CATALAN vs.

GATCHALIAN

105 Phil 1270,

G.R. No. L-1164 , April 22, 1959

(Di ko mahanap full text)

FACTS:

Catalan and Gatchalian are partners. They mortgaged two lots to Dr.
Maravetogether with the improvements thereon to secure a credit
from the latter. Thepartnership failed to pay the obligation. The
properties were sold to Dr. Marave at apublic auction. Catalan
redeemed the property and he contends that title should becancelled
and a new one must be issued in his name.

ISSUE:

Did Catalan’s redemp

tion of the properties make him the absolute owner of thelands?

HELD:

No. Under Article 1807 of the NCC every partner becomes a trustee
for hiscopartner with regard to any benefits or profits derived from his
act as a partner.Consequently, when Catalan redeemed the
properties in question, he became a trusteeand held the same in
trust for his copartner Gatchalian, subject to his right to demandfrom
the latter his contribution to the amount of redemption.
G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET.
AL defendants. BENJAMIN C. DACO, defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.
CONCEPCION JR., J.:
This is an appeal interposed by the defendant Benjamin C. Daco
from the decision of the Court of First Instance of Manila, Branch XVI,
in Civil Case No. 50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer
General Construction Company to pay plaintiff the sum of P7,119.07
with interest at the rate of 12% per annum until it is fully paid, plus
attorney's fees which the Court fixes in the sum of Eight Hundred
Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim
and Augusto Palisoc are sentenced to pay the plaintiff in this case
with the understanding that the judgment against these individual
defendants shall be enforced only if the defendant company has no
more leviable properties with which to satisfy the judgment against
it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general partnership
duly registered under the laws of the Philippines, purchased from the
plaintiff a motor vehicle on the installment basis and for this purpose
executed a promissory note for P9,440.00, payable in twelve (12)
equal monthly installments of P786.63, the first installment payable
on or before May 22, 1961 and the subsequent installments on the
22nd day of every month thereafter, until fully paid, with the condition
that failure to pay any of said installments as they fall due would
render the whole unpaid balance immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the
plaintiff sued the defendant company for the unpaid balance
amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel
C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as
co-defendants in their capacity as general partners of the defendant
company.
Daniel A. Guizona failed to file an answer and was consequently
declared in default.1
Subsequently, on motion of the plaintiff, the complaint was dismissed
insofar as the defendant Romulo B. Lumauig is concerned. 2
When the case was called for hearing, the defendants and their
counsels failed to appear notwithstanding the notices sent to them.
Consequently, the trial court authorized the plaintiff to present its
evidence ex-parte3 , after which the trial court rendered the decision
appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to
reconsider the decision claiming that since there are five (5) general
partners, the joint and subsidiary liability of each partner should not
exceed one-fifth (1/5 ) of the obligations of the defendant company.
But the trial court denied the said motion notwithstanding the
conformity of the plaintiff to limit the liability of the defendants Daco
and Sim to only one-fifth (1/5 ) of the obligations of the defendant
company.4 Hence, this appeal.
The only issue for resolution is whether or not the dismissal of the
complaint to favor one of the general partners of a partnership
increases the joint and subsidiary liability of each of the remaining
partners for the obligations of the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and
by a person authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform a partnership
contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation
of a sugar estate in Negros. It was, therefore, a civil partnership as
distinguished from a mercantile partnership. Being a civil partnership,
by the express provisions of articles l698 and 1137 of the Civil Code,
the partners are not liable each for the whole debt of the partnership.
The liability is pro rata and in this case Pedro Yulo is responsible to
plaintiff for only one-half of the debt. The fact that the other partner,
Jaime Palacios, had left the country cannot increase the liability of
Pedro Yulo.
In the instant case, there were five (5) general partners when the
promissory note in question was executed for and in behalf of the
partnership. Since the liability of the partners is pro rata, the liability
of the appellant Benjamin C. Daco shall be limited to only one-fifth
(1/5 ) of the obligations of the defendant company. The fact that the
complaint against the defendant Romulo B. Lumauig was dismissed,
upon motion of the plaintiff, does not unmake the said Lumauig as a
general partner in the defendant company. In so moving to dismiss
the complaint, the plaintiff merely condoned Lumauig's individual
liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby
AFFIRMED, without pronouncement as to costs.
SO ORDERED.
Facts: United Pioneers General Construction Company is a general
partnership formed by Benjamin Daco, Daniel Guizona, Noel Sim,
Augusto Palisoc and Romulo Lumauig. In 1961, United 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-defendants.
Upon motion of Island Sales, Lumauig was removed as a defendant.
United Pioneers lost the civil case and the trial court rendered
judgment ordering United Pioneers to pay the outstanding balance
plus interest and costs. It further decreed that the remaining 4
co-defendants shall pay Island Sales in case United Pioneers’
property will not be enough to satisfy its indebtedness to Island
Sales.

ISSUE: What is the extent of the liability of the partners considering

that one partner was removed as a co-defendant on motion of Island
Sales?

