installments of the unpaid purchase price due the Meralco, expressed their desire to
withdraw from the partnership and get back the money they had invested therein. In accordance
with this wish, one of them, Judge Jaime Reyes, in a meeting held on April 10, 1947, to consider
various matters connected with the business, presented a resolution to the effect that those partners
who did not want to remain in the association should be allowed to withdraw and get back their
contributions. The resolution was approved, with the herein plaintiffs voting affirmatively, and on
that same day plaintiffs and Judge Reyes withdrew from the partnership, and, as admitted by both
parties, the partnership was then dissolved. In accordance with the terms of the resolution, the
withdrawing partners were, on the following day, reimbursed their respective contributions to the
partnership fund.

Following the dissolution of the partnership, the members who preferred to remain in the
business went ahead with the formation of the corporation, taking in new associates as stockholders.

Two years from their withdrawal from the partnership, when the corporate business was
already in a prosperous condition, plaintiffs brought the present suit against Jaime Hernandez,
claiming a share in the profit the latter is supposed to have made from the assignment of the

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Meralco properties to the corporation, estimated by plaintiffs to be P225,000 and their share of it to
be P115,312.50.

Issue:

Whether or not the plaintiffs claim of share from the alleged profits against the defendant,
should be granted.

Held:

No.

Plaintiffs, in order to give color of legality to their claim against defendant, maintain that the
latter should be held liable for damages caused to them, consisting of the loss of their share of the
profits, due to defendant's failure properly to perform his duty as a liquidator of the dissolved
partnership, this on the theory that as managing partner of the partnership, it was defendant's duty
to liquidate its affairs upon its dissolutions. But it does not appear that plaintiffs have ever asked for
liquidation, and as will presently be explained no liquidation was called for because when plaintiffs
withdrew from the partnership the understanding was that after they had been reimbursed their
investment, they were no longer to have any further interest in the partnership or its assets and
liabilities.

As a general rule, when a partner retires from the firm, he is entitled to the payment of what
may be due him after a liquidation. But certainly no liquidation is necessary where there is already a
settlement or an agreement as to what the retiring partner shall receive. In the instant case, it appears
that a settlement was agreed upon on the very day the partnership was dissolved. For when plaintiffs
and Judge Jaime Reyes withdrew from the partnership on that day they did so as agreed to by all the
partners, subject to the only condition that they were to be repaid their contributions or investments
within three days from said date. And this condition was fulfilled when on the following day they
were reimbursed the respective amounts due them pursuant to the agreement.

It is, therefore, our conclusion that the acceptance by the withdrawing partners, including
the plaintiffs, of their investment in the instant case was understood and intended by all the parties
as a final settlement of whatever rights or claim the withdrawing partners might have in the
dissolved partnership. Such being the case they are now precluded from claiming any share in the
alleged profits, should there be any, at the time of the dissolution.

In view of the foregoing, we find plaintiffs' claim against defendant to be without legal basis so that
the judgment of dismissal rendered by the court below should be, as it is hereby, affirmed, with costs
against the appellants.

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Merrera, Raisa Victoria G.

EMILIO EMNACE v. COURT OF APPEALS, ESTATE OF VICENTE TABANAO,


SHERWIN TABANAO, VICENTE WILLIAM TABANAO, JANETTE TABANAO
DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO and VINCENT
TABANAO
G.R. No. 126334. November 23, 2001.
370 SCRA 431

Facts:

Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divina-Gracia were partners in a
business. Sometime in 1986, they decided to dissolve their partnership and executed an agreement of
partition and distribution of the partnership properties among them.

Throughout the existence of the partnership, and even after Tabanaos untimely demise in
1994, petitioner failed to submit to Tabanaos heirs any statement of assets and liabilities of the
partnership, and to render an accounting of the partnerships finances. Petitioner also reneged on his
promise to turn over to Tabanaos heirs the deceaseds 1/3 share in the total assets of the
partnership despite formal demand for payment.

Consequently, Tabanaos heirs, respondents herein, filed against petitioner an action for
accounting, payment of shares, division of assets and damages.

Among others, petitioner also raised prescription as an additional ground warranting the
outright dismissal of the complaint.

Issue:

Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in not dismissing the case on the ground of prescription.

Held:

No, the trial court and the Court of Appeals gave scant consideration to petitioners hollow
arguments, and rightly so.

The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3)
termination. The partnership, although dissolved, continues to exist and its legal personality is
retained, at which time it completes the winding up of its affairs, including the partitioning and
distribution of the net partnership assets to the partners. For as long as the partnership exists, any of
the partners may demand an accounting of the partnerships business. Prescription of the said right
starts to run only upon the dissolution of the partnership when the final accounting is done.

Contrary to petitioners protestations that respondents right to inquire into the business
affairs of the partnership accrued in 1986, prescribing four (4) years thereafter, prescription had not
even begun to run in the absence of a final accounting. Article 1842 of the Civil Code provides:

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The right to an account of his interest shall accrue to any partner, or his legal representative
as against the winding up partners or the surviving partners or the person or partnership continuing
the business, at the date of dissolution, in the absence of any agreement to the contrary.

Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the
above-cited provision states that the right to demand an accounting accrues at the date of
dissolution in the absence of any agreement to the contrary. When a final accounting is made, it is
only then that prescription begins to run. In the case at bar, no final accounting has been made, and
that is precisely what respondents are seeking in their action before the trial court, since petitioner
has failed or refused to render an accounting of the partnerships business and assets. Hence, the
said action is not barred by prescription.

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Article 1842

Merrera, Raisa Victoria G.

LILIBETH SUNGA-CHAN and CECILIA SUNGA v. LAMBERTO T. CHUA


G.R. No. 143340. August 15, 2001.
363 SCRA 249

Facts:

Lamberto T. Chua alleged that in 1977, he verbally entered into a partnership with Jacinto L.
Sunga in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to register the business name of their
partnership under the name of Jacinto as a sole proprietorship. Respondent allegedly delivered his
initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as
his counterpart contribution, with the intention that the profits would be equally divided between
them. Allegedly, from the time that Shellite opened for business on July 8, 1977, its business
operation went quite well and was profitable.

Upon Jacintos death in 1989, his surviving wife, Cecilia Sunga and his daughter, Lilibeth
Sunga-Chan, took over the operations, control, custody, disposition and management of Shellite
without respondents consent. Despite respondents repeated demands upon petitioners for
accounting, inventory, appraisal, winding up and restitution of his net shares in the partnership,
petitioners failed to comply.

On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis and
reasons to evade respondents demands, she disbursed out of the partnership funds the amount of
P200,000.00 and partially paid the same to respondent. Lilibeth allegedly informed respondent that
the P200,000.00 represented partial payment of the latters share in the partnership, with a promise
that the former would make the complete inventory and winding up of the properties of the
business establishment. Despite such commitment, petitioners allegedly failed to comply with their
duty to account.

Hence, In 1992, Lamberto Chua filed a complaint against Lilibeth and Cecilia for Winding
Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of
Preliminary Attachment.

Petitioners question, among others, the correctness of the finding of the trial court and the
Court of Appeals with regard to the prescription of the respondents action.

Issue:

Whether or not the Court of Appeals erred in making the legal conclusion that laches
and/or prescription did not apply in the instant case.

Held:

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No, we agree with the trial court and the Court of Appeals that the action for accounting
filed by respondent three (3) years after Jacintos death was well within the prescribed period.

The Civil Code provides that an action to enforce an oral contract prescribes in six (6) years
while the right to demand an accounting for a partners interest as against the person continuing the
business accrues at the date of dissolution, in the absence of any contrary agreement. Considering
that the death of a partner results in the dissolution of the partnership, in this case, it was after
Jacintos death that respondent as the surviving partner had the right to an account of his interest as
against petitioners. It bears stressing that while Jacintos death dissolved the partnership, the
dissolution did not immediately terminate the partnership. The Civil Code expressly provides that
upon dissolution, the partnership continues and its legal personality is retained until the complete
winding up of its business, culminating in its termination.

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Pascual, Aizen Paula DS.

GREGORIO MAGDUSA, ET AL. v. GERUNDIO ALBARAN, ET AL.


G.R. No. L-17526. June 30, 1962.
5 SCRA 511

Facts:

Appellant and appellees, together with various other persons, had verbally formed a
partnership de facto for the sale of general merchandise in Surigao,Surigao to which appellant
contributed P2,000 as capital, and the others contributed their labor, under the condition that out of
the net profits of the business, 25% would be added to the original capital, and the remaining 75%
would be divided among the members in proportion to the length of service of each.

Sometime in 1953 and 1954, the appellees expressed their desire to withdraw from the
partnership, and appellant thereupon made a computation to determine the value of the partners
shares to that date. The results of the computation were embodied in the document drawn in the
handwriting of appellant. Appellees thereafter made demands upon appellant for payment, but
appellant having refused; they filed the initial complaint in the court below. Appellant defended by
denying any partnership with appellees, whom he claimed to be mere employees of his.

The Court of First Instance of Bohol dismissed the complaint on the ground that the other
were indispensable parties but had not been impleaded.
Upon appeal, the Court of Appeals reversed the decision, ruling that it is not an action for a
dissolution of a partnership and winding up of its affairs or liquidation of its assets in which the
interest of other partners who are not brought into the case may be affected. The action of the
plaintiffs is one for the recovery of a sum of money with Gregorio Magdusa as the principal
defendant. The partnership, with Gregorio Magdusa as managing partner, was brought into the case
as an alternative defendant only.

Issue:

Whether or not appellees action can be entertained, because in the distribution of all or part
of a partnerships assets, all the partners have no interest and are indispensable parties without
whose intervention no decree of distribution can be validly entered.

Held:

It cannot be entertained. A partners share cannot be returned without first dissolving and
liquidating the partnership, for the return is dependent on the discharge of the creditors, whose
claims enjoy preference over those of the partnerss and it is self-evident that all members of the
partnership are interested in his assets and business, and are entitled to be heard in the matter of the
firms liquidation and the distribution of its property.

The liquidation drawn by appellant is not signed by the other members of the partnership
besides appellees and appellant it does not appear that they have approved, authorized, or ratified
the same, and, therefore, it is not binding upon them. At the very least, they are entitled to be heard
upon its correctness.
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In addition, unless a proper accounting and liquidation of the partnership affairs is first had,
the capital shares of the appellees, as retiring partners, cannot be repaid, for the firms outside
creditors have preference over the assets of the enterprise, and the firms property can not be
diminished to their prejudice. Finally, the appellant cannot be held liable in his personal capacity for
the payment of partners& shares for he does not hold them except as manager of, or trustee for, the
partnership. It is the latter that must refund their shares to the retiring partners. Since not all the
members of the partnership have been impleaded, no judgment for refund can be rendered.

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Pascual, Aizen Paula DS.

JOSE ORNUM and EMERENCIANA ORNUM v. MARIANO, LASALA, ET AL.


G.R. No. L-47823. July 26, 1943.
74 Phil. 242

Facts:

In 1908 Pedro Lasala, father of the respondents, and Emerenciano Ornum formed a
partnership, whereby the former, as capitalist, delivered the sum of P1,000 to the latter who, as
industrial partner, was to conduct a business at his place of residence in Romblon.

In 1912, when the assets of the partnership consisted of outstanding accounts and old stock
of merchandise, Emerenciano Ornum, following the wishes of his wife, asked for the dissolution of
the Lasala, Emerenciano Ornum looked for some one who could take his place and he suggested the
names of the petitioners who accordingly became the new partners.

Upon joining the business, the petitioners, contributed P505.54 as their capital, with the
result that in the new partnership Pedro Lasala had a capital of P1,000, appraised value of the assets
of the former partnership, plus the said P505.54 invested by the petitioners who, as industrial
partners, were to run the business in Romblon. After the death of Pedro Lasala, his children (the
respondents) succeeded to all his rights and interest in the partnership. The partners never knew
each other personally. No formal partnership agreement was ever executed. The petitioners, as
managing partners, were received one-half of the net gains, and the other half was to be divided
between them and the Lasala group in proportion to the capital put in by each group. During the
course divided, but the partners were given the election, as evidenced by the statements of accounts
referred to in the decision of the Court of Appeals, to invest their respective shares in such profits as
additional capital. The petitioners accordingly let a greater part of their profits as additional
investment in the partnership. After twenty years the business had grown to such an extent that is
total value, including profits, amounted to P44,618.67. Statements of accounts were periodically
prepared by the petitioners and sent to the respondents who invariably did not make any objection
thereto. Before the last statement of accounts was made, the respondents had received P5,387.29 by
way of profits. The last and final statement of accounts, dated May 27, 1932, and prepared by the
petitioners.

Ornum submitted a statement of accounts to respondents. Instead of objecting to said


statement, respondent Lasala promised to sign the same as soon as he received his shares as shown
in said statement. After said shares had been paid by Ornum and accepted by respondents without
reservation, the latter refused to sign the statement. Lasala demanded a new liquidation, claiming
that he was entitled to more than what the statement of account shows.

Issue:

Whether or not respondent entitled to a further liquidation?

Held:

No. After accepting his shares without any reservation, respondent virtually confirmed his
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approval of the statement of accounts, and its signing thereby became a mere formality to be
complied with by Lasala exclusively. His refusal to sign, after receiving the shares, amounted to a
waiver of that formality in favor of Ornum who had already performed his obligation. This approval
precludes any right on the part of respondent to a further liquidation, unless he can show there was
fraud or mistake in said approval.

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LIMITED PARTNERSHIP (ARTICLES 1843-1867)

Article 1843

Perianes, Laurisse Marie T.

TECK SEING & CO., LTD., SANTIAGO JO CHUNG CANG ET AL., partners, v.
PACIFIC COMMERCIAL COMPANY ET AL.
G.R. No. 19892. September 6, 1923.
45 Phil. 142

To establish a limited partnership there must be, at least one general partner and the name of at least one of
the general partners must appear in the firm name. A limited partnership that has not complied with the law of its
creation is not considered a limited partnership at all, but a general partnership, in which all the members are liable.

Facts:

The creditors of Teck Seing & Co., Ltd., Pacific Commercial Company, et al. filed a motion
in which the Court was prayed to enter an order: (A) declaring the individual partners, (B) to require
each of said partner to file an inventory of his property; and (C) that each of said partners be
adjudicated insolvent debtors. Respondent creditors contended that the partnership contract of
Petitioner established a general partnership. On the other hand, the petitioner argued that it is a
limited partnership in which a third person has no right to hold the partnership and its respective
partners responsible. The trial court granted the motion, but, subsequently, on opposition being
renewed, denied it.

Issue:

Whether or not Teck Seing & Co., Ltd. is a limited partnership, as a result, the partnership
and its partners cannot be held liable against third persons.

Held:

No. Teck Seing & Co., Ltd. is not a limited partnership, but is a general partnership.

To establish a limited partnership there must be, at least one general partner and the name of
at least one of the general partners must appear in the firm name. But neither of these requirements
have been fulfilled. The general rule is that those who seek to avail of themselves of the protection
of laws permitting the creation of limited partnership must show a substantially full compliance with
such laws. A limited partnership that has not complied with the law of its creation is not considered
a limited partnership at all, but a general partnership, in which all the members are liable.

Article 125 of the Code of Commerce provides that the articles of general co-partnership
must state the names, surnames, and domiciles of the partners; the firm name; the names, and
surnames of the partners to whom the management of the firm and the use of its signature is
entrusted; the capital which each partner contributes in cash, credits, or the basis on which their

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appraisement is to be made; the duration of the co-partnership; and the amounts which, in a proper
case, are to be given to each managing partner annually for his private expenses, while the
succeeding article of the Code provides that the general co-partnership must transact business under
the name of all its members, of several of them, or of done only. In the case at hand, it was noted
that all of the requirements of the Code have been met, with the sole exception of the relating to the
sole exception of that relating to the composition of the firm name.

The failure to register in the commercial registry necessarily precludes the members from
enforcing rights acquired by them against third persons, such failure cannot prejudice the rights of
third persons. The same reasoning would be applicable to the formal requisite pertaining to the firm
name. Accordingly, the object of the act is manifestly to protect the public against imposition and
fraud, prohibiting persons from concealing their identity by doing business under an assumed name.

For failure to comply with required composition of the firm name, if a creditor sues the
partnership for a debt contracted by it, the partners are severally liable. The law wants to link, and
does link, the solidary and unlimited responsibility of the member of this partnership with the
formation of its name, and imposes a limitation upon personal liberty in its selection, not only by
prescribing the requisites, but also by prohibiting persons not members of the company from
including their names in its firm name under penalty of civil solidary responsibility.

The fact that the firm name does not contain the name of all or any partners as prescribed
by the Code of Commerce cannot and will not be a sufficient cause of preventing the formation of a
general partnership, especially if other requisites regarding registration of the articles of association
in the Commercial Registry has been complied with, as in the present case. It is the legal intention
deducible from the acts of the parties that controls in determining the existence of a partnership.
Here, the intention of the persons making up Teck Seing & Co., Ltd. was to establish a partnership
which they erroneously denominated a limited partnership.

Articles 127 and 237 of the Code of Commerce make all the member of the general co-
partnership liable personally and in solidum with all their property for the results of the transaction
made in the name and for the account of the partnership. If a firm be insolvent, but one or more
partners thereof are solvent, the creditors may proceed both against the firm and against the solvent
partner or partners, first exhausting the assets of the firm before seizing the property of the partners.

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Article 1844

Perianes, Laurisse Marie T.

HUNG-MAN-YOC (in the name of KWONG-WO-SING)


v. KIENG-CHIONG-SENT, et al.
G.R. No. 2888. October 23, 1906.
6 Phil. 498

The firm name of a limited partnership should contain the same requisites as the firm name of a general
partnership, and in addition thereto, the word limited.

Facts:

The court below entered judgment against each and all partners, Chu Che Co, Yu Yec Pin
and Ang Chu Keng for the sum of P 7,372.75 with the interest rate of 6%. Chua Che Co is the only
one who appealed.

The court below found that three were partners of Kiong Tiao Eng, under the firm name of
Kieng Chiong Seng. It has not been proved that Kieng Chiong Seng was the firm name, but rather
the designation of the partnership. Accordingly, it cannot be the firm name of a general partnership
because this should contain the names of all the partners, or some of them, or at least one of them
to be, followed in the two latter cases by the words and company, whereas in this case none of the
four names of those it is alleged were members of the firm appear in the firm name of the
partnership. Neither can it be considered as the firm name of a limited partnership for the reason
that this should contain the same requisites as the firm name of a general partnership, and in
addition thereto the word limited.

Issue:

Whether or not the nature of the mercantile partnership of Kieng Chiong Seng is a limited
partnership as argued by herein petitioner, although such organization was not evidenced by any
public document, nor was it registered as required by the Code of Commerce.

Held:

No. Kieng Chiong Seng is not a limited partnership, but a partnership de facto.

The partnership in question was a mercantile one, as it was engaged in the importation of
goods for sale here at a profit. But its organization is not evidence by any public document, nor was
it recorded in the Mercantile Registry but only in the Internal Revenue Office. All this being so, the
alleged partnership never had any legal existence nor has it acquired any judicial personality in the
acts and contracts executed and made by it. But as the said partnership was a partnership de facto,
although it had no legal standing, and contracted obligations in favor of the petitioner, the liability
arising from such obligations must be enforcible against someone.

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Article 120 of the Code of Commerce provides that the persons in charge of the
management of the association who do not comply with the required record of the articles of
partnership in a public instrument, and the registration of the partnership in the Mercantile Register
shall be responsible together with the persons not members of the association with whom they may
have transacted business in the name of the same.

While Chua Che Co was the one in charge of the management of the association, he did
make any contract at all with the plaintiff, Yu Yec Pin being the person who made all the contracts
for partnership. It is evident that he has incurred no liability and that he cannot be held individually
responsible for the payment of petitioners claims as the court below found.

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Article 1845-1852

Satar, Mohammad Ajrin D.

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


GOQUIOLAY" v. WASHINGTON Z. SYCIP, ET AL.
G.R. No. L-11840. July 26, 1960.
9 SCRA 663

Facts:

Tan Sin An and Antonio C. Goquiolay", entered into a general commercial partnership
under the partnership name "Tan Sin An and Antonio C. Goquiolay", for the purpose in dealing in
real state. The partnership had a capital of P30,000.00, P18,000.00 of which was contributed by
Goquiolay and P12,000.00 by Tan Sin An. The agreement lodge upon Tan Sin An the sole
management of the partnership affairs. Antonio Goquiolay executed a general power of attorney to
Tan Sin An should act as the Manager for said co-partnership for the full period of the term for
which said co-partnership was organized or until the whole period that the said capital of P30,000.00
of the co-partnership should last. plaintiff partnership "Tan Sin An and Goquiolay" purchased the
three (3) parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao,
subject-matter of the instant litigation, assuming the payment of a mortgage obligation of
P25,000.00, payable to "La Urbana Sociedad Mutua de Construccion y Prestamos" for a period of
ten (10) years, with 10% interest per annum. Another 46 parcels were purchased by Tan Sin An in
his individual capacity, and he assumed payment of a mortgage debt thereon for P35,000.00 with
interest. The downpayment and the amortization were advanced by Yutivo and Co., for the account
of the purchasers. The two separate obligations were consolidated in an instrument executed by the
partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco
Hipotecario de Filipinas"

Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and four minor
children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai
Pin was appointed administratrix of the intestate estate of her deceased husband.Repeated demands
for payment were made by the Banco Hipotecario on the partnership and on Tan Sin An. The
defendant Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo Sans Hardware Co., paid
the remaining balance of the mortgage debt, and the mortgage was cancelled. Yutivo Sons Hardware
Co. and Sing Yee and Cuan Co., Inc. filed their claims in the intestate proceedings of Tan Sin An. as
alleged obligations of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for
advances, interest and taxes paid in amortizing and discharging their obligations to "La Urbana" and
the "Banco Hipotecario". Disclaiming knowledge of said claims at first, Kong Chai Pin later
admitted the claims in her amended answer and they were accordingly approved by the Court. Kong
Chai Pin filed a petition with the probate court for authority to sell all the 49 parcels of land to
Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the aforesaid debts of
Tan Sin An and the partnership. The administratrix executed deed of sale of the 49 parcels of land
to the defendants Washington Sycip and Betty Lee in consideration of P37,000.00 and of vendees'
assuming payments of the claims filed by Yutivo Sons Hardware Co. and Sing Yee and Cuan Co.,
Inc. Later, i, defendants Sycip and Betty Lee executed in favor of the Insular Development Co., Inc.

