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RIGHTS AND OBLIGATIONS OF PARTNERSHIPS AND Cuenco Cuyegkeng to reconvey or transfer, in a duly

PARTNERS registrable public instrument, Lot No 903-A-6 under TCT No.


113781 of the Registry of Deeds of Cebu City, of the Banilad
DIGEST-Antonia Torres vs Court of Appeals Estate with an area of 834 square meters, in favor of plaintiff
Concepcion Cuenco Vda. De Manguerra; or should the
Business Organization – Partnership, Agency, Trust – Sharing substituted defendant, for one reason or another, fail to
of Loss in a Partnership – Industrial Partner
execute the necessary instrument once the decision becomes
final, the Clerk of Court of this Court (RTC) is hereby
In 1969, sisters Antonia Torres and Emeteria Baring entered
into a joint venture agreement with Manuel Torres. Under the instructed, in accordance with the Rules of Court, to prepare
agreement, the sisters agreed to execute a deed of sale in and execute the appropriate and requisite conveyance and
favor Manuel over a parcel of land, the sisters received no instrument in favor of herein plaintiff which, in either case,
cash payment from Manuel but the promise of profits (60% shall be registered with the Office of the Register of Deeds of
for the sisters and 40% for Manuel) – said parcel of land is to Cebu City.
be developed as a subdivision.
Manuel then had the title of the land transferred in his name Without costs in this instance.[4]
and he subsequently mortgaged the property. He used the
proceeds from the mortgage to start building roads, curbs and The Facts
gutters. Manuel also contracted an engineering firm for the
building of housing units. But due to adverse claims in the
The facts were summarized by the appellate court as follows:
land, prospective buyers were scared off and the subdivision
project eventually failed.
The sisters then filed a civil case against Manuel for damages On September 19, 1970, the [respondent] filed the initiatory
equivalent to 60% of the value of the property, which complaint herein for specific performance against her uncle
according to the sisters, is what’s due them as per the [Petitioner] Miguel Cuenco which averred, inter alia that her
contract. father, the late Don Mariano Jesus Cuenco (who became
The lower court ruled in favor of Manuel and the Court of Senator) and said [petitioner] formed the Cuenco and Cuenco
Appeals affirmed the lower court. Law Offices; that on or around August 4, 1931, the Cuenco
The sisters then appealed before the Supreme Court where and Cuenco Law Offices served as lawyers in two (2) cases
they argued that there is no partnership between them and entitled Valeriano Solon versus Zoilo Solon (Civil Case 9037)
Manuel because the joint venture agreement is void. and Valeriano Solon versus Apolonia Solon (Civil Case 9040)
involving a dispute among relatives over ownership of lot 903
ISSUE: Whether or not there exists a partnership. of the Banilad Estate which is near the Cebu Provincial
Capitol; that records of said cases indicate the name of the
HELD: Yes. The joint venture agreement the sisters entered
[petitioner] alone as counsel of record, but in truth and in
into with Manuel is a partnership agreement whereby they
agreed to contribute property (their land) which was to be fact, the real lawyer behind the success of said cases was the
developed as a subdivision. While on the other hand, though influential Don Mariano Jesus Cuenco; that after winning said
Manuel did not contribute capital, he is an industrial partner cases, the awardees of Lot 903 subdivided said lot into three
for his contribution for general expenses and other costs. (3) parts as follows:
Furthermore, the income from the said project would be
divided according to the stipulated percentage (60-40). Lot 903-A: 5,000 [square meters]: Mariano Cuencos
Clearly, the contract manifested the intention of the parties attorneys fees
to form a partnership. Further still, the sisters cannot invoke
their right to the 60% value of the property and at the same Lot 903-B: 5,000 [square meters]: Miguel Cuencos attorneys
time deny the same contract which entitles them to it. fees
At any rate, the failure of the partnership cannot be blamed
on the sisters, nor can it be blamed to Manuel (the sisters on
Lot 903-C: 54,000 [square meters]: Solons retention
their appeal did not show evidence as to Manuel’s fault in the
failure of the partnership). The sisters must then bear their
loss (which is 60%). Manuel does not bear the loss of the That at the time of distribution of said three (3) lots in Cebu,
other 40% because as an industrial partner he is exempt from Mariano Jesus Cuenco was actively practicing law in Manila,
losses. and so he entrusted his share (Lot 903-A) to his brother law
partner (the [petitioner]); that on September 10, 1938, the
[petitioner] was able to obtain in his own name a title for Lot
FT-[G.R. No. 149844. October 13, 2004] 903-A (Transfer Certificate of Title [TCT] RT-6999 [T-
21108]); that he was under the obligation to hold the title in
MIGUEL CUENCO, Substituted by MARIETTA C. trust for his brother Marianos children by first marriage; that
CUYEGKENG, petitioner, vs. CONCEPCION CUENCO Vda. sometime in 1947, the Cuenco family was anticipating
DE MANGUERRA, respondent. Marianos second marriage, and so on February 1, 1947, they
partitioned Lot 903-A into six (6) sub-lots (Lots 903-A-1 to
DECISION 903-A-6) to correspond to the six (6) children of Marianos
first marriage (Teresita, Manuel, Lourdes, Carmen, Consuelo,
Inasmuch as the facts indubitably and eloquently show an and Concepcion); that the [petitioner] did not object nor
implied trust in favor of respondent, the Court of Appeals did oppose the partition plan; that on June 4, 1947, the
not err in affirming the Decision of the Regional Trial Court [petitioner] executed four (4) deeds of donation in favor of
ordering petitioner to convey the subject property to her. Marianos four (4) children: Teresita, Manuel, Lourdes, and
That Decision satisfied the demands of justice and prevented Carmen, pursuant to the partition plan (per notary documents
unjust enrichment. 183, 184, 185, 186, Book III, Series 1947 of Cebu City Notary
Public Candido Vasquez); that on June 24, 1947, the
The Case [petitioner] executed the fifth deed of donation in favor of
Marianos fifth child Consuelo (per notary document 214, Book
Before us is a Petition for Review[1] under Rule 45 of the III, Series 1947 of Cebu City Notary Public Candido Vasquez)
Rules of Court, challenging the August 22, 2001 Decision[2] (Exhibits 2 to 5); that said five (5) deeds of donation left out
of the Court of Appeals (CA) in CA-GR CV No. 54852. The Marianos sixth child Concepcion who later became the
assailed Decision disposed as follows: [respondent] in this case; that in 1949, [respondent]
occupied and fenced a portion of Lot 903-A-6 for taxation
WHEREFORE, the decision appealed from is AFFIRMED.[3] purposes (Exhibit F, Exhibit 6); that she also paid the taxes
thereon (Exhibit G); that her father died on February 25,
On the other hand, the Regional Trial Court (RTC) Decision 1964 with a Last Will and Testament; that the pertinent
affirmed by the CA disposed as follows: portion of her fathers Last Will and Testament bequeaths the
lot.
WHEREFORE, considering that this action is essentially one
for reconveyance or enforcement of a trust, judgment is near the Cebu provincial capitol, which were my attorneys
hereby rendered ordering the substituted defendant Marietta fees from my clients, Victoria Rallos and Zoilo Solon,
1
respectively have already long been disposed of, and Hence, this Petition.[7]
distributed by me, through my brother, Miguel, to all my said
children in the first marriage; The Issues