HELD: Their liability is pro-rata pursuant to Article 1816 of the Civil

Code. But is should be noted that since there were 5 partners when
the purchase was made in behalf of the 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 Sales, does not unmake Lumauig as a general partner
in the company. In so moving to dismiss the complaint, Island Sales
merely condoned Lumauig’s individual liability to them.
G.R. No. 97212 June 30, 1993
BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE
MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO,
RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and
CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager
of the marble quarrying and export business operated by a registered
partnership with the firm name of "Jade Mountain Products Company
Limited" ("Jade Mountain"). The partnership was originally organized
on 28 June 1984 with Lea Bendal and Rhodora Bendal as general
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all
citizens of the Republic of China (Taiwan), as limited partners. The
partnership business consisted of exploiting a marble deposit found
on land owned by the Sps. Ricardo and Guillerma Cruz, situated in
Bulacan Province, under a Memorandum Agreement dated 26 June
1984 with the Cruz spouses. 1 The partnership had its main office in
Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated
14 March 1985, as Assistant General Manager with a monthly salary
of P4,000.00. According to petitioner Yu, however, he actually
received only half of his stipulated monthly salary, since he had
accepted the promise of the partners that the balance would be paid
when the firm shall have secured additional operating funds from
abroad. Benjamin Yu actually managed the operations and finances
of the business; he had overall supervision of the workers at the
marble quarry in Bulacan and took charge of the preparation of
papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the
general partners Lea Bendal and Rhodora Bendal sold and
transferred their interests in the partnership to private respondent
Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited
partner, also sold and transferred his interest in the partnership to
Willy Co. Between Mr. Emmanuel Zapanta and himself, private
respondent Willy Co acquired the great bulk of the partnership
interest. The partnership now constituted solely by Willy Co and
Emmanuel Zapanta continued to use the old firm name of Jade
Mountain, though they moved the firm's main office from Makati to
Mandaluyong, Metropolitan Manila. A Supplement to the
Memorandum Agreement relating to the operation of the marble
quarry was entered into with the Cruz spouses in February of
1988.2 The actual operations of the business enterprise continued as
before. All the employees of the partnership continued working in the
business, all, save petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's
main office from Makati to Mandaluyong, petitioner Benjamin Yu
reported to the Mandaluyong office for work and there met private
respondent Willy Co for the first time. Petitioner was informed by
Willy Co that the latter had bought the business from the original
partners and that it was for him to decide whether or not he was
responsible for the obligations of the old partnership, including
petitioner's unpaid salaries. Petitioner was in fact not allowed to work
anymore in the Jade Mountain business enterprise. His unpaid
salaries remained unpaid.3
On 21 December 1988. Benjamin Yu filed a complaint for illegal
dismissal and recovery of unpaid salaries accruing from November
1984 to October 1988, moral and exemplary damages and attorney's
fees, against Jade Mountain, Mr. Willy Co and the other private
respondents. The partnership and Willy Co denied petitioner's
charges, contending in the main that Benjamin Yu was never hired
as an employee by the present or new partnership.4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a
decision holding that petitioner had been illegally dismissed. The
Labor Arbiter decreed his reinstatement and awarded him his claim
for unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC")
reversed the decision of the Labor Arbiter and dismissed petitioner's
complaint in a Resolution dated 29 November 1990. The NLRC held
that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel
Zapanta had bought the Jade Mountain business, that the new
partnership had not retained petitioner Yu in his original position as
Assistant General Manager, and that there was no law requiring the
new partnership to absorb the employees of the old partnership.
Benjamin Yu, therefore, had not been illegally dismissed by the new
partnership which had simply declined to retain him in his former
managerial position or any other position. Finally, the NLRC held that
Benjamin Yu's claim for unpaid wages should be asserted against
the original members of the preceding partnership, but these though
impleaded had, apparently, not been served with summons in the
proceedings before the Labor Arbiter.6
Petitioner Benjamin Yu is now before the Court on a Petition
for Certiorari, asking us to set aside and annul the Resolution of the
NLRC as a product of grave abuse of discretion amounting to lack or
excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked
the principle that a partnership has a juridical personality separate
and distinct from that of each of its members. Such independent
legal personality subsists, petitioner claims, notwithstanding changes
in the identities of the partners. Consequently, the employment
contract between Benjamin Yu and the partnership Jade Mountain
could not have been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case
at bar: (1) whether the partnership which had hired petitioner Yu as
Assistant General Manager had been extinguished and replaced by
a new partnerships composed of Willy Co and Emmanuel Zapanta;
and (2) if indeed a new partnership had come into existence, whether
petitioner Yu could nonetheless assert his rights under his
employment contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the
NLRC, that is, that the legal effect of the changes in the membership
of the partnership was the dissolution of the old partnership which
had hired petitioner in 1984 and the emergence of a new firm
composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection — of which the NLRC seemed
quite unaware — is found in the Civil Code provisions relating to
partnerships. Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the
relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding up of
the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where
the circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their
partnership interests (amounting to 82% of the total partnership
interest) to Mr. Willy Co and Emmanuel Zapanta. The record does
not show what happened to the remaining 18% of the original
partnership interest. The acquisition of 82% of the partnership
interest by new partners, coupled with the retirement or withdrawal of
the partners who had originally owned such 82% interest, was
enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of
dissolution of a partnership do not, however, automatically result in
the termination of the legal personality of the old partnership. Article
1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until
the winding up of partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring
partnership persists for the limited purpose of winding up and closing
of the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was
simply continued by the new partners, without the old partnership
undergoing the procedures relating to dissolution and winding up of
its business affairs. In other words, the new partnership simply took
over the business enterprise owned by the preceeding partnership,
and continued using the old name of Jade Mountain Products
Company Limited, without winding up the business affairs of the old
partnership, paying off its debts, liquidating and distributing its net
assets, and then re-assembling the said assets or most of them and
opening a new business enterprise. There were, no doubt, powerful
tax considerations which underlay such an informal approach to
business on the part of the retiring and the incoming partners. It is
not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above
described situation, not only the retiring partners (Rhodora Bendal, et
al.) but also the new partnership itself which continued the
business of the old, dissolved, one, are liable for the debts of the
preceding partnership. In Singson, et al. v. Isabela Saw Mill, et
al,8 the Court held that under facts very similar to those in the case at
bar, a withdrawing partner remains liable to a third party creditor of
the old partnership.9 The liability of the new partnership, upon the
other hand, in the set of circumstances obtaining in the case at bar,
is established in Article 1840 of the Civil Code which reads as
follows:
Art. 1840. In the following cases creditors of the dissolved
partnership are also creditors of the person or partnership continuing
the business:
(1) When any new partner is admitted into an existing partnership, or
when any partner retires and assigns (or the representative of the
deceased partner assigns) his rights in partnership property to two or
more of the partners, or to one or more of the partners and one or
more third persons, if the business is continued without liquidation of
the partnership affairs;
(2) When all but one partner retire and assign (or the representative
of a deceased partner assigns) their rights in partnership property to
the remaining partner, who continues the business without
liquidation of partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the
dissolved partnership is continued as set forth in Nos. 1 and 2 of this
Article, with the consent of the retired partners or the representative
of the deceased partner, but without any assignment of his right in
partnership property;
(4) When all the partners or their representatives assign their rights
in partnership property to one or more third persons who promise to
pay the debts and who continue the business of the dissolved
partnership;
(5) When any partner wrongfully causes a dissolution and remaining
partners continue the business under the provisions of article 1837,
second paragraph, No. 2, either alone or with others, and without
liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue
the business either alone or with others without liquidation of the
partnership affairs;
The liability of a third person becoming a partner in the partnership
continuing the business, under this article, to the creditors of the
dissolved partnership shall be satisfied out of the partnership
property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued
under any conditions set forth in this article the creditors of the
retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or
partnership continuing the business on account of the retired or
deceased partner's interest in the dissolved partnership or on
account of any consideration promised for such interest or for his
right in partnership property.
Nothing in this article shall be held to modify any right of creditors to
set assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are
also creditors of the new Jade Mountain which continued the
business of the old one without liquidation of the partnership affairs.
Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin
Yu in respect of his claim for unpaid wages, is entitled to
priority vis-a-vis any claim of any retired or previous partner insofar
as such retired partner's interest in the dissolved partnership is
concerned. It is not necessary for the Court to determine under which
one or mare of the above six (6) paragraphs, the case at bar would
fall, if only because the facts on record are not detailed with sufficient
precision to permit such determination. It is, however, clear to the
Court that under Article 1840 above, Benjamin Yu is entitled to
enforce his claim for unpaid salaries, as well as other claims relating
to his employment with the previous partnership, against the new
Jade Mountain.
It is at the same time also evident to the Court that the new
partnership was entitled to appoint and hire a new general or
assistant general manager to run the affairs of the business
enterprise take over. An assistant general manager belongs to the
most senior ranks of management and a new partnership is entitled
to appoint a top manager of its own choice and confidence. The
non-retention of Benjamin Yu as Assistant General Manager did not
therefore constitute unlawful termination, or termination without just
or authorized cause. We think that the precise authorized cause for
termination in the case at bar was redundancy. 10 The new
partnership had its own new General Manager, apparently Mr. Willy
Co, the principal new owner himself, who personally ran the business
of Jade Mountain. Benjamin Yu's old position as Assistant General
Manager thus became superfluous or redundant. 11It follows that
petitioner Benjamin Yu is entitled to separation pay at the rate of one
month's pay for each year of service that he had rendered to the old
partnership, a fraction of at least six (6) months being considered as
a whole year.
While the new Jade Mountain was entitled to decline to retain
petitioner Benjamin Yu in its employ, we consider that Benjamin Yu
was very shabbily treated by the new partnership. The old
partnership certainly benefitted from the services of Benjamin Yu
who, as noted, previously ran the whole marble quarrying,
processing and exporting enterprise. His work constituted
value-added to the business itself and therefore, the new partnership
similarly benefitted from the labors of Benjamin Yu. It is worthy of
note that the new partnership did not try to suggest that there was
any cause consisting of some blameworthy act or omission on the
part of Mr. Yu which compelled the new partnership to terminate his
services. Nonetheless, the new Jade Mountain did not notify him of
the change in ownership of the business, the relocation of the main
office of Jade Mountain from Makati to Mandaluyong and the
assumption by Mr. Willy Co of control of operations. The treatment
(including the refusal to honor his claim for unpaid wages) accorded
to Assistant General Manager Benjamin Yu was so summary and
cavalier as to amount to arbitrary, bad faith treatment, for which the
new Jade Mountain may legitimately be required to respond by
paying moral damages. This Court, exercising its discretion and in
view of all the circumstances of this case, believes that an indemnity
for moral damages in the amount of P20,000.00 is proper and
reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to
interest at the legal rate of six percent (6%) per annum on the
amount of unpaid wages, and of his separation pay, computed from
the date of promulgation of the award of the Labor Arbiter. Finally,
because the new Jade Mountain compelled Benjamin Yu to resort to
litigation to protect his rights in the premises, he is entitled to
attorney's fees in the amount of ten percent (10%) of the total
amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is
GRANTED DUE COURSE, the Comment filed by private
respondents is treated as their Answer to the Petition for Certiorari,
and the Decision of the NLRC dated 29 November 1990 is hereby
NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED
requiring private respondent Jade Mountain Products Company
Limited to pay to petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be
computed at the rate of P2,000.00 per month multiplied by thirty-six
(36) months (November 1984 to December 1987) in the total amount
of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay
multiplied by three (3) years of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a)
and (b) above, commencing on 26 December 1989 and until fully
paid; and
(e) ten percent (10%) attorney's fees on the total amount due from
private respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
Yu v. NLRC GR No. 97212, June 30, 1993
Facts:
Benjamin Yu used to be the Assistant General Manager of Jade
Mountain, a partnership engaged in marble quarrying and export
business. The majority of the founding partners sold their interests in
said partnership to Willy Co and Emmanuel Zapanta without Yu’s
knowledge. Said new partnership continued operating under the
same name and continued the business’s operations. However, it
transferred its main office from Makati to Mandaluyong. Said new
partnership did not anymore availed of the services of Yu. Thus, he
filed a complaint for illegal dismissal, recovery of unpaid wages and
damages.
Ruling :
The legal effect of the changes in the membership of the partnership
was the dissolution of the old partnership which had hired Yu in 1984
and the emergence of a new firm composed of Willy Co and
Emmanuel Zapanta in 1987. The new partnership simply took over
the business enterprise owned by the preceeding partnership, and
continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old partnership,
paying off its debts, liquidating and distributing its net assets, and
then re-assembling the said assets or most of them and opening a
new business enterprise. Not only the retiring partners but also the
new partnership itself which continued the business of the old,
dissolved, one, are liable for the debts of the preceding partnership.
G.R. No. L-22825 February 14, 1925
TESTATE ESTATE OF LAZARO MOTA, deceased, ET
AL., plaintiffs-appellants,
vs.
SALVADOR SERRA, defendant-appellee.
Eduardo Gutierrez Repide for appellants.
Hilado and Hilado, Fisher, DeWitt, Perkins and Brady, Araneta and
Zaragosa, Antonio Sanz and Jose Galan y Blanco for appellee.
VILLAMOR, J.:
On February 1, 1919, plaintiffs and defendant entered into a contract
of partnership, marked Exhibit A, for the construction and exploitation
of a railroad line from the "San Isidro" and "Palma" centrals to the