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a deed of transfer covering the said 49 parcels of land. Learning about the sale to Sycip and Lee, the
surviving partner Antonio Goquiolay filed, , a petition in the intestate proceedings seeking to set
aside the order of the probate court approving the sale in so far as his interest over the parcels of
land sold was concerned. the probate court annulled the sale executed by the administratrix with
respect to the 60% interest of Antonio Goquiolay over the properties sold. Kong Chai Pin appealed
to the Court of Appeals, which court later certified the case to higher court which rendered decision
setting aside the orders of the probate court complained of and remanding the case for new trial,
due to the non-inclusion of indispensable parties. In an amended complaint in the case at bar prays,
among other things, for the annulment of the sale in favor of Washington Sycip and Betty Lee, and
their subsequent conveyance in favor of Insular Development Co., Inc., in so far as the three (3) lots
owned by the plaintiff partnership are concerned. The answer averred the validity of the sale by
Kong Chai Pin as successor partner, in lieu of the late Tan Sin An. After hearing, the complaint was
dismissed by the lower court in its decision dated October 30, 1956; hence, this appeal taken directly
to us by the plaintiffs, as the amount involved is more than P200,000.00.

Issue:

Whether or not the consent of the other partners was necessary to perfect the sale of the
partnership properties to Washington Sycip and Betty Lee.

Held:

No. Strangers dealing with a partnership have the right to assume, in the absence of
restrictive clauses in the co-partnership agreement, that every general partner has power to bind the
partnership, specially those partners acting with ostensible authority. And so, we held in one case:

. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the
two partners, to ascertain whether or not this partner with whom the transaction is made has
the consent of the other partner. The public need not make inquiries as to the agreements
had between the partners. Its knowledge is enough that it is contracting with the partnership
which is represented by one of the managing partners.
"There is a general presumption that each individual partner is an agent for the firm and that
he has authority to bind the firm in carrying on the partnership transactions." [Mills vs.
Riggle, 112 Pac., 617]

Art. 1695 provides:

Should no agreement have been made with respect to the form of management, the
following rules shall be observed:
1. All the partners shall be considered agents, and whatever any one of the may do
individually shall bind the partnership; but each one may oppose any act of the others before
it has become legally binding.

The records fail to disclose that appellant Goquiolay made any opposition to the sale of the
partnership realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that he
(Goquiolay) only interposed his objections after the deed of conveyance was executed and approved
by the probate court, and, consequently, his opposition came too late to be effective.

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The validity of the sale covering the entire firm realty, on the ground that it, in effect, threw
the partnership into dissolution, which requires consent of all the partners. This view is untenable.
That the partnership was left without the real property it originally had will not work its dissolution,
since the firm was not organized to exploit these precise lots but to engage in buying and selling real
estate, and "in general real estate agency and brokerage business". Incidentally, it is to be noted that
the payment of the solidary obligation of both the partnership and the late Tan Sin An, leaves open
the question of accounting and contribution between the co-debtors, that should be ventilated
separately.

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PART II: AGENCY

FUNDAMENTAL CONCEPTS (ARTICLES 1868-1883)

Article 1868

Satar, Mohammad Ajrin D.

JOSE SORIANO v. COMPAIA GENERAL DE TABACOS DE FILIPINAS


G.R. No. L-17392. December 17, 1966.
18 SCRA 999

Facts:

September 1937, defendant granted plaintiff a crop loan account to finance the planting,
cultivation, harvesting, and milling of sugar cane in plaintiff's various sugar cane plantations in
Negros Occidental; that to secure payment of the various amounts which plaintiff would withdraw
from said crop loan account, plus the correspondent interest, executed a deed of mortgage in favor
of defendant, mortgaging to the latter the properties specified and described therein; as additional
security therefor, plaintiff likewise mortgaged the sugar cane crops that would be planted and
harvested from the sugar plantations during the 1941-42 crop year. In 1941, the computation of the
balance due from plaintiff, defendant did not include the proceeds of the sale of 51,528,01 piculs of
sugar belonging to plaintiff and delivered to defendant, which sale was willfully withheld from
plaintiff; that during the Japanese occupation defendant sent periodic statement of accounts to
plaintiff, who, noticing from said statements that his debt was considerably increasing due to the
accumulation of the interest charged by the defendant and in view of defendant's demand for
payment as expressed or implied in said statements of account, decided to pay and did pay as much
of his supposed debt as he could during the Japanese occupation by borrowing money from his
business associates and selling some of his valuable real and personal properties; that shortly after
the liberation, plaintiff made several inquiries from defendant about the status of his export sugar
produced during the 1941-42 crop year amounting to 65,787.53 piculs which plaintiff delivered to
defendant; that plaintiff was informed by the defendant that said sugar was destroyed during the war
and it advised plaintiff to file a war damage claim before the War Damage Commission of the
United States; plaintiff investigated as to what really happened to the export sugar he delivered to
defendant and discovered that 51,528.01 piculs of sugar, instead of having been burned and
destroyed during the last war as falsely represented by the defendant to plaintiff and to the War
Damage Commission, had actually been shipped to and sold by the defendant in the United States
on different dates in 1941, months before the out break of the war; that the proceeds of such sale
were kept and retained by defendant for its own use without crediting the same for the account of
plaintiff, to the damage and prejudice of plaintiff; that after a long negotiation and several exchange
of communication between plaintiff and defendant, the latter proposed to fix the price at P6.20 per
picul which plaintiff accepted; that notwithstanding repeated demands defendant refused and still
refuses to pay plaintiff. In its answer to this complaint, defendant denies certain allegations while
admitting others. As first affirmative and special defense, defendant alleged that the totality of the

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export sugar produced by plaintiff and delivered to it amounted to only 64,253.26 piculs for the
1940-41 crop year; that in accordance with the agreement of August 5, 1941, plaintiff irrevocably
authorized defendant to receive the former's export sugar in the latter's own name and for the
latter's sale and disposition under the obligation to sell the same for the account of the plaintiff,
whenever ordered to do so; that it was and has been the long established practice known to plaintiff
for defendant to ship abroad in its own name as much sugar as ship space allowed, and when any of
defendant's clients, such as plaintiff, sent instructions to defendant to sell at a certain price,
defendant merely credits the client's crop loan account with the value of the sugar so ordered sold at
the price prevailing on the date of the instructions received by defendant; that plaintiff pursuant to
such establish method ordered the sale of only 16,000 piculs of sugar out of the 64,253.26 piculs
assigned to defendant but never expressed to defendant his desire to sell the rest of his sugar; that
the sugar claimed by plaintiff as shipped to the United States in 1941 was so shipped in the name
and for the account of defendant and not for the account of plaintiff; that the rest of plaintiff's
sugar, aside from the aforesaid 16,000 piculs was included in the 500,000 piculs stored in defendant's
warehouse in Iloilo which were burned by the Philippine Army on April 15, 1942, for the loss of
which he was duly compensated by the War Damage Commission. if plaintiff wants to be credited
for the sale of the sugar received by the defendant for the 1940-41 crop year, plaintiff must be
contended with receiving the price of sugar in the world market at those times when plaintiff's sugar
was delivered to defendant, which was approximately P4.00 per picul, and consequently the value of
the 51,528.01 piculs of sugar at the said price would be P206,112.04; that plaintiff's total debt to
defendant at the beginning of the Japanese Occupation would be P648,806.06 less the credit of
P206,112.04 and the interest charged for this amount; (4) that plaintiff made undue excess payment
during the Japanese Occupation in Japanese currency which excess payments were accepted in good
faith by defendant. Upon these pleadings and the oral and documentary evidence adduced by both
parties, the case was submitted for decision ordering defendant to pay to plaintiff the total amount
of P220,273.66 and ordering plaintiff, in turn to pay to defendant the amount of P55,518.60, with
cost against the defendant. From this decision both parties appealed raising several questions.

It is defendant's first contention in this appeal that the question regarding the exportation of
plaintiff's 16,000 piculs of sugar could not be raised anymore because plaintiff was already credit on
December 31, 1942, with the sum of P64,016.08, the value of the sugar in question. Plaintiff,
however, maintains that the issue involved here is not whether plaintiff should be credited or not
but whether plaintiff should have been credited with the proceeds of the sugar on August 18, 1941,
the date when the sugar was exported instead of on December 31, 1942; and whether the plaintiff
should be credited with sum of P99,200.00 (at the rate of p6.20 per picul) with interest thereon.

Issue:

Whether or not plaintiff is entitled to be credited with the proceeds of sale.

Held:

Plaintiff is entitled to be credited with the proceeds of the sugar from the date of shipment,
on August 18, 1941, at the price per picul and with the rate of interest to be determined elsewhere in
this opinion. It is clear from the record and admitted by the defendant that in August, 1941, 16,000
piculs of sugar were in fact exported for the account of plaintiff. That defendant "first obtained the
special permission" of the plaintiff for authority to export the latter's sugar in the defendant's bodega
in Iloilo; and "armed with that authority" did in fact export 16,000 piculs of sugar. The authority
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given by plaintiff to defendant to export the former's sugar, is understood to include, and does
include the authority to sell said sugar for plaintiff's account. Having admitted the authority to
export the sugar, defendant need not wait for further instructions from plaintiff to sell. As the lower
court correctly stated:

It appearing from plaintiff's arguments and defendant's counter arguments just


quoted, that they are at one as to the fact that "TABACALERA EXPORTED
16,000 PICULS OF SUGAR FOR THE ACCOUNT OF JOSE SORIANO SOME
TIME IN AUGUST OF 1941," it was defendant's obligation to credit plaintiff's
account with the proceeds thereof as of the date last mentioned, without a need for
any instructions of confirmation by or from plaintiff. Having credited plaintiff with
the said proceeds only as of December 31, 1942, instead of August 18, 1941,
defendants is deemed to have incurred in delay in the performance of its obligation,
resulting in the payment of stipulated interest on the proceeds in question by plaintiff
from August 18, 1941 to December of 1942.

In line with what we had stated in the previous assignment of error, there was no need for
an authorization from plaintiff to export his sugar because the defendant was expressly authorized to
sell plaintiff's sugar delivered to it, in pursuance to the crop loan agreement. And this is conclusively
shown by the clause contained in the agreement.

Defendant cannot also avail of the defense of automatic compensation because under the
provisions of Article 1195 of the Old Civil Code, as well as Article 1278 of the New Civil Code,
compensation takes place when two persons in their own right are creditors and debtors of each
other. Now, if, as defendant theorizes, the sugar was "shipped to the United States for the
defendant's own account", it cannot then reverse its stand and consider plaintiff as its creditor. And
even if, for the sake of argument, we consider plaintiff to be defendant's creditor to the extent of the
value of the 35,528.01 piculs of sugar which defendant exported without crediting to plaintiff's
account, the plaintiff would be defendant's creditor only because of defendant's fault and breach of
the crop loan agreement by not crediting plaintiff with the sale of the sugar.

Neither could defendant invoke the provisions of Article 1895 of the Old Civil Code on
solutio indebiti because the doctrine is clearly not applicable to the case at bar. What plaintiff is
demanding in this action is not a return of any erroneous payment as is maintained by the
defendant but the payment of the proceeds realized by defendant from the sale of plaintiff's
35,528.01 piculs of sugar.

The evidence establishes that defendant exported plaintiff's 16,000 piculs of sugar on August
18, 1941 but did not credit plaintiff with the proceeds thereof on the said date but credited plaintiff
only on December 31, 1942 with the sum of P64,016.80. Pursuant to the crop loan agreement, it was
defendant's obligation to credit plaintiff's account with the proceeds of the sale as of August 18,
1941. The lower court therefore correctly found that the defendant incurred in delay in the
performance of its obligation in this respect and correctly ordered the defendant to pay the
stipulated interest on the proceeds in question from August 18, 1941 to December 31, 1942. In
determining the value of said sugar, the lower court correctly considered from the evidence the price
of P6.20 per picul, the price then prevailing in the market in 1941, so that the value of the 16,000
piculs of sugar should be P99,200.00 instead of P64,016.80. Having incurred in delay, in crediting

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plaintiff with the said amount, defendant should pay plaintiff 6% interest on the sum of P99,200.00
from August 18, 1941 to December 31, 1942.

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Vicencio, Carmel Louise Q.

ALLIED FREE WORKERS' UNION v. COMPAIA MARITIMA, et al.


G.R. Nos. L-22951 & L-22952. January 31, 1967.
19 SCRA 258

An agent cannot represent two conflicting interests that are diametrically opposed.
There is no reason to select a representative to negotiate when there can be no negotiations in the first place.

Facts:

MARITIMA is a local corporation engaged in the shipping business. Teves is its branch
manager in the port of Iligan City. And AFWU is duly registered legitimate labor organization with
225 members. MARITIMA, through Teves, entered into a CONTRACT with AFWU.

During the first month of the existence of the CONTRACT, AFWU rendered satisfactory
service. So, MARITIMA, through Teves, verbally renewed the same. This harmonious relations
between MARITIMA and AFWU lasted up to the latter part of 1953 when the former complained
to the latter of unsatisfactory and inefficient service by the laborers doing the arrastre and
stevedoring work. This deteriorating situation was admitted as a fact by AFWU's president. To
remedy the situation since MARITIMA's business was being adversely affected Teves was forced
to hire extra laborers from among "stand-by" workers not affiliated to any union to help in the
stevedoring and arrastre work. The wages of these extra laborers were paid by MARITIMA through
separate vouchers and not by AFWU. Moreover, said wages were not charged to the consignees or
owners of the cargoes.

AFWU presented to MARITIMA a written proposal for a collective bargaining agreement.


This demand embodied certain terms and conditions of employment different from the provisions
of the CONTRACT. No reply was made by MARITIMA.

Consequently, AFWU instituted proceedings in the Industrial Court praying that it be


certified as the sole and exclusive bargaining agent in the bargaining unit composed of all the
laborers doing the arrastre and stevedoring work in connection with MARITIMA's vessels in Iligan
City. MARITIMA answered, alleging lack of employer-employee relationship between the parties.

MARITIMA informed AFWU of the termination of the CONTRACT because of the


inefficient service rendered by the latter which had adversely affected its business. MARITIMA then
contracted with the Iligan Stevedoring Union for the arrastre and stevedoring work. The latter
agreed to perform the work subject to the same terms and conditions of the CONTRACT.

Issue:

a) Whether or not there is an employer-employee relationship between MARITIMA


and AFWU and/or its members-laborers who do the actual stevedoring and arrastre work
b) Whether or not the duty to bargain collectively is proper in the case at bar

Ruling:

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a) There is no direct employment relationship between MARITIMA and the


laborers. The latter have no separate, individual contracts with MARITIMA. In fact, it was AFWU
that hired them. Their only possible connection with MARITIMA is through AFWU which
contracted with the latter. Hence, they could not possibly be in a better class than AFWU which
dealt with MARITIMA.

The facts as found by the court strongly indicate that it is AFWU itself who is the
"employer" of those laborers. The facts very succinctly show that it was AFWU, through its officers,
which (1) selected and hired the laborers, (2) paid their wages, (3) exercised control and supervision
over them, and (4) had the power to discipline and dismiss them. These are the very elements
constituting an employer-employee relationship.

Now, in its all-out endeavor to make an "employer" out of MARITIMA, AFWU


citing an impressive array of jurisprudence, even goes to the extent of insisting that it be considered
a mere "agent" of MARITIMA. Suffice it to say on this point that an agent cannot represent two
conflicting interests that are diametrically opposed. And that the cases sought to be relied upon did
not involve representatives of opposing interests.

b) The duty to bargain collectively exists only between the "employer" and its
"employee". However, the actual negotiations which may possibly culminate in a concrete
collective bargaining contract are carried on between the "employer" itself and the official
representative of the "employees" in most cases, the majority labor union.

In the case at bar, there being no employer-employee relationship between the


parties-disputants, there is neither a "duty to bargain collectively" to speak of. And there being no
such duty, to hold certification elections would be pointless. There is no reason to select a
representative to negotiate when there can be no negotiations in the first place. The court held that
where as in this case there is no duty to bargain collectively, it is not proper to hold
certification elections in connection therewith.

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Vicencio, Carmel Louise Q.

AIR FRANCE v. HONORABLE COURT OF APPEALS, et al.


G.R. No. L-57339. December 29, 1983.
126 SCRA 448

To all legal intents and purposes, Teresita was the agent of the GANAS and notice to her of the rejection of the
request for extension of the validity of the tickets was notice to the GANAS, her principals.

Facts:

Jose G. Gana and his family, purchased from AIR FRANCE nine "open-dated" air passage
tickets for the Manila/Osaka/Tokyo/Manila route. Thereafter, AIR FRANCE exchanged or
substituted the aforementioned tickets with other tickets for the same route. At this time, the
GANAS were booked for the Manila/Osaka segment on Flight 184 for 8 May 1970, and for the
Tokyo/Manila return trip on Flight 187 on 22 May 1970. The aforesaid tickets were valid until 8
May 1971. The GANAS did not depart on 8 May 1970. Instead, Jose Gana sought the assistance of
Teresita Manucdoc, a Secretary of the Sta. Clara Lumber Company where Jose Gana was the
Director and Treasurer, for the extension of the validity of their tickets, which were due to expire on
8 May 1971.

Teresita enlisted the help of Lee Ella Manager of the Philippine Travel Bureau. Ella sent the
tickets to Cesar Rillo, Office Manager of AIR FRANCE. The tickets were returned to Ella who was
informed that extension was not possible unless the fare differentials resulting from the increase in
fares triggered by an increase of the exchange rate of the US dollar to the Philippine peso and the
increased travel tax were first paid. Ella then returned the tickets to Teresita and informed her of the
impossibility of extension.

In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day
before the expiry date. Teresita requested travel agent Ella to arrange the revalidation of the tickets.
Ella gave the same negative answer and warned her that although the tickets could be used by the
GANAS if they left on 7 May 1971, the tickets would no longer be valid for the rest of their trip
because the tickets would then have expired on 8 May 1971. Teresita replied that it will be up to the
GANAS to make the arrangements.

Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May
1971 on board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with respect to this
leg of the trip. However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to
honor the tickets because of their expiration, and the GANAS had to purchase new tickets. They
encountered the same difficulty with respect to their return trip to Manila as AIR FRANCE also
refused to honor their tickets. They were able to return only after pre-payment in Manila, through
their relatives, of the readjusted rates. They finally flew back to Manila on separate Air France
Frights.

The GANAS filed a case for damages arising from breach of contract of carriage against
AIR FRANCE.

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Issue:

Whether or not Teresita was the agent of the GANAS and notice to her of the rejection of
the request for extension of the validity of the tickets was notice to the GANAS, her principals

Ruling:

Teresita was the agent of the GANAS and notice to her of the rejection of the request for
extension of the validity of the tickets was notice to the GANAS, her principals.

The GANAS cannot defend by contending lack of knowledge since the evidence bears out
that Teresita, who handled travel arrangements for the GANAS, was duly informed by travel agent
Ella of the advice of Reno that the tickets in question could not be extended beyond the period of
their validity without paying the fare differentials and additional travel taxes brought about by the
increased fare rate and travel taxes.

The conclusion is inevitable that the GANAS brought upon themselves the predicament
they were in for having insisted on using tickets that were due to expire in an effort, perhaps, to beat
the deadline and in the thought that by commencing the trip the day before the expiry date, they
could complete the trip even thereafter.

Consequently, AIR FRANCE merely acted within their contractual rights when they
dishonored the tickets on the remaining segments of the trip and when AIR FRANCE demanded
payment of the adjusted fare rates and travel taxes for the Tokyo/Manila flight.

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Article 1869

Senique, Alyssa Paulina R.

DOMINGA CONDE v. THE HONORABLE COURT OF APPEALS, MANILA


PACIENTE CORDERO, together with his wife, NICETAS ALTERA, RAMON CONDE,
together with his wife, CATALINA T. CONDE
G.R. No. L-40242. December 15, 1982.
119 SCRA 245

Facts:

In 1938, Margarita Conde, Bernardo Conde and Dominga Conde, as heirs of Santiago
Conde, sold with right to repurchase, within 10 years from said date, a 1 hectare parcel of
agricultural land situated in Leyte to Casimira Pasagui and Pio Altera for P165. Subsequently, OCT
No. N-534 covering the land in question was issued in the name of the Alteras subject to the
stipulated right of repurchase by the Condes. In 1945, private respondent Paciente Cordero, son-in-
law of the Alteras, signed a document in the Visayan dialect, the English translation of which states
that: The document of SALE WITH THE RIGHT OF REPURCHASE got lost in spite of the
diligent efforts during the war; that because it is about time to repurchase the land, EUSEBIO
AMARILLE was allowed as the representative of Condes to repurchase the same; that they have
received P165. 00 as consideration in that sale with the right of repurchase with respect to the two
parcels of land; and, that the Condes, by virtue of the repurchase, shall repossess the said parcels of
land.

Neither the vendees-a-retro, Pio Altera nor Casimira Pasagui, were signatories to that
document. Many years later, the pacto de retro document was found. In June 1965, Pio Altera sold
the disputed lot to Ramon and Catalina Conde, whose relationship to Dominga does not appear on
record.

Consequently, in 1969, Dominga filed with the CFI of Leyte a complaint for quieting of title
and declaration of ownership against all the respondents. Both the trial court and the Court of
Appeals affirmed that petitioner had failed to validly exercise her right of repurchase in view of the
fact that the Memorandum of Repurchase was signed by Paciente Cordero and not by Pio Altera,
the vendee-a-retro, and that there is nothing in said document to show that Cordero was specifically
authorized to act for and on behalf of the vendee a retro, Pio Altera.

Issue:

Whether or not there was an implied agency when Cordero signed the Memorandum of
Repurchase.

Held:

YES.

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The possession, which heretofore had been with the Alteras, has been in the hands of
petitioner as stipulated therein. Land taxes have also been paid for by petitioner yearly from 1947 to
1969. If, as opined by both the Court a quo and the Appellate Court, petitioner had done nothing to
formalize her repurchase, by the same token, neither have the vendees-a-retro done anything to clear
their title of the encumbrance therein regarding petitioner's right to repurchase. No new agreement
was entered into by the parties as stipulated in the deed of pacto de retro, if the vendors a retro
failed to exercise their right of redemption after ten years. If, as alleged, petitioner exerted no effort
to procure the signature of Pio Altera after he had recovered from his illness, neither did the Alteras
repudiate the deed that their son-in-law had signed. Thus, an implied agency must be held to have
been created from their silence or lack of action, or their failure to repudiate the agency.

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Senique, Alyssa Paulina R.

JOSE DE LA PENA Y DE RAMON v. FEDERICO HIDALGO


G.R. No. L-5486, August 17, 1910
16 Phil. 450

Facts:

Jose Dela Pena y de Ramon and Vicenta De Ramon, in her own behalf and as the legal
guardian of her son Roberto De la Pena, filed a complaint against Hidalgos De La Pena y de Ramon,
as the judicial administrator of the estate of the deceased De la Pe na y Gomiz, with the consent of
the court filed a second amended complaint prosecuting his action solely against Frederico Hidalgo.