That on June 3, 1966, the [petitioner] wrote a letter In her Memorandum, petitioner raises the following issues for
petitioning the Register of Deeds of Cebu to transfer Lot 903- our consideration:
A-6 to his name on the ground that Lot 903-A-6 is a portion
of Lot 903-A; that on April 6, 1967, the [respondent] I. On question of law, the Court of Appeals failed to consider
requested the Register of Deeds to annotate an affidavit of facts of substance and significance which, if considered, will
adverse claim against the [petitioners] TCT RT-6999 (T- show that the preponderance of evidence is in favor of the
21108) which covers Lot 903-A; that on June 3, 1967, the petitioner.
Register of Deeds issued TCT 35275 covering Lot 903-A-6 in
the name of the [petitioner] but carrying the earlier II. On question of law, the Court of Appeals failed to
annotation of adverse claim; that in 1969, the [petitioner] appreciate the proposition that, contrary to the position taken
tore down the wire fence which the [respondent] constructed by the trial court, no constructive or implied trust exists
on Lot 903-A-6 which compelled the latter to institute the between the parties, and neither is the action one for
instant complaint dated August 20, 1970 on September 19, reconveyance based upon a constructive or implied trust.
1970.
III. On question of law, the Court of Appeals erred in not
On December 5, 1970, the answer with counterclaim dated finding that even where implied trust is admitted to exist the
December 3, 1970 of [petitioner] Miguel Cuenco was filed respondents action for relief is barred by laches and
where he alleged that he was the absolute owner of Lot 903- prescription.
A-6; that this lot was a portion of Lot 903-A which in turn was
part of Lot 903 which was the subject matter of litigation; IV. On question of law, the trial court and the appellate court
that he was alone in defending the cases involving Lot 903 erred in expunging from the records the testimony of Miguel
without the participation of his brother Mariano Cuenco; that Cuenco.[8]
he donated five (5) of the six (6) portions of Lot 903-A to the
five (5) children of his brother Mariano out of gratitude for This Courts Ruling
the love and care they exhibited to him (Miguel) during the
time of his long sickness; that he did not give or donate any The Petition has no merit.
portion of the lot to the [respondent] because she never
visited him nor took care of him during his long sickness; that Second Issue:
he became critically ill on February 11, 1946 and was confined
at the Singians Clinic in Manila and then transferred to Cebu Implied Trust
where he nearly died in 1946; that his wife Fara Remia
Ledesma Cuenco had an operation on January 1951 and was Petitioner then contends that no constructive or implied trust
confined at the University of Santo Tomas Hospital and John exists between the parties.
Hopkins Hospital in the United States; that two of his children
died at the University of Santo Tomas Hospital in 1951 and A trust is a legal relationship between one having an equitable
1952; and that his wife was blind for many months due to ownership in a property and another having legal title to
malignant hypertension but [respondent] never remembered it.[15]
her nor did she commiserate with him and his wife in their
long period of sorrow. Trust relations between parties may either be express or
implied.[16] Express trusts are created by the direct and
[Petitioner] Miguel Cuenco took the witness stand as early as positive acts of the parties, indicated through some writing,
September 13, 1974. His self-conducted direct examination deed, will, or words evidencing an intention to create a
lasted until 1985, the last one on November 22, 1985. trust.[17] On the other hand, implied trusts are those that,
Unfortunately, he died[5] before he was able to submit without being express, are deducible from the nature of the
himself for cross-examination and so his testimony had to be transaction as matters of intent[;] or which are superinduced
stricken off the record. His only surviving daughter, Marietta on the transaction by operation of law as a matter of equity,
Cuyegkeng, stood as the substitute [petitioner] in this case. independently of the particular intention of the parties.
She testified that she purchased Lot 903-A-6 (the property Implied trusts may either be resulting or constructive trusts,
subject matter of this case) from her late father sometime in both coming into being by operation of law.[18]
1990 and constructed a house thereon in the same year; that
she became aware of this case because her late father used Resulting trusts are presumed to have been contemplated by
to commute to Cebu City to attend to this case; and that Lot the parties and are based on the equitable doctrine that
903-A-6 is in her name per Transfer Certificate of Title valuable consideration, not legal title, determines the
#113781 of the Registry of Deeds for Cebu.[6] equitable title or interest.[19] These trusts arise from the
nature of or the circumstances involved in a transaction,[20]
Ruling of the Court of Appeals whereby legal title becomes vested in one person, who is
obligated in equity to hold that title for the benefit of another.
The CA found respondents action not barred by res judicata,
because there was no identity of causes of action between the Constructive trusts are created by the construction of equity
Petition for cancellation of adverse claim in L.R.C. Records in order to satisfy the demands of justice and prevent unjust
5988 and the Complaint for specific performance to resolve enrichment. They arise contrary to intention against one who,
the issue of ownership in Civil Case No. R-11891. by fraud, duress or abuse of confidence, obtains or holds the
legal right to property which he ought not, in equity and good
The appellate court further found no reason to disturb the conscience, to hold.[21]
findings of the trial court that respondent has the legal right
of ownership over lot 903-A-6. The CA ruled that the subject A review of the records shows that indeed there is an implied
land is part of the attorneys fees of Don Mariano Cuenco, trust between the parties.
predecessor-in-interest of [Respondent] Concepcion Cuenco
vda. de Manguerra and [petitioner] merely holds such Although Lot 903-A was titled in Miguels name, the
property in trust for [her], his title there[to] notwithstanding. circumstances surrounding the acquisition and the
subsequent partial dispositions of this property eloquently
Finally, the CA held that the right of action of respondent has speak of the intent that the equitable or beneficial ownership
not yet prescribed as she was in possession of the lot in of the property should belong to Mariano and his heirs.
dispute and the prescriptive period to file the case
commences to run only from the time she acquired First, Lot 903-A was one half of the one-hectare portion of Lot
knowledge of an adverse claim over [her] possession. 903 given as attorneys fees by a client of the law firm of
Partners Miguel and Mariano Cuenco. It constituted the latters
2
share in the attorneys fees and thus equitably belonged to OBLIGATIONS OF PARTNERSHIPS & PARTNER TO 3RD
him, as correctly found by the CA. That Lot 903-A had been PARTY
titled in the name of Miguel gave rise to an implied trust
between him and Mariano, specifically, the former holds the FT-G.R. No. L-39780 November 11, 1985
property in trust for the latter. In the present case, it is of no
moment that the implied trust arose from the circumstance - ELMO MUÑASQUE, petitioner, vs.
- a share in the attorneys fees -- that does not categorically COURT OF APPEALS,CELESTINO GALAN TROPICAL
fall under Articles 1448 to 1456 of the Civil Code. The cases COMMERCIAL COMPANY and RAMON PONS,
of implied trust enumerated therein does not exclude others respondents.
established by the general law of trust.[22]
GUTTIERREZ, JR., J.:
Second, from the time it was titled in his name in 1938,[23]
Lot 903-A remained undivided and untouched[24] by Miguel. In this petition for certiorari, the petitioner seeks to annul and
Only on February 3, 1947, did Lourdes Cuenco,[25] upon the set added the decision of the Court of Appeals affirming the
instruction of Mariano, have it surveyed and subdivided into existence of a partnership between petitioner and one of the
six almost equal portions -- 903-A-1 to 903-A-6. Each portion respondents, Celestino Galan and holding both of them liable
was specifically allocated to each of the six children of to the two intervenors which extended credit to their
Mariano with his first wife.[26] partnership. The petitioner wants to be excluded from the
liabilities of the partnership.
Third, Miguel readily surrendered his Certificate of Title[27]
and interposed no objection[28] to the subdivision and the Petitioner Elmo Muñasque filed a complaint for payment of
allocation of the property to Marianos six children, including sum of money and damages against respondents Celestino
Concepcion. Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon
Pons, alleging that the petitioner entered into a contract with
Fourth, Marianos children, including Concepcion,[29] were respondent Tropical through its Cebu Branch Manager Pons
the ones who shouldered the expenses incurred for the for remodelling a portion of its building without exchanging
subdivision of the property. or expecting any consideration from Galan although the latter
was casually named as partner in the contract; that by virtue
of his having introduced the petitioner to the employing
Fifth, after the subdivision of the property, Marianos children
company (Tropical). Galan would receive some kind of
-- including Concepcion[30] -- took possession of their
compensation in the form of some percentages or
respective portions thereof. commission; that Tropical, under the terms of the contract,
agreed to give petitioner the amount of P7,000.00 soon after
Sixth, the legal titles to five portions of the property were the construction began and thereafter, the amount of
transferred via a gratuitous deed of conveyance to Marianos P6,000.00 every fifteen (15) days during the construction to
five children, following the allocations specified in the make a total sum of P25,000.00; that on January 9, 1967,
subdivision plan prepared for Lourdes Cuenco.[31] Tropical and/or Pons delivered a check for P7,000.00 not to
the plaintiff but to a stranger to the contract, Galan, who
With respect to Lot 903-A-6 in particular, the existence of succeeded in getting petitioner's indorsement on the same
Concepcions equitable ownership thereof is bolstered, not check persuading the latter that the same be deposited in a
just by the above circumstances, but also by the fact that joint account; that on January 26, 1967 when the second
check for P6,000.00 was due, petitioner refused to indorse
respondent fenced the portion allocated to her and planted
said cheek presented to him by Galan but through later
trees thereon.[32]
manipulations, respondent Pons succeeded in changing the
payee's name from Elmo Muñasque to Galan and Associates,
More significantly, she also paid real property taxes on Lot thus enabling Galan to cash the same at the Cebu Branch of
903-A-6 yearly, from 1956 until 1969[33] -- the year when the Philippine Commercial and Industrial Bank (PCIB) placing
she was dispossessed of the property. Although tax the petitioner in great financial difficulty in his construction
declarations or realty tax payments of property are not business and subjecting him to demands of creditors to pay'
conclusive evidence of ownership, nevertheless, they are for construction materials, the payment of which should have
good indicia of possession in the concept of owner, for no one been made from the P13,000.00 received by Galan; that
in his right mind would be paying taxes for a property that is petitioner undertook the construction at his own expense
not in his actual or at least constructive possession.[34] Such completing it prior to the March 16, 1967 deadline;that
realty tax payments constitute proof that the holder has a because of the unauthorized disbursement by respondents
claim of title over the property. Tropical and Pons of the sum of P13,000.00 to Galan
petitioner demanded that said amount be paid to him by
respondents under the terms of the written contract between
Tellingly, Miguel started paying real property taxes on Lot
the petitioner and respondent company.
903-A-6 only on April 4, 1964,[35] after the death of
Mariano.[36] This fact shows that it was only in that year that
he was emboldened to claim the property as his own and to The respondents answered the complaint by denying some
stop recognizing Marianos, and subsequently Concepcions, and admitting some of the material averments and setting up
counterclaims.
ownership rights over it. It was only by then that the one who
could have easily refuted his claim had already been silenced
by death. Such a situation cannot be permitted to arise, as During the pre-trial conference, the petitioners and
will be explained below. respondents agreed that the issues to be resolved are:

WHEREFORE, the Petition is DENIED, and the assailed (1) Whether or not there existed a partners between
Decision AFFIRMED. Costs against petitioner. Celestino Galan and Elmo Muñasque; and

(2) Whether or not there existed a justifiable cause


MIGUEL CUENCO V. VDA DE MANGUERRA
GR 149844, OCTOBER 13, 2004 on the part of respondent Tropical to disburse money
to respondent Galan.
When a client employs the services of a law firm, he doesn’t
employ the services of the lawyer who is assigned to The business firms Cebu Southern Hardware Company and
personally handle the case. Rather, he employs the entire law Blue Diamond Glass Palace were allowed to intervene, both
firm. Being a partner to the law firm, the partners are entitled having legal interest in the matter in litigation.
to their respective share in the attorney’s fees from the firm’s
clients. After trial, the court rendered judgment, the dispositive
portion of which states:

IN VIEW WHEREOF, Judgment is hereby rendered:

3
(1) ordering plaintiff Muñasque and defendant Galan business was issued by the mayor of Cebu City. This enabled
to pay jointly and severally the intervenors Cebu and Galan to encash the second check.
Southern Hardware Company and Blue Diamond
Glass Palace the amount of P6,229.34 and
Meanwhile, as alleged by the petitioner, the construction
P2,213.51, respectively;
continued through his sole efforts. He stated that he borrowed
some P12,000.00 from his friend, Mr. Espina and although
(2) absolving the defendants Tropical Commercial the expenses had reached the amount of P29,000.00 because
Company and Ramon Pons from any liability, of the failure of Galan to pay what was partly due the laborers
and partly due for the materials, the construction work was
finished ahead of schedule with the total expenditure reaching
No damages awarded whatsoever.
P34,000.00.

The petitioner and intervenor Cebu Southern Company and


The two remaining checks, each in the amount of
its proprietor, Tan Siu filed motions for reconsideration.
P6,000.00,were subsequently given to the petitioner alone
with the last check being given pursuant to a court order.
On January 15, 197 1, the trial court issued 'another order
amending its judgment to make it read as follows:
As stated earlier, the petitioner filed a complaint for payment
of sum of money and damages against the
IN VIEW WHEREOF, Judgment is hereby rendered: respondents,seeking to recover the following: the amounts
covered by the first and second checks which fell into the
(1) ordering plaintiff Muñasque and defendant Galan hands of respondent Galan, the additional expenses that the
to pay jointly and severally the intervenors Cebu petitioner incurred in the construction, moral and exemplary
Southern Hardware Company and Blue Diamond damages, and attorney's fees.
Glass Palace the amount of P6,229.34 and
P2,213.51, respectively, Both the trial and appellate courts not only absolved
respondents Tropical and its Cebu Manager, Pons, from any
(2) ordering plaintiff and defendant Galan to pay liability but they also held the petitioner together with
Intervenor Cebu Southern Hardware Company and respondent Galan, hable to the intervenors Cebu Southern
Tan Siu jointly and severally interest at 12% per Hardware Company and Blue Diamond Glass Palace for the
annum of the sum of P6,229.34 until the amount is credit which the intervenors extended to the partnership of
fully paid; petitioner and Galan

(3) ordering plaintiff and defendant Galan to pay In this petition the legal questions raised by the petitioner are
P500.00 representing attorney's fees jointly and as follows: (1) Whether or not the appellate court erred in
severally to Intervenor Cebu Southern Hardware holding that a partnership existed between petitioner and
Company: respondent Galan. (2) Assuming that there was such a
partnership, whether or not the court erred in not finding
Galan guilty of malversing the P13,000.00 covered by the first
(4) absolving the defendants Tropical Commercial and second checks and therefore, accountable to the
Company and Ramon Pons from any liability, petitioner for the said amount; and (3) Whether or not the
court committed grave abuse of discretion in holding that the
No damages awarded whatsoever. payment made by Tropical through its manager Pons to Galan
was "good payment, "

On appeal, the Court of Appeals affirmed the judgment of the


trial court with the sole modification that the liability imposed Petitioner contends that the appellate court erred in holding
in the dispositive part of the decision on the credit of Cebu that he and respondent Galan were partners, the truth being
Southern Hardware and Blue Diamond Glass Palace was that Galan was a sham and a perfidious partner who
changed from "jointly and severally" to "jointly." misappropriated the amount of P13,000.00 due to the
petitioner.Petitioner also contends that the appellate court
committed grave abuse of discretion in holding that the
Not satisfied, Mr. Muñasque filed this petition. payment made by Tropical to Galan was "good" payment
when the same gave occasion for the latter to misappropriate
The present controversy began when petitioner Muñasque in the proceeds of such payment.
behalf of the partnership of "Galan and Muñasque" as
Contractor entered into a written contract with respondent The contentions are without merit.
Tropical for remodelling the respondent's Cebu branch
building. A total amount of P25,000.00 was to be paid under
the contract for the entire services of the Contractor. The The records will show that the petitioner entered into a con-
terms of payment were as follows: thirty percent (30%) of tract with Tropical for the renovation of the latter's building
the whole amount upon the signing of the contract and the on behalf of the partnership of "Galan and Muñasque." This is
balance thereof divided into three equal installments at the readily seen in the first paragraph of the contract where it
lute of Six Thousand Pesos (P6,000.00) every fifteen (15) states:
working days.
This agreement made this 20th day of December in
The first payment made by respondent Tropical was in the the year 1966 by Galan and Muñasque hereinafter
form of a check for P7,000.00 in the name of the called the Contractor, and Tropical Commercial Co.,
petitioner.Petitioner, however, indorsed the check in favor of Inc., hereinafter called the owner do hereby for and
respondent Galan to enable the latter to deposit it in the bank in consideration agree on the following: ... .
and pay for the materials and labor used in the project.
There is nothing in the records to indicate that the partner-
Petitioner alleged that Galan spent P6,183.37 out of the ship organized by the two men was not a genuine one. If
P7,000.00 for his personal use so that when the second check there was a falling out or misunderstanding between the
in the amount of P6,000.00 came and Galan asked the partners, such does not convert the partnership into a sham
petitioner to indorse it again, the petitioner refused. organization.

