G.R. No.

109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents.

VITUG, J.:

The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February
1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange
Commission ("SEC") in SEC AC 254.

The antecedents of the controversy, summarized by respondent Commission and quoted at length by the
appellate court in its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the
Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange
Commission on 4 August 1948. The SEC records show that there were several subsequent
amendments to the articles of partnership on 18 September 1958, to change the firm [name] to
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA;
on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to
DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19
December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated
themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O.
del Castillo, Jr., and Benjamin Bacorro, as junior partners.

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

I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the
end of this month.

"I trust that the accountants will be instructed to make the proper liquidation of my
participation in the firm."

On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

"Further to my letter to you today, I would like to have a meeting with all of you with
regard to the mechanics of liquidation, and more particularly, my interest in the two
floors of this building. I would like to have this resolved soon because it has to do
with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:

"The partnership has ceased to be mutually satisfactory because of the working

conditions of our employees including the assistant attorneys. All my efforts to
ameliorate the below subsistence level of the pay scale of our employees have been
thwarted by the other partners. Not only have they refused to give meaningful
increases to the employees, even attorneys, are dressed down publicly in a loud
voice in a manner that deprived them of their self-respect. The result of such policies
is the formation of the union, including the assistant attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case
No. 3384 praying that the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the
partnership of) Bito, Misa & Lozada;
 "2. Order the respondents to deliver or pay for petitioner's share in the partnership
assets plus the profits, rent or interest attributable to the use of his right in the assets
of the dissolved partnership;

"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of
their correspondence, checks and pleadings and to pay petitioners damages for the
use thereof despite the dissolution of the partnership in the amount of at least
P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's fees and
expense of litigation in such amounts as maybe proven during the trial and which the
Commission may deem just and equitable under the premises but in no case less
than ten (10%) per cent of the value of the shares of petitioner or P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the amount of
P500,000.00 and exemplary damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the Commission may
deem just and equitable under the premises."

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

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the
said law partnership. Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement relative to the matter governing
the liquidation of the shares of any retiring or withdrawing partner in the partnership
interest."1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of
Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled
that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his
withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the
partnership against his will. In its decision, dated 17 January 1990, the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED
insofar as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case
is hereby REMANDED to the Hearing Officer for determination of the respective rights and
obligations of the parties.2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as well
as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R.
SP No. 24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano
Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his
application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve
and care for the partnership assets. The other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in
toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26
February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the parties
and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c)
that the liquidation should be to the extent of Attorney Misa's interest or participation in the partnership which
could be computed and paid in the manner stipulated in the partnership agreement; (d) that the case should
be remanded to the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's
share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as no sufficient
proof had been shown to indicate that the partnership assets were in any such danger of being lost,
removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following
issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa &
Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith; and

3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in
bad faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and
now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We
quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this
matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a specified
period or undertaking. The "DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually satisfactory and
upon the death or legal incapacity of one of the partners, shall be continued by the
surviving partners."

The hearing officer however opined that the partnership is one for a specific undertaking and hence
not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to act as legal
adviser and representative of any individual, firm and corporation engaged in
commercial, industrial or other lawful businesses and occupations; to counsel and
advise such persons and entities with respect to their legal and other affairs; and to
appear for and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and elsewhere when legally
authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide for articles on partnership at will
as none would so exist. Apparently what the law contemplates, is a specific undertaking or "project"
which has a definite or definable period of completion.3

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The
right to choose with whom a person wishes to associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along
with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself.
Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He
must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership4 but that it can result in a liability for damages.5

In passing, neither would the presence of a period for its specific duration or the statement of a particular
purpose for its creation prevent the dissolution of any partnership by an act or will of a partner.6 Among
partners,7 mutual agency arises and the doctrine of delectus personae allows them to have the power,
although not necessarily theright, to dissolve the partnership. An unjustified dissolution by the partner can
subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to
be associated in the carrying on, as might be distinguished from the winding up of, the business.8 Upon its
dissolution, the partnership continues and its legal personality is retained until the complete winding up of its
business culminating in its termination.9

The liquidation of the assets of the partnership following its dissolution is governed by various provisions of
the Civil Code; 10 however, an agreement of the partners, like any other contract, is binding among them and
normally takes precedence to the extent applicable over the Code's general provisions. We here take note of
paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the partnership shall be
liquidated and paid in accordance with the existing agreements and his partnership participation
shall revert to the Senior Partners for allocation as the Senior Partners may determine; provided,
however, that with respect to the two (2) floors of office condominium which the partnership is now
acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo
Village, Makati, Metro Manila, their true value at the time of such death or retirement shall be
determined by two (2) independent appraisers, one to be appointed (by the partnership and the
other by the) retiring partner or the heirs of a deceased partner, as the case may be. In the event of
any disagreement between the said appraisers a third appraiser will be appointed by them whose
decision shall be final. The share of the retiring or deceased partner in the aforementioned two (2)
floor office condominium shall be determined upon the basis of the valuation above mentioned which
shall be paid monthly within the first ten (10) days of every month in installments of not less than
P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and
P5,000.00 in the case of the new Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the
dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves
it.

On the third and final issue, we accord due respect to the appellate court and respondent Commission on
their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not be right, we
agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly,
not against their will. 12 Indeed, for as long as the reason for withdrawal of a partner is not contrary to the
dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the
partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.
 THIRD DIVISION

[G.R. No. 136448. November 3, 1999]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES,

INC., respondent.