De la Pena y Ramon filed a third amended complaint with the permission of the court
alleging, among other things, as a first cause of action that Frederico Hidalgo had possession of and
administered the following properties to wit, 1 house and lot; at Calle San Luis; another house and
lot at Calle Cortada; another house and lot at Calle San Luis, and a fenced lot on the same street, all
of the district of Ermita, and another house and lot at Calle Looban de Paco, belonging to his
principal, Dela Pena y Gomiz, according to the power of attorney executed in his favor, as such
agent, collected the rents and income from the said properties, amounting to P50,244, which sum,
collected in partial amounts and on different dates, he should have deposited, in accordance with the
verbal agreement between the deceased and himself, in the general treasury of the Spanish
Government. However, the defendant did not remit or pay to Jose de la Pea y Gomiz, during the
latter's lifetime, with the sole exception of P1,289.03. Thus, he has become liable to his principal and
to the defendant-administrator for the said sum, together with its interest, which amounts to
P72,548.

Issue:

Whether or not Frederico Hidalgo is considered an agent of Gomiz and as such must
reimburse present administrator, De la Pena.

Ruling:

No.

After Frederico Hidalgo occupied the position of agent and administrator of De la Pena y
Gomizs property for several years, the former wrote to the latter requesting him to designate a
person who might substitute him in his said position in the event of his being obliged to absent
himself from these Islands. From the procedure followed by the agent, Hidalgo, it is logically
inferred that he had definitely renounced his agency and that the agency was duly terminated
according to the provisions of art 1782.

Federico Hidalgo, in our opinion, could not be responsible for the administration of the
property that belonged to the deceased Pea y Gomiz, which was administered by Antonio Hidalgo
because of the sole fact of his having turned over to the latter the administration of the said property
on his departure from this city of Spain. Neither law nor reason obliged Federico Hidalgo to remain
in this country at the cost of his health and perhaps of his life, even though he were the
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administrator of certain property belonged to Pea y Gomiz, since the care of the property and
interests of another does not require sacrifice on the part of the agent of his own life and interests. It
being absolutely necessary for Federico Hidalgo to leave this city and abandon the administration of
the property of his principal, Pea y Gomiz, for reasons of health, he made delivery of the property
and of his administration to Antonio Hidalgo and gave notice of what he had done to his
constituent, Pea, in order that the latter might send a new power of attorney to Antonio Hidalgo,
the person charged with the administration of the property. Pea y Gomiz did not send the power
of attorney requested nor prohibit Antonio Hidalgo's to administer his property, and consented to
his doing so for nearly nine years. Consequently the second administrator must be considered as a legitimate
agent of the said principal, as a result of the tacit agreement on the latter's part, and the previous agent, who necessarily
abandoned and ceased to hold his position, as completely free and clear from the consequences and results of the second
administration, continued by a third party and accepted by his principal.

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Article 1874

Tan, Elma T.

JIMENEZ v. RABOT
G.R. No. L-12579. July 27, 1918.
38 Phil. 378

Facts:

This action was instituted by Gregorio Jimenez to recover from the defendant, Pedro
Rabot, a parcel of land. While Gregorio was staying at Vigan in 1911, the subject property was
confided by him to the care of his elder sister Nicolasa Jimenez. On February 7, 1911, he wrote his
sister a letter from Vigan informing her that he was pressed for money and requested her to sell one
of his parcels of land. This letter contains no description as to which land is to be sold other than
the indicated words one of my parcels of land. Acting upon this letter, Nicolasa approached
defendant Rabot and the latter agreed to buy the parcel.

A year later, Jimenez demanded that his sister return the subject parcel to him. Nicolasa
refused. Gregorio, together with his other siblings, then filed action for the recovery of their land.
The action was decided in favor of the plaintiffs. Meanwhile, Nicolasa executed and delivered to
defendant Rabot a deed purporting to convey to him the subject parcel of land. Defendant went into
possession and the property was found in his hands at the time when the final judgment was entered
in favor of plaintiffs.

Issue:

Whether the authority conferred on Nicolasa by Gregorios letter sufficient to enable her to
bind her brother.

Held:

Yes. The authority conferred on Nicolasa by Gregorios letter is sufficient to enable to bind
her brother. The general rule here applicable is that the description must be sufficiently definite to
identify the land either from the recitals of the contract or deed or from external facts referred to in
the document, thereby enabling one to determine the identity of the land and if the description is
uncertain on its face or is shown to be applicable with equal plausibility to more than one tract, it is
insufficient. The principle embodied in these decisions is not, in the opinion of the court, applicable
to the present case, which relates to the sufficiency of the authorization, not to the sufficiency of the
contract or conveyance.

There is ample authority to the effect that a person may by a general power of attorney
authorize an agent to sell all the land possessed by the principal, or all that he possesses in a
particular city, county or state.

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In present case, the agent was given the power to sell either of the parcels of land belonging
to the plaintiff. The court see no reason why the performance of an act within the scope of this
authority should not bind the plaintiff to the same extent as if he had given the agent authority to
sell any or all and she had conveyed only one.

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Tan, Elma T.

ANTONIO E. PRATS, doing business under the name of Philippine Real Estate Exchange
v. HON. COURT OF APPEALS, ALFONSO DORONILA and PHILIPPINE
NATIONAL BANK
G.R. No. L-39822. January 31, 1978.
81 SCRA 360

Facts:

This is a suit for the recovery of a sum of money and damages instituted by Prats against
Doronila and PNB.

Doronila was the registered owner of a 300-hectare land in Rizal. On February 14, 1968,
Doronila then gave Prats an exclusive option and authority in writing to negotiate the sale of the
property under the following terms:

a. Prats is to sell the land at a basic price of PHP 3.00/sq. m.


b. A 10% commission shall be paid to Prats based on PHP 2.10/sq. m. or at any price
finally agreed upon and if the property be sold over and above PHP 3.00/sq. m., the
excess shall be paid to Prats in addition to his 10% commission.
c. Such exclusive option and authority is good for (60) days from the date of conformity;
provided that should negotiations with the buyer have been started, said period is
automatically extended until said negotiations is terminated, but not more than (15) days.
d. The written offers must be made by the prospective buyers and if no written offer is
made to Doronila until the last day of this authorization, this option and authority shall
expire and become null and void.
e. Prospective buyers and all parties interested shall be referred to Prats.

As a result of this exclusive option and authority to negotiate, Doronila withdrew his
previous offer to sell to SSS and asked for the return of all papers concerning his offered property.
These papers were given to Prats as Doronilas authorized real estate broker.

On April 18, 1968, Doronila extended Prats exclusive option and authority up to
May 18, 1968. On May 6, 1968, Prats made a formal written offer to the SSS at the price of
PHP6.00/sq. m. SSS ignored said offer. On May 18, 1968, Prats wrote to Doronila emphasizing that
they still had (15) days within which to complete the negotiations as per agreement or until June 2,
1968. On May 30, 1968, Prats wrote to Doronila again advising him that the SSS agreed to purchase
the land, though no formal offer was made by the latter.

On June 6, 1968, Doronila wrote to Prats informing him that he has not received any
written offer from the SSS during the 60 days of the exclusive option and authority which expired
on April 14, nor during the period of extension which expired on May 18, nor during the 15-day
grace period. As per their agreement, the option expired and became null and void.

On June 19, 1968, Doronila wrote to SSS renewing his offer to sell the land at
PHP 4.00/sq. m. SSS replied and made a counter-offer of PHP 3.25/sq. m., for a total price of
P9,750,000.00. Doronila accepted the counter-offer and executed the deed of absolute sale. Prats
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presented his statement of account to Doronila for the payment of his professional services as real
estate broker in the amount of P1,380,000.00. Doronila refused to pay. Hence, a suit was filed.

RTC ruled in favor of Prats, ordering Doronila to pay the commission plus damages.

CA reversed. As per the agreement, a written offer by the prospective buyer was required
and if no such written offer is made until the last day of the authorization, the option shall expire.

Issue:

Whether or not the CA erred in concluding that Prats was not the efficient procuring cause
in bringing about the sale of Doronilas land to SSS and as such should not be entitled to his
commission.

Held:

It is clear from the stipulation of facts and evidence on record that the offer of Doronila to
sell the land to SSS was formally accepted by SSS only on June 20, 1968 after the exclusive option
had already expired. Prats was not the efficient procuring case in bringing about the sale proceeding
from the fact of expiration of his exclusive option.

This is manifested by the fact that the SSS officials specifically requested Prats not to be
present at the meeting with Doronila on May 29 because the SSS officials never wanted the
mediation or intervention of Prats. The conclusion is that this May 29 meeting was done
independently and not by virtue of Prats wish or efforts to hold such meeting.

The fact that Prats also made offers of PHP 4.50/sq. m. and PHP 6.00/sq. m. belies the
claim that he arranged the May 29 meeting as SSS was only willing to buy it at PHP 3.25/sq. m.
Prats offers to SSS received no attention.

However, the Court took note that Prats had taken steps to bring back together Doronila and SSS:

1. Prats wrote several letters to SSS offering the land and inviting them to discuss the
offer. He even made a former offer of PHP 6.00/sq. m., albeit it was ignored.
2. Prats had several dinner and lunch meetings with Doronila and his nephew
Atty. Asencio. The latter corroborated this fact.

As such, the Court granted in equity a sum of PHP 100,000.00 by way of compensation for Prats
efforts and assistance in the transaction, which however was finalized and consummated after the
expiration of his exclusive option.

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Article 1877

Urbano, Mary Yasmine V.

YU CHUCK v. KONG LI PO
G.R. No. L-22450. December 3, 1924.
46 Phil. 608

Facts:

Defendant is a domestic corporation engaged in the publication of a Chinese newspaper


called Kong Li Po. Its articles of incorporation and by-laws are in the usual form and provide for a
board of directors and for other officers among them a president whose duty it is to "sign all
contracts and other instruments of writing." No special provision is made for a business or general
manager.

Chen was appointed general business manager of the newspaper. During the month of
December, he entered into an agreement with the plaintiffs by which the latter bound themselves to
do the necessary printing for the newspaper for the sum of P580 per month. Under this agreement
the plaintiffs worked for the defendant from January 1, 1920, until January 31, 1921, when they were
discharged by the new manager, Tan Tian Hong, who had been appointed in the meantime, C. C.
Chen having left for China. The letter of dismissal stated no special reasons for the discharge of the
plaintiffs.

Plaintiffs brought this action with the RTC alleging that:


1. their contract of employment was for a term of three years;
2. in the case of their discharge by the defendant without just cause before the
expiration of the term of the contract, they were to receive full pay for the remaining
portion of the term; and
3. they had been so discharged without just cause and asked judgment for
damages (P20,880)

Kong Li Po contended that Chen had no authority to enter into such employment contact
and the dismissal of the plaintiffs was justified.

Issue:

Whether or not Chen had proper grant of authority to bind the corporation by the
aforementioned contract.

Ruling:

No. It is conceded that Chen had no express authority to do so, but evidence is conclusive
that he was in effect the general business manager of the newspaper Kong Li Po and that he had
charge of the printing of the paper, and the plaintiffs maintain as general business manager, had

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implied authority to employ them on the terms stated and that the defendant corporation is bound
by his action.

The general rule is that the power to bind a corporation by contract lies with its board of
directors or trustees, but this power may either expressly or impliedly be delegated to other officers
or agents of the corporation, and it is well settled that except where the authority of employing
servants and agent is expressly vested in the board of directors or trustees, an officer or agent who
has general control and management of the corporation's business, or a specific part thereof, may
bind the corporation by the employment of such agent and employees as are usual and necessary in
the conduct of such business. But the contracts of employment must be reasonable.

Chen, as general manager of the Kong Li Po, had implied authority to bind the defendant
corporation by a reasonable and usual contract of employment with the plaintiffs, but the court does
not think that the contract here in question can be so considered. Not only is the term of
employment unusually long, but the conditions are otherwise so onerous to the defendant that the
possibility of the corporation being thrown into insolvency thereby is expressly contemplated in the
same contract. This fact in itself was sufficient to put the plaintiffs upon inquiry as to the extent of
the business manager's authority; they had not the rights to presume that he or any other single
officer or employee of the corporation had implied authority to enter into a contract of employment
which might bring about its ruin.

Neither does the court think that the contention that the corporation impliedly ratified the
contract is supported by the evidence. Te Kim Hua, the president of the corporation, admitted he
saw the plaintiffs work as printers in the office of the newspaper. But he denied any knowledge of
the existence of the contract and asserted that it was never presented neither to him nor to the board
of directors. Before a contract can be ratified knowledge of its existence must be brought home to
the parties who have authority to ratify it or circumstances must be shown from which such
knowledge may be presumed. No such knowledge or circumstances have been shown here.

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Article 1878

Urbano, Mary Yasmine V.

STRONG v. REPIDE
G.R. No. L-2101. November 15, 1906.
6 Phil. 680

Facts:

This action was brought to recover 800 shares of the capital stock of the Philippine Sugar
Estates Development Company, Limited, an anonymous society formed to hold the Dominican friar
lands. The shares were the property of one of the plaintiffs, Mrs. Strong, as part of the estate of her
first husband. They were purchased by the defendant through a broker, Sloane, who dealt with her
agent, Jones, who had the script in her possession and who had made the sale without the
knowledge of the plaintiff. The defendant was a director, was the managing agent, and was in his
own right the majority stockholder of the society.

The script was payable to bearer and had been in the possession of Jones, who was acting
gratuitously as agent for the plaintiff, not only under a written power special in terms to collect
money but also as a general agent managing all her business under a parol employment. He held
other securities for the plaintiff and had on one prior occasion, at least, without special instruction,
sold other of her stocks, understanding that the act was within the scope of his general agency.

Issue:

Whether or not Jones had the power to sell or deliver her stock in the Philippine Sugar
Estates Development Company.

Ruling:

No.

Article 1713 of the (old) Civil Code reads:

An agency stated in general terms only includes acts of administration. In order to


compromise, alienate, mortgage, or to execute any, other act of strict ownership an
express mandate is required.

Such a mandate may be either oral or written, may stand by itself or may be included in the
general power. The one vital thing being that the right to sell shall be express or shall be a necessary
ingredient of the power that is expressed.

The only express commission in evidence to dispose of this or any stock is found in an
interview between the plaintiffs and Jones on the Luneta, in Manila, before the negotiation, in which
she told him, speaking of her shares, "not part with them until I got their face value." This bald

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statement is the only evidence on this point. If in its negative form it is sufficient to constitute an
express or special power to sell, it cannot be severed from the limitations as to price bound in the
same sentence with it; the limitation is as much a parcel of the grant as if both had been found in
one written instrument, and one part cannot be given effect without the other, unless one part only
was brought to the knowledge of the defendant. There is no claim that the defendant ever heard of
this conversation.

The Court finds that, even though the words have their effect as evidence of a preexisting
power, understood between the parties, to which the parties plainly refer, do not sufficiently define
the power. All evidence presented fail to reveal the terms of the preexisting power; it may have been
general or special, it may have been express, but on the other hand it may have been, as indicated by
the evidence, merely assumed by the plaintiff and Jones to follow as a matter of course, from his
general power of administration. This would lead to the very assumption prohibited by Article 1713.
It is also apparent that the general management of the plaintiff's property did not necessitate
incidentally the sale of stock. The court fails to find proof of an effective power given Jones to
dispose of this stock. The difficulty of this branch of the case is the scantiness of the evidence; the
documents have been destroyed and the declarations of the parties are brief, and it would be
impossible to imply an express power from then without assuming facts of which no sufficient
evidence exists.

As established in the civil law of Europe and the common law of America, that acts of
agents, beyond the limitation of their power, are null.

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Article 1879

Vicencio, Carmel Louise Q.

PHILIPPINE NATIONAL BANK v. MAXIMO STA. MARIA, et al.


G.R. No. L-24765. August 29, 1969.
29 SCRA 303

A special power of attorney to mortgage real estate is limited to such authority to mortgage and does not bind the
grantor personally to other obligations contracted by the grantee, in the absence of any ratification or other similar act
that would estop the grantor from questioning or disowning such other obligations contracted by the grantee.

Facts:

Sugar crop loans were obtained by defendant Maximo Sta. Maria from plaintiff bank under a
special power of attorney, executed in his favor by his six brothers and sisters, defendants-appellants
herein, to mortgage a 16-odd hectare parcel of land, jointly owned by all of them. In addition,
Valeriana Sta. Maria alone also executed in favor of her brother, Maximo, a special power of
attorney to borrow money and mortgage any real estate owned by her.

By virtue of the two above powers, Maximo Sta. Maria applied for two separate crop loans
with plaintiff bank. As security for the two loans, Maximo Sta. Maria executed in his own name in
favor of plaintiff bank two chattel mortgages on the standing crops, guaranteed by surety bonds for
the full authorized amounts of the loans executed by the Associated Insurance & Surety Co., Inc. as
surety with Maximo Sta. Maria as principal. The records of the crop loan application further disclose
that among the securities given by Maximo for the loans was the parcel of land jointly owned by
Maximo and his six brothers and sisters, with the notation that the bank already held a first
mortgage on the same properties for the crop loan of Maximo, and a 3rd mortgage on the same
properties for another crop loan.

Plaintiff bank filed an action against defendant Maximo Sta. Maria and his six brothers and
sisters for the collection of certain amounts representing unpaid balances on two agricultural sugar
crop loans due allegedly from defendants

The defendants-appellants contended that under the special power of attorney, they had not
given their brother, Maximo, the authority to borrow money but only to mortgage the real estate
jointly owned by them. They further contended that they did not benefit whatsoever from the loans,
and that the plaintiff bank's only recourse against them is to foreclose on the property which they
had authorized Maximo to mortgage.

Issue:

Whether or not Maximo had the authority to borrow money under the special power of
attorney executed by his brothers and sisters

Ruling:

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Plaintiff bank has not made out a cause of action against defendants-appellants (except
Valeriana), so as to hold them liable for the unpaid balances of the loans obtained by Maximo under
the chattel mortgages executed by him in his own name alone. This is but in accord with the
disinclination of courts to enlarge an authority granted beyond the powers expressly given and those
which incidentally flow or derive therefrom as being usual or reasonably necessary and proper for
the performance of such express powers.

The authority granted by defendants-appellants (except Valeriana) unto their brother,


Maximo, was merely to mortgage the property jointly owned by them. They did not grant Maximo
any authority to contract for any loans in their names and behalf. Maximo alone, with Valeriana who
authorized him to borrow money, must answer for said loans and the other defendants-appellants'
only liability is that the real estate authorized by them to be mortgaged would be subject to
foreclosure and sale to respond for the obligations contracted by Maximo. But they cannot be held
personally liable for the payment of such obligations.

The fact that Maximo presented to the plaintiff bank Valeriana's additional special power of
attorney expressly authorizing him to borrow money, aside from the authority to mortgage executed
by Valeriana together with the other defendants-appellants also in Maximo's favor, lends support to
our view that the bank was not satisfied with the authority to mortgage alone. For otherwise, such
authority to borrow would have been deemed unnecessary and a surplusage.

The outcome might be different if there had been an express ratification of the loans by
defendants-appellants or if it had been shown that they had been benefited by the crop loans so as
to put them in estoppel. But the burden of establishing such ratification or estoppel falls squarely
upon plaintiff bank.

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Article 1881-1882

Vicencio, Carmel Louise Q.

THE BANK OF THE PHILIPPINE ISLANDS v. GABRIELA ANDREA DE COSTER Y


ROXAS, et al.
G.R. No. L-23181. March 16, 1925.
47 Phil. 594

The obligation of the husband stated in the power of attorney was to borrow money for or in account of his wife as her
agent and as her attorney in fact. That does not carry with it the power to make his wife liable as a surety for his
preexisting debt.

Facts:

Defendant Gabriela Andrea de Coster y Roxas, having the consent and permission of her
husband (Jean Poizat), and he acting as her agent, said defendants made to the plaintiff a certain
promissory note for P292,000. To secure the payment thereof, Jean M. Poizat and J. M. Poizat and
Co. executed a chattel mortgage to the plaintiff on the steamers Roger Poizat and Gabrielle Poizat,
with the machinery and materials belonging to the Poizat Vegetable Oil Mills and certain
merchandise; that at the same time and for the same purpose, the defendant Gabriela Andrea de
Coster y Roxas, having the consent and permission of her husband, and he acting as her agent, they
acknowledged and delivered to this plaintiff a mortgage on certain real property lying and being
situated in the City of Manila.

The promissory note in question is long past due and owing, thus the plaintiff brought
action against the defendants.

Gabriela Andrea de Coster y Roxas, claimed that she had been residing in Paris, France from
1908 until April 30, 1924 and that she only found out about the case from the newspapers. She
claims that she was never given any summons by the sheriff and that her husband exceeded his
authority under the powers given to him under his power of attorney.

Issue:

Whether or not Gabriela de Coster y Roxas is liable for the mortgage executed by her agent-
husband Jean Poizat

Ruling:

Paragraph 5 of the power of attorney authorizes the husband for in the name of his wife to
"loan or borrow any sums of money or fungible things, etc." This should be construed to mean that
the husband had power only to loan his wife's money and to borrow money for or on account of his
wife as her agent and attorney in fact. That does not carry with it or imply that he had the legal right
to make his wife liable as a surety for the pre-existing debt of a third person.

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It will be noted that there is no provision in either of them which authorizes or empowers
him to sign anything or to do anything which would make his wife liable as a surety for a pre-
existing debt. It is fundamental rule of construction that where in an instrument powers and duties
are specified and defined, that all of such powers and duties are limited and confined to those which
are specified and defined, and that all other powers and duties are excluded.

It is very apparent from the face of the instrument that the whole purpose and intent of the
power of attorney was to empower and authorize the husband to look after and protect the interests
of the wife and for her and in her name to transact any and all of her business. But nowhere does it
provide or authorize him to make her liable as a surety for the payment of the pre-existing debt of a
third person.

Hence, it follows that the husband was not authorized or empowered to sign the note in
question for and on behalf of the wife as her act and deed, and that as to her the note is void for
want of power of her husband to execute it.

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Aranas, Janine Karla A.

NATIONAL POWER CORPORATION v. NATIONAL MERCHANDISING


CORPORATION and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES
G.R. Nos. L-33819 and L-33897. October 23, 1982
117 SCRA 789

Facts:

National Power Corporation (NPC) and National Merchandising Corporation (Namerco), as


the representative of the International Commodities Corporation, New York City executed in
Manila a contract for the purchase by the NPC from the New York firm of four thousand long tons
of crude sulfur for its Maria Cristina Fertilizer Plant in Iligan City at a total price of (450,716). A
performance bond in the sum of P90,143.20 was executed by the Domestic Insurance Company in
favor of the NPC to guarantee the sellers obligations. It was stipulated in the contract of sale that
the seller would deliver the sulfur at Iligan City within sixty days from notice of the establishment in
its favor of a letter of credit for $212,120 and that failure to effect delivery would subject the seller
and its surety to the payment of liquidated damages at the rate of two-fifth of one percent of the full
contract price for the first thirty days of default and four-fifth of one percent for every day
thereafter until complete delivery is made. The New York supplier was not able to deliver the sulfur
due to its inability to secure shipping space. NPC had its operations shut down and no fertilizer was
produced. The general manager of the NPC advised Namerco and the Domestic Insurance
Company that under Article 9 of the contract of sale, "non-availability of bottom or vessel" was not
a fortuitous event that would excuse non-performance and that the NPC would resort to legal
remedies to enforce its rights.