The check was withheld from the petitioner. Since Galan Likewise, when Muñasque received the first payment of
informed the Cebu branch of Tropical that there was Tropical in the amount of P7,000.00 with a check made out
a"misunderstanding" between him and petitioner, respondent in his name, he indorsed the check in favor of Galan.
Tropical changed the name of the payee in the second check Respondent Tropical therefore, had every right to presume
from Muñasque to "Galan and Associates" which was the duly that the petitioner and Galan were true partners. If they were
registered name of the partnership between Galan and not partners as petitioner claims, then he has only himself to
petitioner and under which name a permit to do construction 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.
4
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we contracts executed inconnection with partnership business is
ruled: only pro rata under Art. 1816, of the Civil Code.

Although it may be presumed that Margarita G. While it is true that under Article 1816 of the Civil Code,"All
Saldajeno had acted in good faith, the appellees also partners, including industrial ones, shall be liable prorate with
acted in good faith in extending credit to the all their property and after all the partnership assets have
partnership. Where one of two innocent persons been exhausted, for the contracts which may be entered into
must suffer, that person who gave occasion for the the name and fm the account cd the partnership, under its
damages to be caused must bear the consequences. 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
No error was committed by the appellate court in holding that
solidarily with the partnership for everything chargeable to
the payment made by Tropical to Galan was a good payment
the partnership under Articles 1822 and 1823." In short, while
which binds both Galan and the petitioner. Since the two were
the liability of the partners are merely joint in transactions
partners when the debts were incurred, they, are also both
entered into by the partnership, a third person who
liable to third persons who extended credit to their
transacted with said partnership can hold the partners
partnership. In the case of George Litton v. Hill and Ceron, et
solidarily liable for the whole obligation if the case of the third
al, (67 Phil. 513, 514), we ruled:
person falls under Articles 1822 or 1823.

There is a general presumption that each individual


Articles 1822 and 1823 of the Civil Code provide:
partner is an authorized agent for the firm and that
he has authority to bind the firm in carrying on the
partnership transactions. (Mills vs. Riggle,112 Pan, Art. 1822. Where, by any wrongful act or omission
617). 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
The presumption is sufficient to permit third persons
person, not being a partner in the partnership or any
to hold the firm liable on transactions entered into
penalty is incurred, the partnership is liable therefor
by one of members of the firm acting apparently in
to the same extent as the partner so acting or
its behalf and within the scope of his authority. (Le
omitting to act.
Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)

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


Petitioner also maintains that the appellate court committed
grave abuse of discretion in not holding Galan liable for the
amounts which he "malversed" to the prejudice of the (1) Where one partner acting within the scope of his
petitioner. He adds that although this was not one of the apparent authority receives money or property of a
issues agreed upon by the parties during the pretrial, he, third person and misapplies it; and
nevertheless, alleged the same in his amended complaint
which was, duly admitted by the court.
(2) Where the partnership in the course of its
business receives money or property of a third
When the petitioner amended his complaint, it was only for person and t he money or property so received is
the purpose of impleading Ramon Pons in his personal misapplied by any partner while it is in the custody
capacity. Although the petitioner made allegations as to the of the partnership.
alleged malversations of Galan, these were the same
allegations in his original complaint. The malversation by one
The obligation is solidary, because the law protects him, who
partner was not an issue actually raised in the amended
in good faith relied upon the authority of a partner, whether
complaint but the alleged connivance of Pons with Galan as a
such authority is real or apparent. That is why under Article
means to serve the latter's personal purposes.
1824 of the Civil Code all partners, whether innocent or guilty,
as well as the legal entity which is the partnership, are
The petitioner, therefore, should be bound by the delimitation solidarily liable.
of the issues during the pre-trial because he himself agreed
to the same. In Permanent Concrete Products, Inc. v.
In the case at bar the respondent Tropical had every reason
Teodoro, (26 SCRA 336), we ruled:
to believe that a partnership existed between the petitioner
and Galan and no fault or error can be imputed against it for
xxx xxx xxx making payments to "Galan and Associates" and delivering
the same to Galan because as far as it was concerned, Galan
was a true partner with real authority to transact on behalf of
... The appellant is bound by the delimitation of the
the partnership with which it was dealing. This is even more
issues contained in the trial court's order issued on
true in the cases of Cebu Southern Hardware and Blue
the very day the pre-trial conference was held. Such
Diamond Glass Palace who supplied materials on credit to the
an order controls the subsequent course of the
partnership. Thus, it is but fair that the consequences of any
action, unless modified before trial to prevent
wrongful act committed by any of the partners therein should
manifest injustice.In the case at bar, modification of
be answered solidarily by all the partners and the partnership
the pre-trial order was never sought at the instance
as a whole
of any party.

However. as between the partners Muñasque and


Petitioner could have asked at least for a modification of the
Galan,justice also dictates that Muñasque be reimbursed by
issues if he really wanted to include the determination of
Galan for the payments made by the former representing the
Galan's personal liability to their partnership but he chose not
liability of their partnership to herein intervenors, as it was
to do so, as he vehemently denied the existence of the
satisfactorily established that Galan acted in bad faith in his
partnership. At any rate, the issue raised in this petition is the
dealings with Muñasque as a partner.
contention of Muñasque that the amounts payable to the
intervenors should be shouldered exclusively by Galan. We
note that the petitioner is not solely burdened by the WHEREFORE, the decision appealed from is hereby AFFIRMED
obligations of their illstarred partnership. The records show with the MODIFICATION that the liability of petitioner and
that there is an existing judgment against respondent Galan, respondent Galan to intervenors Blue Diamond Glass and
holding him liable for the total amount of P7,000.00 in favor Cebu Southern Hardware is declared to be joint and solidary.
of Eden Hardware which extended credit to the partnership Petitioner may recover from respondent Galan any amount
aside from the P2, 000. 00 he already paid to Universal that he pays, in his capacity as a partner, to the above
Lumber. intervenors,

We, however, take exception to the ruling of the appellate DIGEST-MUÑASQUE v. CA


court that the trial court's ordering petitioner and Galan to G.R. No. L-39780; November 11, 1985
pay the credits of Blue Diamond and Cebu Southern Ponente: J. Gutierrez. Jr
Hardware"jointly and severally" is plain error since the
liability of partners under the law to third persons for FACTS:
5
plaintiff the sum of P7,119.07 with interest at the
Elmo Muñasque filed a complaint for payment of sum of rate of 12% per annum until it is fully paid, plus
money and damages against respondents Celestino Galan, attorney's fees which the Court fixes in the sum of
Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, Eight Hundred Pesos (P800.00) and costs.
alleging that the petitioner entered into a contract with
respondent Tropical through its Cebu Branch Manager Pons
The defendants Benjamin C. Daco, Daniel A.
for remodeling a portion of its building without exchanging or
Guizona, Noel C. Sim and Augusto Palisoc are
expecting any consideration from Galan although the latter
sentenced to pay the plaintiff in this case with the
was casually named as partner in the contract; that by virtue
understanding that the judgment against these
of his having introduced the petitioner to the employing
individual defendants shall be enforced only if the
company (Tropical), Galan would receive some kind of
defendant company has no more leviable properties
compensation in the form of some percentages or
with which to satisfy the judgment against it. .
commission.

Tropical agreed to give petitioner the amount of P7,000.00 The individual defendants shall also pay the costs.
soon after the construction began and thereafter the amount
of P6,000.00 every fifteen (15) days during the construction On April 22, 1961, the defendant company, a general
to make a total sum of P25,000.00. partnership duly registered under the laws of the Philippines,
On January 9, 1967, Tropical and/or Pons delivered a check purchased from the plaintiff a motor vehicle on the
for P7,000.00 not to the plaintiff but to a stranger to the installment basis and for this purpose executed a promissory
contract, Galan, who succeeded in getting petitioner's note for P9,440.00, payable in twelve (12) equal monthly
indorsement on the same check persuading the latter that the installments of P786.63, the first installment payable on or
same be deposited in a joint account. before May 22, 1961 and the subsequent installments on the
22nd day of every month thereafter, until fully paid, with the
On January 26, 1967, when the second check for P6,000.00 condition that failure to pay any of said installments as they
was due, petitioner refused to indorse said check presented fall due would render the whole unpaid balance immediately
to him by Galan but through later manipulations, respondent due and demandable.
Pons succeeded in changing the payee's name to Galan and
Associates, thus enabling Galan to cash the same at the Cebu
Having failed to receive the installment due on July 22, 1961,
Branch of the Philippine Commercial and Industrial Bank
the plaintiff sued the defendant company for the unpaid
(PCIB) placing the petitioner in great financial difficulty in his
balance amounting to P7,119.07. Benjamin C. Daco, Daniel
construction business and subjecting him to demands of
A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto
creditors to pay for construction materials, the payment of
Palisoc were included as co-defendants in their capacity as
which should have been made from the P13,000.00 received
general partners of the defendant company.
by Galan.

Daniel A. Guizona failed to file an answer and was


Due to the unauthorized disbursement by respondents consequently declared in default. 1
Tropical and Pons of the sum of P13,000.00 to Galan,
petitioner demanded that said amount be paid to him by Subsequently, on motion of the plaintiff, the complaint was
respondents under the terms of the written contract between dismissed insofar as the defendant Romulo B. Lumauig is
the petitioner and respondent company. concerned. 2

ISSUE:
When the case was called for hearing, the defendants and
Whether there was a breach of trust when Tropical disbursed their counsels failed to appear notwithstanding the notices
the money to Galan instead of Muñasque sent to them. Consequently, the trial court authorized the
plaintiff to present its evidence ex-parte 3 , after which the
HELD: trial court rendered the decision appealed from.

No, there was no breach of trust when Tropical disbursed the The defendants Benjamin C. Daco and Noel C. Sim moved to
money to Galan instead of Muñasque. reconsider the decision claiming that since there are five (5)
general partners, the joint and subsidiary liability of each
The Supreme Court held that there is nothing in the records partner should not exceed one-fifth ( 1/ 5 ) of the obligations
to indicate that the partnership organized by the two men was of the defendant company. But the trial court denied the said
not a genuine one. A falling out or misunderstanding between motion notwithstanding the conformity of the plaintiff to limit
the partners does not convert the partnership into a sham the liability of the defendants Daco and Sim to only one-fifth
organization. ( 1/ 5 ) of the obligations of the defendant company. 4 Hence,
this appeal.
In the case at bar the respondent Tropical had every reason
to believe that a partnership existed between the petitioner
The only issue for resolution is whether or not the dismissal
and Galan and no fault or error can be imputed against it for
of the complaint to favor one of the general partners of a
making payments to "Galan and Associates" and delivering
partnership increases the joint and subsidiary liability of each
the same to Galan because as far as it was concerned, Galan
of the remaining partners for the obligations of the
was a true partner with real authority to transact on behalf of
partnership.
the partnership with which it was dealing.

Article 1816 of the Civil Code provides:


FT-G.R. No. L-22493 July 31, 1975
Art. 1816. All partners including industrial ones,
ISLAND SALES, INC., plaintiff-appellee, shall be liable pro rata with all their property and
vs. after all the partnership assets have been
UNITED PIONEERS GENERAL CONSTRUCTION exhausted, for the contracts which may be entered
COMPANY, ET. AL defendants. BENJAMIN C. DACO, into in the name and for the account of the
defendant-appellant. partnership, under its signature and by a person
authorized to act for the partnership. However, any
partner may enter into a separate obligation to
CONCEPCION JR., J.:
perform a partnership contract.