DECISION
PANGANIBAN, J.:

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

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision
of the Court of Appeals in CA-GR CV 41477,[1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.[2]

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by
the CA, reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on
September 20, 1990;

2. That defendants are jointly liable to plaintiff for the 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 trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the
Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said
Agreement;

b. 12% interest per annum counted from date of plaintiffs invoices and computed on their
respective amounts as follows:

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

ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13,
1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19,
1990;

c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance
in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted
from September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the 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 of 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 of the
parties, and, to avoid further deterioration of the nets during the pendency of this case, it was
ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the
sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in
court. In effect, the 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 nets and floats awarded and delivered by the sheriff to plaintiff as the
highest bidder in the public auction sale. It has also been noted that ownership of the nets
[was] retained by the plaintiff until full payment [was] made as stipulated in the invoices;
hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this
Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to
defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to
serve as its bond in favor of defendants.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be
entitled to in this case will have to be satisfied from the amount of P900,000.00 as this
amount replaced the attached nets and floats. Considering, however, that the total judgment
obligation as computed above would amount to only P840,216.92, it would be inequitable,
unfair and unjust to award the excess to the 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 and floats. For this reason, the defendants are hereby
relieved from any and all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession and ownership of the nets and floats
and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.

SO ORDERED. [3]

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract
dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear
Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with
Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets
amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed
a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as general partners, on the allegation
that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a Certification from the
Securities and Exchange Commission.[5] On September 20, 1990, the lower court issued a Writ of
Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B
Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a 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. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-
examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment.[6] The trial court maintained the Writ, and upon motion
of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear
Industries won the bidding and deposited with the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, 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 ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies
of the witnesses presented and (2) on a Compromise Agreement executed by the three[9] in Civil Case No.
1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a
declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages.[10] The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the
amount of P5,750,000.00 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 Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price
than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be
shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter
Yao.[11]

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations,
but that joint liability could be presumed from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing
business and may thus be held liable as a such for the fishing nets and floats purchased by and for the use
of the partnership. The appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a
partnership for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate
undertaking of the defendants was to divide the profits among themselves which is what a partnership
essentially is x x x. By a contract of partnership, two or more persons bind themselves to contribute
money, property or industry to a common fund with the intention of dividing the profits among
themselves (Article 1767, New Civil Code).[13]

Hence, petitioner brought this recourse before this Court.[14]

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the
following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE

AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A
SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR
OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND

ATTACHMENT OF PETITIONER LIMS GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats purchased from
respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be
deemed to have entered into a partnership.

This Courts Ruling

The Petition is devoid of merit.

 First and Second Issues: Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any
direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and
Yao only, and that he has not even met the representatives of the respondent company. Petitioner further
argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated February 1,
1990, showed that he had merely leased to the two the main asset of the purported partnership -- the fishing
boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the
gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts
clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the
Civil Code which provides:

Article 1767 - By the contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the
profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following
factual findings:[15]

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial
fishing to join him, while Antonio Chua was already Yaos partner;

(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two
fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim,
to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of
Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security
for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;

(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the
partnership in the amount of P1 million secured by a check, because of which, Yao and Chua
entrusted the ownership papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB
Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets
from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation,"
their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72
by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing
boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between
the parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioners brother. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term common fund under Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed
that any loss or profit from the sale and operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that
of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired
in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in
buying the boat but not in the acquisition of the aforesaid equipment, without which the business could
not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership
engaged in the fishing business. They purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and operations thereof would be divided
among them.
We stress that under Rule 45, a petition for review like the present case should involve only questions
of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any
cogent proof that the present action is embraced by one of the exceptions to the rule. [16] In assailing the
factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.

Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was
the Compromise 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 arguments are baseless. The
Agreement was but an embodiment of the relationship extant among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise
all relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership
among the parties. In implying that the lower courts have decided on the basis of one piece of document
alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and
explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the
two lower courts factual findings mentioned above nullified petitioners argument that the existence of a
partnership was based only on the Compromise Agreement.

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and
Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease
and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the
nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale
of his own boats to 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 what petitioner did. Indeed, his consent to the sale proved that there
was a preexisting partnership among all three.
 Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao,
in which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which
would be used in their fishing business. The sale of the boats, as well as the division among the three of
the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though
registered in his name, was not his own property but an asset of the partnership. It is not uncommon to
register the properties acquired from a loan in the name of the person the lender trusts, who in this case is
the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt
he did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of
partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to
Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing
it to be without authority to do so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof: Provided however, That when any such
ostensible corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist

performance thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. The reason behind this doctrine is obvious - an
unincorporated association has no personality and would be incompetent to act and appropriate for itself
the power and attributes of a corporation as provided by law; it cannot create agents or confer authority
on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so
without authority and at their own risk. And as it is an elementary principle of law that a person who acts
as an agent without authority or without a principal is himself regarded as the principal, possessed of all
the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and obligations and becomes personally
liable for contracts entered into or for other acts performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the 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 personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which it received advantages and benefits.
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 corporate
existence in a suit brought against the alleged corporation. In such case, all those who benefited from the
transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable
for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for
the nets it sold. The only question here is whether petitioner should be held 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 does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he cannot be held liable.
 Unquestionably, petitioner benefited from the use of the nets 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 stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude
the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel,
those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence,
are held liable as general partners.
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 he previously had an existing
relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of
corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in
the subtle art of movement and position , entraps and destroys the other. It is, rather, a
contest in which each contending party fully and fairly lays before the court the facts in issue
and then, brushing aside as wholly trivial and indecisive all imperfections of form and
technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels,
are not to be won by a rapiers thrust. Technicality, when it deserts its proper office as an aid
to justice and becomes its great hindrance and chief enemy, deserves scant consideration
from courts. There should be no vested rights in technicalities.

Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We
agree with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B
Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure
payment of the debt he and his partners owed. The nets and the floats were specifically manufactured and
tailor-made according to their own design, and were bought and used in the fishing venture they agreed
upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is
proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine
Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.
 FIRST DIVISION

[G.R. No. 127405. September 20, 2001]

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF

APPEALS and NENITA A. ANAY, respondents.