NPCs case against the New York Firm was dismissed since the courts have no jurisdiction.
Wallick, the assignee of the New York Corporation also filed a case claiming damages. The trial
court dismissed Wallicks action for damages against Namerco because the assignment in favor of
Wallick was champertous in character.

The defendants contention was that the delivery of the sulfur was conditioned on the
availability of a vessel to carry the shipment and that Namerco acted within the scope of its authority
as agent in signing the contract of sale. This is contradicted by the invitation to bid issued by the
NPC provides that the non-availability of a steamer to transport the sulfur is not a ground for non-
payment of the liquidated damages in case of non-performance by the seller and that the availability
of vessel to transport the quantity of sulfur within the time specified be the responsibility of the
bidder. In case of award of contract, failure to ship on time allegedly due to non-availability of
vessels shall not exempt the Contractor from payment of liquidated damages.

Namerco acted beyond the bounds of its authority because it violated its principals cabled
instructions, that the delivery of the sulfur should be "C & F Manila", not "C & F Iligan City, that
the sale be subject to the availability of a steamer and that the seller should be allowed to withdraw
right away the full amount of the letter of credit and not merely eighty percent thereof. The New
York Firm contended that Namerco should be held solely responsible for the damages incurred by
NPC because it acted outside of its authority. It even repudiated outright the execution of the
contract with NPC.

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Issue:

Whether or not Namerco should be held solely responsible for its acts

Held:

Yes. Manresa says that the agent who exceeds the limits of his authority is personally liable
and the third person who contracts with the agent in such a case would be defrauded if he would
not be allowed to sue the agent. Article 1898 of the Civil Code which provides that 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. Namerco, as agent, exceeded the limits of its authority
in contracting with the NPC in the name of its principal. The NPC was unaware of the limitations
on the powers granted by the New York firm to Namerco.

As to Domestic Insurance Company, it cannot be said that it does not have liability because
its connection was with the New York Firm and not with Namerco. The truth is that Namerco was
the one who solicited for the performance bond. Namerco is being held liable under the contract of
sale because it virtually acted in its own name therefore it became the principal in the performance
bond.

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Article 1883

Aranas, Janine Karla A.

Smith, Bell & Co., Ltd. vs. Sotelo Matti Digest


G.R. No. L-16570. March 9, 1922
44 Phil. 874

Facts:

Smith, Bell & Co., Ltd. (SBC) and Sotelo, entered into contracts whereby the former
obligated itself to sell, and the latter to purchase from it, two steel tanks, for the total price of
twenty-one thousand pesos (P21,000), the same to be shipped from New York and delivered at
Manila "within three or four months;" two expellers at the price of twenty five thousand pesos
(P25,000) each, which were to be shipped from San Francisco in the month of September, 1918, or
as soon as possible; and two electric motors at the price of two thousand pesos (P2,000) each, as to
the delivery of which stipulation was made, couched in these words: "Approximate delivery within
ninety days this is not guaranteed." The tanks arrived at Manila on the 27th of April, 1919: the
expellers on the 26th of October, 1918; and the motors on the 27th of February, 1919. Mr. Sotelo
refused to receive them and to pay the prices stipulated. It was only in May, 1919, that Smith, Bell &
Co. notified the intervenor that said tanks had arrived, the motors and the expellers having arrived
incomplete and long after the date stipulated. There was delay which caused damages.

SBC alleged that it immediately notified the defendant of the arrival of the goods, and asked
instructions from him as to the delivery thereof, and that the defendant refused to receive any of
them and to pay their price. Further, the expellers and the motors were in good condition. Finally,
even if there was a delivery period for expellers, such was subject to contingencies and was not
guaranteed.

Issue:

Whether or not the SBC has fulfilled, in due time, its obligation to bring the goods in
question to Manila under the contracts it entered into

Held:

Yes. Since there was no day certain for the fulfillment of the obligations, it should be
regarded as a conditional obligation. If the uncertainty should consist in the arrival or non-arrival of
the day, the obligation is conditional.

The export of the machinery in question was contingent upon the sellers obtaining certificate
of priority and permission of the United States Government, subject to the rules and regulations, as
well as to railroad embargoes, then the delivery was subject to a condition the fulfillment of which
depended not only upon the effort of the herein plaintiff, but upon the will of third persons who
could in no way be compelled to fulfill the condition. In cases like this, which are not expressly
provided for, but impliedly covered, by the Civil Code, the obligor will be deemed to have

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sufficiently performed his part of the obligation, if he has done all that was in his power, even if the
condition has not been fulfilled in reality. The record shows, as we have stated, that the plaintiff did
all within its power to have the machinery arrive at Manila as soon as possible, and immediately
upon its arrival it notified the purchaser of the fact and offered to deliver it to him. Taking these
circumstances into account, we hold that the said machinery was brought to Manila by the plaintiff
within a reasonable time. SBC has not been guilty of any delay and it could not have incurred any of
the liabilities mentioned by the intervenor in its counterclaim or set-off.

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OBLIGATIONS OF AGENT (ARTICLES 1884-1909)

Article 1884

Balcueva, Ira Colleen E.

PHILIPPINE NATIONAL BANK v. MANILA SURETY AND FIDELITY CO.


G.R. No. L-20567. July 30, 1965.
14 SCRA 776

Facts:

The Philippine National Bank had opened a letter of credit and advanced thereon
$120,000.00 to Edgington Oil Refinery for 8,000 tons of hot asphalt. Of this amount, 2,000 tons
worth P279,000.00 were released and delivered to Adams & Taguba Corporation (known as
ATACO) under a trust receipt guaranteed by Manila Surety & Fidelity Co. up to the amount of
P75,000.00. To pay for the asphalt, ATACO constituted the Bank its assignee and attorney-in-fact to
receive and collect from the Bureau of Public Works the amount aforesaid out of funds payable to
the assignor under Purchase Order No. 71947.

ATACO delivered to the Bureau of Public Works, and the latter accepted, asphalt to the
total value of P431,466.52. Of this amount the Bank regularly collected, from April 21, 1948 to
November 18, 1948, P106,382.01. Thereafter, for unexplained reasons, the Bank ceased to collect,
until in 1952 its investigators found that more moneys were payable to ATACO from the Public
Works office, because the latter had allowed mother creditor to collect funds due to ATACO under
the same purchase order to a total of P311,230.41.

Its demands on the principal debtor and the Surety having been refused, the Bank sued both
in the Court of First Instance of Manila to recover the balance of P158,563.18 as of February 15,
1950, plus interests and costs.

The trial court rendered a decision in favor of PNB ordering ATACO and Manila Surety to
pay PNB. The Court of Appeals found the Bank to have been negligent in having stopped collecting
from the Bureau of Public Works the moneys falling due in favor of the principal debtor, ATACO,
from and after November 18, 1948, before the debt was fully collected, thereby allowing such funds
to be taken and exhausted by other creditors to the prejudice of the surety, and held that the Bank's
negligence resulted in exoneration of respondent Manila Surety & Fidelity Company.

The Bank contends the power of attorney obtained from ATACO was merely in additional
security in its favor, and that it was the duty of the surety, and not that of the creditor, owed see to it
that the obligor fulfills his obligation, and that the creditor owed the surety no duty of active
diligence to collect any, sum from the principal debtor.

Issue:

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Whether or not PNB, as an agent, exercised due diligence in collecting from the Bureau of
Public Works.

Ruling:

Yes. The Court of Appeals did not hold the Bank answerable for negligence in failing to
collect from the principal debtor but for its neglect in collecting the sums due to the debtor from the
Bureau of Public Works, contrary to its duty as holder of an exclusive and irrevocable power of
attorney to make such collections, since an agent is required to act with the care of a good father of
a family (Civ. Code, Art. 1887) and becomes liable for the damages which the principal may suffer
through his non-performance (Civ. Code, Art. 1884).

Certainly, the Bank could not expect that the Bank would diligently perform its duty under
its power of attorney, but because they could not have collected from the Bureau even if they had
attempted to do so. It must not be forgotten that the Bank's power to collect was expressly
made irrevocable, so that the Bureau of Public Works could very well refuse to make payments to
the principal debtor itself, and a fortiori reject any demands by the surety.

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Article 1884

Balcueva, Ira Colleen E.

GUTIERREZ HERMANOS v. ORIA HERMANOS & CO.


G.R. No. L-8346. March 30, 1915.
30 Phil. 491

Facts:

Counsel for the mercantile firm of Gutierrez Hermanos filed a written complaint in the
Court of First Instance of Manila against the commercial concern of Oria Hermanos & Co.
of Laoang, Samar, alleging therein as a cause of action that between plaintiff and defendant there
have existed commercial relations which gave rise to the opening of a mutual current account, at 8
percent interest, under the name of Oria Hermanos & Co., on the books of the plaintiff Gutierrez
Hermanos.

That on January 11, 1909, plaintiff transmitted to defendant an abstract of the latter's current
account on December 31, 1908, which showed a balance in plaintiff's favor of P144,473.78 and
which was approved by defendant, Oria Hermanos & Co., by a letter of March 9, 1909, which was
copied literally in the complaint; that, on May 25, 1909, plaintiff notified defendant that the current
account existing between them would be closed at the end of thirty days counting from that date, at
the expiration of which period defendant should pay any debit balance that might be owing.

On June 30 of the same year, Gutierrez Hermanos transmitted to the defendant, Oria
Hermanos & Co., the statement of the latter's current account up to that date and, confirming its
previous letter to the defendant of May 25, 1909, called attention to the necessity of paying the
balance, which then amounted to P147,204.28;

The defendant firm, notwithstanding the said demands and others subsequently made, and
without having made any objection whatever to the said statement of account, refused to pay the
principal and interest owing on the said account. Plaintiff's counsel therefore prayed that Oria
Hermanos and Co. be sentenced to pay the sum of P147,204.28, besides the interest thereon at the
rate of 8 per cent annum from June 30, 1909, and the costs.

Defendant filed its answer on November 9, 1909, setting up four cross complaints and six
counterclaims against the plaintiff, Gutierrez Hermanos, and specifically denied such of the
allegations of the complaint as were not in agreement with its answer.

In its third counterclaim it is alleged that, on May 18, 1900, the firm of Gutierrez Hermanos,
complying with orders from Oria Hermanos, & Co., insured against all war risks, in a certain
insurance company of London, England, whose agent in the Philippine Islands was Stevenson &
Co., the stock of hemp which the defendant company had in the pueblo of Catarman, Samar, for
3,000 pounds sterling, and paid the premiums thereon at the rate of 10 per cent per quarter; that,
during the first quarter for which the premiums had been so paid, all the insured tobacco belonging
to Oria Hermanos & Co., in Catarman, was stolen by the insurgent forces; that then the underwriter

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refused to pay the amount of the insurance on the ground that Gutierrez Hermanos had made out
the said insurance defectively wherefore Oria Hermanos & Co. ordered its agent Gutierrez
Hermanos to institute proceedings before the courts of these Islands for the collection of the
amount of the said insurance; but that plaintiff instead brought suit for the purpose before the
courts of England and by its negligence, indolence, and carelessness had, during a period of eight
years, obliged the defendant firm to incur costly expenditures which, added to the amount of the
insurance premiums paid, attorney's fees, costs, interest, etc., aggregated P67,000; that for this sum,
together with legal interests thereon, it prayed that it be reimbursed by Gutierrez Hermanos.

Issue:

Whether or not there is a reason nor legal ground whereby plaintiff should be compelled to
pay the sum demanded in the third counterclaim for the causes stated therein.

Held:

No. In a letter of May 10, 1900, addressed by Oria Hermanos & Co. to Gutierrez Hermanos,
the former commissioned the latter to try to insure against war risks some 1,400 piculs of hemp that
Oria Hermanos and Co. had in the pueblo of Catarman which had been evacuated by the American
troops. . Gutierrez Hermanos had Stevenson and Co., of Manila, cable to the latter's head office in
London for the desired insurance, and as soon as it was obtained Gutierrez Hermanos wrote to Oria
Hermanos & Co. informing defendant that plaintiff had insured against war risks 1,400 piculs of
hemp deposited in the Delgado warehouse in Catarman, for three months from the 18th of May,
1900.

The firm of Gutierrez Hermanos merely complied with the orders of Oria Hermanos & Co.
to insure the stock of hemp in Cataraman, with an insurance company established in London,
through Stevenson and Co. of Manila, in view of the fact that there was no insurance company in
this city which would issue policies against war risks.

So that firm of Gutierrez Hermanos was a mere conductor through which the stock of
hemp in Catarman was insured by a firm in London through mediation of Messrs. Stevenson and
Co., for the firm of Oria Hermanos and Co. had to grant a power of attorney on behalf of the said
Messrs. Horsley, Kibble and Co. in order that the latter might represent the former before the courts
in England. If afterwards the representatives of Oria Hermanos and Co. did not obtain a favorable
decision in those courts, the loss of the suit cannot be ascribed to either the fault or the negligence
of Gutierrez Hermanos, inasmuch as this plaintiff merely complied with the orders of the defendant,
Oria Hermanos and Co., to bring suit in the English courts, not against Stevenson and Co. of these
Islands, but against the insurance company of London.

The firm of Gutierrez Hermanos, in executing orders and charges of Oria Hermanos and
Co., became, by virtue of an implied agency, an agent of the latter and, in the fulfillment of the
orders of the principal, adjusted its action to the instructions of Oria Hermanos & Co. The record
does not show that in so doing it proceeded with negligence or with deceit. Therefore there is no
reason nor legal ground whereby plaintiff should be compelled to pay the sum demanded in the
third counterclaim for the causes therein stated. (Arts. 1710, 1719 and 1726 of the Code.)
Consequently Gutierrez Hermanos should be absolved from the third counterclaim filed by
defendant.
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Article 1891

Calimlim, Jeninah A.

VICENTE DOMINGO, represented by his heirs, ANTONIA RAYMUNDO VDA. DE


DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and
JOSELITO, all surnamed DOMINGO v. GREGORIO DOMINGO
G.R. No. L-30573. October 29, 1971.
42 SCRA 131

Facts:

Vicente Domingo granted Gregorio Domingo, a real estate broker, the exclusive agency to
sell the formers lot in Piedad Estate for P176,954. Gregorio would get a commission of 5% on the
total price, if the lot is sold by Vicente or by anyone else during the 30-day duration of the agency or
if the property is sold by Vicente within three months from the termination of the agency to a
purchaser to whom it was submitted by Gregorio during the continuance of the agency with notice
to Vicente. Gregorio authorized Teofilo Purisima to look for a buyer, promising him one-half of the
5% commission. Thereafter, Teofilo introduced Oscar de Leon to Gregorio as a prospective buyer.

After several conferences between Gregorio and Oscar, the latter raised his offer to
P109,000 to which Vicente agreed. Upon demand of Vicente, Oscar issued to him a check in the
amount of P1,000 as earnest money, after which Vicente advanced to Gregorio the sum of P300.
Oscar Vicente then asked for an additional amount of P1,000.00 as earnest money, which Oscar
promised to deliver to him. It was agreed upon by the parties that Oscar will vacate his house and
lot at Denver Street, Quezon City which is part of the purchase price.

Oscar gave Gregorio as a gift or propina the sum of P1,000 for succeeding in persuading
Vicente to sell his lot at P109,000. This gift was not disclosed by Gregorio to Vicente. Neither did
Oscar pay Vicente the additional amount of P1,000 by way of earnest money.

However, the deed of sale was not executed because Oscar could not allegedly pay, therefor
giving up the negotiation including the amounts given to Vicente as earnest money and to Gregorio
as propina or gift. Gregorio went to Vicente and read a portion of their contract to the effect that
Vicente was still committed to pay him 5% commission, if the sale is consummated within three
months after the expiration of the 30-day period of the exclusive agency in his favor from the
execution of the agency contract to a purchaser brought by Gregorio to Vicente during the said 30-
day period. Nonetheless, Vicente tore the original copy of the contract to pieces. Gregorio remained
silent, not wanting to antagonize Vicente further, because he had still the duplicate of the contract.

Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he
discovered a deed of sale executed by Amparo Diaz, wife of Oscar, over their house and lot at
Denver Street, Cubao, Quezon City, in favor of Vicente as down payment by Oscar on the purchase
price of Vicentes lot. Upon learning this, Gregorio demanded payment of his commission.
However, Vicente stated that Gregorio is not entitled to the 5% commission because he sold the
property not to Gregorios buyer, Oscar, but to another buyer, Amparo, Oscars wife.

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The trial court ordered Vicente to pay Gregorio and Teofilo. The Special Division of Five of
the CA affirmed the decision of the trial court. Vicente, now deceased and represented by his heirs,
seeks the reversal of the decision of the CA.

Issue:

Whether the failure on the part of Gregorio to disclose to Vicente the payment to him by
Oscar de Leon of the amount of P1,000 as gift or propina for having persuaded Vicente to reduce
the purchase price so constitutes fraud as to cause a forfeiture of his 5% commission on the sale
price.

Ruling:

The duties and liabilities of a broker to his employer are essentially those which an agent
owes to his principal. Consequently, the decisive legal provisions are found in Articles 1891 and
1909 of the New Civil Code. The aforecited provisions demand the utmost good faith, fidelity,
honesty, candor and fairness on the part of the agent, the real estate broker in this case, to his
principal, the vendor. The law imposes upon the agent the absolute obligation to make a full
disclosure or complete account to his principal of all his transactions and other material facts
relevant to the agency, so much so that the law as amended does not countenance any stipulation
exempting the agent from such an obligation and considers such an exemption as void. The duly of
an agent is likened to that of a trustee. This is not a technical or arbitrary rule but a rule founded on
the highest and truest principle of morality as well as of the strictest justice.

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal
benefit from the vendee, without revealing the same to his principal, the vendor, is guilty of a breach
of his loyalty to the principal and forfeits his right to collect the commission from his principal, even
if the principal does not suffer any injury by reason of such breach of fidelity, or that he obtained
better results or that the agency is a gratuitous one, or that usage or custom allows it, because the
rule is to prevent the possibility of any wrong, not to remedy or repair an actual damage.

An agent is likewise liable for estafa for failure to deliver to his principal the total amount
collected by him in behalf of his principal and cannot retain the commission pertaining to him by
subtracting the same from his collections.

The duty embodied in Article 1891 will not apply if the agent or broker acted only as a
middleman with the task of merely bringing together the vendor and vendee, who themselves
thereafter will negotiate on the terms and conditions of the transaction. Neither would the rule apply
if the agent or broker had informed the principal of the gift or bonus or profit he received from the
purchaser and his principal did not object thereto. Here, Gregorio was not merely a middleman of
Vicente and the buyer Oscar. He was the broker and agent of Vicente only. And Vicente was not
aware of the gift of P1,000 received by Gregorio form the prospective buyer; much less did he
consent to his agents accepting such a gift.

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Calimlim, Jeninah A.

GUILLERMO AUSTRIA v. THE COURT OF APPEALS,


PACIFICO ABAD and MARIA ABAD
G.R. No. L-29640. June 10, 1971.
39 SCRA 527

Facts:

Guillermo Austria and Maria Abad entered into contract of agency, wherein Abad received
from Austria one pendant with diamonds valued at P4,500, to be sold on commission basis or to be
returned on demand. However while walking home to her residence in Mandaluyong, Rizal, Abad
was allegedly robbed by two men of her purse containing jewelry and cash. Among the pieces of
jewelry allegedly taken was the pendant. The incident became the subject of a criminal case against
certain persons.

As Abad failed to return the jewelry or pay for its value despite demands, Austria brought in
the then CFI of Manila an action against her and her husband, Pacifico, for recovery of the pendant
or of its value, and damages. The trial court rendered judgment for Austria.

The CA, however, reversed the finding of the trial court, by declaring the spouses not
responsible for the loss of the jewelry on account of the robbery or a fortuitous event. Hence,
Austria brought this present petition for review. Austria now contends that for robbery to fall under
the category of a fortuitous event and relieve the obligor from is obligation under a contract,
pursuant to Article 1174 of the new Civil Code, there ought to be prior finding on the guilt of the
persons responsible there for.

Issue:

Whether in a contract of agency (consignment of goods for sale) it is necessary that there be
prior conviction for robbery before the loss of the article shall exempt the consignee from liability
for such loss.

Ruling:

No. To avail of the exemption granted in the Article 1174 of the new Civil Code, it is not
necessary that the persons responsible for the occurrence should be found or punished; it would
only be sufficient to establish that the unforeseeable event, the robbery in this case, did take place
without any concurrent fault or negligence on the debtors part, and this can be done by
preponderant evidence. This is also apparent from Article 1170 of the same Code. To require the
prior conviction of the culprits in the criminal case, in order to establish the robbery as a fact, would
be to demand proof beyond reasonable doubt to prove a fact in a civil case.

With the high incidence of crimes in the City of Manila, which renders travel after nightfall a
matter to be avoided without suitable precaution and protection, the conduct of Abad, in returning
alone to her house in the evening, carrying jewelry of considerable value, would be negligent per se,
and would not exempt her from responsibility in the case of a robbery. However, the same rule did

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not obtain ten years ago when the robbery in question did take place, for at that time criminality had
not by far reached the levels attained in the present day.

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Article 1891

Dela Cruz, Eileen Eika M.

MUNICIPAL COUNCIL OF ILOILO v. EVANGELISTA


G.R. No. L-32977. November 17, 1930.
55 Phil. 290

Facts:

March 20, 1924: Court of First Instance of Iloilo rendered judgment in civil case No. 3514
thereof, wherein the appellant herein, Tan Ong Sze Vda. de Tan Toco was the plaintiff, and the
municipality of Iloilo the defendant, and the former sought to recover of the latter the value of a
strip of land belonging to said plaintiff taken by the defendant to widen a public street.

The judgment entitled the plaintiff to recover Php 42,966.40 representing the value of said
strip of land from the municipality of Iloilo. On appeal to the SC, judgment was affirmed.

After the case was remanded to the court of origin and the judgment rendered therein
had become final and executory. Attorney Jose Evangelista in his own behalf and as counsel for the
administratix of Jose Ma. Arroyos intestate estate filed a claim in the said case for professional
services rendered by him, which the court acting with the consent of the appellant widow, fixed
at 15% of the amount of the judgment.

At the hearing on said claim, the claimants appeared, as did also the Philippine National
Bank, which prayed that the amount of the judgment be turned over to it because the land taken
over had been mortgaged to it.

Antero Soriano also appeared claiming the amount of the judgment as it had been assigned
to him ,and by him, in turn, assigned to Mauricio Cruz & Co., Inc.

After hearing, all the adverse claims on the amount of the judgment, the court ordered that
the attorneys lien in the amount of 15% of the judgment be recorded in favor of Attorney
Evangelista in his own behalf and counsel for the administratix of the deceased Jose Ma. Arroyo and
directed the Municipality of Iloilo to file an action of interpleading against the adverse claimants: the
PNB, Antero Soriano, Mauricio Cruz & Co., Jose Evangelista and Jose Arroyo.