place known as "Nandong." The original capital stipulated was
P150,000. It was covenanted that the parties should pay this amount
in equal parts and the plaintiffs were entrusted with the
administration of the partnership. The agreed capital of P150,000,
however, did not prove sufficient, as the expenses up to May 15,
1920, had reached the amount of P226,092.92, as per statement
Exhibit B, presented by the administrator and O.K.'d by the
defendant.
January 29, 1920, the defendant entered into a contract of sale with
Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de
Luzuriaga, whereby he sold to the latter the estate and central known
as "Palma" with its running business, as well as all the improvements,
machineries and buildings, real and personal properties, rights,
choses in action and interests, including the sugar plantation of the
harvest year of 1920 to 1921, covering all the property of the vendor.
This contract was executed before a notary public of Iloilo and is
evidenced by Exhibit 1 of the defendant, paragraph 5 of which reads
as follows:
5. The party of the first part hereby states that he has entered into a
contract with the owners of the "San Isidro" Central for the
construction, operation, and exploitation of a railroad line of about 10
kilometers extending from the "Palma" Central and "San Isidro"
Central to a point known as "Nandong," the expenses until the
termination of which shall be for the account of the "San Isidro"
Central, and of which expenses, one-half shall be borne by the
"Palma" Central with the obligation to reimburse same within five (5)
years with interest at the rate of 10 per cent per annum to the said
"San Isidro" Central. The vendee hereby obligates himself to respect
the aforesaid contract and all obligations arising therefrom.
Before the delivery to the purchasers of the hacienda thus sold,
Eusebio R. de Luzuriaga renounced all his rights under the contract
of January 29, 1920, in favor of Messrs. Venancio Concepcion and
Phil. C. Whitaker. This gave rise to the fact that on July 17, 1920,
Venancio Concepcion and Phil. C. Whitaker and the herein
defendant executed before Mr. Antonio Sanz, a notary public in and
for the City of Manila, another deed of absolute sale of the said
"Palma" Estate for the amount of P1,695,961.90, of which the vendor
received at the time of executing the deed the amount of
P945,861.90, and the balance was payable by installments in the
form and manner stipulated in the contract. The purchasers
guaranteed the unpaid balance of the purchase price by a first and
special mortgage in favor of the vendor upon the hacienda and the
central with all the improvements, buildings, machineries, and
appurtenances then existing on the said hacienda.
Clause 6 of the deed of July 17, 1920, contains the following
stipulations:
6. Messrs. Phil. C. Whitaker and Venancio Concepcion hereby state
that they are aware of the contract that Mr. Salvador Serra has with
the proprietors of the "San Isidro" Central for the operation and
exploitation of a railroad line about 10 kilometers long from the
"Palma" and "San Isidro" centrals to the place known as "Nandong;"
and hereby obligate themselves to respect the said contract and
subrogate themselves into the rights and obligations thereunder.
They also bind themselves to comply with all the contracts heretofore
entered by the vendor with the customers, coparceners on shares
and employees.
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C.
Whitaker bought from the plaintiffs the one-half of the railroad line
pertaining to the latter, executing therefor the document Exhibit 5.
The price of this sale was P237,722.15, excluding any amount which
the defendant might be owing to the plaintiffs. Of the purchase price,
Venancio Concepcion and Phil. C. Whitaker paid the sum of
P47,544.43 only. In the deed Exhibit 5, the plaintiffs and Concepcion
and Whitaker agreed, among other things, that the partnership
"Palma" and "San Isidro," formed by the agreement of February 1,
1919, between Serra, Lazaro Mota, now deceased, and Juan J.
Vidaurrazaga for himself and in behalf of his brother, Felix and
Dionisio Vidaurrazaga, should be dissolved upon the execution of
this contract, and that the said partnership agreement should be
totally cancelled and of no force and effect whatever.
So it results that the "Hacienda Palma," with the entire railroad, the
subject-matter of the contract of partnership between plaintiffs and
defendant, became the property of Whitaker and Concepcion. Phil. C.
Whitaker and Venancio Concepcion having failed to pay to the
defendant a part of the purchase price, that is, P750,000, the vendor,
the herein defendant, foreclosed the mortgage upon the
said hacienda, which was adjudicated to him at the public sale held
by the sheriff for the amount of P500,000, and the defendant put in
possession thereof, including what was planted at the time, together
with all the improvements made by Messrs. Phil. C. Whitaker and
Venancio Concepcion.
Since the defendant Salvador Serra failed to pay one-half of the
amount expended by the plaintiffs upon the construction of the
railroad line, that is, P113,046.46, as well as Phil. C. Whitaker and
Venancio Concepcion, the plaintiffs instituted the present action
praying: (1) That the deed of February 1, 1919, be declared valid and
binding; (2) that after the execution of the said document the
defendant improved economically so as to be able to pay the
plaintiffs the amount owed, but that he refused to pay either in part or
in whole the said amount notwithstanding the several demands
made on him for the purpose; and (3) that the defendant be
sentenced to pay plaintiffs the aforesaid sum of P113,046.46, with
the stipulated interest at 10 per cent per annum beginning June 4,
1920, until full payment thereof, with the costs of the present action.
Defendant set up three special defenses: (1) The novation of the
contract by the substitution of the debtor with the conformity of the
creditors; (2) the confusion of the rights of the creditor and debtor;
and (3) the extinguishment of the contract, Exhibit A.
The court a quo in its decision held that there was a novation of the
contract by the substitution of the debtor, and therefore absolved the
defendant from the complaint with costs against the plaintiffs. With
regard to the prayer that the said contract be declared valid and
binding, the court held that there was no way of reviving the contract
which the parties themselves in interest had spontaneously and
voluntarily extinguished. (Exhibit 5.)
Plaintiffs have appealed from this judgment and as causes for the
review, they allege that the trial court erred: (a) In holding that
Messrs. Whitaker and Concepcion, upon purchasing the "Palma"
Central, were subrogated in the place of the defendant in all his
rights and obligations under the contract relating to the railroad line
existing between the "Palma" and the "San Isidro" centrals and that
the plaintiffs agreed to this subrogation; (b) in holding that the deed
Exhibit A of February 1, 1919, had been extinguished in its entirety
and made null and void by the agreement Exhibit 5 dated December
16, 1920; (c) in absolving the defendant from the complaint and in
sentencing the plaintiffs to pay the costs; and (d) in not sentencing
the defendant to pay the plaintiffs the sum of P113,046.46, with legal
interest at 10 per cent per annum from June 4, 1920, until full
payment, with costs against the defendant.
Taking for granted that the defendant was under obligation to pay the
plaintiffs one-half of the cost of the construction of the railroad line in
question, by virtue of the contract of partnership Exhibit A, the
decisive point here to determine is whether there was a novation of
the contract by the substitution of the debtor with the consent of the
creditor, as required by article 1205 of the Civil Code. If so, it is clear
that the obligation of the defendant was, in accordance with article
1156 of the same code, extinguished.
It should be noted that in order to give novation its legal effect, the
law requires that the creditor should consent to the substitution of a
new debtor. This consent must be given expressly for the reason that,
since novation extinguishes the personality of the first debtor who is
to be substituted by new one, it implies on the part of the creditor a
waiver of the right that he had before the novation which waiver must
be express under the principle that renuntiatio non praesumitur,
recognized by the law in declaring that a waiver of right may not be
performed unless the will to waive is indisputably shown by him who
holds the right.
The fact that Phil. C. Whitaker and Venancio Concepcion were
willing to assume the defendant's obligation to the plaintiffs is of no
avail, if the latter have not expressly consented to the substitution of
the first debtor. Neither can the letter, Exhibit 6, on page 87 of the
record be considered as proof of the consent of the plaintiffs to the