RESOLUTION
YNARES-SANTIAGO, J.:

The inherent powers of a Court to amend and control its processes and orders so as to make them
conformable to law and justice includes the right to reverse itself, especially when in its honest opinion it
has committed an error or mistake in judgment, and that to adhere to its decision will cause injustice to a
party litigant.[1]
On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for
Reconsideration of our Decision dated October 4, 2000. They maintain that there was no partnership
bettween petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the other hand; and that the
latter being merely an employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo acted
merely as guarantor of Geminesse Enterprise. This was categorically affirmed by respondents own
witness, Elizabeth Bantilan, during her cross-examination. Furthermore, Bantilan testified that it was Peter
Lo who was the companys financier. Thus:
Q You mentioned a while ago the name William Belo. Now, what is the role of William Belo with Geminesse
Enterprise?
A William Belo is the friend of Marjorie Tocao and he was the guarantor of the company.
Q What do you mean by guarantor?
A He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for us. We can
borrow money from him.
Q You mentioned a certain Peter Lo. Who is this Peter Lo?
A Peter Lo is based in Singapore.
Q What is the role of Peter Lo in the Geminesse Enterprise?
A He is the one fixing our orders that open the L/C.
Q You mean Peter Lo is the financier?
A Yes, he is the financier.
Q And the defendant William Belo is merely the guarantor of Geminesse Enterprise, am I correct?
A Yes, sir.[2]
The foregoing was neither refuted nor contradicted by respondents evidence. It should be recalled
that the business relationship created between petitioner Tocao and respondent Anay was an informal
partnership, which was not even recorded with the Securities and Exchange Commission. As such, it was
understandable that Belo, who was after all petitioner Tocaos good friend and confidante, would
occasionally participate in the affairs of the business, although never in a formal or official
capacity.[3] Again, respondents witness, Elizabeth Bantilan, confirmed that petitioner Belos presence in
Geminesse Enterprises meetings was merely as guarantor of the company and to help petitioner Tocao.[4]
 Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the
business enterprise. Respondent herself professed lack of knowledge that petitioner Belo received any
share in the net income of the partnership.[5] On the other hand, petitioner Tocao declared that petitioner
Belo was not entitled to any share in the profits of Geminesse Enterprise.[6] With no participation in the
profits, petitioner Belo cannot be deemed a partner since the essence of a partnership is that the partners
share in the profits and losses.[7]
Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent
had no cause of action against him and her complaint against him should accordingly be dismissed.
As regards the award of damages, petitioners argue that respondent should be deemed in bad faith for
failing to account for stocks of Geminesse Enterprise amounting to P208,250.00 and that, accordingly,
her claim for damages should be barred to that extent. We do not agree. Given the circumstances
surrounding private respondents sudden ouster from the partnership by petitioner Tocao, her act of
withholding whatever stocks were in her possession and control was justified, if only to serve as security
for her claims against the partnership. However, while we do not agree that the same renders private
respondent in bad faith and should bar her claim for damages, we find that the said sum of P208,250.00
should be deducted from whatever amount is finally adjudged in her favor on the basis of the formal
account of the partnership affairs to be submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is
PARTIALLY GRANTED. The Regional Trial Court of Makati is hereby ordered to DISMISS the
complaint, docketed as Civil Case No. 88-509, as against petitioner William T. Belo only. The sum of
P208,250.00 shall be deducted from whatever amount petitioner Marjorie Tocao shall be held liable to
pay respondent after the formal accounting of the partnership affairs.
SO ORDERED.
G.R. No. L-21906 December 24, 1968

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.

Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.

Ruiz Law Offices for defendant-appellant.

CASTRO, J.:

This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of May 21, 1956,
all of the Court of First Instance of Davao, in civil case 629. The basic action is for specific performance, and
damages resulting from an alleged breach of contract.

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

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

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

On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares of land found
inside the area applied for by Casteel; he was later granted fishpond permit F-289-C covering 9.3 hectares
certified as available for fishpond purposes by the Bureau of Forestry.

Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the land applied for by
Casteel. Alejandro Cacam's fishpond application 1276, filed on December 26, 1946, was given due course
on December 9, 1947 with the issuance to him of fishpond permit F-539-C to develop 30 hectares of land
comprising a portion of the area applied for by Casteel, upon certification of the Bureau of Forestry that the
area was likewise available for fishpond purposes. On November 17, 1948 Felipe Deluao filed his own
fishpond application for the area covered by Casteel's application.

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

Moreover, upon learning that portions of the area applied for by him were already occupied by rival
applicants, Casteel immediately filed the corresponding protests. Consequently, two administrative cases
ensued involving the area in question, to wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No.
1717), Nicanor Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicant-appellant";
and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-
protestant versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro Cacam,
Permittees-Respondents."

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

In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our
discussion of the appellant's third assignment of error.

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor
Casteel as party of the second part, executed a contract — denominated a "contract of service" — the
salient provisions of which are as follows:

That the Party of the First Part in consideration of the mutual covenants and agreements made
herein to the Party of the Second Part, hereby enter into a contract of service, whereby the Party of
the First Part hires and employs the Party of the Second Part on the following terms and conditions,
to wit:

That the Party of the First Part will finance as she has hereby financed the sum of TWENTY SEVEN
THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party of the Second Part who
renders only his services for the construction and improvements of a fishpond at Barrio Malalag,
Municipality of Padada, Province of Davao, Philippines;

That the Party of the Second Part will be the Manager and sole buyer of all the produce of the fish
that will be produced from said fishpond;

That the Party of the First Part will be the administrator of the same she having financed the
construction and improvement of said fishpond;

That this contract was the result of a verbal agreement entered into between the Parties sometime in
the month of November, 1947, with all the above-mentioned conditions enumerated; ...

On the same date the above contract was entered into, Inocencia Deluao executed a special power of
attorney in favor of Jesus Donesa, extending to the latter the authority "To represent me in the
administration of the fishpond at Malalag, Municipality of Padada, Province of Davao, Philippines, which has
been applied for fishpond permit by Nicanor Casteel, but rejected by the Bureau of Fisheries, and to
supervise, demand, receive, and collect the value of the fish that is being periodically realized from it...."

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on
November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in the two
administrative cases (DANR Cases 353 and 353-B) and asked for reinvestigation of the application of
Nicanor Casteel over the subject fishpond. However, by letter dated March 15, 1950 sent to the Secretary of
Commerce and Agriculture and Natural Resources (now Secretary of Agriculture and Natural Resources),
Deluao withdrew his petition for reinvestigation.