March 29, 1928: with the approval of the auditor of the provincial treasurer of Iloilo and
with the Executive Bureau paid the late Antero Soriano the amount of Php 6,000.00 in part payment
of the judgment mentioned above assigned to him by Tan Boon Tiong acting as attorney-in-fact of
the appellant herein, Tan Ong Sze Vda. de Tan Toco.

December 18, 1928: the municipal treasurer of Iloilo deposited with the clerk of the Court
of First Instance of Iloilo the amount of Php 6,000.00 on account of the judgment rendered in said
civil case no. 3514.

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In pursuance of the resolution of the court below ordering that the attorneys lien in the
amount of15% of the judgment be recorded in favor of Attorney Jose Evangelista. In his own
behalf and as a counsel for the late Jose Ma. Arroyo, the said clerk of court delivered on the same
date to said Attorney Evangelista the said amount of Php 6,000.00.

With these 2 payments of Php 6,000.00 each making a total of Php 12,000.00 , the
judgment for Php 42,966.44 against the Municipality of Iloilo was reduced to Php 30,966.40 which
was adjudicated by said court to Maurice Cruz & Co. This appeal, then is confined to the claim of
Mauricio Cruz & Co. as alleged assignee of the rights of the late Soriano by virtue of the
said judgment in payment of professional services rendered by him to the said widow and her co-
heirs.

Issue:

1. Whether or not the ssignment made by Tan Buntiong, as attorney-in-fact of Tan Ong Sze Vda.
De Tan Toco to Atty. Soriano, of all the credits, rights and interests belonging to Tan Ong
Sze Vda. de Tan Toco in the amount of P42,966.40, plus the costs of court against municipal
council of Iloilo, inconsideration of the professional services rendered by Soriano to the widow
is valid?

2. Whether or not the other attorney-in-facts, Tan Montanos, consent is required to validate
the acts of the other attorney-in-fact, Tan Butiong, who assigned the amount as payment to
Soriano?
Held:

1. VALID
Tan Boon Tiong is authorized to employ and contract for the services of lawyers upon such
conditions as he may deem convenient, to take charge of any actions necessary or expedient for the
interests of his principal, and to defend suits brought against her. This power necessarily implies the
authority to pay for the professional services thus engaged. In the present case, the assignment made
by Tan Boon Tiong, as Attorney-in-fact for the appellant, in favor of Attorney Antero Soriano
for professional services rendered in other cases in the interests of the appellant and her coheirs, was
that credit which she had against the municipality of Iloilo, and such assignment was equivalent to
the payment of the amount of said credit to Antero Soriano for professional services.

2. No
With regard to the failure of the other attorney-in-fact of the appellant, Tan Montano,
authorized by Tan Toco, to consent to the deed of assignment, the latter being also authorized to
pay, in the name and behalf of the principal, all her debts and the liens and encumbrances her
property, the very fact that different letters of attorney were given to each of these two
representatives shows that it was not the principal's intention that they should act jointly in order to
make their acts valid.

When two letters of attorney are issued simultaneously to two different attorneys-in-fact,
but covering the same powers shows that it was not the principals intention that they should act

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jointly in order to make their acts valid; the separate act of one of the attorney-in-fact, even when
not consented to by the other attorney-in-fact, is a valid and binding on the principal, especially the
principal did not only repudiate the act done, but continued to retain the said attorney-in-fact.

By virtue whereof, and finding no error in the judgment appealed from, the same is affirmed in its
entirety, with costs against the appellant. So ordered.

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Article 1909

Dela Cruz, Eileen Eika M.

VALERA v. VELASCO
G.R. No. L-28050. March 13, 1928.
51 Phil. 695

Facts:

Federico Valera filed an action against Miguel Velasco which was dismissed by the CFI for
the lack of cause of action. Miguel Velasco was appointed as the agent of Federico Valera and was
authorized to manage the business of the latter in the Philippines, consisting the usufruct of a real
property in Echague Manila which Velasco accepted.

On March 31, 1923, when Velasco rendered his final account of administration, a balance
of 3,058 appears in favor of Valera but when the accounts were liquidated, Valera ended up owing
1,100 to Velasco.

A misunderstanding ensued which resulted in Velasco filing a civil action against Valera.
Judgment was rendered in favor of Velasco on March 28, 1923 and a writ of execution was issued.
The property was levied upon and was sold in a public auction with the proceeds adjudicated to
Velasco.

Subsequently, Valera sold the right of redemption to one Eduardo Hernandez and after
recovery of the same, the right of redemption was auctioned in execution of a judgment in favor of
one Salvador Vallejo, who also bought it at the auction. Vallejo later on transferred the right to
Velasco.

Issue:

Whether or not the agency was terminated by implied repudiation of Velasco?

Held:

YES. Under 1732(now 1919), an agency is terminated by the withdrawal of the agent. The
defendant filing a suit against his principal is more than enough to prove a breach of the juridical
relation between them. Neither dignity nor decorum permits the agent to continue representing a
person who has adopted such antogonistic attitude towards him. At that time, Velasco ceased to be
the agent of Valera ipso facto and therefore the purchase of Valeras right of usufruct at the public
auction is valid and legal.

VALERA VELASCO Renunciation of an agent does not terminate the agency. There is no
implied renunciation in the filing of a civil action by the agent against the principal. The agency is
already terminated. The purchase of the land made in Velascos name is for himself and not for
Valera.

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Agency is terminated: 1. By revocation; 2. By the withdrawal of the agent; 3. By the death,


interdiction, bankruptcy, or insolvency of the principal or of the agent. NCC 1736. An agent may
withdraw from the agency by giving notice to the principal. Should the latter suffer any damage
through the withdrawal, the agent must indemnify him therefore, unless the agent's reason for his
withdrawal should be the impossibility of continuing to act as such without serious detriment to
himself.

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OBLIGATIONS OF PRINCIPALS (ARTICLES 1910-1918)

Articles 1910-1911

Dy, Czara Loraine F.

PHILIPPINE NATIONAL BANK v. ESTANISLAO PALMA GIL, ET AL.


G.R. No. L-33796. February 17, 1931.
55 Phil. 639

Facts:

Estanislao Palma Gil is a proprietor who resides in Davao. He has a daughter named Leonila
Palma Gil, who married to Alejandro Iigo. Estanislao executed a general power of attorney in favor
of his son-in-law, authorizing Alejandro, among others, to obtain loans upon the security of real or
personal property, with interest and under the terms and conditions which he thinks beneficial.
Alejandro was able to obtain credit for himself personally from the Philippine National Bank
(PNB) for a number of years. Also, two mortgages were executed on February 11, 1919, which were
noted as encumbrances affecting properties of the ownership of Estanislao, and signed Estanislao
Palma Gil, By: A. Iigo, as attorney, and also, as husband of the other debtor, Leonila Palma Gil de
Iigo, Mortgage Debtors. In these two mortgages Estanislao and Leonila were named as
mortgagors and PNB as mortgagee.

A third mortgage of property owned by Estanislao was executed, where the mortgagor was
Alejandro and the mortgagee was PNB. This time, there is no recital as to Alejandros capacity in
mortgaging. As before indicated, this last mortgage was signed " Estanislao Palma Gil, By: A. Iigo."
This mortgage was not noted on the title of Estanislao Palma Gil.

On January 7, 1926, a renewal promissory note payable 30 days after date, calling for the
amount of P26,760, with interest at the rate of 12% per annum from date and with a 10% fee for
collection expenses, was taken by PNB. As before indicated, the note was signed "Estanislao Palma
Gil, By: A. Iigo, A. Iigo." Payments of the interest were made up to the 29th of November, 1926.

Now, PNB seeks to recover from Estanislao Palma Gil and Leonila Palma Gil the sum of
P26,760, with accumulated interest, and attorney's fees, evidenced by the promissory note, and in its
default, to foreclose the three mortgages. It prosecuted its action successfully in the Court of First
Instance of Davao. Hence, this appeal.

Issue:

Whether or not the Alejandro as an agent has bound Estanislao in mortgaging the latters properties.

Held:

The answer must be qualified. For the promissory note and the first two mortgages, these
were executed by Alejandro for Estanislao by virtue power of attorney authorizing Alejandro in such

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business dealings. Such as the case, the principal must fulfill the obligations contracted by the agent
within the scope of his authority. This two mortgages contained descriptive recitals indicative of the
fact that Alejandro was acting in representation of Estanislao.

However, as to the third mortgage, it mortgage was executed by Alejandro personally.


Besides, while the property mortgaged was not the property of Alejandro, there was to be found in
the mortgage absolutely no descriptive recitals indicative of the fact that he was acting in
representation of Estanislao. Inasmuch as the mortgagor has no title at all to the property, the
mortgage is void and it neither bound the principal.

As to Leonila, she did not sign the promissory note, and while she did sign the two
mortgages, this seems to have been merely a precautionary measure, for the certificates of title to the
property mortgaged stand in the name of Estanislao.

Hence, the Court ordered the first two mortgages to be sold and defendants to pay PNB the
sum of P26,760, with accumulated interest, and attorney's fees.

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EXTINGUISHMENT OF AGENCY (ARTICLES 1919-1932)

Articles 1920-1927

Dy, Czara Loraine F.

FLORENTINO RALLOS, ET AL. v. TEODORO R. YANGCO


G.R. No. 6906. September 27, 1911.
20 Phil. 269

Facts:

Teodoro Yangco sent a letter to the plaintiff Florentino Rallos containing an offer regarding
the opening of his steamship office at No. 163 Muelle de la Reina, Binondo, Manila, P. I., a shipping
and commission department for buying and selling leaf tobacco and other native products under
certain conditions.

Accepting this invitation, Rallos, et.al, proceeded to do a considerable business with the
Yangco through the Collantes, as his factor, sending to him as agent a good deal of produce to be
sold on commission. Later, and in the month of February, 1909, the Rallos, et.al., sent to Collantes,
as agent for Yangco, 218 bundles of tobacco in the leaf to be sold on commission, as had been other
produce previously. Collantes received said tobacco and sold it for the sum of P1,744. The charges
for such sale were P206.96, leaving in the hands of Collantes the sum of P1,537.08 belonging to the
Rallos, et. al. This sum was, apparently, converted to the own use by said agent.

It appears, however, that prior to the sending of said tobacco the Yangco had severed his
relations with Collantes and that the latter was no longer acting as his factor. This fact was not
known to Rallos, et.al; and it is conceded in the case that no notice of any kind was given by Yangco
to Rallos, et.al of the termination of the relations between the defendant and his agent. Yangco
refused to pay the said sum upon demand of Rallos, et.al, placing such refusal upon the ground that
at the time the said tobacco was received and sold by Collantes he was acting personally and not as
agent of the defendant. Hence, this action was brought to recover said sum.

Issue:

Whether or not the plaintiffs, acting in good faith and without knowledge, having sent
produce to sell on commission to the former agent of the defendant, can recover of the defendant
under the circumstances above set forth.

Held:

Yes. Having advertised the fact that Collantes was his agent and having given them a special
invitation to deal with such agent, it was the duty of Yangco on the termination of the relationship
of principal and agent to give due and timely notice thereof to the plaintiffs. Failing to do so, he is
responsible to them for whatever goods may have been in good faith and without negligence sent to
the agent without knowledge, actual or constructive, of the termination of such relationship.

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For these reasons the judgment appealed from is confirmed, without special finding as to
costs.

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Evangelista, Kevin B.

DY BUNCIO & COMPANY INC. v. ONG GUAN CAN, ET AL.


G.R. No. L-40681. October 2, 1934.
60 Phil. 696

Facts:

This is a suit over a rice-mill and camarin situated at Dao, Province of Capiz. Plaintiff claims
that the property belongs to its judgment debtor, Ong Guan Can, while defendants Juan Tong and
Pua Giok Eng are claiming to be the owner and lessee by virtue of a deed dated July 31, 1931, by
Ong Guan Can, Jr. After trial the Court of First Instance of Capiz held that the deed was invalid and
that the property was subject to the execution which has been levied on said properties by the
judgment creditor of the owner. Defendants Juan Tong and Pua Giok bring this appeal and insist
that the deed of the 31st of July, 1931, is valid.

The first recital of the deed is that Ong Guan Can Jr., as agent of Ong Guan Can, sells the
rice-mill and camarin for P13,000 and gives as his authority the power of attorney dated the 23d of
May, 1928. The receipt of the money acknowledged in the deed was to the agent, and the deed was
signed by the agent in his own name and without any words indicating that he was signing it for the
principal. Leaving aside the irregularities of the deed and coming to the power of attorney referred
to in the deed and registered therewith, it is at once seen that it is not a general power of attorney
but a limited one and does not give the express power to alienate the properties in question.

Issue:

Whether or not the deed of sale executed by Ong Guan Can Jr. was valid.

Ruling:

NO. Appellants claim that this defect is cured by Exhibit 1, which purports to be a general
power of attorney given to the same agent in 1920. Article 1732 of the Civil Code is silent over the
partial termination of an agency. The making and accepting of a new power of attorney, whether it
enlarges or decreases the power of the agent under a prior power of attorney, must be held to
supplant and revoke the latter when the two are inconsistent. If the new appointment with limited
powers does not revoke the general power of attorney, the execution of the second power of
attorney would be a mere futile gesture.

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Articles 1930-1932

Evangelista, Kevin B.

ENRIQUE M. PASNO v. FORTUNATA RAVINA and PONCIANA RAVINA,


PHILIPPINE NATIONAL BANK
G.R. No. L-31581. February 3, 1930.
54 Phil. 378

Facts:

Gabina Labitoria during her lifetime mortgaged three parcels of land to PNB to secure an
indebtedness of P1,600. It was stipulated in the mortgage that the mortgagee may remove, sell or
dispose of the mortgaged property or any buildings, improvements or other property in, on or
attached to it and belonging to the mortgagor in accordance with the provisions of Act No. 3135 or
take other legal action that it may deem necessary." When Gabina died, a special administrator was
appointed by the lower court who took possession of the estate of the deceased, including the three
parcels of land mortgaged to the PNB. The estate of Gabina failed to comply with the conditions of
the mortgage therefore PNB asked the sheriff to proceed with the sale of the subject parcels of land.
When the special administrator received notice about this, he filed a motion in court praying that the
sale of the lands be discontinued. The lower court granted this motion.

Issue:

Whether or not PNB can foreclose the subject properties despite the death of the
mortgagor.

Ruling:

YES. The mortgage makes special reference to Act No. 3135. That Act is one to regulate the
sale of property under special powers inserted in or annexed to real-estate mortgages. It fails to
make provision regarding the sale of mortgaged property which is in custodia legis ... The appellant
practically concedes that the law applicable to the case is section 708 of the Code of Civil Procedure.
In a nutshell, section 708 provides that a creditor holding a claim against the deceased has two
remedies: 1) he may abandon the security and share in the general distribution of the assets of the
estate, or 2) he may foreclose the mortgage by ordinary legal action and making the special
administrator as party defendant. In the case at bar, PNB opted for the second remedy which is to
foreclose.

The power of sale given in a mortgage is a power coupled with an interest which survives the
death of the grantor. One case, that of Carter vs. Slocomb ([1898], 122 N. C., 475), has gone so far
as to hold that a sale after the death of the mortgagor is valid without notice to the heirs of the
mortgagor. However that may be, conceding that the power of sale is not revoked by the death of
the mortgagor, nevertheless in view of the silence of Act No. 3135 and in view of what is found in
section 708 of the Code of Civil Procedure, it would be preferable to reach the conclusion that the
mortgagee with a power of sale should be made to foreclose the mortgage in conformity with the

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procedure pointed out in section 708 of the Code of Civil Procedure. That would safeguard the
interests of the estate by putting the estate on notice while it would not jeopardize any rights of the
mortgagee. The only result is to suspend temporarily the power to sell so as not to interfere with the
orderly administration of the estate of a decedent. A contrary holding would be inconsistent with the
portion of our law governing the settlement of estates of deceased persons.

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Gonzalez, Jed Nathaniel M.

HERRERA v. LUY KIM GUAN


G.R. No. L-17043. January 31, 1961.
1 SCRA 406

Facts:

Natividad Herrera was the legitimate daughter of deceased Luis Herrera. Luis was the owner
of 3 parcels of land. Luis had to leave for China, so he executed a General Power of Attorney
authorizing Luy Kim Guan to dispose of his properties. The lots were successfully sold by the
defendant, but a portion of it was retained by him.

Herrera alleges that the General Power of Attorney was executed after the death of Luis
Herrera, and were executed through fraudulent means.

Issue:

Whether or not the death of the principal extinguishes agency.

Ruling:

NO, it does not.

The contention that the transactions are null and void and of no effect because they were
executed by the attorney-in-fact after the death of his principal, the date of death of Luis Herrera has
not been satisfactorily proven. The only evidence presented by the plaintiff-appellant in this respect
is a supposed letter received from a certain "Candi", dated at Amoy in November, 1936, purporting
to give information that Luis Herrera (without mentioning his name) had died in August of that
year.

This piece of evidence was properly rejected by the lower court for lack of identification. On
the other hand, we have the testimony of the witness Lu Chung Lian to the effect that when he was
in Amoy in the year 1940, Luis Herrera visited him and had a conversation with him, showing that
the latter was still alive at the time. Since the documents had been executed by the attorney-in-fact
one in 1937 and other in 1939, it is evident, if we are to believe this testimony, that the documents
were executed during the lifetime of the principal. Be that as it may, even granting arguendo that Luis
Herrera did die in 1936, plaintiffs presented no proof and there is no indication in the record, that
the agent Luy Kim Guan was aware of the death of his principal at the time he sold the property.

The death of the principal does not render the act of an agent unenforceable, where the
latter had no knowledge of such extinguishment of the agency.

Judgment affirmed.

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GONZALEZ, Jed Nathaniel M.

RALLOS v. FELIX GO CHAN & SON REALTY CORPORATION


G.R. No.L-24332. January 31, 1978.
81 SCRA 251

Facts:

Concepcion and Gerundia Rallos, sisters and owners of a parcel of land, executed a special
power of attorney authorizing their brother, Simeon Rallos, to dispose of the property. Concepcion
died shortly thereafter, and the undivided share of the sisters were sold by Ramon to Felix Go Chan
& Sons.

Ramon Rallos, administrator of the estate, filed a complaint praying for the nullification of
the certificate of title issued to Felix Go Chan & Sons, and that the sale be rendered unenforceable.

Issue:

Whether or not 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?

Ruling:

YES, it does.

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 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.

By reason of the very nature of the relationship between principal and agent, agency is
extinguished by the death of the principal or of the agent. This is the law in this jurisdiction.

By way of exception, the act of the agent would remain enforceable provided that he had no
knowledge of the principals death at the time he did the act, as per Art. 1931 of the Civil Code. On
the basis of the established knowledge of Simeon Rallos concerning the death of his principal,
Concepcion Rallos, Art. 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.

Judgment set aside. Trial court decision reinstated.

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PART III: TRUSTS

FUNDAMENTAL CONCEPTS (ARTICLES 1440-1442)

Article 1440

Hernandez, Chad Jorel V.

SALAO v. SALAO
G.R. No. L-26699. March 16, 1976.
70 SCRA 65

Facts:

The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit, Malabon, Rizal begot
four children named Patricio, Alejandra, Juan (Banli) and Ambrosia. Manuel Salao died in 1885. His
eldest son, Patricio, died in 1886 survived by his only child. Valentin Salao.

There is no documentary evidence as to what, properties formed part of Manuel Salao's


estate, if any. His widow died on May 28, 1914. After her death, her estate was administered by her
daughter Ambrosia. It was partitioned extrajudicially in a deed dated December 29, 1918 but
notarized on May 22, 1919. The deed was signed by her four legal heirs, namely, her three children,
Alejandra, Juan and Ambrosia, and her grandson, Valentin Salao, in representation of his deceased
father, Patricio.

To each of the legal heirs of Valentina Ignacio was adjudicated a distributive share valued at
P8,135.25. In satisfaction of his distributive share, Valentin Salao (who was then already forty-eight
years old) was given the biggest fishpond with an area of 50,469 square meters, a smaller fishpond
with an area of 6,989 square meters and the riceland with a net area of 9,905 square meters. Those
parcels of land had an aggregate appraised value of P13,501 which exceeded Valentin's distributive
share. So in the deed of partition he was directed to pay to his co-heirs the sum of P5,365.75. That
arrangement, which was obviously intended to avoid the fragmentation of the lands, was beneficial
to Valentin.

It was expressly stipulated that Ambrosia Salao was not obligated to render any accounting
of her administration. The documentary evidence proves that in 1911 or prior to the death of
Valentina Ignacio her two children, Juan Y. Salao, Sr. and Ambrosia Salao, secured a Torrens title,
OCT No. 185 of the Registry of Deeds of Pampanga, in their names for a forty-seven-hectare
fishpond located at Sitio Calunuran, Lubao, Pampanga. It is also known as Lot No. 540 of the
Hermosa cadastre because that part of Lubao later became a part of Bataan.

The lawyer of Benita Salao and the Children of Victorina Salao in a letter dated January 26,
1951 informed Juan S. Salao, Jr. that his clients had a one-third share in the two fishponds and that
when Juani took possession thereof in 1945, in which he refused to give Benita and Victorinas

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children their one-third share of the net fruits which allegedly amounted to P200,000. However,
there was no mention on the deeds as to the share of Valentin and Alejandra.

Juan S. Salao, Jr. in his answer dated February 6, 1951 categorically stated that Valentin Salao
did not have any interest in the two fishponds and that the sole owners thereof his father Banli and
his aunt Ambrosia, as shown in the Torrens titles issued in 1911 and 1917, and that he Juani was the
donee of Ambrosias one-half share. Benita Salao and her nephews and niece asked for the
annulment of the donation to Juan S. Salao, Jr. and for the reconveyance to them of the Calunuran
fishpond as Valentin Salaos supposed one-third share in the 145 hectares of fishpond registered in
the names of Juan Y. Salao, Sr. and Ambrosia Salao.

Issue:

Whether or not the Calunuran fishpond was held in trust for Valentin Salao by Juan Y.
Salao, Sr. and Ambrosia Salao?

Held:

No. Trusts are either express or implied. Express trusts are created by the intention of the
trustor or of the parties. Implied trusts come into being by operation of law" (Art. 1441, Civil Code).
No express trusts concerning an immovable or any interest therein may be proven by parol
evidence. An implied trust may be proven by oral evidence.

Not a scintilla of documentary evidence was presented by the plaintiffs to prove that there
was an express trust over the Calunuran fishpond in favor of Valentin Salao. Purely parol evidence
was offered by them to prove the alleged trust. Their claim that in the oral partition in 1919 of the
two fishponds the Calunuran fishpond was assigned to Valentin Salao is legally untenable. It is
legally indefensible because the terms of article 1443 of the Civil Code are peremptory and
unmistakable. Parol evidence cannot be used to prove an express trust concerning realty.