This is an appeal interposed by the defendant Benjamin C.


In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
Daco from the decision of the Court of First Instance of
Manila, Branch XVI, in Civil Case No. 50682, the dispositive
portion of which reads: 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
WHEREFORE, the Court sentences defendant United
mercantile partnership. Being a civil partnership, by
Pioneer General Construction Company to pay
the express provisions of articles l698 and 1137 of
6
the Civil Code, the partners are not liable each for transacted on its behalf, but reaped benefits from that
the whole debt of the partnership. The liability is pro contract.
rata and in this case Pedro Yulo is responsible to
plaintiff for only one-half of the debt. The fact that
The Case
the other partner, Jaime Palacios, had left the
country cannot increase the liability of Pedro Yulo.
In the Petition for Review on Certiorari before us, Lim Tong
Lim assails the November 26, 1998 Decision of the Court of
In the instant case, there were five (5) general partners when
Appeals in CA-GR CV 41477, 1 which disposed as follows:
the promissory note in question was executed for and in
behalf of the partnership. Since the liability of the partners is
pro rata, the liability of the appellant Benjamin C. Daco shall WHEREFORE, [there being] no reversible error in the
be limited to only one-fifth ( 1/ 5 ) of the obligations of the appealed decision, the same is hereby affirmed. 2
defendant company. The fact that the complaint against the
defendant Romulo B. Lumauig was dismissed, upon motion of The decretal portion of the Quezon City Regional Trial Court
the plaintiff, does not unmake the said Lumauig as a general (RTC) ruling, which was affirmed by the CA, reads as follows:
partner in the defendant company. In so moving to dismiss
the complaint, the plaintiff merely condoned Lumauig's
individual liability to the plaintiff. WHEREFORE, the Court rules:

WHEREFORE, the appealed decision as thus clarified is hereby 1. That plaintiff is entitled to the writ of preliminary
AFFIRMED, without pronouncement as to costs. attachment issued by this Court on September 20, 1990;

DIGEST-Island Sales vs United Pioneers General 2. That defendants are jointly liable to plaintiff for the
Construction Company et al following amounts, subject to the modifications as hereinafter
made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the
Business Organization – Partnership, Agency, Trust – Liability trial of this case;
of Partners – Pro-rata – Condonation

a. P532,045.00 representing [the] unpaid purchase price of


United Pioneers General Construction Company is a general the fishing nets covered by the Agreement plus P68,000.00
partnership formed by Benjamin Daco, Daniel Guizona, Noel representing the unpaid price of the floats not covered by said
Sim, Augusto Palisoc and Romulo Lumauig. In 1961, United Agreement;
Pioneers purchased by installment a motor vehicle from
Island Sales, Inc. United Pioneers defaulted in its payment
hence it was sued and the 5 partners were impleaded as co- b. 12% interest per annum counted from date of plaintiff’s
defendants. invoices and computed on their respective amounts as
follows:

Upon motion of Island Sales, Lumauig was removed as a


defendant. i. Accrued interest of P73,221.00 on Invoice No. 14407 for
P385,377.80 dated February 9, 1990;

United Pioneers lost the civil case and the trial court rendered
judgment ordering United Pioneers to pay the outstanding ii. Accrued interest for P27,904.02 on Invoice No. 14413 for
balance plus interest and costs. It further decreed that the P146,868.00 dated February 13, 1990;
remaining 4 co-defendants shall pay Island Sales in case
United Pioneers’ property will not be enough to satisfy its iii. Accrued interest of P12,920.00 on Invoice No. 14426 for
indebtedness to Island Sales. P68,000.00 dated February 19, 1990;

ISSUE: What is the extent of the liability of the partners c. P50,000.00 as and for attorney’s fees, plus P8,500.00
considering that one partner was removed as a co-defendant representing P500.00 per appearance in court;
on motion of Island Sales?

d. P65,000.00 representing P5,000.00 monthly rental for


HELD: Their liability is pro-rata pursuant to Article 1816 of storage charges on the nets counted from September 20,
the Civil Code. But is should be noted that since there were 5 1990 (date of attachment) to September 12, 1991 (date of
partners when the purchase was made in behalf of the auction sale);
partnership, the liability of each partner should be 1/5th (of
the company’s obligation) each. The fact that the complaint
against Lumauig was dismissed, upon motion of the Island e. Cost of suit.
Sales, does not unmake Lumauig as a general partner in the
company. In so moving to dismiss the complaint, Island Sales With respect to the joint liability of defendants for the
merely condoned Lumauig’s individual liability to them. principal obligation or for the unpaid price of nets and floats
in the amount of P532,045.00 and P68,000.00, respectively,
or for the total amount P600,045.00, this Court noted that
these items were attached to guarantee any judgment that
may be rendered in favor of the plaintiff but, upon agreement
FT-G.R. No. 136448 November 3, 1999 of the parties, and, to avoid further deterioration of the nets
during the pendency of this case, it was ordered sold at public
LIM TONG LIM, petitioner, auction for not less than P900,000.00 for which the plaintiff
vs. was the sole and winning bidder. The proceeds of the sale
PHILIPPINE FISHING GEAR INDUSTRIES, paid for by plaintiff was deposited in court. In effect, the
INC., respondent. amount of P900,000.00 replaced the attached property as a
guaranty for any judgment that plaintiff may be able to
secure in this case with the ownership and possession of the
PANGANIBAN, J.: nets and floats awarded and delivered by the sheriff to
plaintiff as the highest bidder in the public auction sale. It has
A partnership may be deemed to exist among parties who also been noted that ownership of the nets [was] retained by
agree to borrow money to pursue a business and to divide the plaintiff until full payment [was] made as stipulated in the
the profits or losses that may arise therefrom, even if it is invoices; hence, in effect, the plaintiff attached its own
shown that they have not contributed any capital of their own properties. It [was] for this reason also that this Court earlier
to a “common fund.” Their contribution may be in the form of ordered the attachment bond filed by plaintiff to guaranty
credit or industry, not necessarily cash or fixed assets. Being damages to defendants to be cancelled and for the
partner, they are all liable for debts incurred by or on behalf P900,000.00 cash bidded and paid for by plaintiff to serve as
of the partnership. The liability for a contract entered into on its bond in favor of defendants.
behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly

7
From the foregoing, it would appear therefore that whatever excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio
judgment the plaintiff may be entitled to in this case will have Chua; 1/3 Peter Yao;
to be satisfied from the amount of P900,000.00 as this
amount replaced the attached nets and floats. Considering,
c) If the proceeds of the sale the vessels will be less than
however, that the total judgment obligation as computed
P5,750,000.00 whatever the deficiency shall be shouldered
above would amount to only P840,216.92, it would be
and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3
inequitable, unfair and unjust to award the excess to the
Antonio Chua; 1/3 Peter Yao. 11
defendants who are not entitled to damages and who did not
put up a single centavo to raise the amount of P900,000.00
aside from the fact that they are not the owners of the nets The trial court noted that the Compromise Agreement was
and floats. For this reason, the defendants are hereby silent as to the nature of their obligations, but that joint
relieved from any and all liabilities arising from the monetary liability could be presumed from the equal distribution of the
judgment obligation enumerated above and for plaintiff to profit and loss. 21
retain possession and ownership of the nets and floats and
for the reimbursement of the P900,000.00 deposited by it Lim appealed to the Court of Appeals (CA) which, as already
with the Clerk of Court. stated, affirmed the RTC.

SO ORDERED. 3
Ruling of the Court of Appeals

The Facts In affirming the trial court, the CA held that petitioner was a
partner of Chua and Yao in a fishing business and may thus
On behalf of “Ocean Quest Fishing Corporation,” Antonio be held liable as a such for the fishing nets and floats
Chua and Peter Yao entered into a Contract dated February purchased by and for the use of the partnership. The
7, 1990, for the purchase of fishing nets of various sizes from appellate court ruled:
the Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in a The evidence establishes that all the defendants including
business venture with Petitioner Lim Tong Lim, who however herein appellant Lim Tong Lim undertook a partnership for a
was not a signatory to the agreement. The total price of the specific undertaking, that is for commercial fishing . . . .
nets amounted to P532,045. Four hundred pieces of floats Obviously, the ultimate undertaking of the defendants was to
worth P68,000 were also sold to the Corporation. 4 divide the profits among themselves which is what a
partnership essentially is . . . . By a contract of partnership,
The buyers, however, failed to pay for the fishing nets and two or more persons bind themselves to contribute money,
the floats; hence, private respondents filed a collection suit property or industry to a common fund with the intention of
against Chua, Yao and Petitioner Lim Tong Lim with a prayer dividing the profits among themselves (Article 1767, New
for a writ of preliminary attachment. The suit was brought Civil Code). 13
against the three in their capacities as general partners, on
the allegation that “Ocean Quest Fishing Corporation” was a Hence, petitioner brought this recourse before this Court. 14
nonexistent corporation as shown by a Certification from the
Securities and Exchange Commission. 5 On September 20,
1990, the lower court issued a Writ of Preliminary The Issues
Attachment, which the sheriff enforced by attaching the
fishing nets on board F/B Lourdes which was then docked at In his Petition and Memorandum, Lim asks this Court to
the Fisheries Port, Navotas, Metro Manila. reverse the assailed Decision on the following grounds:

Instead of answering the Complaint, Chua filed a I


Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned over to
respondent some of the nets which were in his possession. THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A
Peter Yao filed an Answer, after which he was deemed to have COMPROMISE AGREEMENT THAT CHUA, YAO AND
waived his right to cross-examine witnesses and to present PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT
evidence on his behalf, because of his failure to appear in A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
subsequent hearings. Lim Tong Lim, on the other hand, filed
an Answer with Counterclaim and Crossclaim and moved for II
the lifting of the Writ of Attachment. 6The trial court
maintained the Writ, and upon motion of private respondent,
SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE
ordered the sale of the fishing nets at a public auction.
WAS ACTING FOR OCEAN QUEST FISHING CORPORATION
Philippine Fishing Gear Industries won the bidding and
WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING,
deposited with the said court the sales proceeds of
THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING
P900,000. 7
LIABILITY TO PETITIONER LIM AS WELL.

On November 18, 1992, the trial court rendered its Decision,


III
ruling 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. 8 THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND
ATTACHMENT OF PETITIONER LIM’S GOODS.
The trial court ruled that a partnership among Lim, Chua and
Yao existed based (1) on the testimonies of the witnesses In determining whether petitioner may be held liable for the
presented and (2) on a Compromise Agreement executed by fishing nets and floats from respondent, the Court must
the three 9 in Civil Case No. 1492-MN which Chua and Yao resolve this key issue: whether by their acts, Lim, Chua and
had brought against Lim in the RTC of Malabon, Branch 72, Yao could be deemed to have entered into a partnership.
for (a) a declaration of nullity of commercial documents; (b)
a reformation of contracts; (c) a declaration of ownership of This Court’s Ruling
fishing boats; (d) an injunction and (e) damages. 10 The
Compromise Agreement provided:
The Petition is devoid of merit.
a) That the parties plaintiffs & Lim Tong Lim agree to have
the four (4) vessels sold in the amount of P5,750,000.00 First and Second Issues:
including the fishing net. This P5,750,000.00 shall be applied
as full payment for P3,250,000.00 in favor of JL Holdings Existence of a Partnership and Petitioner’s Liability
Corporation and/or Lim Tong Lim;

In arguing that he should not be held liable for the equipment


b) If the four (4) vessel[s] and the fishing net will be sold at purchased from respondent, petitioner controverts the CA
a higher price than P5,750,000.00 whatever will be the finding that a partnership existed between him, Peter Yao and
8
Antonio Chua. He asserts that the CA based its finding on the the boats would be divided equally among them also shows
Compromise Agreement alone. Furthermore, he disclaims that they had indeed formed a partnership.
any direct participation in the purchase of the nets, alleging
that the negotiations were conducted by Chua and Yao only,
Moreover, it is clear that the partnership extended not only
and that he has not even met the representatives of the
to the purchase of the boat, but also to that of the nets and
respondent company. Petitioner further argues that he was a
the floats. The fishing nets and the floats, both essential to
lessor, not a partner, of Chua and Yao, for the “Contract of
fishing, were obviously acquired in furtherance of their
Lease ” dated February 1, 1990, showed that he had merely
business. It would have been inconceivable for Lim to involve
leased to the two the main asset of the purported partnership
himself so much in buying the boat but not in the acquisition
— the fishing boat F/B Lourdes. The lease was for six months,
of the aforesaid equipment, without which the business could
with a monthly rental of P37,500 plus 25 percent of the gross
not have proceeded.
catch of the boat.