On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in DANR
Case 353, the dispositive portion of which reads as follows:

In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of Nicanor Casteel
should be, as hereby it is, reinstated and given due course for the area indicated in the sketch drawn
at the back of the last page hereof; and Fp. A. No. 762 of Victorio D. Carpio shall remain rejected.

On the same date, the same official issued a decision in DANR Case 353-B, the dispositive portion stating
as follows:

WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F-539-C
of Alejandro Cacam, should be, as they are hereby cancelled and revoked; Nicanor Casteel is
required to pay the improvements introduced thereon by said permittees in accordance with the
terms and dispositions contained elsewhere in this decision....

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the
fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and Nicanor
Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance of
Davao for specific performance and damages against Nicanor Casteel and Juan Depra (who, they alleged,
instigated Casteel to violate his contract), praying inter alia, (a) that Casteel be ordered to respect and abide
by the terms and conditions of said contract and that Inocencia Deluao be allowed to continue administering
the said fishpond and collecting the proceeds from the sale of the fishes caught from time to time; and (b)
that the defendants be ordered to pay jointly and severally to plaintiffs the sum of P20,000 in damages.

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

POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado y todos
usu abogados, agentes, mandatarios y demas personas que obren en su ayuda, desista de impedir
a la demandante Inocencia R. Deluao que continue administrando personalmente la pesqueria
objeto de esta causa y que la misma continue recibiendo los productos de la venta de los pescados
provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho demandado Nicanor Casteel
a desahuciar mediante fuerza al encargado de los demandantes llamado Jesus Donesa de la
pesqueria objeto de la demanda de autos.

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

The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952,
denying the material averments of the plaintiffs' complaint. A reply to the defendants' amended answer was
filed by the plaintiffs on January 31, 1952.

The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4, 1951 the
plaintiffs opposed his motion.

The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs' complaint
failed to state a claim upon which relief may be granted. The motion, opposed by the plaintiffs on October
12, 1951, was denied for lack of merit by the lower court in its order of October 22, 1951. The defendants'
motion for reconsideration filed on October 31, 1951 suffered the same fate when it was likewise denied by
the lower court in its order of November 12, 1951.

After the issues were joined, the case was set for trial. Then came a series of postponements. The lower
court (Branch I, presided by Judge Enrique A. Fernandez) finally issued on March 21, 1956 an order in open
court, reading as follows: .

Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of this case is
hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in the morning.

This case was filed on April 3, 1951 and under any circumstance this Court will not entertain any
other transfer of hearing of this case and if the parties will not be ready on that day set for hearing,
the court will take the necessary steps for the final determination of this case. (emphasis supplied)

On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956, issued by the
office of the Clerk of Court (thru the special deputy Clerk of Court) of the Court of First Instance of Davao,
setting the hearing of the case for May 2 and 3, 1956 before Judge Amador Gomez of Branch II. The
defendants, thru counsel, on April 26, 1956 filed a motion for postponement. Acting on this motion, the lower
court (Branch II, presided by Judge Gomez) issued an order dated April 27, 1956, quoted as follows:

This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956. The motion
is filed by the counsel for the defendants and has the conformity of the counsel for the plaintiffs.

An examination of the records of this case shows that this case was initiated as early as April 1951
and that the same has been under advisement of the Honorable Enrique A. Fernandez, Presiding
Judge of Branch No. I, since September 24, 1953, and that various incidents have already been
 considered and resolved by Judge Fernandez on various occasions. The last order issued by Judge
Fernandez on this case was issued on March 21, 1956, wherein he definitely states that the Court
will not entertain any further postponement of the hearing of this case.

CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and termination of
any incident referring to this case should be referred back to Branch I, so that the same may be
disposed of therein. (emphasis supplied)

A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.

On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge Fernandez
presiding), when informed about the defendants' motion for postponement filed on April 26, 1956, issued an
order reiterating its previous order handed down in open court on March 21, 1956 and directing the plaintiffs
to introduce their evidence ex parte, there being no appearance on the part of the defendants or their
counsel. On the basis of the plaintiffs' evidence, a decision was rendered on May 4, 1956 the dispositive
portion of which reads as follows:

EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra del

demandado Nicanor Casteel:

(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;

(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad (½) del
"fishpond" en cuestion con todas las mejoras existentes dentro de la misma;

(c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en

concepto de danos a contar de la fecha de la expiracion de los 30 dias de la promulgacion de esta
decision hasta que entregue la posesion y administracion de la porcion del "fishpond" en conflicto;

(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los pescado
beneficiados, mas los intereses legales de la fecha de la incoacion de la demanda de autos hasta el
completo pago de la obligacion principal;

(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos incurridos
por aquella durante la pendencia de esta causa;

(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma de

P2,000.00;

(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en cuanto se
refiere al demandado Juan Depra;

(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de pruebas;

(i) Con las costas contra del demandado, Casteel.

The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia, lack of
knowledge of the order of the court a quo setting the case for trial. The petition, however, was denied by the
lower court in its order of May 21, 1956, the pertinent portion of which reads as follows:

The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this case has
been transferred or not, but to inquire from the presiding Judge, particularly because his motion
asking the transfer of this case was not set for hearing and was not also acted upon.

Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as follows:

Upon petition of the plaintiff without any objection on the part of the defendants, the hearing
of this case is hereby transferred to May 2 and 3, 1956, at 8:30 o'clock in the morning.

This case was filed on April 3, 1951, and under any circumstance this Court will not entertain
any other transfer of the hearing of this case, and if the parties will not be ready on the day
set for hearing, the Court will take necessary steps for the final disposition of this case.
 In view of the order above-quoted, the Court will not accede to any transfer of this case and the duty
of Atty. Ruiz is no other than to be present in the Sala of this Court and to call the attention of the
same to the existence of his motion for transfer.

Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken, the
same is hereby denied.

Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us for
final determination on the ground that it involves only questions of law.