Plaintiffs' pleadings and evidence cannot be relied upon to prove an implied trust. The trial
court's firm conclusion that there was no community of property during the lifetime of Valentina;
Ignacio or before 1914 is substantiated by defendants' documentary evidence. The existence of the
alleged co-ownership over the lands supposedly inherited from Manuel Salao in 1885 is the basis of
plaintiffs' contention that the Calunuran fishpond was held in trust for Valentin Salao. The plaintiffs
utterly failed to prove by clear, satisfactory and convincing evidence. It cannot rest on vague and
uncertain evidence or on loose, equivocal or indefinite declarations.

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Article 1441

Hernandez, Chad Jorel V.

MINDANAO DEVELOPMENT AUTHORITY v. COURT OF APPEALS


G.R. No. L-49087. April 5, 1982.
64 Phil. 353

Facts:

It is not disputed that the respondent Francisco Ang Bansing was the owner of a big tract of
land with an area of about 300,000 sq.m., situated in Barrio Panacan Davao City. On February 25,
1939, Ang Bansing sold a portion thereof, with an area of about 5 hectares to Juan Cruz Yap Chuy.

After the sale, the land of Ang Banging was surveyed and designated as Lot 664-B, Psd-
1638. Lot 664-B was further subdivided into five (5) lots and the portion sold to Juan Cruz Yap
Chuy shortened to Juan Cruz, was designated as Lot 664B-3, with an area of 61.107 square meters,
more or less. On June 15-17 and December 15, 1939, a cadastral survey was made and Lot 664-B-3
was designated as Lot 1846-C of the Davao Cadastre. On December 23, 1939, Juan Cruz sold Lot
1846-C to the Commonwealth of the Philippines for the amount of P6,347.50. On that same day,
Juan Cruz, as vendor, and C.B. Cam and Miguel N. Lansona as sureties, executed a surety bond in
favor of the vendee to guarantee the vendor's absolute title over the land sold.

On February 25, 1965, the President of the Philippines issued Proclamation No. 459,
transferring ownership of certain parcels of land situated in Sasa Davao City, to the Mindanao
Development Authority, now the Southern Philippines Development Administration, subject to
private rights, if any. Lot 1846-C, the disputed parcel of land, was among the parcels of land
transferred to the Mindanao Development Authority in said proclamation.

On March 31, 1969, Atty. Hector L. Bisnar counsel for the Mindanao Development
Authority, wrote Ang Bansing requesting the latter to surrender the Owner's duplicate copy of TCT
No. 2601 so that Lot 1846-C could be formally transferred to his client but Ang Bansing
refused. Consequently, on April 11, 1969, the Mindanao Development Authority filed a complaint
against Francisco Ang Bansing before the Court of First Instance of Davao City, docketed therein as
Civil Case No. 6480, for the reconveyance of the title over Lot 1846-C.

Issue:

Whether or not there was an express trust between Ang Bansing and Juan Cruz over Lot
1846-C of Davao Cadastre?

Held:

No. The petition is without merit. As found by the respondent Court of Appeals, no express
trust had been created between Ang Banging and Juan Cruz over Lot 1846-C of the Davao
Cadastre. "Trusts are either express or implied. Express trusts are created by the intention of the

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trustor or of the parties. Implied trusts come into being by operation of law." It is fundamental in
the law of trusts that certain requirements must exist before an express trust will be recognized.
Basically, these elements include a competent trustor and trustee, an ascertainable trust res, and
sufficiently certain beneficiaries.

Furthermore, there must be a present and complete disposition of the trust property,
notwithstanding that the enjoyment in the beneficiary will take place in the future. It is essential, too,
that the purpose be an active one to prevent trust from being executed into a legal estate or interest,
and one that is not in contravention of some prohibition of statute or rule of public policy. There
must also be some power of administration other than a mere duty to perform a contract although
the contract is for a third-party beneficiary. A declaration of terms is essential, and these must be
stated with reasonable certainty in order that the trustee may administer, and that the court, if called
upon so to do, may enforce, the trust."

In this case, the herein petitioner relies mainly upon the following stipulation in the deed of
sale executed by Ang Bansing in favor of Juan Cruz to prove that an express trust had been
established with Ang Bansing as the settlor and trustee and Juan Cruz as beneficiary.

In case of a declaration of trust, the declaration must be clear and unequivocal that the
owner holds property in trust for the purposes named.

While Ang Bansing had agreed in the deed of sale that he will work for the titling of "the
entire area of my land under my own expenses," it is not clear therefrom whether said statement
refers to the 30-hectare parcel of land or to that portion left to him after the sale. A failure on the
part of the settlor definitely to describe the subject-matter of the supposed trust or the beneficiaries
or object thereof is strong evidence that he intended no trust.

The intent to create a trust must be definite and particular. It must show a desire to pass
benefits through the medium of a trust, and not through some related or similar device. Clear and
unequivocal language is necessary to create a trust and mere precatory language and statements of
ambiguous nature, are not sufficient to establish a trust. As the Court stated in the case of De Leon vs.
Packson, a trust must be proven by clear, satisfactory and convincing evidence; it cannot rest on
vague and uncertain evidence or on loose, equivocal or indefinite declarations. Considering that the
trust intent has not been expressed with such clarity and definiteness, no express trust can be
deduced from the stipulation.

That no express trust had been agreed upon by Ang Bansing and Juan Cruz is evident from
the fact that Juan Cruz, the supposed beneficiary of the trust, never made any attempt to enforce the
alleged trust and require the trustee to transfer the title over Lot 1846-C in his name. Thus, the
records show that the deed of sale, covering Lot 1846-C, was executed by Ang Bansing in favor of
Juan Cruz on February 25, 1939. Two years later, or on March 31, 1941, Ang Bansing sold Lot 1846-
A to the said Juan Cruz for which TCT No. 1784 was issued in the name of Juan Cruz. Subsequently
thereafter, Lot 1848-A, with an area of 9.6508 hectares, and Lots 1846-A and 1848-B-2-D, all
subdivided portions of Lot 1846-B, were similarly conveyed to the said Juan Cruz for which TCT
No. 2599 and TCT No. 2600, respectively, were issued in the name of Juan Cruz on September 26,
1946. Then, another portion of 'Lot 1846-B, designated in the subdivision plan as Lot 1848-B-2-
13, was sold to Juan Cruz for which TCT No. 184 was issued in his name on November 28, 1948.
Despite these numerous transfers of portions of the original 30-hectare parcel of land of Ang
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Bansing to Juan Cruz and the issuance of certificates of title in the name of Juan Cruz, the latter
never sought the transfer of the title to Lot 1846-C in his name. For sure, if the parties had agreed
that Ang Bansing shall hold the property in trust for Juan Cruz until after the former shall have
obtained a certificate of title to the land, the latter would have asked for the reconveyance of the title
to him in view of the surety bond executed by him in favor of the Commonwealth Government
wherein he warrants his title over the property. The conduct of Juan Cruz is inconsistent with a trust
and may well have probative effect against a trust.

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Jumagdao, Chrismaire D.

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased v.


JUAN POSADAS, JR., Collector of Internal Revenue
G.R. No. L-43082. June 18, 1937.
64 Phil. 353

Art. 1441. Trust are either express or implied. Express trust are created by the intention of the trustor or of the
parties. Implied trusts come into being by operation of law.

Facts:

Thomas Hanley died, leaving a will and a considerable amount of real and personal
properties. Proceedings for the probate of his will and the settlement and distribution of his estate
were begun in the CFI of Zamboanga. The will was admitted to probate.

The CFI considered it proper for the best interests of the estate to appoint a trustee to
administer the real properties which, under the will, were to pass to nephew Matthew ten years after
the two executors named in the will was appointed trustee. Moore acted as trustee until he resigned
and the plaintiff Lorenzo herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal
Revenue (Posadas) assessed against the estate an inheritance tax, together with the penalties for
deliquency in payment. Lorenzo paid said amount under protest, notifying Posadas at the same time
that unless the amount was promptly refunded suit would be brought for its recovery. Posadas
overruled Lorenzos protest and refused to refund the said amount. Plaintiff went to court. The CFI
dismissed Lorenzos complaint and Posadas counterclaim. Both parties appealed to this court.

Issue:

Has there been delinquency in the payment of the inheritance tax?

Held:

Yes.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in
both instances.

The defendant maintains that it was the duty of the executor to pay the inheritance tax
before the delivery of the decedents property to the trustee. Stated otherwise, the defendant
contends that delivery to the trustee was delivery to the cestui que trust, the beneficiary in this case,
within the meaning of the first paragraph of subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well taken and is sustained. A trustee is but an instrument
or agent for the cestui que trust.

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The appointment of Moore as trustee was made by the trial court in conformity with the
wishes of the testator as expressed in his will. It is true that the word trust is not mentioned or
used in the will but the intention to create one is clear. No particular or technical words are required
to create a testamentary trust. The words trust and trustee, though apt for the purpose, are not
necessary.

In fact, the use of these two words is not conclusive on the question that a trust is created.
To constitute a valid testamentary trust there must be a concurrence of three circumstances:
(1) Sufficient words to raise a trust;
(2) a definite subject;
(3) a certain or ascertain object; statutes in some jurisdictions expressly or in effect so
providing.

There is no doubt that the testator intended to create a trust. He ordered in his will that
certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The
probate court certainly exercised sound judgment in appointing a trustee to carry into effect the
provisions of the will.

As the existence of the trust was already proven, it results that the estate which plaintiff
represents has been delinquent in the payment of inheritance tax and, therefore, liable for the
payment of interest and surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became
trustee. On that date trust estate vested in him. The interest due should be computed from that date.

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EXPRESS TRUSTS (ARTICLES 1443-1446)

Article 1443

Jumagdao, Chrismaire D.

EMILIANO RAMOS, ET AL. v. GREGORIA RAMOS, ET AL.


G.R. No. L-19872. December 3, 1974.
61 SCRA 284

Art. 1443. No express trust concerning an immovable or any interest therein may be proved by parol evidence.

Facts:

The parties appealed from the decision of the Court of First Instance of Negros Occidental,
dismissing plaintiffs' complaint and holding that the intestate estate of Martin Ramos was settled in
Civil Case No. 217, which was terminated on March 4,1914, and that the judgment therein is res
judicata and bars any litigation regarding the same estate (Civil Case no. 4522).

The spouses Martin Ramos and Candida Tanate died on October 4, 1906 and October 26,
1888, respectively. They were survived by their three legitimate children named Jose, Agustin and
Granada. Martin Ramos was also survived by his seven natural children named Atanacia, Timoteo,
Modesto, Manuel, Emiliano, Maria and Federico.

On December 10, 1906 a special proceeding was instituted in the Court of First Instance of
Negros Occidental for the settlement of the intestate estate of the said spouses. The case was
docketed as Civil Case No. 217 (its expediente is still existing). Rafael O. Ramos, a brother of Martin,
was appointed administrator. The estate was administered for more than six years.

A project of partition dated April 25, 1913 was submitted. It was signed by the three
legitimate children, Jose, Agustin and Granada; by the two natural children, Atanacia and Timoteo,
and by Timoteo Zayco in representation of the other five natural children who were minors. It was
sworn to before the justice of the peace.

Proceedings in the lower court. The instant action was filed on September 5, 1957 against
defendants Agustin Ramos, Granada Ramos and the heirs of Jose Ramos for the purpose of
securing a reconveyance of the supposed participations of plaintiffs Atanacia, Emiliano, Manuel,
Maria and Modesto, all surnamed Ramos, in the aforementioned eight (8) lots which apparently
form part of Hacienda Calaza. (The plaintiffs did not specify that the said shares would amount to
one-sixth of the said eight cadastral lots. One-sixth represented the one-third free portion of Martin
Ramos' one-half shares in the said lots. And the said one-sixth portion was the share of his seven
legally acknowledged natural children under article 840 of the old Civil Code).

The action is really directed against the heirs of Jose Ramos, namely, his wife Gregoria and
his daughter Candida in whose names the said eight lots are now registered as shown in Exhibit 8

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and in page 4 hereof. It is predicated on the theory that plaintiffs' shares were held in trust by the
defendants. No deed of trust was alleged and proven.

The defendants denied the existence of a trust. They pleaded the defenses of (a) release of
claim as shown in the project of partition, the decision and the receipt of shares forming part of the
expediente of Civil Case No. 217 (Exh. 3, 4 and 6), (b) lack of cause of action, (c) res judicata and (d)
prescription.

Plaintiffs' appeal. The plaintiffs contend that the trial court erred (1) in dismissing their
complaint, (2) in denying their right to share in their father's estate.

Issue:

Whether or not the plaintiffs have a right to share in their fathers estate on the ground of
alleged the trust.

Held:

No.

The crucial issue is prescription. With it the question of res judicata and the existence of a
trust are inextricably interwoven. Inasmuch as trust is the main thrust of plaintiffs' action, it will be
useful to make a brief disgression of the nature of trusts (fideicomisos) and on the availability of
prescription and laches to bar the action for reconveyance of property allegedly held in trust.

"In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the
beneficial enjoyment of property, the legal title to which is vested in another, but the words 'trust' is
frequently employed to indicate duties, relations, and responsibilities which are not strictly technical
trusts." (89 C.J.S. 712).

"A person who establishes a trust is called the trust or; one in whom confidence is reposed is
known as the trustee; and the person for whose benefit the trust has been created is referred to as
the beneficiary" (Art. 1440, Civil Code). There is a fiduciary relation between the trustee and
the cestui que trust as regards certain property, real, personal, money or choses inaction (Pacheco vs.
Arro, 85 Phil. 505).

"Trusts are either express or implied. Express trusts are created by the intention of the trust
or of the parties. Implied trusts come into being by operation of law." (Art. 1144, Civil Code). "No
express trusts concerning an immovable or any interest therein may be proven by oral evidence. An
implied trust may be proven by oral evidence" (Ibid, Arts. 1443 and 1457).

"No particular words are required for the creation of an express trust, it being sufficient that
a trust is clearly intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs.
Dalandan, L-19012, October 30, 1967, 21 SCRA 543, 546). "Express trusts are those which are
created by the direct and positive acts of the parties, by some writing or deed, or will, or by words
either expressly or impliedly evincing an intention to create a trust" (89 C.J.S. 722).

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"Implied trust are those which, without being expressed, are deducible from the nature of
the transaction as matters of intent, or which are super induced on the transaction by operation of law as
matters of equity, independently of the particular intention of the parties" (89 C.J.S. 724). They are
ordinarily subdivided into resulting and constructive trusts (89 C.J.S. 722).

"A resulting trust is broadly defined as a trust which is raised or created by the act or
construction of law, but in its more restricted sense it is a trust raised by implication of law and presumed
always to have been contemplated by the parties, the intention as to which is to be found in the nature of
their transaction, but not expressed in the deed or instrument of conveyance" (89 C.J.S. 725).
Examples of resulting trusts are found in article 1448 to 1455 of the Civil Code. See Padilla vs.
Court of Appeals, L-31569, September 28, 1973, 53 SCRA 168,179).

On the other hand, a constructive trust is a trust "raised by construction of law, or arising by
operation of law". In a more restricted sense and as contra distinguished from a resulting trust, a
constructive trust is "a trust not created by any words, either expressly or impliedly evincing a direct
intention to create a trust, but by the construction of equity in order to satisfy the demands of justice. It does
not arise by agreement or intention but by operation of law." (89 C.J.S. 7260727). "If a person
obtains legal title to property by fraud or concealment, courts of equity will impress upon the title a
so-called constructive trust in favor of the defrauded party." A constructive trust is not a trust in the
technical sense(Gayondato vs. Treasurer of the P.I., 49 Phil. 244; See Art. 1456, Civil Code).

There is a rule that a trustee cannot acquire by prescription the ownership of property
entrusted to him (Palma vs. Cristobal, 77 Phil. 712), or that an action to compel a trustee to convey
property registered in his name in trust for the benefit of the cestui qui trust does not prescribed
(Manalang vs. Canlas, 94 Phil. 776; Cristobal vs. Gomez, 50 Phil. 810), or that the defense of
prescription cannot be set up in an action to recover property held by a person in trust for the
benefit of another(Sevilla vs. De los Angeles, 97 Phil. 875), or that property held in trust can be
recovered by the beneficiary regardless of the lapse of time (Marabilles vs. Quito, 100 Phil. 64;
Bancairen vs. Diones, 98 Phil. 122, 126 Juan vs. Zuniga, 62 O.g. 1351; 4 SCRA 1221; Jacinto, L-
17957, May 31, 1962. See Tamayo vs. Callejo, 147 Phil. 31, 37).

That rule applies squarely to express trusts. The basis of the rule is that the possession of a
trustee is not adverse. Not being adverse, he does not acquire by prescription the property held in
trust. Thus, section 38 of Act 190 provides that the law of prescription does not apply "in the case
of a continuing and subsisting trust" (Diaz vs. Gorricho and Aguado, 103 Phil. 261,266; Laguna vs.
Levantino, 71 Phil. 566; Sumira vs. Vistan, 74 Phil. 138; Golfeo vs. Court of Appeals, 63 O.G. 4895,
12 SCRA 199; Caladiao vs. Santos, 63 O.G. 1956, 10 SCRA 691).

The rule of imprescriptibility of the action to recover property held in trust may possibly
apply to resulting trusts as long as the trustee has not repudiated the trust (Heirs of Candelaria vs.
Romero, 109 Phil. 500, 502-3; Martinez vs. Grano, 42 Phil. 35; Buencamino vs. Matias, 63 O. G.
11033, 16 SCRA 849).

The rule of imprescriptibility was misapplied to constructive trusts (Geronimo and Isidoro
vs. Nava and Aquino, 105 Phil. 145, 153. Compare with Cuison vs. Fernandez and Bengzon, 105
Phil. 135, 139; De Pasion vs. De Pasion, 112 Phil. 403, 407).

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Acquisitive prescription may bar the action of the beneficiary against the trustee in an
express trust for the recovery of the property held in trust where (a) the trustee has performed
unequivocal acts of repudiation amounting to an ouster of the cestui qui trust; (b) such positive acts of
repudiation have been made known to the cestui qui trust and(c) the evidence thereon is clear and
conclusive (Laguna vs. Levantino, supra; Salinas vs. Tuason, 55 Phil. 729. Compare with the rule
regarding co-owners found in the last paragraph of article 494, Civil Code; Casanas vs. Rosello, 50
Phil. 97; Gerona vs. De Guzman, L-19060, May 29, 1964, 11 SCRA 153,157).

With respect to constructive trusts, the rule is different. The prescriptibility of an action for
reconveyance based on constructive trust is now settled (Alzona vs. Capunitan, L-10228, February
28, 1962, 4 SCRA 450; Gerona vs. De Guzman, supra; Claridad vs. Henares, 97 Phil. 973; Gonzales
vs. Jimenez, L-19073, January 30, 1965, 13 SCRA 80; Bonaga vs. Soler, 112 Phil. 651; J. M. Tuason
& Co., vs. Magdangal, L-15539, January 30, 1962, 4 SCRA 84). Prescription may supervene in an
implied trust (Bueno vs. Reyes, L-22587, April 28, 1969, 27 SCRA 1179; Fabian vs. Fabian, L-20449,
January 29, 1968; Jacinto vs. Jacinto, L-17957, May 31, 1962, 5 SCRA 371).

And whether the trust is resulting or constructive, its enforcement may be barred by laches
(90 C.J.S. 887-889; 54 Am Jur. 449-450; Diaz vs. Gorricho and Aguado, supra. Compare with Mejia
vs. Gampona, 100 Phil. 277).

The plaintiffs did not prove any express trust in this case. The expediente of the intestate
proceeding, Civil Case No. 217, particularly the project of partition, the decision and the
manifestation as to the receipt of shares (Exh. 3, 4 and 6)negatives the existence of an express trust.
Those public documents prove that the estate of Martin Ramos was settled in that proceeding and
that adjudications were made to his seven natural children. A trust must be proven by clear,
satisfactory, and convincing evidence. It cannot rest on vague and uncertain evidence or on loose,
equivocal or indefinite declarations (De Leon vs. Peckson, 62 O. G. 994). As already noted, an
express trust cannot be proven by parol evidence(Pascual vs. Meneses, L-18838, May 25, 1967, 20
SCRA 219, 228; Cuaycong vs. Cuaycong, L-21616, December 11, 1967, 21 SCRA 1192).

Neither have the plaintiffs specified the kind of implied trust contemplated in their action.
We have stated that whether it is a resulting or constructive trust, its enforcement may be barred by
laches.
In the cadastral proceedings, which supervened after the closure of the intestate proceeding,
the eight lots involved herein were claimed by the spouses Jose Ramos and Gregoria T. Ramos to
the exclusion of the plaintiffs (Exh. 8 to 19). After the death of Jose Ramos, the said lots were
adjudicated to his widow and daughter (Exh. 8). In 1932 Gregoria T. Ramos and Candida Ramos
leased the said lots to Felix Yulo (Exh. 20).Yulo in 1934 transferred his lease rights over Hacienda
Calazato Juan S. Bonin and Nestor Olmedo, the husband of plaintiff Atanacia Ramos (Exh. 22).
Bonin and Olmedo in 1935 sold their lease rights over Hacienda Calaza to Jesus S. Consing (Exh.
23).

Those transactions prove that the heirs of Jose Ramos had repudiated any trust which was
supposedly constituted over Hacienda Calaza in favor of the plaintiffs.

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Article 1444

Merrera, Raisa Victoria G.

AGATONA GERONIMO and INOCENCIO ISIDORO v. JOSE NAVA and FELISA


AQUINO
G.R. No. L-12111. January 31, 1959.
105 Phil. 145

Facts:

On October 19, 1935, Jose Nava and his wife, Felisa Aquino, were owners of four lots in
Cabanatuan with a house of strong materials erected thereon. On that date, they mortgaged said lots
to La Urbana, a building and loan association, to secure the payment of a loan of P3,047.76. For
failure to live up to the terms of the mortgage, the latter was foreclosed by La Urbana and the said
property was sold to La Urbana for the sum of P3,786.26.

On April, 1938, La Urbana transferred and assigned all its rights and interest in the said
property to Agatona Geronimo for the sum of P6,000.00, subject to the right of redemption of
Nava and Felisa. Agatona paid P600.00 on account of the purchase price and to secure the payment
of the balance of P5,400.00, mortgaged the same lots to La Urbana. In May, 1938 shortly after
purchasing the same lots from La Urbana, Agatona took possession of the property and collected
P62.50 representing the May and June rentals, and since July of the same year, she had been
collecting the rentals at the rate of P35.00 a month.