substitution of the debtor, because that exhibit is a letter written by
plaintiffs to Phil. C. Whitaker and Venancio Concepcion for the very
reason that the defendant had told them (plaintiffs) that after the sale
of the "Hacienda Palma" to Messrs. Phil. C. Whitaker and Venancio
Concepcion, the latter from then on would bear the cost of the repairs
and maintenance of the railroad line and of the construction of
whatever addition thereto might be necessary. So the plaintiffs by
their letter of August 14th, submitted a statement of account to Phil.
C. Whitaker and Venancio Concepcion containing the accounts of
the "San Isidro" Central, as stated June 30, 1920, saying that they
had already explained previously the reason for the increase in the
expenses and since the retiring partner, Mr. Serra, had already given
conformity with the accounts, as stated May 15, 1920, it remained
only to hear the conformity of the new purchasers for the accounts
covering the period from May 15 to June 30, 1920, and their authority
for future investments, or their objection, if any, to the amounts
previously expended. Neither can the testimony of Julio Infante in
connection with Exhibit 7 be taken as evidence of the consent of the
plaintiffs to the change of the person of the debtor for that of Messrs.
Phil. C. Whitaker and Venancio Concepcion. This witness testified, in
substance, that he is acquainted with the partnership formed by the
owners of the "Hacienda Palma" and Hacienda San Isidro" for the
construction of the railroad line; that the cost of the construction
thereof was originally estimated at P150,000; that the owner of the
"Hacienda Palma" would pay one-half of this amount; that when the
"Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and
Venancio Concepcion, the latter agreed to pay one-half of the cost of
P150,000; that as the cost of construction exceeded P200,000, he,
as an employee of Messrs. Phil. C. Whitaker and Venancio
Concepcion, could not O.K. the accounts as presented by the
plaintiffs, and suggested that they take up in writing their points of
view directly with Messrs. Phil. C. Whitaker and Venancio
Concepcion. Then the plaintiffs did as suggested, and wrote the
letter Exhibit 7 in which they asked the new owners of the "Hacienda
Palma" their decision upon the following three questions: 1. Will the
"Palma" Central accept the statement of account as presented by the
"San Isidro" Central regarding the actual cost of the railroad line
"Palma-San Isidro-Nandong?" 2. Is the "Palma" Central willing to
continue as co-proprietor of the railroad line for the exploitation of the
sugar-cane business of "Nandong" and neighboring barrios, and
therefore to pay 50 per cent of the expenses that may be incurred in
completing the line?
It was but natural that the plaintiffs should have done this. Defendant
transferred his hacienda to Messrs. Phil. C. Whitaker and Venancio
Concepcion and made it known to the plaintiffs that the new owners
would hold themselves liable for the cost of constructing the said
railroad line. Plaintiffs could not prevent the defendant from selling to
Phil. C. Whitaker and Venancio Concepcion his "Hacienda Palma"
with the rights that he had over the railroad in question. The
defendant ceased to be a partner in said line and, therefore, the
plaintiffs had to take the vendees as their new partners. Plaintiffs had
to come to an understanding with the new owners of the "Hacienda
Palma" in connection with the railroad line "Palma-San
Isidro-Nandong." But in all of this, there was nothing to show the
express consent, the manifest and deliberate intention of the
plaintiffs to exempt the defendant from his obligation and to transfer it
to his successors in interest, Messrs. Phil. C. Whitaker and Venancio
Concepcion.
The plaintiffs were not a party to the document Exhibit 1. Neither in
this document, nor in others in the record, do we find any stipulation
whereby the obligation of the defendant was novated with the
consent of the creditor, and as it has been held in the case
of Martinez vs. Cavives (25 Phil., 581), the oral evidence tending to
prove such a fact as this is not in law sufficient.
As has been said, in all contracts of novation consisting in the
change of the debtor, the consent of the creditor is indispensable,
pursuant to article 1205 of the Civil Code which reads as follows:
Novation which consists in the substitution of a new debtor in the
place of the original one may be made without the knowledge of the
latter, but not without the consent of the creditor.
Mr. Manresa in his commentaries on articles 1205 and 1206 of the
Civil Code (vol. 8, 1907 ed., pp. 424-426) says as follows:
Article 1205 clearly says in what this kind of novation must consist,
because in stating that another person must be substituted in lieu of
the debtor, it means that it is not enough to extend the juridical
relation to that other person, but that it is necessary to place the latter
in the same position occupied by the original debtor.
Consequently, the obligation contracted by a third person to answer
for the debtor, as in the case of suretyship, in the last analysis, does
not work as a true novation, because the third person is not put in the
same position as the debtor — the latter continues in his same place
and with the same obligation which is guaranteed by the former.
Since it is necessary that the third person should become a debtor in
the same position as the debtor whom he substitutes, this change
and the resulting novation may be respected as to the whole debt,
thus untying the debtor from his obligation, except the eventual
responsibilities of which we shall speak later, or he may continue
with the character of such debtor and also allow the third person to
participate in the obligation. In the first case, there is a complete and
perfect novation; in the second, there is a change that does not free
the debtor nor authorize the extinguishment of the accessory
obligations of the latter. In this last hypothesis, if there has been no
agreement as to solidarity, the first and the new debtor should be
considered as obligated severally.
The provisions of article 1205 which require the consent of the
creditor as an indispensable requisite in this kind of novation and not
always that of the debtor, while not making it impossible to express
the same, imply the distinction between these two forms of novation
and it is based on the simple consideration of justice that since the
consequences of the substitution may be prejudicial to the creditor,
but not to the debtor, the consent of the creditor alone is necessary.
The two forms of this novation, also impliedly recognized by article
1206 which employs the word "delegate," as applied to the debt, are
the expromission and the delegation. Between these, there is a
marked difference of meaning and, as a consequence, a logical
difference of requisite and another clear difference as to their effects,
of which we shall speak later.
In the expromission, the initiative of the change does not emanate
from the debtor and may be made even without his consent, since it
consists in a third person assuming his obligation; it logically requires
the consent of this third man and of the creditor and in this last
requisite lies the difference between novation and payment, as the
latter can be effected by a third person even against the will of the
creditor, whereas in the former case it cannot.
In the delegation, the debtor offers and the creditor accepts a third
person who consents to the substitution so that the intervention and
the consent of these three persons are necessary and they are
respectively known as delegante, delegatario, and delegado. It must
be noted that the consent need not be given simultaneously and that
it may be given afterwards, as for example, that of the creditor
delegatario to the proposition of the debtor accepted by
the delegado.
Delegation notably differs from the mere indication made by the
debtor that a third person shall pay the debt; in this case, there is no
novation and the former is not acquitted of his obligation and his
relations with the third person are regulated by the rules of agency.
The French Code in article 1276 expressly provides for this case, as
well as the inverse one where the debtor points out somebody else to
answer for the payment, declaring that there is no novation in either
case. The same sound criterion is impliedly accepted by our Code.
In the case of E.C. McCullough & Co. vs. Veloso and Serna (46 Phil.,
1), it appears that McCullough and Co., Inc., sold to Veloso a real
estate worth P700,000 on account of which Veloso paid P50,000,
promising to pay the balance at the times and manner stipulated in
the contract. He further bound himself to pay 10 per cent of the
amount of the debt as attorney's fees in case of litigation. To secure
the unpaid balance of the purchaser price he executed a first
mortgage upon the property in favor of the vendor. Subsequently,
Veloso sold the property for P100,000 to Joaquin Serna who bound