Given the preceding facts, it is clear that there was, among


We are not persuaded by the arguments of petitioner. The
petitioner, Chua and Yao, a partnership engaged in the fishing
facts as found by the two lower courts clearly showed that
business. They purchased the boats, which constituted the
there existed a partnership among Chua, Yao and him,
main assets of the partnership, and they agreed that the
pursuant to Article 1767 of the Civil Code which provides:
proceeds from the sales and operations thereof would be
divided among them.
Art. 1767 — By the contract of partnership, two or more
persons bind themselves to contribute money, property, or
We stress that under Rule 45, a petition for review like the
industry to a common fund, with the intention of dividing the
present case should involve only questions of law. Thus, the
profits among themselves.
foregoing factual findings of the RTC and the CA are binding
on this Court, absent any cogent proof that the present action
Specifically, both lower courts ruled that a partnership among is embraced by one of the exceptions to the rule. 16 In
the three existed based on the following factual findings: 15 assailing the factual findings of the two lower courts,
petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.
(1) That Petitioner Lim Tong Lim requested Peter Yao who
was engaged in commercial fishing to join him, while Antonio
Chua was already Yao’s partner; Compromise Agreement Not the Sole Basis of Partnership

(2) That after convening for a few times, Lim, Chua, and Yao Petitioner argues that the appellate court’s sole basis for
verbally agreed to acquire two fishing boats, the FB assuming the existence of a partnership was the Compromise
Lourdes and the FB Nelson for the sum of P3.35 million; Agreement. He also claims that the settlement was entered
into only to end the dispute among them, but not to
adjudicate their preexisting rights and obligations. His
(3) That they borrowed P3.25 million from Jesus Lim, brother
arguments are baseless. The Agreement was but an
of Petitioner Lim Tong Lim, to finance the venture.
embodiment of the relationship extant among the parties
prior to its execution.
(4) That they bought the boats from CMF Fishing Corporation,
which executed a Deed of Sale over these two (2) boats in
A proper adjudication of claimants’ rights mandates that
favor of Petitioner Lim Tong Lim only to serve as security for
courts must review and thoroughly appraise all relevant facts.
the loan extended by Jesus Lim;
Both lower courts have done so and have found, correctly, a
preexisting partnership among the parties. In implying that
(5) That Lim, Chua and Yao agreed that the refurbishing, re- the lower courts have decided on the basis of one piece of
equipping, repairing, dry docking and other expenses for the document alone, petitioner fails to appreciate that the CA and
boats would be shouldered by Chua and Yao; the RTC delved into the history of the document and explored
all the possible consequential combinations in harmony with
(6) That because of the “unavailability of funds,” Jesus Lim law, logic and fairness. Verily, the two lower courts’ factual
again extended a loan to the partnership in the amount of P1 findings mentioned above nullified petitioner’s argument that
million secured by a check, because of which, Yao and Chua the existence of a partnership was based only on the
entrusted the ownership papers of two other boats, Chua’s FB Compromise Agreement.
Lady Anne Mel and Yao’s FB Tracy to Lim Tong Lim.
Petitioner Was a Partner, Not a Lessor
(7) That in pursuance of the business agreement, Peter Yao
and Antonio Chua bought nets from Respondent Philippine We are not convinced by petitioner’s argument that he was
Fishing Gear, in behalf of “Ocean Quest Fishing Corporation,” merely the lessor of the boats to Chua and Yao, not a partner
their purported business name. in the fishing venture. His argument allegedly finds support
in the Contract of Lease and the registration papers showing
(8) That subsequently, Civil Case No. 1492-MN was filed in that he was the owner of the boats, including F/B
the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao Lourdes where the nets were found.
against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c) His allegation defies logic. In effect, he would like this Court
declaration of ownership of fishing boats; (4) injunction; and to believe that he consented to the sale of his own boats to
(e) damages. pay a debt of Chua and Yao, with the excess of the proceeds
to be divided among the three of them. No lessor would do
(9) That the case was amicably settled through a Compromise what petitioner did. Indeed, his consent to the sale proved
Agreement executed between the parties-litigants the terms that there was a preexisting partnership among all three.
of which are already enumerated above.
Verily, as found by the lower courts, petitioner entered into a
From the factual findings of both lower courts, it is clear that business agreement with Chua and Yao, in which debts were
Chua, Yao and Lim had decided to engage in a fishing undertaken in order to finance the acquisition and the
business, which they started by buying boats worth P3.35 upgrading of the vessels which would be used in their fishing
million, financed by a loan secured from Jesus Lim who was business. The sale of the boats, as well as the division among
petitioner’s brother. In their Compromise Agreement, they the three of the balance remaining after the payment of their
subsequently revealed their intention to pay the loan with the loans, proves beyond cavil that F/B Lourdes, though
proceeds of the sale of the boats, and to divide equally among registered in his name, was not his own property but an asset
them the excess or loss. These boats, the purchase and the of the partnership. It is not uncommon to register the
repair of which were financed with borrowed money, fell properties acquired from a loan in the name of the person the
under the term “common fund” under Article 1767. The lender trusts, who in this case is the petitioner himself. After
contribution to such fund need not be cash or fixed assets; it all, he is the brother of the creditor, Jesus Lim.
could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of We stress that it is unreasonable — indeed, it is absurd — for
petitioner to sell his property to pay a debt he did not incur,
9
if the relationship among the three of them was merely that benefited by it, knowing it to be without valid existence, are
of lessor-lessee, instead of partners. held liable as general partners.

Corporation by Estoppel Technically, it is true that petitioner did not directly act on
behalf of the corporation. However, having reaped the
benefits of the contract entered into by persons with whom
Petitioner argues that under the doctrine of corporation by
he previously had an existing relationship, he is deemed to
estoppel, liability can be imputed only to Chua and Yao, and
be part of said association and is covered by the scope of the
not to him. Again, we disagree.
doctrine of corporation by estoppel. We reiterate the ruling of
the Court in Alonso v. Villamor: 19
Sec. 21 of the Corporation Code of the Philippines provides:
A litigation is not a game of technicalities in which one, more
Sec. 21. Corporation by estoppel. — All persons who assume deeply schooled and skilled in the subtle art of movement and
to act as a corporation knowing it to be without authority to position, entraps and destroys the other. It is, rather, a
do so shall be liable as general partners for all debts, liabilities contest in which each contending party fully and fairly lays
and damages incurred or arising as a result thereof: Provided before the court the facts in issue and then, brushing aside
however, That when any such ostensible corporation is sued as wholly trivial and indecisive all imperfections of form and
on any transaction entered by it as a corporation or on any technicalities of procedure, asks that justice be done upon the
tort committed by it as such, it shall not be allowed to use as merits. Lawsuits, unlike duels, are not to be won by a rapier’s
a defense its lack of corporate personality. thrust. Technicality, when it deserts its proper office as an aid
to justice and becomes its great hindrance and chief enemy,
One who assumes an obligation to an ostensible corporation deserves scant consideration from courts. There should be no
as such, cannot resist performance thereof on the ground that vested rights in technicalities.
there was in fact no corporation.
Third Issue: Validity of Attachment
Thus, even if the ostensible corporate entity is proven to be
legally nonexistent, a party may be estopped from denying Finally, petitioner claims that the Writ of Attachment was
its corporate existence. “The reason behind this doctrine is improperly issued against the nets. We agree with the Court
obvious — an unincorporated association has no personality of Appeals that this issue is now moot and academic. As
and would be incompetent to act and appropriate for itself the previously discussed, F/B Lourdes was an asset of the
power and attributes of a corporation as provided by law; it partnership and that it was placed in the name of petitioner,
cannot create agents or confer authority on another to act in only to assure payment of the debt he and his partners owed.
its behalf; thus, those who act or purport to act as its The nets and the floats were specifically manufactured and
representatives or agents do so without authority and at their tailor-made according to their own design, and were bought
own risk. And as it is an elementary principle of law that a and used in the fishing venture they agreed upon. Hence, the
person who acts as an agent without authority or without a issuance of the Writ to assure the payment of the price
principal is himself regarded as the principal, possessed of all stipulated in the invoices is proper. Besides, by specific
the right and subject to all the liabilities of a principal, a agreement, ownership of the nets remained with Respondent
person acting or purporting to act on behalf of a corporation Philippine Fishing Gear, until full payment thereof.
which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts
WHEREFORE, the Petition is DENIED and the assailed Decision
entered into or for other acts performed as such agent. 17
AFFIRMED. Costs against petitioner.

The doctrine of corporation by estoppel may apply to the


SO ORDERED.
alleged corporation and to a third party. In the first instance,
an unincorporated association, which represented itself to be
a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in
good faith on such representation. It cannot allege lack of
DIGEST- Lim Tong Lim vs Philippine Fishing Gear
personality to be sued to evade its responsibility for a contract
Industries, Inc.
it entered into and by virtue of which it received advantages
and benefits.
Business Organization – Partnership, Agency, Trust –
Corporation by Estoppel
On the other hand, a third party who, knowing an association
to be unincorporated, nonetheless treated it as a corporation
and received benefits from it, may be barred from denying its It was established that Lim Tong Lim requested Peter Yao to
corporate existence in a suit brought against the alleged engage in commercial fishing with him and one Antonio Chua.
corporation. In such case, all those who benefited from the The three agreed to purchase two fishing boats but since they
transaction made by the ostensible corporation, despite do not have the money they borrowed from one Jesus Lim
knowledge of its legal defects, may be held liable for contracts (brother of Lim Tong Lim). They again borrowed money and
they impliedly assented to or took advantage of. they agreed to purchase fishing nets and other fishing
equipments. Now, Yao and Chua represented themselves as
acting in behalf of “Ocean Quest Fishing Corporation” (OQFC)
There is no dispute that the respondent, Philippine Fishing
they contracted with Philippine Fishing Gear Industries (PFGI)
Gear Industries, is entitled to be paid for the nets it sold. The
for the purchase of fishing nets amounting to more than
only question here is whether petitioner should be held
P500k.
jointly 18 liable with Chua and Yao. Petitioner contests such
liability, insisting that only those who dealt in the name of the
ostensible corporation should be held liable. Since his name They were however unable to pay PFGI and so they were sued
does not appear on any of the contracts and since he never in their own names because apparently OQFC is a non-
directly transacted with the respondent corporation, ergo, he existent corporation. Chua admitted liability and asked for
cannot be held liable. some time to pay. Yao waived his rights. Lim Tong Lim
however argued that he’s not liable because he was not aware
that Chua and Yao represented themselves as a corporation;
Unquestionably, petitioner benefited from the use of the nets
that the two acted without his knowledge and consent.
found inside F/B Lourdes, the boat which has earlier been
proven to be an asset of the partnership. He in fact questions
the attachment of the nets, because the Writ has effectively ISSUE: Whether or not Lim Tong Lim is liable.
stopped his use of the fishing vessel.
HELD: Yes. From the factual findings of both lower courts, it
It is difficult to disagree with the RTC and the CA that Lim, is clear that Chua, Yao and Lim had decided to engage in a
Chua and Yao decided to form a corporation. Although it was fishing business, which they started by buying boats worth
never legally formed for unknown reasons, this fact alone P3.35 million, financed by a loan secured from Jesus Lim. In
does not preclude the liabilities of the three as contracting their Compromise Agreement, they subsequently revealed
parties in representation of it. Clearly, under the law on their intention to pay the loan with the proceeds of the sale
estoppel, those acting on behalf of a corporation and those of the boats, and to divide equally among them the excess or
10
loss. These boats, the purchase and the repair of which were annulled on the ground of, among others, estoppel, res
financed with borrowed money, fell under the term “common
judicata, and Article 1819 of the Civil Code.
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 Issue:
from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed Whether or not the private respondents are estopped to
a partnership.
avoid the aforementioned mortgage.