Within the one year period of redemption, Nava tried to redeem the property, going to La
Urbana and offering to pay the amount of redemption, and when the latter refused to accept the
offer, Nava wrote to Agatona, making the same offer to redeem after liquidation of the account
consisting of rentals so far received by her. He even offered to meet her at the office of the Clerk of
Court and waited for her there all day on the last day of the redemption period, and when she failed
to appear, he bought a cashier's check at the Philippine National Bank (PNB) in the amount of
P3,470.00 and deposited the sum in the PNB branch in Cabanatuan in her name.

On the same day, he filed a civil case against Agatona and Inocencio to compel them to
permit him to redeem the property after rendering an account of the rentals received by them and to
pay damages. On filing the case, Nava filed with the Register of Deeds a notice of lis pendens and said
notice was noted on the corresponding certificates of title, covering the four lots.

After hearing, the trial court found that Nava and his wife had substantially complied with
the provisions regarding redemption; that they had made not only a valid offer to redeem, but they
actually made a valid tender of payment of the redemption price, and rendered judgment in their
favor. Moreover, because of Agatonas refusal to let Nava redeem the property, she was
considered a possessor in bad faith therefore, any rentals she received from the time of
refusal until the time reconveyance is effected should accrue in favor of Nava.

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In 1956, Agatona and his husband filed another case in the lower court seeking to cancel the
notice of lis pendens annotated in their titles because according to them, no action may arise from
the notice because of prescription. She alleged that the judgment (in favor of Nava) was not
executed and that the same is barred by prescription. Nava contends that the judgment was
partially executed as they (Navas) are receiving rentals from the tenants of the said property.
Moreover, the Navas already took possession of the property, the only thing missing is the actual
transfer of title. The lower court dismissed Agatonas complaint for res judicata. This case is a direct
appeal to the SC.

Issue:

Whether or not the the lower court also erred in not holding the propriety of cancelling the
annotations of lis pendens of the civil case and of the mortgage by Agatona in favor of La Urbana on
the back of the titles issued on the name of Agatona; and that the registered interests therein,
whether vested, contingent, expectant or inchoate, of all parties concerned, have already ceased or
terminated as any action that may arise therefrom is already barred by prescription and the aforesaid
decision in former case has already ceased or lost its force and effect, thereby creating a situation as
if there never have been any decision or annotation.

Held:

No, when the trial court declared in a decision that had become final and executory that
appellees had the right to redeem the property in question and ordered appellants to make the resale
of the property in favor of appellees, there was created a constructive trust, in the sense that
although appellants had the naked title issued in their names, and which they retained, nevertheless,
they were to hold said property in trust for appellees to redeem, subject to the payment of the
redemption price. In the latter instance of constructive trust, prescription may apply only where the
trustee asserts a right adverse to that of the cestui que trust, such as, asserting acts of ownership over
the property being held in trust.

After the decision aforementioned had become final and executory, appellants suggested that the
tenant of the house pay his rentals to appellees instead of to them, meaning appellees had a right to
said rentals. Not only this but when the tenant left the house, appellees took possession of, and
exercised acts of ownership over, the house and appellants, all along, showed conformity thereto.
Held: Such acts of appellants should be construed as a recognition of the fact that the property,
though still in their names, was to be held in trust for the appellees, to be conveyed to the latter
upon payment of the repurchase price. Such trust is- an express one, not subject to prescription.

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IMPLIED TRUSTS (ARTICLES 1447-1457)

Article 1447

Merrera, Raisa Victoria G.

SPECIAL SERVICES CORPORATION v. CENTRO LA PAZ (SAMAHANG


ESPIRITISTA SA LUNDUYANG LA PAZ), A CHAPTER OF UNION ESPIRITISTA
CRISTIANA DE FILIPINAS, INC.
G.R. No. L-44100. April 28, 1983.
121 SCRA 748

Facts:

On October 10, 1972, judgment was rendered in favor of petitioner Special Services
Corporation by the CFI, Branch IV, Manila, against one Alejandro Estudillo in the amount of
P94,727.52, more or less, in an action for Replevin with Sum of Money. A writ of execution was
thereafter issued but which has remained unsatisfied.

On December 15, 1972, the Sheriff of Manila caused the annotation of a notice of levy on
TCT No. 51837, in respect of the rights, interest and participation of Estudillo, one of the registered
owners indicated in said title. That title covers two parcels of land situated in Sampaloc, Manila,
consisting 348 square meters and registered in the names of: Alejandro Estudillo, married to
Primitiva Victoria; Joaquina de la Rosa, widow; Pedro Paguio, married to Amor Jose and Maximo
Victoria, married to Juliana Roberto, all Chapter members.

The public auction of Estudillos rights and interests in said properties was scheduled on July
23, 1973.

On June 27, 1973, Estudillo filed a "Motion to Dissolve and/or Cancel the Notice of Levy"
alleging that he and the other registered owners indicated on the title merely held in trust the
properties and improvements thereon in favor of Centro La Paz (Samahang Espiritista Sa
Lunduyang La Paz) a Chapter of Union Espiritista Cristiana de Filipinas, Inc. as evidenced by
"Acknowledgments" executed by them on October 20, 1961 and October 2, 1971.
Estudillo further alleged that CENTRO's ownership was also evidenced by letters sent to the
City Assessor by him and Crispulo Romero, President of CENTRO, long before the filing of the
replevin case on December 28, 1971 praying for the revocation of tax assessments on said properties
as the same, were used for religious purposes. Date of letters are as follows: February 15, 1963,
November 29, 1963 and August 8, 1966 .

On July 21, 1973, CENTRO submitted a third party claim to the Sheriff of Manila likewise
averring exclusive ownership of the properties in question.

Issue:

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Whether or not Estudillo is merely the trustee of Centro La Paz and the
Acknowledgements of registered owners not being annotated on TCT No. 51837 is conclusive of
all matters, valid and binding.

Held:

Yes, CENTRO reiterated ownership of the properties in question and emphasized that the
registered owners thereof had publicly acknowledged their possession of said properties in the
concept of trustees.

Preponderance of evidence CENTRO had established that it was "really and true and lawful
owner of the property in dispute, and that the persons registered therein as its owners are merely
trustees of the plaintiff, the series of documents executed even as early as 1957, long before the issue
of whether Alejandro Estudillo really has an interest and/or participation in the property in dispute,
attest to plaintiff's ownership of the property in question.
The evidence on hand clearly preponderates in favor of the plaintiff The series of documents
indubitably point to one and inescapable conclusion that the plaintiff is really the true and lawful
owner of the property in dispute and that persons registered therein as its owners, are merely
trustees of the plaintiff.

As found by both the Trial Court and Appellate Court, the evidence sufficiently establishes
that the registered owners of the parcels of land covered by TCT 51837, all of whom are members
of CENTRO, hold the properties in trust for CENTRO by virtue of the indubitable documents
executed even before the institution of suit. In the same manner that the real property, registered
solely in the name of a husband, can be proven to be conjugal property with his wife, the fact of
registration in the name of Alejandro Estudillo and others does not bar evidence to show that the
registered owners hold the properties in trust for CENTRO.

Admittedly, the trust was not registered in accordance with section 65 of Act 496 (the
former Land Registration Law). The absence of said registration, however, cannot be taken against
CENTRO inasmuch as, if the public auction sale had actually been held, with Special Service Corp.
(SSC) as the successful buyer, SSC could not have been considered a purchaser for value and in
good faith at said sale since it had knowledge of CENTRO's claim, particularly when the latter had
filed a third-party-claim with the Sheriff of Manila before the scheduled auction sale, which
knowledge was equivalent to registration of the several "Acknowledgments" in the Registry of
Deeds.

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Pascual, Aizen Paula DS.

GERTRUDES F. CUAYCONG, ET AL. v. LUIS D. CUAYCONG, ET AL.


G.R. No. L-21616. December 11, 1967.
21 SCRA 1192

Facts:

The surviving children and grandchildren of Lino Cuaycong, brother of deceased Eduardo
Cuaycong filed a suit against Justo, Luis and Benjamin Cuaycong for conveyance of inheritance and
accounting alleging that Eduardo Cuaycong had on several occasions,made known to his brothers
and sisters that he and his wife Clotilde de Leon (died in 1940) had an understanding and made
arrangements with Luis Cuaycong and his father Justo Cuaycong, that it was their desire to divide
Haciendas Sta. Cruz and Pusod among is brothers and sister and his wife Clotilde. As the two
haciendas were the subject of transactions between the spouses and Justo and Luis Cuaycong,
Eduardo told Justo and Luis, and the two agreed,to hold in trust what might belong to his brothers
and sister as a result of the arrangements and deliver to them their share when the proper time
comes. And as far back as 1936 Lino demanded from Justo and Luis his share and especially after
Eduardos and Clotildes death,the plaintiffs demanded their shares.

Issue:

Whether or not an express trust was made over the properties in question.

Held:

Yes. An express trust was made over the parties in question. The Civil Code defines an
express trust as one created by the intention of the trustor or of the parties. From the provisions of
paragraph 8 of the complaint itself, it is clear that the plaintiffs alleged an express trust over an
immovable, especially since it is alleged that the trustor expressly told the defendants of his intention to
establish the trust.lawphil Such a situation definitely falls under Article 1443 of the Civil Code.

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Pascual, Aizen Paula DS.

MARIANO TAMAYO v. AURELIO CALLEJO and the HON. COURT OF APPEALS


G.R. No. L-25563. July 28, 1972.
46 SCRA 27

Facts:

Before February 1, 1912, the Tamayos sold a piece of land to Fernando Domantay, who
took possession of the land. When Vicente died after the sale and his widow waived her rights to the
remaining portion of the property to their children Mariano and Marcos, On September 29, 1913,
the two brothers applied to register the land in their name, saying they inherited it from their father,
including the part that was sold to Domantay.

Not long after, or on August 22, 1918, Domantay sold the land to Callejo.

In 1940 Mariano Tamayo sold the land to Estacio, whose surveyor went to the land in 1952
to segregate it; that same year Callejo registered his adverse claim to the land. Tamayo pleaded the
statute of limitations as defense, but the court found that in 1918, when they had the land registered
in their name, Mariano Tamayo, on his behalf and that of his brother, executed a public document
acknowledging that his deceased parents had sold a parcel of the land to Domantay.

Issue:

Whether or not there was an express trust.

Held:

Yes. The express recognition by Mariano Tamayo on his behalf and that of his brother
Marcos Tamayo of the previous sale, made by their parents, to Fernando Domantay had the
effect of imparting to the aforementioned trust the nature of an express trust it having been
created by the will of the parties, "no particular words" being "required for the creation of an
express trust, it being sufficient that a trust is clearly intended" which express trust is a
"continuing and subsisting" trust, not subject to the statute of limitations, at least, until repudiated,
in which event the period of prescription begins to run only from the time of the repudiation.3 The latter
did not take place, in the case at bar, until early in June, 1952, when Mariano Tamayo rejected
Aurelio Callejo's demand that the now disputed portion be excluded from TCT No. 5486 in the
former's name. But, then, the case at bar was filed weeks later, or on June 25, 1952, when the period
of prescription had barely begun to run.

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Perianes, Laurisse Marie T.

EPICTACIO DELIMA, et al. v. COURT OF APPEALS, et al.


G.R. No. 46296. September 24, 1991.
201 SCRA 641

The co-owner or co-heir who is in possession of an inheritance pro-indiviso for himself and in representation
of his co-owners or co-heirs, if, as such owner, he administers or takes care of the rest thereof with the obligation of
delivering it to his co-owners or co-heirs, is under the same situation as a depository, a lessee or a trustee.

Facts:

During his lifetime, Lino Delima acquired a lot in Talisay-Minglanilla Friar Lands Estate in
Cebu by sale on installments from the government. Lino Delima later died leaving as his only heirs
three brothers and a sister namely: Eulalio, Juanita, Galileo and Vicente. After his death, a transfer
certificate was issued in the name of his legal heirs, represented by Galileo Delima.

On September 22, 1953, Galileo Delima (now substituted by respondents) executed an


affidavit of Extra-judicial Declaration of Heirs. Based on this affidavit, the transfer certificate
issued in the name of Lino Delimas legal heirs was cancelled, and new one was issued in the name
of Galileo Delima alone to the exclusion of the other heirs. Also, Galileo declared the lot in his
name for taxation purposes and paid the taxes thereon from 1954 to 1965.

On February 29, 1968, petitioners (the surviving heirs of Eulalio and Juanito Delima) filed
with the Court of First Instance of Cebu an action for reconveyance and/or partition of the
property and for the annulment of the transfer certificate title in the name of Galileo, with damages
against their uncles Galileo and Vicente.

The trial court rendered a decision in favor of petitioners. Not satisfied with the decision,
respondents appealed to the Court of Appeals. The CA reversed the trial courts decision and
upheld the claim of Galileo Delima that all the other brothers and sister of Lino Delima, namely
Eulalio, Juanita and Vicente, had already relinquished and waived their rights to the property in his
favor, considering that Galileo alone paid the remaining balance of the purchase price of the lot and
the realty taxes thereon.

Hence, this petition.

Issue:

Whether or not petitioners action for partition is already barred by the statutory period
provided by law which shall enable Galileo Delima to perfect his claim of ownership by acquisitive
prescription to the exclusion of petitioners from their shares in the disputed property.

Held:

Yes. It is understood that the co-owner or co-heir who is in possession of an inheritance


pro-indiviso for himself and in representation of his co-owners or co-heirs, if, as such owner, he
administers or takes care of the rest thereof with the obligation of delivering it to his co-owners or
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co-heirs, is under the same situation as a depository, a lessee or a trustee. Thus, an action to compel
partition may be filed at any time by any of the co-owners against the actual possessor. In other
words, no prescription shall run in favor of a co-owner against his co-owners or co-heirs so long as
he expressly or impliedly recognizes the co-ownership.

However, from the moment one of the co-owners claims that he is the absolute and
exclusive owner of the properties and denies the others any share therein, the question involved is
no longer one of partition but of ownership. In such case, the imprescriptibility of the action for
partition can no longer be invoked or applied when one of the co-owners has adversely possessed by
the property as exclusive owner for a period sufficient to vest ownership of prescription.

It is settled that possession by a co-owner or co-heir is that of a trustee. In order that such
possession is considered adverse to the cetui que trust amounting to a repudiation of the co-
ownership, the following elements must concur: 1) that the trustee has performed unequivocal acts
amounting to an ouster of the cestui que trust; 2) that such positive acts of repudiation had been
made known to the cestui que trust; and 3) the evidence thereon should be clear and conclusive.

An action for reconveyance of land based on implied or constructive trust prescribes after 10
years, it is from the date of the issuance of such title that the effective assertion of adverse title for
purposes of the statute of limitation is counted. The issuance of this new title constituted an open
and clear repudiation of the trust or co-ownership, and the lapse of ten (10) years of adverse
possession by Galileo Delima from February 4, 1954 was sufficient to vest title in him by
prescription. As the certificate of title was notice to the whole world of his exclusive title to the land,
such rejection was binding on the other heirs and started as against them the period of prescription.
Hence, when petitioners filed their action for reconveyance and/or to compel partition on February
29, 1963, such action was already barred by prescription. Whatever claims the other co-heirs could
have validly asserted before can no longer be invoked by them at this time.

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Perianes, Laurisse Marie T.

TEODORA MATIAS DE BUENCAMINO, et al. v. MARIA DIZON DE MATIAS, et al.


G.R. No. L-19397. April 30, 1966.
16 SCRA 849

While implied or constructive trust prescribes in 10 years, the rule does not apply where a fiduciary relation
exists, and the trustee recognizes the trust. The continuous recognition of a resulting trust precludes any defense of laches
in a suit to declare and enforce the trust.

Facts:

Hilaria Dizon Matias married to Fulgencio Matias, both deceased, was the registered owner
of three parcels of farmlands in the barrio of San Pablo, Sta. Ana, Pampanga, and covered by an
original certificate of title in the Register of Deeds of said province. Spouses Matias died in 1945 and
1949, respectively, had only one son, Luis, who died in 1948. Luis had with his lawful wife Maria
Dizon Matias several children, 7 of whom are living, namely: Modesta, Segundo, Jacinto, Vicente,
Jesus, Teodora and Mamerto. The first five, together with their mother, are the respondents, and the
last two with their respective spouses, and two others, are the petitioners.

Luis also kept a mistress with whom he had five children. He maintained the latter family in
a house he constructed for them in the same compound where his parents were living, and found it
more convenient and comfortable to spend most of his time with his common-law wife and his
illegitimate children. This behavior and conduct on the part of Luis, led his parents to fear that
should their properties pass on to him upon their death, Luis might dispose of the same in favor of
his illegitimate children, to the prejudice of his legitimate children. And because of this, the deceased
spouses decided to transfer their properties in the name of one of their legitimate grandchildren,
Teodora Matias-Buencamino, for the latter to hold the same in trust for the other brothers and
sisters.

An Escritura de Venta con Arrendamiento was then executed by the deceased spouses in
favor of Teodora and her husband, Roque. On the same date, a mortgage in favor of Felipe
Buencamino, Jr. for the sum of P 5,000.00 was executed by the new transferees. In the Escritura de
Venta (Deed of Sale), it was stated that the deceased spouses would remain as lessees of the
properties in question. In return they would pay an annual rent of P 300.00, plus the obligation of
paying the corresponding real estate taxes. Thus, it was the deceased spouses who retained
possession of the farm lands until they died. While the taxes thereon were religiously paid by them,
there is no evidence to show that they ever paid the annual rent. Upon their death, the widow of
Luis, Maria, took over the possession and administration of the farm lands. However in 1954,
Teodora took material possession of the same from her mother has, since then administered them
to the exclusion of her other brothers and sisters.

On basis of these facts, the CA affirmed the judgment of the CFI, holding that the Escritura
de Venta executed by the deceased Hilaria in favor of petitioner was only an equitable mortgage, but
modified it that Teodora held in trust the three parcels of land in favor of her legitimate brothers
and sisters.

Issue:
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Whether or not the Escritura de Venta and the deed of mortgage resulted to an implied
trust.

Held:

Yes. The contention that the action for reconveyance, which was brought 17 years after the
execution of the disputed document, was barred by prescription, cannot also be sustained.

The evidence is clear that the true intent and understanding of the deceased spouses with
Teodora and her husband was that the latter would hold the title over the farm lands in trust for the
benefit of Teodoras brothers and sisters. Teodora herself confirmed this when, in a letter she wrote
to her grandfather in 1939, she reaffirmed her intention to comply with the trust and confidence
reposed upon her by her grandparents.

The execution of the deed, and the consequent registration of the properties in the names of
the petitioner spouses, created an implied trust in favor of Teodoras legitimate brothers and sisters.
And while implied or constructive trust prescribes in 10 years, the rule does not apply where a
fiduciary relation exists and the trustee recognizes the trust. The continuous recognition of a
resulting trust precludes any defense of laches in a suit to declare and enforce the trust. As it does
not appear when Teodora repudiated the existence of fiduciary relations between her and brothers
and sisters, the same shall be taken to have been made only upon filing of her answer to the
complaint. The action brought by respondents to enforce such trust, therefore, has not yet
prescribed.

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Articles 1448, 1452-1456

Satar, Mohammad Ajrin D.

VILLARTA v. CUYNO
G.R. No. L-20682. May 19, 1966.
17 SCRA 100

Facts:

Plaintiff Gregorio Villarta is the father of his co-plaintiffs Glicerio and Marina Villarta. The
disputed land belonged originally to Isidoro Cuyno, had assigned a small portion thereof, with an
area of approximately 0.3100 hectares, to one Clemente Olaybardeclared it, for real estate tax
purposes, in his name, under Tax Declaration No. 8043 of the Province of Bohol. The remaining
portion of said land, with an area of 14.8400 hectares, more or less, was declared in the name of
Isidoro Cuyno, under Tax Declaration No. 6010, which was superseded in 1925, by Tax Declaration
No. 8042, in the same name. Isidoro Cuyno died sometime before 1936. For failure of his heirs to
pay the real estate taxes due under said Tax Declaration No. 8042, said portion, of about 14.8400
hectares, was forfeited to the Government in 1936. To avoid its eventual sale at public auction, one
of the children of Isidoro Cuyno, namely, Marciano Cuyno, asked plaintiff Gregorio Villarta, whose
wife is a granddaughter of said deceased, to pay the amount of said taxes. Accordingly, from August
29, 1936 to September 2, 1937, Gregorio Villarta paid the municipal treasurer of Ubay several sums
of money and caused the said portion to be declared in his name under Tax Declaration No. 13462.
Meanwhile, he had purchased from Clemente Olaybar the aforementioned small portion, of about
0.3100 hectares, which the latter had acquired from Isidoro Cuyno.

Issue:

Whether or not the payment of taxes by the plaintiff in behalf of Cuynos constitute sale.

Held:

No. Aforementioned delinquent taxes had been paid by Gregorio Villarta "in behalf of
Isidoro Cuynomust be deemed effected by Gregorio Villarta in trust and for the benefit of Isidoro Cuyno.
The fact that Gregorio Villarta accepted said receipts, issued in the name of Isidoro Cuyno, indicates
that the former, also, understood that he was not thereby purchasing the property, but, had made the
payment for the account or benefit of Isidoro Cuyno. In fact, the letter of the municipal treasurer of Ubay to
Gregorio Villarta, dated October 8, 1936, refers to said payments of Gregorio Villarta as part of the
process of "repurchase" by his "in behalf of the declared owner, Mr. Isidoro Cuyno". Thus, Gregorio
Villarta thereby became a trustee for the benefit of Isidoro Cuyno, or his heirs.

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Satar, Mohammad Ajrin D.

VALDEZ v. OLORGA
G.R. No. L-22571. May 25, 1973.
51 SCRA 71

Facts:

In 1924, the spouses Federico Valdez, Sr. and Juanita Batul, bought Lot No. 18, the property
now in dispute, from Dolores M. de Gutierrez for P500.00. In 1930, the old Valdez family, as
vendees, occupied and lived in the premises of Lot No. 18. Juanita Batul leased in 1939 a portion of
Lot No. 18 to Mr. Gregorio Quicho. The transfer of the lot in the name of Federico, Sr., was never
done because the owner's original certificate of title was lost. Children of the deceased Josefina
Valdez and Federico Valdez, Jr. commissioned their cousin Concepcion Castro to negotiate with the
Gutierrez in order that the property in question may be transferred to them. It turned out that the
Gutierrez family was asking for an additional amount of P2,500.00. Federico Valdez, Jr., and Mr.
Gregorio Quicho executed deed of sale for the amount of P2,200.00 as payment for back rentals
and payment for the purchase of that portion of lot No. 18 which he was renting and occupying. In
executing the deed of sale, the name of Federico Valdez, Jr. appeared as the only vendee. This was
done pursuant to the wishes of Mr. Quicho who advanced the money, in order that he could
facilitate the deed of sale between him and the Valdezes, with the understanding that Federico
Valdez, Jr. will hold the same in trust for his other brother and sisters. When Federico Valdez, Jr.
was still living, he never attempted to exclude the herein plaintiffs from ownership of the land in
question. Said plaintiffs have been in open continuous and uninterrupted possession of the premises
they are occupying inside the lot in question long before the execution of the deed of sale. It was
only after the death of Federico Valdez, Jr. that the widow Teofila Olorga tried to eject the plaintiffs.