himself to respect the mortgage in favor of McCullough and Co., Inc.,
and to assume Veloso's obligation to pay the unpaid balance of the
purchase price of the property at the times agreed upon in the
contract between Veloso and McCullough and Co., Inc.
Veloso had paid on account of the price the amount of P50,000, and
Serna also made several payments aggregating the total amount of
P250,000. But after this, neither Veloso nor Serna made further
payments and thus gave cause for a litigation. The court in deciding
the case said:
The defendant contends that having sold the property to Serna, and
the latter having assumed the obligation to pay the plaintiff the
unpaid balance of the price secured by the mortgage upon the
property, he was relieved from this obligation and it then devolved
upon Serna to pay the plaintiff. This means that as a consequence of
the contract between the defendant and Serna, the contract between
the defendant and the plaintiff was novated by the substitution of
Serna as a new debtor. This is untenable. In order that this novation
may take place, the law requires the consent of the creditor (art.
1205 of the Civil Code). The plaintiff did not intervene in the contract
between Veloso and Serna and did not expressly give his consent to
this substitution. Novation must be express, and cannot be
presumed.
In Martinez vs. Cavives (25 Phil., 581), it was held that:
. . . The consent of the new debtor is as essential to the novation as
is that of the creditor . . . .
There is no express stipulation in any of the documents of record that
the obligation of the defendant was novated, and the parol evidence
tending to show that it was novated is not sufficient in law to establish
that fact.
The same doctrine was upheld in the case of Vaca vs. Kosca (26
Phil., 388):
A new debtor cannot be substituted for the original obligor in the first
contract without the creditor's consent.
The supreme court of Spain has constantly laid down the same
doctrine with regard to novation of contracts:
The obligations and rights in a contract cannot be novated with
regard to a third person who has not intervened in the execution
thereof. (Decision of June 28, 1860.)
Novation by the change of debtors cannot be effected without the
express approval of the creditor. (Decisions of February 8, 1862 and
June 12, 1867.)
Novation should not be established by presumptions but by the
express will of the parties. (Decisions of February 14, 1876 and June
16, 1883.)
In order that novation of a contract by subrogation of the debtor may
take effect and thus liberate the first debtor from the obligation, it is
necessary that the subrogation be made with the consent of the
creditor. (Decision of March 2, 1897.)
It is undeniable that obligations judicially declared, as well as those
acquired by any title, can be novated by substituting a new debtor in
place of the primitive, only when the creditor gives his consent to the
substitution. (Decision of November 15, 1899.)
Novation can in no case be presumed in contracts, but it is
necessary that it should result from the will of the parties, or that the
old and the new one be altogether incompatible. (Decision of
December 31, 1904.)
An obligation cannot be deemed novated by means of modifications
which do not substantially change the essence thereof, nor when it is
not extinguished by another obligation, nor when the debtor is not
substituted. (Decision of March 14, 1908.)
The consent of the creditor required in a novation consisting of the
change of debtors (art. 1205, Civil Code) must appear in an express
and positive manner and must be given with the deliberate intention
of exonerating the primitive debtor of his obligations and transfer
them wholly upon the new debtor. (Decision of June 22, 1911.)
In the decision in the case of Martinez vs. Cavives, supra, the
following decisions of the several courts of the United States are
cited, wherein this question was decided in the same manner:
In Latiolais, admrx. vs. Citizens' Bank of Louisiana (33 La. Ann.,
1444), one Duclozel mortgaged property to the defendant bank for
the triple purpose of obtaining shares in the capital stock of the bank,
bonds which the bank was authorized to issue, and loans to him as a
stockholder. Duclozel subsequently sold this mortgaged property to
one Sproule, who, as one of the terms of the sale, assumed the
liabilities of his vendor to the bank. Sproule sold part of the property
to Graff and Chalfant. The debt becoming due, the bank brought suit
against the last two named and Sproule as owners. Duclozel was not
made a party. The bank discontinued these proceedings and
subsequently brought suit against Latiolais, administratrix of
Duclozel, who had died.
The court said: "But the plaintiff insists that in its petition in the
proceeding first brought the bank ratified the sale made by Duclozel
to Sproule, and by the latter to other parties, in treating them as
owners. Be that so, but it does not follow in the absence of either a
formal and express or of an implied consent to novate, which should
be irresistibly inferred from surrounding circumstances, that it has
discharged Duclozel unconditionally, and has accepted those parties
as new delegated debtors in his place. Nemo presumitur donare.
"Novation is a contract, the object of which is: either to extinguish an
existing obligation and to substitute a new one in its place; or to
discharge an old debtor and substitute a new one to him; or to
substitute a new creditor to an old creditor with regard to whom the
debtor is discharged.
"It is never presumed. The intention must clearly result from the
terms of the agreement or by a full discharge of the original debt.
Novation by the substitution of a new debtor can take place without
the consent of the debtor, but the delegation does not operate a
novation, unless the creditor has expressly declared that he intends
to discharge with delegating debtor, and the delegating debtor was
not in open failure or insolvency at the time. The mere indication by a
debtor of a person who is to pay in his place does not operate a
novation. Delegatus debitor est odiosus in lege.
"The most that could be inferred would be that the bank in the
exercise of a sound discretion, proposed to better its condition by
accepting an additional debtor to be and remain bound with the
original one."
In Fidelity L. & T. Co. vs. Engleby (99 Va., 168), the court said:
"Whether or not a debt has been novated is a question of fact and
depends entirely upon the intention of the parties to the particular
transaction claimed to be novated. In the absence of satisfactory
proof to the contrary, the presumption is that the debt has not been
extinguished by taking the new evidence in the absence of an
intention expressed or implied, being treated as a conditional
payment merely."
In Hamlin vs. Drummond (91 Me., 175; 39 A., 551), it was said that
novation is never presumed but must always be proven. In
Netterstorn vs. Gallistel (110 Ill. App., 352), it was said that the
burden of establishing a novation is on the party who asserts its
existence; that novation is not easily presumed; and that it must
clearly appear before the court will recognize it.
Notwithstanding the doctrines above quoted, defendant's counsel
calls our attention to the decision of the supreme court of Spain of
June 16, 1908, wherein it was held that the provisions of article 1205
of Code do not mean nor require that the consent of the creditor to
the change of a debtor must be given just at the time when the
debtors agree on the substitution, because its evident object being
the full protection of the rights of the creditor, it is sufficient if the latter
manifests his consent in any form and at any time as long as the
agreement among the debtors holds good. And defendant insists
that the acts performed by the plaintiffs after the "Hacienda Palma"
was sold to Messrs. Phil. C. Whitaker and Venancio Concepcion
constitute evidence of the consent of the creditor. First of all, we
should have an idea of the facts upon which that decision was
rendered by the supreme court of Spain.
A partnership known as "La Azucarera de Pravia" obtained a fire
insurance policy from the company "La Union y Fenix Espanol," by
virtue of which, said company insured in consideration of an annual
premium of 3,000 pesetas, the buildings, machinery and other
apparatuses pertaining to the "Pravia Factory" for ten years and for
half their value, and another insurance from another insurance
company insuring the same property and effects for the other half of
their value.
Later, "La Azucarera de Pravia," with other sugar companies, ceded
all its property to another company known as "Sociedad General
Azucarera de España," in which in consideration of certain amount of
stock that the said "Sociedad General Azucarera de España" issued
to the "La Azucarera de Pravia," the latter was merged with the
former. After the cession, "La Union y Fenix Expañol" sued the