Lim Tong Lim cannot argue that the principle of corporation


Held:
by estoppels can only be imputed to Yao and Chua.
Unquestionably, Lim Tong Lim benefited from the use of the
nets found in his boats, the boat which has earlier been Yes. The Supreme Court ruled that the respondent
proven to be an asset of the partnership. Lim, Chua and Yao partnership was inescapably chargeable with knowledge of
decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not the mortgage executed by all the partners thereof, its silence
preclude the liabilities of the three as contracting parties in and failure to impugn said mortgage within a reasonable time,
representation of it. Clearly, under the law on estoppel, those
acting on behalf of a corporation and those benefited by it, let alone a space of more than 17 years, brought into play the
knowing it to be without valid existence, are held liable as doctrine of estoppel to preclude any attempt to avoid the
general partners.
mortgage as allegedly unauthorized. Equally or even more
preclusive of the respondent partnership’s claim to the
DIGEST-SANTIAGO SYJUCO, INC. VS CASTRO mortgaged property is the last paragraph of Art. 1819 of the
Facts:
Civil Code, which contemplates a situation similar to the case

The private respondents, Eugenio Lim, et al., borrowed at bar. It states that ‘where the title to real property is in the

from petitioner Santiago Syjuco, Inc., the sum of names of all the partners, a conveyance executed by the

P800,000.00. The loan was given on the security of a first entire partners pass all their rights in such property.

mortgage on property registered in the names of said Consequently, those members' acts, declarations and

borrowers as owners in common under Transfer Certificates omissions cannot be deemed to be simply the individual acts

of Title Numbered 75413 and 75415 of the Registry of Deeds of said members, but in fact and in law, those of the

of Manila. Thereafter, additional loans on the same security partnership. Finally, the Supreme Court emphasizes that the

were obtained by the private respondents from Syjuco, so right of the private respondents to assert the existence of the

that as of May 8, 1967, the aggregate of the loans stood at partnership could have been stressed at the time they

P2,460,000.00, exclusive of interest, and the security had instituted their first action, considering that the actions

been augmented by bringing into the mortgage other involved property supposedly belonging to it, and therefore,

property, also registered as owned pro indiviso by the private the partnership was the real party in interest. What was done

respondents under two titles: TCT Nos. 75416 and 75418 of by them was to split their cause of action in violation of the

the Manila Registry. well-known rule that only one suit may be instituted for a
single cause of action.
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 FT-G.R. No. 126881 October 3, 2000

scheduled the auction sale of the mortgaged property on


HEIRS OF TAN ENG KEE, petitioners,
December 27, 1968. The attempt to foreclose triggered off a vs.
legal battle that has dragged on for more than twenty years COURT OF APPEALS and BENGUET LUMBER COMPANY,
represented by its President TAN ENG LAY, respondents.
now, fought through five (5) cases in the trial courts, two (2)
in the Court of Appeals, and three (3) more in the Supreme DE LEON, JR., J.:
Court.
In this petition for review on certiorari, petitioners pray for
One of the complaints filed by the private respondents the reversal of the Decision1 dated March 13, 1996 of the
former Fifth Division2 of the Court of Appeals in CA-G.R. CV
was filed not in their individual names, but in the name of a No. 47937, the dispositive portion of which states:
partnership of which they themselves were the only partners:
"Heirs of Hugo Lim." The complaint advocated the theory that THE FOREGOING CONSIDERED, the appealed
decision is hereby set aside, and the complaint
the mortgage which they, together with their mother, had dismissed.
individually constituted (and thereafter amended during the
The facts are:
period from 1964 to 1967) over lands standing in their names
in the Property Registry as owners pro indiviso, in fact no
Following the death of Tan Eng Kee on September 13, 1984,
longer belonged to them at that time, having been earlier Matilde Abubo, the common-law spouse of the decedent,
joined by their children Teresita, Nena, Clarita, Carlos,
deeded over by them to the partnership, "Heirs of Hugo Lim,"
Corazon and Elpidio, collectively known as herein petitioners
more precisely, on March 30, 1959, hence, said mortgage was HEIRS OF TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY on February 19, 1990. The complaint,3
void because executed by them without authority from the
docketed as Civil Case No. 1983-R in the Regional Trial Court
partnership. Syjuco filed an instant petition for certiorari, of Baguio City was for accounting, liquidation and winding up
of the alleged partnership formed after World War II between
prohibition and mandamus. It prays in its petition that the
Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the
default judgment rendered against it by Judge Castro be petitioners filed an amended complaint4 impleading private
11
respondent herein BENGUET LUMBER COMPANY, as As a side-bar to the proceedings, petitioners filed Criminal
represented by Tan Eng Lay. The amended complaint was Case No. 78856 against Tan Eng Lay and Wilborn Tan for the
admitted by the trial court in its Order dated May 3, 1991.5 use of allegedly falsified documents in a judicial proceeding.
Petitioners complained that Exhibits "4" to "4-U" offered by
the defendants before the trial court, consisting of payrolls
The amended complaint principally alleged that after the
indicating that Tan Eng Kee was a mere employee of Benguet
second World War, Tan Eng Kee and Tan Eng Lay, pooling
Lumber, were fake, based on the discrepancy in the
their resources and industry together, entered into a
signatures of Tan Eng Kee. They also filed Criminal Cases Nos.
partnership engaged in the business of selling lumber and
78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo,
hardware and construction supplies. They named their
Jean, Mary and Willy, all surnamed Tan, for alleged
enterprise "Benguet Lumber" which they jointly managed
falsification of commercial documents by a private individual.
until Tan Eng Kee's death. Petitioners herein averred that the
On March 20, 1999, the Municipal Trial Court of Baguio City,
business prospered due to the hard work and thrift of the
Branch 1, wherein the charges were filed, rendered
alleged partners. However, they claimed that in 1981, Tan
judgment9 dismissing the cases for insufficiency of evidence.
Eng Lay and his children caused the conversion of the
partnership "Benguet Lumber" into a corporation called
"Benguet Lumber Company." The incorporation was In their assignment of errors, petitioners claim that:
purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business.
I THE HONORABLE COURT OF APPEALS ERRED IN
Petitioners prayed for accounting of the partnership assets,
HOLDING THAT THERE WAS NO PARTNERSHIP
and the dissolution, winding up and liquidation thereof, and
BETWEEN THE LATE TAN ENG KEE AND HIS
the equal division of the net assets of Benguet Lumber.
BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS
NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
After trial, Regional Trial Court of Baguio City, Branch 7 LETTERHEADS SUBMITTED AS EVIDENCE; (C)
rendered judgment6 on April 12, 1995, to wit: THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D)
THERE WAS NO AGREEMENT AS TO PROFITS AND
LOSSES; AND (E) THERE WAS NO TIME FIXED FOR
WHEREFORE, in view of all the foregoing, judgment
THE DURATION OF THE PARTNERSHIP (PAGE 13,
is hereby rendered:
DECISION).

a) Declaring that Benguet Lumber is a joint venture


II THE HONORABLE COURT OF APPEALS ERRED IN
which is akin to a particular partnership;
RELYING SOLELY ON THE SELF-SERVING
TESTIMONY OF RESPONDENT TAN ENG LAY THAT
b) Declaring that the deceased Tan Eng Kee and Tan BENGUET LUMBER WAS A SOLE PROPRIETORSHIP
Eng Lay are joint adventurers and/or partners in a AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE
business venture and/or particular partnership THEREOF.
called Benguet Lumber and as such should share in
the profits and/or losses of the business venture or
III THE HONORABLE COURT OF APPEALS ERRED IN
particular partnership;
HOLDING THAT THE FOLLOWING FACTS WHICH
WERE DULY SUPPORTED BY EVIDENCE OF BOTH
c) Declaring that the assets of Benguet Lumber are PARTIES DO NOT SUPPORT THE EXISTENCE OF A
the same assets turned over to Benguet Lumber Co. PARTNERSHIP JUST BECAUSE THERE WAS NO
Inc. and as such the heirs or legal representatives of ARTICLES OF PARTNERSHIP DULY RECORDED
the deceased Tan Eng Kee have a legal right to share BEFORE THE SECURITIES AND EXCHANGE
in said assets; COMMISSION:

d) Declaring that all the rights and obligations of Tan a. THAT THE FAMILIES OF TAN ENG KEE AND
Eng Kee as joint adventurer and/or as partner in a TAN ENG LAY WERE ALL LIVING AT THE
particular partnership have descended to the BENGUET LUMBER COMPOUND;
plaintiffs who are his legal heirs.
b. THAT BOTH TAN ENG LAY AND TAN ENG
e) Ordering the defendant Tan Eng Lay and/or the KEE WERE COMMANDING THE EMPLOYEES
President and/or General Manager of Benguet OF BENGUET LUMBER;
Lumber Company Inc. to render an accounting of all
the assets of Benguet Lumber Company, Inc. so the
c. THAT BOTH TAN ENG KEE AND TAN ENG
plaintiffs know their proper share in the business;
LAY WERE SUPERVISING THE EMPLOYEES
THEREIN;
f) Ordering the appointment of a receiver to
preserve and/or administer the assets of Benguet
d. THAT TAN ENG KEE AND TAN ENG LAY
Lumber Company, Inc. until such time that said
WERE THE ONES DETERMINING THE PRICES
corporation is finally liquidated are directed to
OF STOCKS TO BE SOLD TO THE PUBLIC;
submit the name of any person they want to be
AND
appointed as receiver failing in which this Court will
appoint the Branch Clerk of Court or another one
who is qualified to act as such. e. THAT TAN ENG LAY AND TAN ENG KEE
WERE THE ONES MAKING ORDERS TO THE
SUPPLIERS (PAGE 18, DECISION).
g) Denying the award of damages to the plaintiffs for
lack of proof except the expenses in filing the instant
case. IV THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THERE WAS NO PARTNERSHIP JUST
BECAUSE THE CHILDREN OF THE LATE TAN ENG
h) Dismissing the counter-claim of the defendant for
KEE: ELPIDIO TAN AND VERONICA CHOI,
lack of merit.
TOGETHER WITH THEIR WITNESS BEATRIZ
TANDOC, ADMITTED THAT THEY DO NOT KNOW
SO ORDERED. WHEN THE ESTABLISHMENT KNOWN IN BAGUIO
CITY AS BENGUET LUMBER WAS STARTED AS A
Private respondent sought relief before the Court of Appeals PARTNERSHIP (PAGE 16-17, DECISION).
which, on March 13, 1996, rendered the assailed decision
reversing the judgment of the trial court. Petitioners' motion V THE HONORABLE COURT OF APPEALS ERRED IN
for reconsideration7 was denied by the Court of Appeals in a HOLDING THAT THERE WAS NO PARTNERSHIP
Resolution8 dated October 11, 1996. BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE THE PRESENT
Hence, the present petition. CAPITAL OR ASSETS OF BENGUET LUMBER IS
DEFINITELY MORE THAN P3,000.00 AND AS SUCH
THE EXECUTION OF A PUBLIC INSTRUMENT
12
CREATING A PARTNERSHIP SHOULD HAVE BEEN before the war. The appellees however argued that
MADE AND NO SUCH PUBLIC INSTRUMENT (Rollo, p. 104; Brief, p. 6) this is because during the
ESTABLISHED BY THE APPELLEES (PAGE 17, war, the entire stocks of the pre-war Benguet
DECISION). Lumber were confiscated if not burned by the
Japanese. After the war, because of the absence of
capital to start a lumber and hardware business, Lay
As a premise, we reiterate the oft-repeated rule that findings
and Kee pooled the proceeds of their individual
of facts of the Court of Appeals will not be disturbed on appeal
businesses earned from buying and selling military
if such are supported by the evidence.10 Our jurisdiction, it
supplies, so that the common fund would be enough
must be emphasized, does not include review of factual
to form a partnership, both in the lumber and
issues. Thus:
hardware business. That Lay and Kee actually
established the Benguet Lumber in Baguio City, was
Filing of petition with Supreme Court. — A party even testified to by witnesses. Because of the
desiring to appeal by certiorari from a judgment or pooling of resources, the post-war Benguet Lumber
final order or resolution of the Court of Appeals, the was eventually established. That the father of the
Sandiganbayan, the Regional Trial Court or other plaintiffs and Lay were partners, is obvious from the
courts whenever authorized by law, may file with the fact that: (1) they conducted the affairs of the
Supreme Court a verified petition for review on business during Kee's lifetime, jointly, (2) they were
certiorari. The petition shall raise only questions of the ones giving orders to the employees, (3) they
law which must be distinctly set forth.11 [emphasis were the ones preparing orders from the suppliers,
supplied] (4) their families stayed together at the Benguet
Lumber compound, and (5) all their children were
Admitted exceptions have been recognized, though, and employed in the business in different capacities.
when present, may compel us to analyze the evidentiary basis
on which the lower court rendered judgment. Review of xxx xxx xxx
factual issues is therefore warranted:
It is obvious that there was no partnership
(1) when the factual findings of the Court of Appeals whatsoever. Except for a firm name, there was no
and the trial court are contradictory; firm account, no firm letterheads submitted as
evidence, no certificate of partnership, no
(2) when the findings are grounded entirely on agreement as to profits and losses, and no time fixed
speculation, surmises, or conjectures; 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.
(3) when the inference made by the Court of Appeals It had no business book, no written account nor any
from its findings of fact is manifestly mistaken, memorandum for that matter and no license
absurd, or impossible; mentioning the existence of a partnership [citation
omitted].
(4) when there is grave abuse of discretion in the
appreciation of facts; Also, the exhibits support the establishment of only
a proprietorship. The certification dated March 4,
(5) when the appellate court, in making its findings, 1971, Exhibit "2", mentioned co-defendant Lay as
goes beyond the issues of the case, and such the only registered owner of the Benguet Lumber
findings are contrary to the admissions of both and Hardware. His application for registration,
appellant and appellee; effective 1954, in fact mentioned that his business
started in 1945 until 1985 (thereafter, the
incorporation). The deceased, Kee, on the other
(6) when the judgment of the Court of Appeals is hand, was merely an employee of the Benguet
premised on a misapprehension of facts; Lumber Company, on the basis of his SSS coverage
effective 1958, Exhibit "3". In the Payrolls, Exhibits
(7) when the Court of Appeals fails to notice certain "4" to "4-U", inclusive, for the years 1982 to 1983,
relevant facts which, if properly considered, will Kee was similarly listed only as an employee;
justify a different conclusion; precisely, he was on the payroll listing. In the
Termination Notice, Exhibit "5", Lay was mentioned
also as the proprietor.
(8) when the findings of fact are themselves
conflicting;
xxx xxx xxx
(9) when the findings of fact are conclusions without
citation of the specific evidence on which they are We would like to refer to Arts. 771 and 772, NCC,
based; and that a partner [sic] may be constituted in any form,
but when an immovable is constituted, the execution
of a public instrument becomes necessary. This is
(10) when the findings of fact of the Court of Appeals
equally true if the capitalization exceeds P3,000.00,
are premised on the absence of evidence but such
in which case a public instrument is also necessary,
findings are contradicted by the evidence on
and which is to be recorded with the Securities and
record.12
Exchange Commission. In this case at bar, we can
easily assume that the business establishment,
In reversing the trial court, the Court of Appeals ruled, to wit: which from the language of the appellees, prospered
(pars. 5 & 9, Complaint), definitely exceeded
We note that the Court a quo over extended the P3,000.00, in addition to the accumulation of real
issue because while the plaintiffs mentioned only the properties and to the fact that it is now a compound.
existence of a partnership, the Court in turn went The execution of a public instrument, on the other
beyond that by justifying the existence of a joint hand, was never established by the appellees.
venture.
And then in 1981, the business was incorporated and
When mention is made of a joint venture, it would the incorporators were only Lay and the members of
presuppose parity of standing between the parties, his family. There is no proof either that the capital
equal proprietary interest and the exercise by the assets of the partnership, assuming them to be in
parties equally of the conduct of the business, thus: existence, were maliciously assigned or transferred
by Lay, supposedly to the corporation and since then
have been treated as a part of the latter's capital
xxx xxx xxx assets, contrary to the allegations in pars. 6, 7 and
8 of the complaint.
We have the admission that the father of the
plaintiffs was not a partner of the Benguet Lumber
13
These are not evidences supporting the existence of (b) Usually, but not necessarily a joint adventure is
a partnership: limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination may
continue for a number of years; a partnership
1) That Kee was living in a bunk house just across
generally relates to a continuing business of various
the lumber store, and then in a room in the bunk
transactions of a certain kind.21
house in Trinidad, but within the compound of the
lumber establishment, as testified to by Tandoc; 2)
that both Lay and Kee were seated on a table and A joint venture "presupposes generally a parity of standing
were "commanding people" as testified to by the between the joint co-ventures or partners, in which each
son, Elpidio Tan; 3) that both were supervising the party has an equal proprietary interest in the capital or
laborers, as testified to by Victoria Choi; and 4) that property contributed, and where each party exercises equal
Dionisio Peralta was supposedly being told by Kee rights in the conduct of the business."22 Nonetheless, in
that the proceeds of the 80 pieces of the G.I. sheets Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation,
were added to the business. et. al.,23 we expressed the view that a joint venture may be
likened to a particular partnership, thus:
Partnership presupposes the following elements
[citation omitted]: 1) a contract, either oral or The legal concept of a joint venture is of common
written. However, if it involves real property or law origin. It has no precise legal definition, but it
where the capital is P3,000.00 or more, the has been generally understood to mean an
execution of a contract is necessary; 2) the capacity organization formed for some temporary purpose.
of the parties to execute the contract; 3) money (Gates v. Megargel, 266 Fed. 811 [1920]) It is
property or industry contribution; 4) community of hardly distinguishable from the partnership, since
funds and interest, mentioning equality of the their elements are similar — community of interest
partners or one having a proportionate share in the in the business, sharing of profits and losses, and a
benefits; and 5) intention to divide the profits, being mutual right of control. (Blackner v. McDermott, 176
the true test of the partnership. The intention to join F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d.,
in the business venture for the purpose of obtaining 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183,
profits thereafter to be divided, must be established. 288 P.2d. 12 289 P.2d. 242 [1955]). The main
We cannot see these elements from the testimonial distinction cited by most opinions in common law
evidence of the appellees. jurisdiction is that the partnership contemplates a
general business with some degree of continuity,
while the joint venture is formed for the execution of
As can be seen, the appellate court disputed and differed from
a single transaction, and is thus of a temporary
the trial court which had adjudged that TAN ENG KEE and TAN
nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d.
ENG LAY had allegedly entered into a joint venture. In this
500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE
connection, we have held that whether a partnership exists is
2d. 74 [1947]; Gates v. Megargel 266 Fed. 811
a factual matter; consequently, since the appeal is brought to
[1920]). This observation is not entirely accurate in
us under Rule 45, we cannot entertain inquiries relative to the
this jurisdiction, since under the Civil Code, a
correctness of the assessment of the evidence by the court a
partnership may be particular or universal, and a
quo.13 Inasmuch as the Court of Appeals and the trial court
particular partnership may have for its object a
had reached conflicting conclusions, perforce we must
specific undertaking. (Art. 1783, Civil Code). It
examine the record to determine if the reversal was justified.
would seem therefore that under Philippine law, a
joint venture is a form of partnership and should
The primordial issue here is whether Tan Eng Kee and Tan thus be governed by the law of partnerships. The
Eng Lay were partners in Benguet Lumber. A contract of Supreme Court has however recognized a distinction
partnership is defined by law as one where: between these two business forms, and has held
that although a corporation cannot enter into a
. . . two or more persons bind themselves to contribute partnership contract, it may however engage in a
money, property, or industry to a common fund, with the joint venture with others. (At p. 12, Tuazon v.
intention of dividing the profits among themselves. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases,
Corporation Code 1981).
Two or more persons may also form a partnership
for the exercise of a profession.14
Undoubtedly, the best evidence would have been the contract
of partnership itself, or the articles of partnership but there is
Thus, in order to constitute a partnership, it must be none. The alleged partnership, though, was never formally
established that (1) two or more persons bound organized. In addition, petitioners point out that the New Civil
themselves to contribute money, property, or Code was not yet in effect when the partnership was allegedly
industry to a common fund, and (2) they intend to formed sometime in 1945, although the contrary may well be
divide the profits among themselves.15 The argued that nothing prevented the parties from complying
agreement need not be formally reduced into with the provisions of the New Civil Code when it took effect
writing, since statute allows the oral constitution of on August 30, 1950. But all that is in the past. The net effect,
a partnership, save in two instances: (1) when however, is that we are asked to determine whether a
immovable property or real rights are contributed,16 partnership existed based purely on circumstantial evidence.
and (2) when the partnership has a capital of three A review of the record persuades us that the Court of Appeals
thousand pesos or more.17 In both cases, a public correctly reversed the decision of the trial court. The evidence
instrument is required.18 An inventory to be signed presented by petitioners falls short of the quantum of proof
by the parties and attached to the public instrument required to establish a partnership.
is also indispensable to the validity of the
partnership whenever immovable property is
contributed to the partnership.19 Unfortunately for petitioners, Tan Eng Kee has passed away.
Only he, aside from Tan Eng Lay, could have expounded on
the precise nature of the business relationship between them.
The trial court determined that Tan Eng Kee and Tan Eng Lay In the absence of evidence, we cannot accept as an
had entered into a joint venture, which it said is akin to a established fact that Tan Eng Kee allegedly contributed his
particular partnership.20 A particular partnership is resources to a common fund for the purpose of establishing
distinguished from a joint adventure, to wit: a partnership. The testimonies to that effect of petitioners'
witnesses is directly controverted by Tan Eng Lay. It should
(a) A joint adventure (an American concept similar be noted that it is not with the number of witnesses wherein
to our joint accounts) is a sort of informal preponderance lies;24 the quality of their testimonies is to be
partnership, with no firm name and no legal considered. None of petitioners' witnesses could suitably
personality. In a joint account, the participating account for the beginnings of Benguet Lumber Company,
merchants can transact business under their own except perhaps for Dionisio Peralta whose deceased wife was
name, and can be individually liable therefor. related to Matilde Abubo.25 He stated that when he met Tan
Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly
owned by both brothers.26 Tan Eng Lay, however, denied
14
knowledge of this meeting or of the conversation between (a) As a debt by installment or otherwise;
Peralta and his brother.27 Tan Eng Lay consistently testified
that he had his business and his brother had his, that it was
(b) As wages of an employee or rent to a
only later on that his said brother, Tan Eng Kee, came to work
landlord;
for him. Be that as it may, co-ownership or co-possession
(specifically here, of the G.I. sheets) is not an indicium of the
existence of a partnership.28 (c) As an annuity to a widow or
representative of a deceased partner;
Besides, it is indeed odd, if not unnatural, that despite the
forty years the partnership was allegedly in existence, Tan (d) As interest on a loan, though the
Eng Kee never asked for an accounting. The essence of a amount of payment vary with the profits of
partnership is that the partners share in the profits and the business;
losses.29 Each has the right to demand an accounting as long
as the partnership exists.30 We have allowed a scenario (e) As the consideration for the sale of a
wherein "[i]f excellent relations exist among the partners at goodwill of a business or other property by
the start of the business and all the partners are more installments or otherwise.
interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly
plausible."31 But in the situation in the case at bar, the In the light of the aforequoted legal provision, we conclude
deferment, if any, had gone on too long to be plausible. A that Tan Eng Kee was only an employee, not a partner. Even
person is presumed to take ordinary care of his concerns.32 if the payrolls as evidence were discarded, petitioners would
As we explained in another case: still be back to square one, so to speak, since they did not
present and offer evidence that would show that Tan Eng Kee
received amounts of money allegedly representing his share
In the first place, plaintiff did not furnish the in the profits of the enterprise. Petitioners failed to show how
supposed P20,000.00 capital. In the second place, much their father, Tan Eng Kee, received, if any, as his share
she did not furnish any help or intervention in the in the profits of Benguet Lumber Company for any particular
management of the theatre. In the third place, it period. Hence, they failed to prove that Tan Eng Kee and Tan
does not appear that she has even demanded from Eng Lay intended to divide the profits of the business between
defendant any accounting of the expenses and themselves, which is one of the essential features of a
earnings of the business. Were she really a partner, partnership.
her first concern should have been to find out how
the business was progressing, whether the expenses
were legitimate, whether the earnings were correct, Nevertheless, petitioners would still want us to infer or believe
etc. She was absolutely silent with respect to any of the alleged existence of a partnership from this set of
the acts that a partner should have done; all that circumstances: that Tan Eng Lay and Tan Eng Kee were
she did was to receive her share of P3,000.00 a commanding the employees; that both were supervising the
month, which cannot be interpreted in any manner employees; that both were the ones who determined the
than a payment for the use of the premises which price at which the stocks were to be sold; and that both
she had leased from the owners. Clearly, plaintiff placed orders to the suppliers of the Benguet Lumber
had always acted in accordance with the original Company. They also point out that the families of the brothers
letter of defendant of June 17, 1945 (Exh. "A"), Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber
which shows that both parties considered this offer Company compound, a privilege not extended to its ordinary
as the real contract between them.33 [emphasis employees.
supplied]
However, private respondent counters that:
A demand for periodic accounting is evidence of a
partnership.34 During his lifetime, Tan Eng Kee appeared Petitioners seem to have missed the point in
never to have made any such demand for accounting from his asserting that the above enumerated powers and
brother, Tang Eng Lay. privileges granted in favor of Tan Eng Kee, were
indicative of his being a partner in Benguet Lumber
This brings us to the matter of Exhibits "4" to "4-U" for private for the following reasons:
respondents, consisting of payrolls purporting to show that
Tan Eng Kee was an ordinary employee of Benguet Lumber, (i) even a mere supervisor in a company, factory or
as it was then called. The authenticity of these documents store gives orders and directions to his subordinates.
was questioned by petitioners, to the extent that they filed So long, therefore, that an employee's position is
criminal charges against Tan Eng Lay and his wife and higher in rank, it is not unusual that he orders
children. As aforesaid, the criminal cases were dismissed for around those lower in rank.
insufficiency of evidence. Exhibits "4" to "4-U" in fact shows
that Tan Eng Kee received sums as wages of an employee. In
connection therewith, Article 1769 of the Civil Code provides: (ii) even a messenger or other trusted employee,
over whom confidence is reposed by the owner, can
order materials from suppliers for and in behalf of
In determining whether a partnership exists, these rules shall Benguet Lumber. Furthermore, even a partner does
apply: not necessarily have to perform this particular task.
It is, thus, not an indication that Tan Eng Kee was a
(1) Except as provided by Article 1825, persons who partner.
are not partners as to each other are not partners as
to third persons; (iii) although Tan Eng Kee, together with his family,
lived in the lumber compound and this privilege was
(2) Co-ownership or co-possession does not of itself not accorded to other employees, the undisputed
establish a partnership, whether such co-owners or fact remains that Tan Eng Kee is the brother of Tan
co-possessors do or do not share any profits made Eng Lay. Naturally, close personal relations existed
by the use of the property; between them. Whatever privileges Tan Eng Lay
gave his brother, and which were not given the other
employees, only proves the kindness and generosity
(3) The sharing of gross returns does not of itself of Tan Eng Lay towards a blood relative.
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 (iv) and even if it is assumed that Tan Eng Kee was
derived; quarreling with Tan Eng Lay in connection with the
pricing of stocks, this does not adequately prove the
existence of a partnership relation between them.
(4) The receipt by a person of a share of the profits Even highly confidential employees and the owners
of a business is a prima facie evidence that he is a of a company sometimes argue with respect to
partner in the business, but no such inference shall certain matters which, in no way indicates that they
be drawn if such profits were received in payment: are partners as to each other.35
15
In the instant case, we find private respondent's arguments TRANSACTION, although the business of pursuing to a
to be well-taken. Where circumstances taken singly may be successful termination maycontinue for a number of years; a
inadequate to prove the intent to form a partnership, partnership generally relates to a continuing business of
nevertheless, the collective effect of these circumstances may various transactions of a certain kind. A joint venture
be such as to support a finding of the existence of the parties' "presupposes generally a parity of standing between the joint
intent.36 Yet, in the case at bench, even the aforesaid co-ventures or partners, in which each party has an equal
circumstances when taken together are not persuasive indicia proprietary interest in the capital or property contributed, and
of a partnership. They only tend to show that Tan Eng Kee where each party exercises equal rights in the conduct of the
was involved in the operations of Benguet Lumber, but in business. The evidence presented by petitioners falls short of
what capacity is unclear. We cannot discount the likelihood the quantum of proof required to establish a partnership. In
that as a member of the family, he occupied a niche above the absence of evidence, we cannot accept as an established
the rank-and-file employees. He would have enjoyed liberties fact that Tan EngKee allegedly contributed his resources to a
otherwise unavailable were he not kin, such as his residence common fund for the purpose of establishing a partnership.
in the Benguet Lumber Company compound. He would have Besides, it is indeed odd, if not unnatural, that despite the
moral, if not actual, superiority over his fellow employees, forty years the partnership was allegedly in existence, Tan
thereby entitling him to exercise powers of supervision. It EngKee never asked for an accounting. The essence of a
may even be that among his duties is to place orders with partnership is that the partners share in the profits and losses
suppliers. Again, the circumstances proffered by petitioners .Each has the right to demand an accounting as long as the
do not provide a logical nexus to the conclusion desired; these partnership exists. A demand for periodic accounting is
are not inconsistent with the powers and duties of a manager, evidence of a partnership. During his lifetime, Tan EngKee
even in a business organized and run as informally as appeared never to have made any such demand for
Benguet Lumber Company. accounting from his brother, Tang Eng Lay. We conclude that
Tan EngKee was only an employee, not a partner since they
did not present and offer evidence that would show that Tan
There being no partnership, it follows that there is no
EngKee received amounts of money allegedly representing
dissolution, winding up or liquidation to speak of. Hence, the
his share in the profits of the enterprise. There being no
petition must fail.
partnership, it follows that there is no dissolution, winding up
or liquidation to speak of.
WHEREFORE, the petition is hereby denied, and the
appealed decision of the Court of Appeals is hereby
AFFIRMED in toto. No pronouncement as to costs. DIGEST-VILLAREAL V. RAMIREZ