Issue:

Whether or not action had already prescribed when it was filed more than ten (10) years
thereafter.

Held:

Given the antecedents of the property and the fact that its acquisition by Federico Valdez, Jr.
was for the benefit not of himself alone but also of his brother and sisters, although for purposes of
convenience he was made to appear as the sole vendee, the juridical relation that arose among them
was one of co-ownership, with the plaintiffs-appellees actually in possession of a portion of the
property. Under Article 494 of the Civil Code, "No prescription shall run in favor of a co-owner or
co-heir against his co-owners or co-heirs so long as he expressly or impliedly recognizes the co-
ownership." Insofar as the aspect of extinctive prescription referred to in this article is concerned, it
is but a restatement of Article 1965 of the Spanish Civil Code, which provides: "As between co-
heirs, co-owners, or proprietors of adjacent estates, the action to demand the partition of the
inheritance or of the thing held in common, or the survey of the adjacent properties, does not
prescribe." And from the standpoint of acquisitive prescription, or prescription of ownership, this
Court has held in numerous decisions involving fiduciary relations such as those occupied by a
trustee with respect to the cestui que trust that as a general-rule the former's possession is not adverse
and therefore cannot ripen into a title by prescription. Adverse possession in such a case requires,
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the concurrence of the following-circumstances: (a) that the trustee has performed unequivocal acts
of repudiation amounting to an ouster of the cestui que trust; (b) that such, positive acts of repudiation
have been made known to the cestui que trust and (c) that the evidence thereon should be clear and
conclusive.

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Senique, Alyssa Paulina R.

THE COMPAIA GENERAL DE TABACOS DE FILIPINAS v. MIGUEL TOPIO, ET


AL.
G.R. No. 1244. April 22, 1904.
54 Phil. 33

Facts:

This case involves an action to recover possession of certain real estate by the plaintiff,
located in the Province of Isabela in the possession of Miguel Topino and the ejectment of the
latter, together with the sum of 9,000 pesos as damages and the costs of suit; the lands sued for are
within the perimeter of the hacienda of San Luis y La Concepcion.

The evidence introduced by the defendants in support of the alleged ownership attributed to
Joaquin Guzman is adverse to their contention, because it shows that the area of that property is
much less than that of the parcels of land sued for. With respect to the property alleged to belong to
Manuel Dalanidao, all the documents offered have failed to show either the situation or area. Also,
the defendants did not present any title deeds, nor did they prove an adverse possession on their
own behalf sufficient to overcome the recorded title deeds which the plaintiff presented in support
of the complaint.

Issue:

Whether or not the defendants can maintain an action for nullity and cancellation of the
inscription.

Held:

No.

There is no reason for ordering the cancellation of the inscription unless this relief is prayed
for and proof is made of a better right on the part of some other person who claims to be the lawful
owner or possessor.

In this case there has been no demand for the cancellation of the inscription in the registry
of the hacienda of San Luis y La Concepcion in favor of the Compania General de Tabacos. It has
been alleged that the inscription is defective, but no person entitled to maintain an action for the
purpose has instituted proceedings for the cancellation of that inscription. As long as the inscription
subsists it must produce all its effects.

To allege the nullity of the original title deeds executed by the Spanish Government in favor
of the original grantees of the lands in question is to allege the nullity of the contract entered into
between the Spanish Government as grantor and them as vendees, for the titles are simply
evidentiary of the sale for a certain consideration of a specific thing. Under the provisions of article
1302 of the Civil Code, the action for the annulment of contracts can only be maintained by those
who are bound, either principally or subsidiarily, by virtue thereof.

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The defendants not being persons bound either principally or subsidiarily by virtue of that
contract of sale between the Spanish Government and those original grantees they can not maintain
the action of nullity of which they seek to avail themselves as a defense in this suit. The nullity of an
obligation being declared, the contracting parties must reciprocally restore the things which have
been the object of the contract. (Art. 1303.) If the nullity of the title deeds referred to should be
declared in conformity with the contention of the defendants, the lands should be restored to the
Spanish Government and the price paid for them should be restored by that Government to the
original grantees or their successors. It would follow that the lands in question could not remain in
the possession of the defendants, because they would have to be restored to the vendor.

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Senique, Alyssa Paulina R.

VICENTE SY-JUCO and CIPRIANA VIARDO v. SANTIAGO V. SY-JUCO


G.R. No. L-13471. January 12, 1920.
51 SCRA 71

Facts:

In 1902 the defendant was appointed by the plaintiffs administrator of their property and
acted as such until June 30, 1916, when his authority was cancelled. The plaintiffs are defendant's
father and mother who allege that during his administration the defendant acquired the property
claimed in the complaint in his capacity as plaintiffs' administrator with their money and for their
benefit. The trial court ordered the defendant to render to the plaintiffs the accounts of his
administration of plaintiffs property and to return the casco No. 2545; the typewriting machine; the
house occupied by the defendant; and the price of the piano in question.

Issue:

Whether or not the properties in question must properly belong to petitioners as the
principal.

Ruling:

Yes.

Regarding the launch Malabon, it appears that the defendant bought it in his own name from
the Pacific Commercial Co., and afterwards registered it at the Custom House. This transaction was
within the agency which he had received from the plaintiffs. The fact that he has acted in his own
name may be only, as we believe it was, a violation of the agency on his part.

The defendant cannot invoke the decision in the case of Martinez vs. Martinez, because the
plaintiffs in such case clothed the defendant with their representation in order to purchase, which in
the case at bar, is wanting on the part of the defendant. From the rule established in article 1717 of
the Civil Code that, when an agency acts in his own name, the principal shall have no right of action
against the person with whom the agent has contracted, cases involving things belonging to the
principal are excepted. According to this exception (when things belonging to the principal are dealt
with) the agent is bound to the principal although he does not assume the character of such agent and appears to be
acting in his own. The money with which the launch was bought having come from the plaintiff, the
exception established in article 1717 is applicable to the instant case.

Concerning the casco No. 2584, the defendant admits it was constructed by the plaintiff
himself in the latter's ship-yard, thus the defendant's allegation that it was constructed at his instance
and with his money is not supported by the evidence.

As to the automobile No. 2060, there is sufficient evidence to show that its prices was paid
with plaintiffs' money.

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Concerning the wood, windows and doors given by the plaintiffs to the defendant and used
in the construction of the latter's house on calle Real of the barrio of La Concepcion of the
municipality of Malabon, Rizal, we find correct the trial Court's decision that they were given to the
defendant as his and his wife's property.

Concerning the rendition of accounts which the plaintiffs require of the defendant, we
likewise find correct the trial court's decision absolving the latter from this petition, for it appears,
from the plaintiffs' own evidence, that the defendant used to render accounts of his agency after
each transactions, to the plaintiffs' satisfaction.

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Tan, Elma T.

RUSTICO ADILLE v. COURT OF APPEALS, EMETERIA ASEJO, TEODORICA


ASEJO, DOMINGO ASEJO, JOSEFA ASEJO and SANTIAGO ASEJO
G.R. No. L-44546. January 29, 1988.
157 SCRA 455

Facts:

The property in dispute was originally owned by Felisa Alzul who got married twice. Her
child in the first marriage was petitioner Rustico Adile and her children in the second marriage were
respondents Emetria Asejo et al.

Sometime in 1939, said Felisa Alzul, owner of the subject land sold the property in pacto de
retro to certain 3rd persons, period of repurchase being 3 years, but she died in 1942 without being
able to redeem and after her death, but during the period of redemption, herein defendant
repurchased, by himself alone, and after that, he executed a deed of extra-judicial partition
representing himself to be the only heir and child of his mother Felisa with the consequence that he
was able to secure title in his name alone also, so that OCT. No. 21137 in the name of his mother
was transferred to his name.

After some efforts of compromise had failed, his half-brothers and sisters, herein plaintiffs,
filed present case for partition with accounting on the position that he was only a trustee on an
implied trust when he redeemed the property and thus, he cannot claim exclusive ownership of the
entire property.

Issues:

Whether or not a co-owner may acquire exclusive ownership over the property held in
common?

Whether or not Rustico had constituted himself a negotiorum gestor?

Held:

The right of repurchase may be exercised by a co-owner with aspect to his share
alone. While the records show that the petitioner redeemed the property in its entirety, shouldering
the expenses therefor, that did not make him the owner of all of it. In other words, it did not put to
end the existing state of co-ownership.

Necessary expenses may be incurred by one co-owner, subject to his right to collect
reimbursement from the remaining co-owners. There is no doubt that redemption of property
entails a necessary expense. Under the Civil Code:

ART. 488. Each co-owner shall have a right to compel the other co-owners to
contribute to the expenses of preservation of the thing or right owned in common
and to the taxes. Any one of the latter may exempt himself from this obligation by
renouncing so much of his undivided interest as may be equivalent to his share of
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the expenses and taxes. No such waiver shall be made if it is prejudicial to the co-
ownership.

The result is that the property remains to be in a condition of co-ownership. While a


vendee a retro, under Article 1613 of the Code, "may not be compelled to consent to a partial
redemption," the redemption by one co-heir or co-owner of the property in its totality does not vest
in him ownership over it. Failure on the part of all the co-owners to redeem it entitles the vendee a
retro to retain the property and consolidate title thereto in his name. But the provision does not give
to the redeeming co-owner the right to the entire property. It does not provide for a mode of
terminating a co-ownership.

Neither does the fact that the petitioner had succeeded in securing title over the parcel in his
name terminate the existing co-ownership. While his half-brothers and sisters are, as we said, liable
to him for reimbursement as and for their shares in redemption expenses, he cannot claim exclusive
right to the property owned in common. Registration of property is not a means of acquiring
ownership. It operates as a mere notice of existing title, that is, if there is one.

The petitioner, in taking over the property, did so on behalf of his co-heirs, in which event,
he had constituted himself a negotiorum gestor under Art 2144 of the Civil Code, or for his
exclusive benefit, in which case, he is guilty of fraud, and must act as trustee, the respondents being
the beneficiaries, pursuant to Art 1456.

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Tan, Elma T.

SOTTO v. TEVES
G.R. No. L-38018. October 31, 1978.
86 SCRA 154

Facts:

This is a petition for review on certiorari of the Resolution of the Court of Appeals declaring
Plaintiffs to be the absolute owners of Lots Nos. 7547, 842, 2179-A, 123 and 1370. Subject of the
plaintiffs' action for declaration of ownership and/or reconveyance, and for the recovery of
possession, rentals, damages and attorney's fees, are five (5) parcels of land, all located in Cebu City.
Competing for the ownership of the five lots are the direct descendants and blood relatives of
Florentino Rallos and Maria Fadullon, opposed by the administrator of the intestate estate of Atty.
Sotto. The grandchildren of Florentino Rallos and Maria Fadullon, some of whom are assisted by
their spouses, are the plaintiffs in this case. Defendant administrator represents Atty. Sotto's children
out of wedlock. It is claimed by the defendant that Atty. Sotto was at the time of his death the
owner of the five lots in question.

Properties originally belonged to the conjugal partnership of the spouses Florentino Rallos
and Maria Fadullon. When Florentino Rallos died, the parcels of land in question, together with the
other properties comprising the estate of the deceased, descended to his sole heirs, his widow, Maria
Fadullon, and two children, named Concepcion and Carmen Rallos. The lawyer to whom the Rallos
heirs entrusted the settlement of the estate was Atty. Filemon Sotto.Shortly after the closure of the
probate proceeding in 1913, Atty. Sotto married Carmen Rallos. Carmen died in 1945 without
leaving any issue. Concepcion died later leaving many children. Maria Fadullon predeceased her two
daughters. Atty. Sotto died intestate on October 10, 1966.

All along, the direct descendants and blood relatives of Florentino Rallos had rested on the
belief that the properties in question, which are the fruits of the sweat and toil of their grandfather,
would one day be delivered unto them. The revelation of Cesar Sotto, however, led the plaintiffs to
the discovery that all the properties in question were now titled in the name of Atty. Sotto. and were
in danger of falling into the hands of his children out of wedlock, who are total strangers to the
spouses Rallos and Fadullon. Upon such discovery, the plaintiffs initiated the present lawsuit
forthwith. The heirs of Concepcion Rallos filed suit in the Court of First Instance of Cebu against
petitioner Marcelo Sotto, as administrator of the intestate estate of Filemon Sotto, for the recovery
of possession and ownership of the 5 parcels of land described in the complaint, with damages.

The complaint was based mainly upon the theory that a trust relation was established and
created with respect to the said properties, with Atty. Filemon Sotto as trustee and as cestuisque
trust, his mother-in-law, Maria FadullonVda. De Rallos; his wife, Carmen Rallos; and his sister-in-
law, Concepcion Rallos (predecessor in interest of herein private respondents); and that in gross
violation of the trust reposed upon him by Concepcion Rallos and after her death, by her heirs, the
said Atty. Filemon Sotto, through sheer manipulation, fraudulent acts and means, non-existent and
void decrees, fictitious sales and transfers, succeeded in causing the transfer of the ownership of the
properties to the name of his wife Carmen Rallos, and finally to his name alone.

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It is alleged that Atty. Filemon Sotto, having married Carmen Rallos, thereby virtually
making him a member of the Rallos family, was looked upon as the head of the Rallos family to look
after the properties inherited from the deceased Florentino Rallos including the 5 parcels of land
herein before mentioned, thereby establishing a trust relation with Don Filemon Sotto as trustee of
the said properties for the benefit of his mother-in-law Maria FadullonVda. De Rallos, his wife
Carmen Rallos de Sotto and sister-in-law Concepcion Rallos and the heirs of the latter, as cestuisque
trust. Answering the complaint, petitioner Marcelo Sotto denied that there was any trust relation
between Don Filemon Sotto on one hand and Maria Fadullon Vda. De Rallos, Carmen Rallos and
Concepcion Rallos on the other; that granting that such relationship existed between Don Filemon
Sotto and Concepcion Rallos, such a relationship could not have endured until the death of Don
Filemon Sotto.

Issue:

Whether or not Don Filemon Sotto became a co-trustee by virtue of his subsequent
marriage to Carmen Rallos.

Held:

The Court believed that Atty. Sotto can be regarded as the constructive trustee of his wife
and of the widow and descendants of Florentino Rallos. The relation between parties, in order to be
a fiduciary relation need not be legal, but may be moral, social, domestic or merely personal; and
where by reason of kinship, business association, disparity in age or physical or mental condition or
other reason, the grantee is in an especially intimate position with regard to another and the latter
reposes a degree of trust and confidence in the former, confidential relationship exists which
prohibits the one entrusted from seeking a selfish benefit for himself during the course of
relationship, and affords a basis for imposing a constructive trust. Atty. Sotto's special relationship
with the Rallos heirs inhibited him from any act or conduct that would put his interests above, or in
direct collision with, the interests of those who had reposed their trust and confidence in him."
Private respondents are entitled to the relief prayed for, which is for the reconveyance of the
properties to them. Since Maria FadullonVda. De Rallos died in 1938, her pro-indiviso share in the
properties then owned in co-ownership descended by intestacy to her daughters, Concepcion and
Carmen. Upon Carmen's death in 1945 without issue, the properties devolved to Concepcion
pursuant to their agreement in 1925 as testified to by Pilar Teves. When Concepcion Rallos died, her
heirs, who are now the private respondents, are entitled to these properties and should be declared
owners thereof. They are also entitled to the fruits thereof, the rentals of the properties, including
damages and attorney's fees as assessed by the appellate court, which we find just and reasonable.

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Article 1451

Urbano Mary Yasmine V.

CUSTODIO v. CASIANO
G.R. No. L-18977. December 27, 1963.
9 SCRA 841

Facts:

Filomena Custodio, et al., who are the children of Alejandra, Gregoria and Trinidad, all
surnamed Custodio, filed a complaint against Filomena Casiano, et al., the widow and children,
respectively, of Ciriaco Custodio, alleging that:

1. their grandfather, Isaac Custodio, purchased during his lifetime for a valuable
consideration but on installment basis from the Caridad Estate of Cavite, Inc. a parcel of
land;
2. although the title to the land was not placed in the name of Isaac before he died, due
to his inability to pay in full the purchase price, his rights thereto passed to his children,
namely, Ciriaco, Alejandro, Gregoria, and Trinidad, in the proportion of each;
3. upon payment by Alejandra of the remaining installments, the Caridad Estate of
Cavite, Inc. suggested that the deed of sale be executed in the name of their brother Ciriaco
since he was the only male in the family, and having the three sisters agreed to the
suggestion, the document was executed and issued in the name of Ciriaco Custodio, married
to Filomena Casiano; and
4. having discovered later that defendants were intending to sell the land to the
prejudice of the plaintiffs, the latter instituted the present action.

Defendants averred that they are the sole and exclusive owners of the land since the same
was purchased by their predecessor-in-interest Ciriaco Custodio from the Caridad Estate of Cavite,
Inc. since Transfer Certificate was issued in his name. Defendants also contended that the land
having been registered under the Land Registration Act (Act 496) the title issued is conclusive as to
all matters contained therein has already prescribed.

RTC declared plaintiffs and defendants co-owners of the land. CA reversed RTCs decision.

Issue:

Whether or not defendants are the sole and exclusive owners of the land.

Ruling:

No. Ciriaco only acted as a trustee to his sisters.

After the registration of the title in the name of Ciriaco, his sisters took possession of the
land, with the exception of Ciriaco who was never in possession thereof. It further appears that,

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although the title of the land was issued in the name Ciriaco the same however was at all times kept
in the possession of Alejandra, and later of Valeriano, an uncle of plaintiffs, and it was only when
the title was given to Filomena Casiano who had requested for it in connection with a transaction. It
finally appears that during the lifetime of Ciriaco the latter has always acknowledged the ownership
of his sisters over the land and after his death his widow had also acknowledged on several
occasions that the predecessors-in-interest of the parties were co-owners of the land.

It is significant to note that respondents at first claimed that the property was bought by
Ciriaco directly from the Caridad Estate of Cavite, Inc., but when confronted by evidence showing
that it was originally bought by Isaac Custodio, they later insinuated that it was only given to him to
Isaac out of gratitude for services he rendered to his father. This inconsistent stand cannot but lend
cogency to the claim of petitioners that the title to their land was issued in the name of Ciriaco
merely with the understanding that he would act as a trustee of his sisters. Therefore, a relation of
co-ownership between the predecessors-in-interest of the parties herein, it follows that the right of
petitioners to bring the present action cannot be deemed barred by prescription.

In the case of Castro v. Castro it was held that when the defendant procured the registration
of this land in his own name, he was acting in a trust capacity and as representative of all of his
brothers and sisters.

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Article 1457

Urbano, Mary Yasmine V.

FERRER-LOPEZ v. CA
G.R. No. L-50420. May 29, 1987.
150 SCRA 393

Facts:

Petitioners are the children of the late Dominga Velasco who inherited Lot 12509 in
Pangasinan. Petitioners assert that:

1. the area of said property was originally 54 hectares but 10 hectares were sold by
their mother so that what they inherited by way of testamentary succession are the remaining
44 hectares;
2. private respondents are encroaching on the portion of the land which belongs to
them;
3. what the father of private respondents bought from Damasa Catalan was the
adjoining western portion of the land with different measurements as applied for by
respondents in the registration of the land;
4. at the time of the Bureau of Lands Cadastral Survey, Ramon Puzon was then
representing two conflicting interests; namely, as overseer of Dominga Velasco over her land
and as overseer of his children in the land bought by them from Damasa Catalan.;
5. Ramon Puzon pointed to the surveyor the boundary between the lot bought by his
children, and that of Dominga Velasco as well as the places where the monuments would be
placed;
6. private respondents were never in actual possession of the land in question and it
was more than 32 years later that private respondents first attempted to claim ownership
over the alleged encroached portion; and
7. that they have been in successive, continuous, public, peaceful and uninterrupted
possession of said 44 hectares including the questioned portion, in the concept of absolute
owners, with just and valid title to the exclusion of all other person for more than 60 years
and up to the commencement of the litigation.

Respondents aver that petitioners misconstrued the entries in their Statement of Facts.
Petitioners' allegation that respondents' late father represented two conflicting interests when he
acted as overseer of the landholding of the petitioners and acted as administrator of the property
acquired from Damasa Catalan is a brazen lie as there is a total lack of evidence whatsoever of any
conflict of interests Respondents also maintain that aside from the aforementioned facts petitioners
failed to include in their Statement of Facts, the following facts established by the evidence:

1. That as a consequence of the cadastral proceeding over the parcel of land in


litigation, Lot. No. 12510 of the Cadastral Survey, was brought under the operation of the
land Registration Law

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2. That the adjoining parcel of land, Lot 12509 of the Cadastral Survey, has also been
the object of the same cadastral proceeding. Said Lot 12509 originally belonged to
petitioners' mother. Before the cadastral hearing, Lot. No. 12509 was subdivided into five
lots, and the corresponding decrees were issued, and Original Certificates of Title were
issued for the said subdivided lots MUCH EARLIER THAN THE DATE of issuance of
the decree of registration of Lot. No. 12510.
3. That private respondents informed the petitioners who own Lot 12509-C which
adjoins respondents' Lot 12510, that they encroached upon the respondents' Lot No. 12510.
They agreed to a relocation survey with the understanding that any portion that may be
found to be encroached upon by the petitioners will be returned to private respondents.
4. After the relocation petitioners refused to give back possession over the portion of
Lot 12510, encroached upon, so the private respondents sued the petitioners.

After trial, the Court a quo decided in favor private respondents herein. Court of Appeals
affirmed in toto as assailed decision of the trial court. Hence this appeal by certiorari.

Issue:

Whether or not respondent court erred in applying in the instant case the ruling on implied
trust.

Held:

No. The doctrine of implied trust asserted by petitioners finds no application in the case at
bar, because there are no proven facts to this effect. Even though an implied trust, of real or
personal property, does not require the formalities of an express trust over realty which as mandated
by the law cannot be proved by oral evidence under Art. 1443 of the Civil Code, still there must be
proof that the trustor wanted to grant one party only the beneficial ownership of a parcel of land,
although said beneficiary may have legal title in himself. Implied trusts are exemplified in Arts, 1447-
1456 of the Civil Code. Private respondents have been in possession of Lot. No. 12510 as owners
since its purchase in 1935 thru their late father Ramon Puzon. Ramon Puzon was the overseer of
petitioners' mother over another lot (Lot No. 12509) and not over the lot in question (Lot No.
12510). It is obvious that there could not have been any possible conflict of interest in the role of
private respondents' father. And even if indeed he had been the overseer of both lots, there was also
no such conflict of interest. Both lots had their own marked and natural boundaries; both had their
own separate registered titles of ownership; dominion over each was exercised by two separate
groups of owners.

The evidence of the petitioners is grossly inadequate to overcome the respondents'


conclusive and indefeasible title and right of ownership and possession.

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