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Republic of the Philippines Victor D.

Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the
SUPREME COURT land applied for by Casteel. Alejandro Cacam's fishpond application 1276, filed on December
Manila 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
EN BANC 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.
G.R. No. L-21906 December 24, 1968

Because of the threat poised upon his position by the above applicants who entered upon
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,
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
NICANOR CASTEEL, defendant-appellant.
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.
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees. Hence, a wide productive fishpond was built.
Ruiz Law Offices for defendant-appellant.
Moreover, upon learning that portions of the area applied for by him were already occupied
CASTRO, J.: 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
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus Fp. A. No.
May 21, 1956, all of the Court of First Instance of Davao, in civil case 629. The basic action is 763, Victorio D. Carpio, applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661
for specific performance, and damages resulting from an alleged breach of contract. (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."
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 However, despite the finding made in the investigation of the above administrative cases that
was taken thereon by the authorities concerned. During the Japanese occupation, he filed Casteel had already introduced improvements on portions of the area applied for by him in
another fishpond application for the same area, but because of the conditions then the form of dikes, fishpond gates, clearings, etc., the Director of Fisheries nevertheless
prevailing, it was not acted upon either. On December 12, 1945 he filed a third fishpond rejected Casteel's application on October 25, 1949, required him to remove all the
application for the same area, which, after a survey, was found to contain 178.76 hectares. improvements which he had introduced on the land, and ordered that the land be leased
Upon investigation conducted by a representative of the Bureau of Forestry, it was discovered through public auction. Failing to secure a favorable resolution of his motion for
that the area applied for was still needed for firewood production. Hence on May 13, 1946 reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture and
this third application was disapproved. Natural Resources.

Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration. In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up
While this motion was pending resolution, he was advised by the district forester of Davao in our discussion of the appellant's third assignment of error.
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. 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
Meanwhile, several applications were submitted by other persons for portions of the area of service" — the salient provisions of which are as follows:
covered by Casteel's application.
That the Party of the First Part in consideration of the mutual covenants and
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares of agreements made herein to the Party of the Second Part, hereby enter into a
land found inside the area applied for by Casteel; he was later granted fishpond permit F-289- contract of service, whereby the Party of the First Part hires and employs the Party
C covering 9.3 hectares certified as available for fishpond purposes by the Bureau of Forestry. 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 thereon by said permittees in accordance with the terms and dispositions contained
TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party elsewhere in this decision....
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 Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
Davao, Philippines; administering the fishpond, and ejected the latter's representative (encargado), Jesus
Donesa, from the premises.
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; 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
That the Party of the First Part will be the administrator of the same she having the Court of First Instance of Davao for specific performance and damages against Nicanor
financed the construction and improvement of said fishpond; 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
That this contract was the result of a verbal agreement entered into between the contract and that Inocencia Deluao be allowed to continue administering the said fishpond
Parties sometime in the month of November, 1947, with all the above-mentioned and collecting the proceeds from the sale of the fishes caught from time to time; and (b) that
conditions enumerated; ... the defendants be ordered to pay jointly and severally to plaintiffs the sum of P20,000 in
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 On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary
represent me in the administration of the fishpond at Malalag, Municipality of Padada, injunction, praying among other things, that during the pendency of the case and upon their
Province of Davao, Philippines, which has been applied for fishpond permit by Nicanor filling the requisite bond as may be fixed by the court, a preliminary injunction be issued to
Casteel, but rejected by the Bureau of Fisheries, and to supervise, demand, receive, and restrain Casteel from doing the acts complained of, and that after trial the said injunction be
collect the value of the fish that is being periodically realized from it...." 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:
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 POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el
reinvestigation of the application of Nicanor Casteel over the subject fishpond. However, by demandado y todos usu abogados, agentes, mandatarios y demas personas que
letter dated March 15, 1950 sent to the Secretary of Commerce and Agriculture and Natural obren en su ayuda, desista de impedir a la demandante Inocencia R. Deluao que
Resources (now Secretary of Agriculture and Natural Resources), Deluao withdrew his continue administrando personalmente la pesqueria objeto de esta causa y que la
petition for reinvestigation. 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
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision
Jesus Donesa de la pesqueria objeto de la demanda de autos.
in DANR Case 353, the dispositive portion of which reads as follows:

On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of
he was the owner, lawful applicant and occupant of the fishpond in question. This motion,
Nicanor Casteel should be, as hereby it is, reinstated and given due course for the
opposed by the plaintiffs on June 15, 1951, was denied by the lower court in its order of June
area indicated in the sketch drawn at the back of the last page hereof; and Fp. A.
26, 1961.
No. 762 of Victorio D. Carpio shall remain rejected.