Facts:

In 1984, Villareal, Carmelito Jose and Jesus Jose formed a


DIGEST-HEIRS OF TAN ENG KEE vs.CA 341 SCRA 740, partnership with a capital of P750,000for the operation of a
G.R. No. 126881, October 3, 2000 restaurant and catering business. Respondent Ramirez joined
as a partner in the business with the capital contribution of
FACTS: P250,000. In 1987, Jesus Jose withdrew from the partnership
and within the same time, Villareal and Carmelito Jose,
After the second World War, Tan EngKee and Tan Eng Lay, petitioners closed the business without prior knowledge of
pooling their resources and industry together, entered into a respondents In March 1987, respondents wrote a letter to
partnership engaged in the business of selling lumber and petitioners stating that they were no longer interested in
hardware and construction supplies. They named their continuing the partnership and that they were accepting the
enterprise "Benguet Lumber" which they jointly managed latter’s offer to return their capital contribution. This was left
until Tan EngKee's death. Petitioners herein averred that the unheeded by the petitioners, and by reason of which
business prospered due to the hard work and thrift of the respondents filed a complaint in the RTC.RTC ruled that the
alleged partners. However, they claimed that in 1981, Tan parties had voluntarily entered into a partnership, which could
Eng Lay and his children caused the conversion of the be dissolved at any time, and this dissolution was showed by
partnership "Benguet Lumber" into a corporation called the fact that petitioners stopped operating the restaurant. On
"Benguet Lumber Company." The incorporation was appeal, CA upheld RTC’s decision that the partnership was
purportedly a ruse to deprive Tan EngKee and his heirs of dissolved and it added that respondents had no right to
their rightful participation in the profits of the business. demand the return of their capital contribution. However
Petitioners prayed for accounting of the partnership assets, since petitioners did not give the proper accounting for the
and the dissolution, winding up and liquidation thereof, and liquidation of the partnership, the CA took it upon itself to
the equal division of the net assets of Benguet Lumber. The compute their liabilities and the amount that is proper to the
RTC ruled in favor of petitioners, declaring that Benguet respondent. The computation of which was:(capital of the
Lumber is a joint venture which is akin to a particular partnership – outstanding obligation) / remaining partners
partnership. The Court of Appeals rendered the assailed =amount due to private respondent
decision reversing the judgment of the trial court.
Issue: W/N petitioners are liable to respondents for the
ISSUE: Whether the deceased Tan EngKee and Tan Eng Lay latter’s share in the partnership?
are joint adventurers and/or partners in a business venture
and/or particular partnership called Benguet Lumber and as Ruling:
such should share in the profits and/or losses of the business
venture or particular partnership No. Respondents have no right to demand from petitioner the
return of their equity share. As found by the court petitioners
RULING: did not personally hold its equity or assets. “The partnership
has a juridical personality separate and distinct from that of
There was no partnership whatsoever. Except for a firm each of the partners.” Since the capital was contributed to the
name, there was no firm account, no firm letterheads partnership, not to petitioners, it is the partnership that must
submitted as evidence, no certificate of partnership, no refund the equity of the retiring partners. However, before
agreement as to profits and losses, and no time fixed for the the partners can be paid their shares, the creditors of the
duration of the partnership. There was even no attempt to partnership must first be compensated. Therefore, the exact
submit an accounting corresponding to the period after the amount of refund equivalent to respondents’ one-third share
war until Kee's death in 1984. It had no business book, no in the partnership cannot be determined until all the
written account nor any memorandum for that matter and no partnership assets will have been liquidated and all
license mentioning the existence of a partnership. Also, the partnership creditors have been paid. CA’s computation of the
trial court determined that Tan EngKee and Tan Eng Lay had amount to be refunded to respondents as their share was thus
entered into a joint venture, which it said is akin to a erroneous.
particular partnership. A particular partnership is
distinguished from a joint adventure, to wit:(a) A joint
adventure (an American concept similar to our joint accounts)
is a sort of informal partnership, with no firm name and no
legal personality. In a joint account, the participating
merchants can transact business under their own name, and
can be individually liable therefor. (b) Usually, but not
necessarily a joint adventure is limited to a SINGLE
16