Casteel raises the following issues:

(1) Whether the lower court committed gross abuse of discretion when it ordered reception of the
appellees' evidence in the absence of the appellant at the trial on May 2, 1956, thus depriving the
appellant of his day in court and of his property without due process of law;

(2) Whether the lower court committed grave abuse of discretion when it denied the verified petition
for relief from judgment filed by the appellant on May 11, 1956 in accordance with Rule 38, Rules of
Court; and

(3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary injunction
against defendant-appellant, and in not dismissing appellees' complaint.

1. The first and second issues must be resolved against the appellant.

The record indisputably shows that in the order given in open court on March 21, 1956, the lower court set
the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning and empathically stated that, since
the case had been pending since April 3, 1951, it would not entertain any further motion for transfer of the
scheduled hearing.

An order given in open court is presumed received by the parties on the very date and time of
promulgation,1 and amounts to a legal notification for all legal purposes.2 The order of March 21, 1956, given
in open court, was a valid notice to the parties, and the notice of hearing dated April 21, 1956 or one month
thereafter, was a superfluity. Moreover, as between the order of March 21, 1956, duly promulgated by the
lower court, thru Judge Fernandez, and the notice of hearing signed by a "special deputy clerk of court"
setting the hearing in another branch of the same court, the former's order was the one legally binding. This
is because the incidents of postponements and adjournments are controlled by the court and not by the
clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the Rules of Court.

Much less had the clerk of court the authority to interfere with the order of the court or to transfer the cage
from one sala to another without authority or order from the court where the case originated and was being
tried. He had neither the duty nor prerogative to re-assign the trial of the case to a different branch of the
same court. His duty as such clerk of court, in so far as the incident in question was concerned, was simply
to prepare the trial calendar. And this duty devolved upon the clerk of court and not upon the "special deputy
clerk of court" who purportedly signed the notice of hearing.

It is of no moment that the motion for postponement had the conformity of the appellees' counsel. The
postponement of hearings does not depend upon agreement of the parties, but upon the court's discretion.3

The record further discloses that Casteel was represented by a total of 12 lawyers, none of whom had ever
withdrawn as counsel. Notice to Atty. Ruiz of the order dated March 21, 1956 intransferably setting the case
for hearing for May 2 and 3, 1956, was sufficient notice to all the appellant's eleven other counsel of record.
This is a well-settled rule in our jurisdiction.4

It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to appear
before Judge Fernandez on the scheduled dates of hearing Parties and their lawyers have no right to
presume that their motions for postponement will be granted.5 For indeed, the appellant and his 12 lawyers
cannot pretend ignorance of the recorded fact that since September 24, 1953 until the trial held on May 2,
1956, the case was under the advisement of Judge Fernandez who presided over Branch I. There was,
therefore, no necessity to "re-assign" the same to Branch II because Judge Fernandez had exclusive control
of said case, unless he was legally inhibited to try the case — and he was not.
There is truth in the appellant's contention that it is the duty of the clerk of court — not of the Court — to
prepare the trial calendar. But the assignment or reassignment of cases already pending in one sala to
another sala, and the setting of the date of trial after the trial calendar has been prepared, fall within the
exclusive control of the presiding judge.

The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of the clerk of court
of the Court of First Instance of Davao was located directly below Branch I. If the appellant and his counsel
had exercised due diligence, there was no impediment to their going upstairs to the second storey of the
Court of First Instance building in Davao on May 2, 1956 and checking if the case was scheduled for hearing
in the said sala. The appellant after all admits that on May 2, 1956 his counsel went to the office of the clerk
of court.

The appellant's statement that parties as a matter of right are entitled to notice of trial, is correct. But he was
properly accorded this right. He was notified in open court on March 21, 1956 that the case was definitely
and intransferably set for hearing on May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to
the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely notice of the denial of his motion for
postponement. In the cited case the motion for postponement was the first one filed by the defendant; in the
case at bar, there had already been a series of postponements. Unlike the case at bar, the Siochi case was
not intransferably set for hearing. Finally, whereas the cited case did not spend for a long time, the case at
bar was only finally and intransferably set for hearing on March 21, 1956 — after almost five years had
elapsed from the filing of the complaint on April 3, 1951.

The pretension of the appellant and his 12 counsel of record that they lacked ample time to prepare for trial
is unacceptable because between March 21, 1956 and May 2, 1956, they had one month and ten days to do
so. In effect, the appellant had waived his right to appear at the trial and therefore he cannot be heard to
complain that he has been deprived of his property without due process of law.7 Verily, the constitutional
requirements of due process have been fulfilled in this case: the lower court is a competent court; it lawfully
acquired jurisdiction over the person of the defendant (appellant) and the subject matter of the action; the
defendant (appellant) was given an opportunity to be heard; and judgment was rendered upon lawful
hearing.8

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

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

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

It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called
"contract of service" on November 25, 1949, there were two pending applications over the fishpond. One
was Casteel's which was appealed by him to the Secretary of Agriculture and Natural Resources after it was
disallowed by the Director of Fisheries on October 25, 1949. The other was Felipe Deluao's application over
the same area which was likewise rejected by the Director of Fisheries on November 29, 1949, refiled by
Deluao and later on withdrawn by him by letter dated March 15, 1950 to the Secretary of Agriculture and
Natural Resources. Clearly, although the fishpond was then in the possession of Casteel, neither he nor,
Felipe Deluao was the holder of a fishpond permit over the area. But be that as it may, they were not
however precluded from exploiting the fishpond pending resolution of Casteel's appeal or the approval of
Deluao's application over the same area — whichever event happened first. No law, rule or regulation
prohibited them from doing so. Thus, rather than let the fishpond remain idle they cultivated it.
The evidence preponderates in favor of the view that the initial intention of the parties was not to form a co-
ownership but to establish a partnership — Inocencia Deluao as capitalist partner and Casteel as industrial
partner — the ultimate undertaking of which was to divide into two equal parts such portion of the fishpond
as might have been developed by the amount extended by the plaintiffs-appellees, with the further provision
that Casteel should reimburse the expenses incurred by the appellees over one-half of the fishpond that
would pertain to him. This can be gleaned, among others, from the letter of Casteel to Felipe Deluao on
November 15, 1949, which states, inter alia:

... [W]ith respect to your allowing me to use your money, same will redound to your benefit
because you are the ones interested in half of the work we have done so far, besides I did not insist
on our being partners in my fishpond permit, but it was you "Tatay" Eping the one who wanted that
we be partners and it so happened that we became partners because I am poor, but in the midst of
my poverty it never occurred to me to be unfair to you. Therefore so that each of us may be secured,
let us have a document prepared to the effect that we are partners in the fishpond that we caused to
be made here in Balasinon, but it does not mean that you will treat me as one of your "Bantay"
(caretaker) on wage basis but not earning wages at all, while the truth is that we are partners. In the
event that you are not amenable to my proposition and consider me as "Bantay" (caretaker) instead,
do not blame me if I withdraw all my cases and be left without even a little and you likewise.
(emphasis supplied)9

Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their
partnership, the appellee Inocencia Deluao and the appellant executed exhibit A which, although
denominated a "contract of service," was actually the memorandum of their partnership agreement. That it
was not a contract of the services of the appellant, was admitted by the appellees themselves in their
letter10 to Casteel dated December 19, 1949 wherein they stated that they did not employ him in his
(Casteel's) claim but because he used their money in developing and improving the fishpond, his right must
be divided between them. Of course, although exhibit A did not specify any wage or share appertaining to
the appellant as industrial partner, he was so entitled — this being one of the conditions he specified for the
execution of the document of partnership.11

Further exchanges of letters between the parties reveal the continuing intent to divide the fishpond. In a
letter,12dated March 24, 1950, the appellant suggested that they divide the fishpond and the remaining
capital, and offered to pay the Deluaos a yearly installment of P3,000 — presumably as reimbursement for
the expenses of the appellees for the development and improvement of the one-half that would pertain to
the appellant. Two days later, the appellee Felipe Deluao replied,13expressing his concurrence in the
appellant's suggestion and advising the latter to ask for a reconsideration of the order of the Director of
Fisheries disapproving his (appellant's) application, so that if a favorable decision was secured, then they
would divide the area.

Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to
maintain his petition for the reinvestigation of Casteel's application. Thus by letter14 dated March 15, 1950
addressed to the Secretary of Agriculture and Natural Resources, he withdrew his petition on the alleged
ground that he was no longer interested in the area, but stated however that he wanted his interest to be
protected and his capital to be reimbursed by the highest bidder.

The arrangement under the so-called "contract of service" continued until the decisions both dated
September 15, 1950 were issued by the Secretary of Agriculture and Natural Resources in DANR Cases
353 and 353-B. This development, by itself, brought about the dissolution of the partnership. Moreover,
subsequent events likewise reveal the intent of both parties to terminate the partnership because each
refused to share the fishpond with the other.

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

Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to him, without the previous consent or approval of the
Secretary of Agriculture and Natural Resources.15 To the same effect is Condition No. 3 of the fishpond
permit which states that "The permittee shall not transfer or sublet all or any area herein granted or any
rights acquired therein without the previous consent and approval of this Office." Parenthetically, we must
observe that in DANR Case 353-B, the permit granted to one of the parties therein, Leoncio Aradillos, was
cancelled not solely for the reason that his permit covered a portion of the area included in the appellant's
prior fishpond application, but also because, upon investigation, it was ascertained thru the admission of
Aradillos himself that due to lack of capital, he allowed one Lino Estepa to develop with the latter's capital
the area covered by his fishpond permit F-289-C with the understanding that he (Aradillos) would be given a
share in the produce thereof.16

Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that

The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of
Agriculture and Commerce, and the violation of this condition shall avoid the contract; Provided, That
assignment, encumbrance, or subletting for purposes of speculation shall not be permitted in any
case: Provided, further, That nothing contained in this section shall be understood or construed to
permit the assignment, encumbrance, or subletting of lands leased under this Act, or under any
previous Act, to persons, corporations, or associations which under this Act, are not authorized to
lease public lands.

Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources
issued in August 1937, prohibits a transfer or sublease unless first approved by the Director of Lands and
under such terms and conditions as he may prescribe. Thus, it states:

When a transfer or sub-lease of area and improvement may be allowed. — If the permittee or lessee
had, unless otherwise specifically provided, held the permit or lease and actually operated and made
improvements on the area for at least one year, he/she may request permission to sub-lease or
transfer the area and improvements under certain conditions.

(a) Transfer subject to approval. — A sub-lease or transfer shall only be valid when first approved by
the Director under such terms and conditions as may be prescribed, otherwise it shall be null and
void. A transfer not previously approved or reported shall be considered sufficient cause for the
cancellation of the permit or lease and forfeiture of the bond and for granting the area to a qualified
applicant or bidder, as provided in subsection (r) of Sec. 33 of this Order.

Since the partnership had for its object the division into two equal parts of the fishpond between the
appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged the
unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was dissolved by the
approval of his application and the award to him of the fishpond. The approval was an event which made it
unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership.

The appellees, however, argue that in approving the appellant's application, the Secretary of Agriculture and
Natural Resources likewise recognized and/or confirmed their property right to one-half of the fishpond by
virtue of the contract of service, exhibit A. But the untenability of this argument would readily surface if one
were to consider that the Secretary of Agriculture and Natural Resources did not do so for the simple reason
that he does not possess the authority to violate the aforementioned prohibitory laws nor to exempt anyone
from their operation.

However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the foregoing
prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership, succeeding events
reveal the intent of both parties to terminate the partnership by refusing to share the fishpond with the other.

On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire to divide the
fishpond so that he could administer his own share, such division to be subject to the approval of the
Secretary of Agriculture and Natural Resources. By letter dated December 29, 1950,18 the appellee Felipe
Deluao demurred to Casteel's proposition because there were allegedly no appropriate grounds to support
the same and, moreover, the conflict over the fishpond had not been finally resolved.