"Sociedad General Azucarera de España" demanding the payment
of the premium that should have been paid by the "La Azucarera de
Pravia," which payment the "Sociedad General Azucarera de
España" refused to make on the ground that the "La Azucarera de
Pravia" was not merged with the "Sociedad General Azucarera de
España," but merely transferred its properties to the latter in
consideration of the stock that was issued to the "La Azucarera de
Pravia." It was further contended by the "Sociedad General
Azucarera de España" that even if it were true that in the contract of
cession it appeared that the "La Azucarera de Pravia" was merged
with the "Sociedad General Azucarera de España," nevertheless,
there was no such merger in law, for in truth and in fact, the "La
Azucarera de Pravia" had ceded only its property, but not its rights
and obligations; that the existence of the partnership known as "La
Azucarera de Pravia" was proven by its registration in the mercantile
register, which was not cancelled, did it contain any statement to the
effect that the "La Azucarera de Pravia" had been extinguished or
had ceased to do business even after the cession of properties to the
"Sociedad General Azucarera de España." Another argument
advanced by the "Sociedad General" was that at the time the
"Azucarera de Pravia" ceded its properties to the "Sociedad General
Azucarera de España," the insurance company "La Union y Fenix
Espanol" did not assent to the subrogation of the "Sociedad General
Azucarera" into the rights and obligations of the "Azucarera de
Pravia," assuming that there had been such a subrogation or
substitution of a debtor by another.
The supreme court of Spain gave judgment in favor of the "La Union
y Fenix Español" insurance company for the following reasons:
1. While it is true that it cannot be strictly said that "La Azucarera de
Pravia" was merged with the "Sociedad General Azucarera de
España," the document whereby the property of the "La Azucarera
de Pravia" was ceded to the "Sociedad General Azucarera de
España" clearly and expressly recites that this company upon taking
charge of the immovable property of the "La Azucarera de Pravia"
accepted in general, with respect to the property ceded, "everything
belonging to the same," after making provisions about active and
passive easements, contracts for transportation and other matters.
The supreme court held that by virtue of the words hereinabove
quoted, the "Sociedad General Azucarera de España" took over the
obligation to pay the insurance premiums of the "La Azucarera de
Pravia" inasmuch as said insurance pertained to the property that
was ceded.
2. While it is true that "La Union y Fenix Español" insurance company
did not give its consent to the contract of cession at the moment of its
execution, yet the mere fact that the said insurance company now
sues the "Sociedad General Azucarera de España" is an
incontrovertible proof that the said insurance company accepts the
substitution of the new debtor.
By comparing the facts of that case with the defenses of the case at
bar, it will be seen that, whereas in the former case the creditor sued
the new debtor, in the instant case the creditor sues the original
debtor. The supreme court of Spain in that case held that the fact
that the creditor sued the new debtor was proof incontrovertible of his
assent to the substitution of the debtor. This would seem evident
because the judicial demand made on the new debtor to comply with
the obligation of the first debtor is the best proof that the creditor
accepts the change of the debtor. His complaint is an authentic
document where his consent is given to the change of the debtor. We
are not holding that the creditor's consent must necessarily be given
in the same instrument between the first and the new debtor. The
consent of the creditor may be given subsequently, but in either case
it must be expressly manifested. In the present case, however, the
creditor makes judicial demand upon the first debtor for the fulfillment
of his obligation, evidently showing by this act that he does not give
his consent to the substitution of the new debtor. We are of the
opinion that the decision of the supreme court of Spain of June 16,
1908, cannot be successfully invoked in support of defendant's
contention. Wherefore, we hold that in accordance with article 1205
of the Civil Code, in the instant case, there was no novation of the
contract, by the change of the person of the debtor.
Another defense urged by the defendant is the merger of the rights of
debtor and creditor, whereby under article 1192 of the Civil Code, the
obligation, the fulfillment of which is demanded in the complaint,
became extinguished. It is maintained in appellee's brief that the debt
of the defendant was transferred to Phil. C. Whitaker and Venancio
Concepcion by the document Exhibit 1. These in turn acquired the
credit of the plaintiffs by virtue of the debt, Exhibit 5; thus the rights of
the debtor and creditor were merged in one person. The argument
would at first seem to be incontrovertible, but if we bear in mind that
the rights and titles which the plaintiffs sold to Phil. C. Whitaker and
Venancio Concepcion refer only to one-half of the railroad line in
question, it will be seen that the credit which they had against the
defendant for the amount of one-half of the cost of construction of the
said line was not included in the sale contained in Exhibit 5. That the
plaintiffs sold their rights and titles over one-half of the line, is evident
from the very Exhibit 5. The purchasers, Phil. C. Whitaker and
Venancio Concepcion, to secure the payment of the price, executed
a mortgage in favor of the plaintiffs on the same rights and titles that
they had bought and also upon what they had purchased from Mr.
Salvador Serra. In other words, Phil. C. Whitaker and Venancio
Concepcion mortgaged unto the plaintiffs what they had bought from
the plaintiffs and also what they had bought from Salvador Serra. If
Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased
something from Mr. Salvador Serra, the herein defendant, regarding
the railroad line, it was undoubtedly the one-half thereof pertaining to
Mr. Salvador Serra. This clearly shows that the rights and titles
transferred by the plaintiffs to Phil. C. Whitaker and Venancio
Concepcion were only those they had over the other half of the
railroad line. Therefore, as already stated, since there was no
novation of the contract between the plaintiffs and the defendant, as
regards the obligation of the latter to pay the former one-half of the
cost of the construction of the said railroad line, and since the
plaintiffs did not include in the sale, evidenced by Exhibit 5, the credit
that they had against the defendant, the allegation that the obligation
of the defendant became extinguished by the merger of the rights of
creditor and debtor by the purchase of Messrs. Phil. C. Whitaker and
Venancio Concepcion is wholly untenable.
Appellants assign also as a ground of their appeal the holding of the
court that by the termination of the partnership, as shown by the
document Exhibit 5, no legal rights can be derived therefrom.
By virtue of the contract Exhibit 5, the plaintiffs and Phil. C. Whitaker
and Venancio Concepcion, by common consent, decided to dissolve
the partnership between the "Hacienda Palma" and "Hacienda San
Isidro," thus cancelling the contract of partnership of February 1,
1919.
Counsel for appellee in his brief and oral argument maintains that the
plaintiffs cannot enforce any right arising out of that contract of
partnership, which has been annulled, such as the right to claim now
a part of the cost of the construction of the railroad line stipulated in
that contract.
Defendant's contention signifies that any person, who has contracted
a valid obligation with a partnership, is exempt from complying with
his obligation by the mere fact of the dissolution of the partnership.
Defendant's contention is untenable. The dissolution of a partnership
must not be understood in the absolute and strict sense so that at the
termination of the object for which it was created the partnership is
extinguished, pending the winding up of some incidents and
obligations of the partnership, but in such case, the partnership will
be reputed as existing until the juridical relations arising out of the
contract are dissolved. This doctrine has been upheld by the
supreme court of Spain in its decision of February 6, 1903, in the
following case: There was a partnership formed between several
persons to purchase some lands sold by the state. The partnership
paid the purchase price and distributed among its members the lands
so acquired, but after the lapse of some time, one of the partners
instituted an action in the court of Badajoz, praying that he be
accepted as a partner with the same rights and obligations as the
others, for the reason that he had not been allowed all that he had a
right to. The court granted the petition, which judgment was affirmed
by the Audiencia de Caceres.