The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein the former
expressed his determination to administer the fishpond himself because the decision of the Government was
in his favor and the only reason why administration had been granted to the Deluaos was because he was
indebted to them. In the same letter, the appellant forbade Felipe Deluao from sending the
couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao wrote a letter20 dated
January 5, 1951 in which he reiterated his refusal to grant the administration of the fishpond to the appellant,
stating as a ground his belief "that only the competent agencies of the government are in a better position to
render any equitable arrangement relative to the present case; hence, any action we may privately take may
not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not to
share the fishpond with each other — in direct violation of the undertaking for which they have established
their partnership — each must be deemed to have expressly withdrawn from the partnership, thereby
causing its dissolution pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that dissolution is
caused "by the express will of any partner at any time."

In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive and
administrative powers with regard to the survey, classification, lease, sale or any other form of concession or
disposition and management of the lands of the public domain, and, more specifically, with regard to the
grant or withholding of licenses, permits, leases and contracts over portions of the public domain to be
utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and reiterated
in Ganitano vs. Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that

... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Resources) by law
regarding the disposition of public lands such as granting of licenses, permits, leases, and contracts,
or approving, rejecting, reinstating, or cancelling applications, or deciding conflicting applications, are
all executive and administrative in nature. It is a well-recognized principle that purely administrative
and discretionary functions may not be interfered with by the courts (Coloso v. Board of
Accountancy, G.R. No. L-5750, April 20, 1953). In general, courts have no supervising power over
the proceedings and action of the administrative departments of the government. This is generally
true with respect to acts involving the exercise of judgment or discretion, and findings of fact. (54
Am. Jur. 558-559) Findings of fact by an administrative board or official, following a hearing, are
binding upon the courts and will not be disturbed except where the board or official has gone beyond
his statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and without
regard to his duty or with grave abuse of discretion... (emphasis supplied)

In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the appellant's
fishpond application 1717 and awarded to him the possession of the area in question. In view of the finality
of the Secretary's decision in DANR Cases 353 and 353-B, and considering the absence of any proof that
the said official exceeded his statutory authority, exercised unconstitutional powers, or acted with
arbitrariness and in disregard of his duty, or with grave abuse of discretion, we can do no less than respect
and maintain unfettered his official acts in the premises. It is a salutary rule that the judicial department
should not dictate to the executive department what to do with regard to the administration and disposition of
the public domain which the law has entrusted to its care and administration. Indeed, courts cannot
superimpose their discretion on that of the land department and compel the latter to do an act which involves
the exercise of judgment and discretion.22

Therefore, with the view that we take of this case, and even assuming that the injunction was properly
issued because present all the requisite grounds for its issuance, its continuation, and, worse, its declaration
as permanent, was improper in the face of the knowledge later acquired by the lower court that it was the
appellant's application over the fishpond which was given due course. After the Secretary of Agriculture and
Natural Resources approved the appellant's application, he became to all intents and purposes the legal
permittee of the area with the corresponding right to possess, occupy and enjoy the same. Consequently,
the lower court erred in issuing the preliminary mandatory injunction. We cannot overemphasize that an
injunction should not be granted to take property out of the possession and control of one party and place it
in the hands of another whose title has not been clearly established by law.23

However, pursuant to our holding that there was a partnership between the parties for the exploitation of the
fishpond before it was awarded to Casteel, this case should be remanded to the lower court for the reception
of evidence relative to an accounting from November 25, 1949 to September 15, 1950, in order for the court
to determine (a) the profits realized by the partnership, (b) the share (in the profits) of Casteel as industrial
partner, (e) the share (in the profits) of Deluao as capitalist partner, and (d) whether the amounts totalling
about P27,000 advanced by Deluao to Casteel for the development and improvement of the fishpond have
already been liquidated. Besides, since the appellee Inocencia Deluao continued in possession and
enjoyment of the fishpond even after it was awarded to Casteel, she did so no longer in the concept of a
capitalist partner but merely as creditor of the appellant, and therefore, she must likewise submit in the lower
court an accounting of the proceeds of the sales of all the fishes harvested from the fishpond from
September 16, 1950 until Casteel shall have been finally given the possession and enjoyment of the same.
In the event that the appellee Deluao has received more than her lawful credit of P27,000 (or whatever
amounts have been advanced to Casteel), plus 6% interest thereon per annum, then she should reimburse
the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered: (1)
dissolving the injunction issued against the appellant, (2) placing the latter back in possession of the
fishpond in litigation, and (3) remanding this case to the court of origin for the reception of evidence relative
to the accounting that the parties must perforce render in the premises, at the termination of which the court
shall render judgment accordingly. The appellant's counterclaim is dismissed. No pronouncement as to
costs.
G.R. No. L-27010 April 30, 1969

MARLENE DAUDEN-HERNAEZ, petitioner,

vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Quezon City,
HOLLYWOOD FAR EAST PRODUCTIONS, INC., and RAMON VALENZUELA, respondents.

R. M. Coronado and Associates for petitioner.

Francisco Lavides for respondent.

REYES, J.B.L., Acting C.J.:

Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of Quezon City
(Branch IV), in its Civil Case No. Q-10288, dismissing a complaint for breach of contract and damages,
denying reconsideration, refusing to admit an amended complaint, and declaring the dismissal final and
unappealable.

The essential facts are the following:

Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against herein private
respondents, Hollywood Far East Productions, Inc., and its President and General Manager, Ramon
Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her services as
leading actress in two motion pictures produced by the company, and to recover damages. Upon motion of
defendants, the respondent court (Judge Walfrido de los Angeles presiding) ordered the complaint
dismissed, mainly because the "claim of plaintiff was not evidenced by any written document, either public or
private", and the complaint "was defective on its face" for violating Articles 1356 and 1358 of the Civil, Code
of the Philippines, as well as for containing defective allege, petitions. Plaintiff sought reconsideration of the
dismissal and for admission of an amended complaint, attached to the motion. The court denied
reconsideration and the leave to amend; whereupon, a second motion for reconsideration was filed.
Nevertheless, the court also denied it for being pro forma, as its allegations "are, more or less, the same as
the first motion", and for not being accompanied by an affidavit of merits, and further declared the dismissal
final and unappealable. In view of the attitude of the Court of First Instance, plaintiff resorted to this Court.

The answer sets up the defense that "the proposed amended complaint did not vary in any material respect
from the original complaint except in minor details, and suffers from the same vital defect of the original
complaint", which is the violation of Article 1356 of the Civil Code, in that the contract sued upon was not
alleged to be in writing; that by Article 1358 the writing was absolute and indispensable, because the amount
involved exceeds five hundred pesos; and that the second motion for reconsideration did not interrupt the
period for appeal, because it was not served on three days' notice.

We shall take up first the procedural question. It is a well established rule in our jurisprudence that when a
court sustains a demurrer or motion to dismiss it is error for the court to dismiss the complaint without giving
the party plaintiff an opportunity to amend his complaint if he so chooses. 1 Insofar as the first order of
dismissal (Annex D, Petition) did not provide that the same was without prejudice to amendment of the
complaint, or reserve to the plaintiff the right to amend his complaint, the said order was erroneous; and this
error was compounded when the motion to accept the amended complaint was denied in the subsequent
order of 3 October 1966 (Annex F, Petition). Hence, the petitioner-plaintiff was within her rights in filing her
so-called second motion for reconsideration, which was actually a first motion against the refusal to admit
the amended complaint.

It is contended that the second motion for reconsideration was merely pro forma and did not suspend the
period to appeal from the first order of dismissal (Annex D) because (1) it merely reiterated the first motion
for reconsideration and (2) it was filed without giving the counsel for defendant-appellee the 3 days' notice
provided by the rules. This argument is not tenable, for the reason that the second motion for
reconsideration was addressed to the court' refusal to allow an amendment to the original complaint, and
this was a ground not invoked in the first motion for reconsideration. Thus, the second motion to reconsider
was really not pro forma, as it was based on a different ground, even if in its first part it set forth in greater
detail the arguments against the correctness of the first order to dismiss. And as to the lack of 3 days' notice,
the record shows that appellees had filed their opposition (in detail) to the second motion to reconsider
(Answer, Annex 4); so that even if it were true that respondents were not given the full 3 days' notice they
were not deprived of any substantial right. Therefore, the claim that the first order of dismissal had become
final and unappealable must be overruled.
It is well to observe in this regard that since a motion to dismiss is not a responsive pleading, the plaintiff-
petitioner was entitled as of right to amend the original dismissed complaint. In Paeste vs. Jaurigue 94 Phil.
179, 181, this Court ruled as follows:

Appellants contend that the lower court erred in not admitting their amended complaint and in
holding that their action had already prescribed. Appellants are right on both counts.

Amendments to pleadings are favored and should be liberally allowed in the furtherance of justice.
(Torres vs. Tomacruz, 49 Phil. 913). Moreover, under section 1 of Rule 17, Rules of Court, a party
may amend his pleading once as a matter of course, that is, without leave of court, at any time
before a responsive pleading is served. A motion to dismiss is not a "responsive pleading". (Moran
on the Rules of Court, vol. 1, 1952, ed., p. 376). As plaintiffs amended their complaint before it was
answered, the motion to admit the amendment should not have been denied. It is true that the
amendment was presented after the original complaint had been ordered dismissed. But that order
was not yet final for it was still under reconsideration.

The foregoing observations leave this Court free to discuss the main issue in this petition. Did the court
below abuse its discretion in ruling that a contract for personal services involving more than P500.00 was
either invalid of unenforceable under the last paragraph of Article 1358 of the Civil Code of the Philippines?

We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable
misunderstanding of the role of the written form in contracts, as ordained in the present Civil Code.

In the matter of formalities, the contractual system of our Civil Code still follows that of the Spanish Civil
Code of 1889 and of the "Ordenamiento de Alcala" 2 of upholding the spirit and intent of the parties over
formalities: hence, in general, contracts are valid and binding from their perfection regardless of form
whether they be oral or written. This is plain from Articles 1315 and 1356 of the present Civil Code. Thus,
the first cited provision prescribes:

ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law. (Emphasis
supplied)

Concordantly, the first part of Article 1356 of the Code Provides:

ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.... (Emphasis supplied)

These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3)
consideration or causa for the obligation assumed (Article 1318). 3 So that once the three elements exist, the
contract is generally valid and obligatory, regardless of the form, oral or written, in which they are couched. lawphi1.nêt

To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356:

However, when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute and
indispensable....

It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding effect inter
partes of a contract that possesses the three validating elements of consent, subject matter, and causa,
Article 1356 of the Code establishes only two exceptions, to wit:

(a) Contracts for which the law itself requires that they be in some particular form (writing) in order to make
them valid and enforceable (the so-called solemn contracts). Of these the typical example is the donation of
immovable property that the law (Article 749) requires to be embodied in a public instrument in order "that
the donation may be valid", i.e., existing or binding. Other instances are the donation of movables worth
more than P5,000.00 which must be in writing, "otherwise the donation shall be void" (Article 748); contracts
to pay interest on loans (mutuum) that must be "expressly stipulated in writing" (Article 1956); and the
agreements contemplated by Article 1744, 1773, 1874 and 2134 of the present Civil Code.

(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those
covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being
provable by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in
requiring a writing embodying the terms thereof for their enforceability by action in court.

The contract sued upon by petitioner herein (compensation for services) does not come under either
exception. It is true that it appears included in Article 1358, last clause, providing that "all other contracts
where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But
Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid
or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are
binding and enforceable by action or suit despite the absence of writing.

ART. 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with the
action the contract. (Emphasis supplied) .

It thus becomes inevitable to conclude that both the court a quo as well as the private respondents herein
were grossly mistaken in holding that because petitioner Dauden's contract for services was not in writing
the same could not be sued upon, or that her complaint should be dismissed for failure to state a cause of
action because it did not plead any written agreement.

The basic error in the court's decision lies in overlooking that in our contractual system it is not enough that
the law should require that the contract be in writing, as it does in Article 1358. The law must further
prescribe that without the writing the contract is not valid or not enforceable by action.

WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered remanded to the
court of origin for further proceedings not at variance with this decision.

Costs to be solidarity paid by private respondents Hollywood Far East Productions, Inc., and Ramon
Valenzuela.