From that decision the defendant sued out a writ of error alleging
infringement of articles 1680 and 1700 of the Civil Code, on the
proposition that all contracts are reputed consummated and
therefore extinguished, when the contracting parties fulfill all the
obligations arising therefrom and that by the payment of the money
and the granting and distribution of the lands without any opposition,
the juridical relations between the contracting parties become
extinguished and none of the parties has any right of action under the
contract. The supreme court, holding that some corrections and
liquidations asked by the actor were still pending, denied the writ,
ruling that the articles cited were not infringed because a partnership
cannot be considered as extinguished until all the obligations
pertaining to it are fulfilled. (11 Manresa, page 312.)

The dissolution of a firm does not relieve any of its members from
liability for existing obligations, although it does save them from new
obligations to which they have not expressly or impliedly assented,
and any of them may be discharged from old obligations by novation
of other form of release. It is often said that a partnership continues,
even after dissolution, for the purpose of winding up its affairs. (30
Cyc., page 659.)

Another question presented by appellee's counsel in his

memorandum and oral argument is that as in the partnership articles
of February 1, 1919, it was covenanted that the defendant would put
up one-half of the cost of the railroad line within five years from the
date, that is, from February 1, 1919, with interest at 10 per cent per
annum, the present action is premature since, from the execution of
the contract until October 25, 1922, the date of the complaint, the five
years, within which the defendant could pay his part of the cost of the
construction of the line, had not yet elapsed. Suffice it to say that the
plaintiff and the successors in interest of the defendant, by mutual
consent, dissolved the partnership on June 16, 1920, cancelling the
contract Exhibit A to all of which the defendant consented as
evidence by his allegations in his answer. If this is so, there is no
reason for waiting for the expiration of the five years which the
parties themselves had seen fit to stipulate and therefore the
provisions of article 113, regarding the fulfillment of pure obligations,
must be applied in this case.

For all of the foregoing, the judgment appealed from is reversed, and
we hold that the defendant Salvador Serra is indebted to the plaintiffs,
the Testate Estate of Lazaro Mota, et al., in the amount of
P113,046.46, and said defendant is hereby sentenced to pay the
plaintiffs the said amount, together with the agreed interest at the
rate of 10 per cent per annum from the date of the filing of the
complaint.

Without special pronouncement as to costs, it is so ordered.

Johnson, Street, Malcolm, Ostrand, Johns, and Romualdez, JJ.,

concur.