The defendants on May 14, 1951 filed their answer with counterclaim, amended on January
On the same date, the same official issued a decision in DANR Case 353-B, the dispositive
8, 1952, denying the material averments of the plaintiffs' complaint. A reply to the
portion stating as follows:
defendants' amended answer was filed by the plaintiffs on January 31, 1952.

WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond

The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On
Permit No. F-539-C of Alejandro Cacam, should be, as they are hereby cancelled
June 4, 1951 the plaintiffs opposed his motion.
and revoked; Nicanor Casteel is required to pay the improvements introduced

The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with
plaintiffs' complaint failed to state a claim upon which relief may be granted. The motion, Judge Fernandez presiding), when informed about the defendants' motion for postponement
opposed by the plaintiffs on October 12, 1951, was denied for lack of merit by the lower court filed on April 26, 1956, issued an order reiterating its previous order handed down in open
in its order of October 22, 1951. The defendants' motion for reconsideration filed on October court on March 21, 1956 and directing the plaintiffs to introduce their evidence ex parte,
31, 1951 suffered the same fate when it was likewise denied by the lower court in its order of there being no appearance on the part of the defendants or their counsel. On the basis of the
November 12, 1951. plaintiffs' evidence, a decision was rendered on May 4, 1956 the dispositive portion of which
reads as follows:
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 EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra
21, 1956 an order in open court, reading as follows: . del demandado Nicanor Casteel:

Upon petition of plaintiffs, without any objection on the part of defendants, the (a) Declara permanente el interdicto prohibitorio expedido contra el demandado;
hearing of this case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in the
morning. (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
This case was filed on April 3, 1951 and under any circumstance this Court will not la misma;
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 (c) Condena al demandado a pagar a la demandante la suma de P200.00
final determination of this case. (emphasis supplied) 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
On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956, administracion de la porcion del "fishpond" en conflicto;
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 (d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de
Amador Gomez of Branch II. The defendants, thru counsel, on April 26, 1956 filed a motion los pescado beneficiados, mas los intereses legales de la fecha de la incoacion de la
for postponement. Acting on this motion, the lower court (Branch II, presided by Judge demanda de autos hasta el completo pago de la obligacion principal;
Gomez) issued an order dated April 27, 1956, quoted as follows:
(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por
This is a motion for postponement of the hearing of this case set for May 2 and 3, gastos incurridos por aquella durante la pendencia de esta causa;
1956. The motion is filed by the counsel for the defendants and has the conformity
of the counsel for the plaintiffs.
(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la
suma de P2,000.00;
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
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en
Enrique A. Fernandez, Presiding Judge of Branch No. I, since September 24, 1953,
tanto en cuanto se refiere al demandado Juan Depra;
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 (h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de
not entertain any further postponement of the hearing of this case. pruebas;

CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and (i) Con las costas contra del demandado, Casteel.
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) 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,
A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956. 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 The record indisputably shows that in the order given in open court on March 21, 1956, the
of this case has been transferred or not, but to inquire from the presiding Judge, lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning and
particularly because his motion asking the transfer of this case was not set for empathically stated that, since the case had been pending since April 3, 1951, it would not
hearing and was not also acted upon. entertain any further motion for transfer of the scheduled hearing.

Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which An order given in open court is presumed received by the parties on the very date and time of
reads as follows: 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
Upon petition of the plaintiff without any objection on the part of the dated April 21, 1956 or one month thereafter, was a superfluity. Moreover, as between the
defendants, the hearing of this case is hereby transferred to May 2 and 3, order of March 21, 1956, duly promulgated by the lower court, thru Judge Fernandez, and the
1956, at 8:30 o'clock in the morning. 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
This case was filed on April 3, 1951, and under any circumstance this
clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the Rules of Court.
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. 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
In view of the order above-quoted, the Court will not accede to any transfer of this
the trial of the case to a different branch of the same court. His duty as such clerk of court, in
case and the duty of Atty. Ruiz is no other than to be present in the Sala of this
so far as the incident in question was concerned, was simply to prepare the trial calendar.
Court and to call the attention of the same to the existence of his motion for
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.

Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not
It is of no moment that the motion for postponement had the conformity of the appellees'
well taken, the same is hereby denied.
counsel. The postponement of hearings does not depend upon agreement of the parties, but
upon the court's discretion.3
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.
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
Casteel raises the following issues: 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
(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 It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant
May 2, 1956, thus depriving the appellant of his day in court and of his property himself, to appear before Judge Fernandez on the scheduled dates of hearing Parties and
without due process of law; 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
(2) Whether the lower court committed grave abuse of discretion when it denied recorded fact that since September 24, 1953 until the trial held on May 2, 1956, the case was
the verified petition for relief from judgment filed by the appellant on May 11, 1956 under the advisement of Judge Fernandez who presided over Branch I. There was, therefore,
in accordance with Rule 38, Rules of Court; and 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.
(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' There is truth in the appellant's contention that it is the duty of the clerk of court — not of
complaint. 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
1. The first and second issues must be resolved against the appellant. 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 rights and obligations have already arisen between the parties. We shall therefore construe
clerk of court of the Court of First Instance of Davao was located directly below Branch I. If the contract as one of partnership, divided into two parts — namely, a contract of partnership
the appellant and his counsel had exercised due diligence, there was no impediment to their to exploit the fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a
going upstairs to the second storey of the Court of First Instance building in Davao on May 2, contract of partnership to divide the fishpond between them after such award. The first is
1956 and checking if the case was scheduled for hearing in the said sala. The appellant after valid, the second illegal.
all admits that on May 2, 1956 his counsel went to the office of the clerk of court.
It is well to note that when the appellee Inocencia Deluao and the appellant entered into the
The appellant's statement that parties as a matter of right are entitled to notice of trial, is so-called "contract of service" on November 25, 1949, there were two pending applications
correct. But he was properly accorded this right. He was notified in open court on March 21, over the fishpond. One was Casteel's which was appealed by him to the Secretary of
1956 that the case was definitely and intransferably set for hearing on May 2 and 3, 1956 Agriculture and Natural Resources after it was disallowed by the Director of Fisheries on
before Branch I. He cannot argue that, pursuant to the doctrine in Siochi vs. Tirona,6 his October 25, 1949. The other was Felipe Deluao's application over the same area which was
counsel was entitled to a timely notice of the denial of his motion for postponement. In the likewise rejected by the Director of Fisheries on November 29, 1949, refiled by Deluao and
cited case the motion for postponement was the first one filed by the defendant; in the case later on withdrawn by him by letter dated March 15, 1950 to the Secretary of Agriculture and
at bar, there had already been a series of postponements. Unlike the case at bar, Natural Resources. Clearly, although the fishpond was then in the possession of Casteel,
the Siochi case was not intransferably set for hearing. Finally, whereas the cited case did not neither he nor, Felipe Deluao was the holder of a fishpond permit over the area. But be that
spend for a long time, the case at bar was only finally and intransferably set for hearing on as it may, they were not however precluded from exploiting the fishpond pending resolution
March 21, 1956 — after almost five years had elapsed from the filing of the complaint on of Casteel's appeal or the approval of Deluao's application over the same area — whichever
April 3, 1951. 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 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 The evidence preponderates in favor of the view that the initial intention of the parties was
one month and ten days to do so. In effect, the appellant had waived his right to appear at not to form a co-ownership but to establish a partnership — Inocencia Deluao as capitalist
the trial and therefore he cannot be heard to complain that he has been deprived of his partner and Casteel as industrial partner — the ultimate undertaking of which was to divide
property without due process of law. 7 Verily, the constitutional requirements of due process into two equal parts such portion of the fishpond as might have been developed by the
have been fulfilled in this case: the lower court is a competent court; it lawfully acquired amount extended by the plaintiffs-appellees, with the further provision that Casteel should
jurisdiction over the person of the defendant (appellant) and the subject matter of the action; reimburse the expenses incurred by the appellees over one-half of the fishpond that would
the defendant (appellant) was given an opportunity to be heard; and judgment was rendered pertain to him. This can be gleaned, among others, from the letter of Casteel to Felipe Deluao
upon lawful hearing.8 on November 15, 1949, which states, inter alia:

2. Finally, the appellant contends that the lower court incurred an error in ordering the ... [W]ith respect to your allowing me to use your money, same will redound to your
issuance ex parte of a writ of preliminary injunction against him, and in not dismissing the benefit because you are the ones interested in half of the work we have done so far,
appellee's complaint. We find this contention meritorious. 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
Apparently, the court a quo relied on exhibit A — the so-called "contract of service" — and became partners because I am poor, but in the midst of my poverty it never
the appellees' contention that it created a contract of co-ownership and partnership between occurred to me to be unfair to you. Therefore so that each of us may be secured, let
Inocencia Deluao and the appellant over the fishpond in question. 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,
Too well-settled to require any citation of authority is the rule that everyone is conclusively
while the truth is that we are partners. In the event that you are not amenable to
presumed to know the law. It must be assumed, conformably to such rule, that the parties
my proposition and consider me as "Bantay" (caretaker) instead, do not blame me if
entered into the so-called "contract of service" cognizant of the mandatory and prohibitory
I withdraw all my cases and be left without even a little and you likewise.
laws governing the filing of applications for fishpond permits. And since they were aware of
(emphasis supplied)9
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 Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing
to admit the establishment of a co-ownership violative of the prohibitory laws which will their partnership, the appellee Inocencia Deluao and the appellant executed exhibit A which,
hereafter be discussed, we shall be compelled to declare altogether the nullity of the although denominated a "contract of service," was actually the memorandum of their
contract. This would certainly not serve the cause of equity and justice, considering that 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 Lino Estepa to develop with the latter's capital the area covered by his fishpond permit F-289-
wherein they stated that they did not employ him in his (Casteel's) claim but because he used C with the understanding that he (Aradillos) would be given a share in the produce thereof. 16
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 Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides
appellant as industrial partner, he was so entitled — this being one of the conditions he that
specified for the execution of the document of partnership. 11
The lessee shall not assign, encumber, or sublet his rights without the consent of
Further exchanges of letters between the parties reveal the continuing intent to divide the the Secretary of Agriculture and Commerce, and the violation of this condition shall
fishpond. In a letter,12dated March 24, 1950, the appellant suggested that they divide the avoid the contract; Provided, That assignment, encumbrance, or subletting for
fishpond and the remaining capital, and offered to pay the Deluaos a yearly installment of purposes of speculation shall not be permitted in any case: Provided, further, That
P3,000 — presumably as reimbursement for the expenses of the appellees for the nothing contained in this section shall be understood or construed to permit the
development and improvement of the one-half that would pertain to the appellant. Two days assignment, encumbrance, or subletting of lands leased under this Act, or under
later, the appellee Felipe Deluao replied, 13expressing his concurrence in the appellant's any previous Act, to persons, corporations, or associations which under this Act, are
suggestion and advising the latter to ask for a reconsideration of the order of the Director of not authorized to lease public lands.
Fisheries disapproving his (appellant's) application, so that if a favorable decision was
secured, then they would divide the area.
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
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further Director of Lands and under such terms and conditions as he may prescribe. Thus, it states:
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
When a transfer or sub-lease of area and improvement may be allowed. — If the
Resources, he withdrew his petition on the alleged ground that he was no longer interested in
permittee or lessee had, unless otherwise specifically provided, held the permit or
the area, but stated however that he wanted his interest to be protected and his capital to be
lease and actually operated and made improvements on the area for at least one
reimbursed by the highest bidder.
year, he/she may request permission to sub-lease or transfer the area and
improvements under certain conditions.
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
(a) Transfer subject to approval. — A sub-lease or transfer shall only be valid when
in DANR Cases 353 and 353-B. This development, by itself, brought about the dissolution of
first approved by the Director under such terms and conditions as may be
the partnership. Moreover, subsequent events likewise reveal the intent of both parties to
prescribed, otherwise it shall be null and void. A transfer not previously approved
terminate the partnership because each refused to share the fishpond with the other.
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
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a bidder, as provided in subsection (r) of Sec. 33 of this Order.
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
Since the partnership had for its object the division into two equal parts of the fishpond
fishpond application by the decisions in DANR Cases 353 and 353-B brought to the fore
between the appellees and the appellant after it shall have been awarded to the latter, and
several provisions of law which made the continuation of the partnership unlawful and
therefore it envisaged the unauthorized transfer of one-half thereof to parties other than the
therefore caused its ipso facto dissolution.
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
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the partnership to be carried on or for the members to carry it on in partnership.
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
The appellees, however, argue that in approving the appellant's application, the Secretary of
effect is Condition No. 3 of the fishpond permit which states that "The permittee shall not
Agriculture and Natural Resources likewise recognized and/or confirmed their property right
transfer or sublet all or any area herein granted or any rights acquired therein without the
to one-half of the fishpond by virtue of the contract of service, exhibit A. But the untenability
previous consent and approval of this Office." Parenthetically, we must observe that in DANR
of this argument would readily surface if one were to consider that the Secretary of
Case 353-B, the permit granted to one of the parties therein, Leoncio Aradillos, was cancelled
Agriculture and Natural Resources did not do so for the simple reason that he does not
not solely for the reason that his permit covered a portion of the area included in the
possess the authority to violate the aforementioned prohibitory laws nor to exempt anyone
appellant's prior fishpond application, but also because, upon investigation, it was
from their operation.
ascertained thru the admission of Aradillos himself that due to lack of capital, he allowed one
However, assuming in gratia argumenti that the approval of Casteel's application, coupled departments of the government. This is generally true with respect to acts involving
with the foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of the exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-559)
their partnership, succeeding events reveal the intent of both parties to terminate the Findings of fact by an administrative board or official, following a hearing, are
partnership by refusing to share the fishpond with the other. 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
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire clearly acted arbitrarily and without regard to his duty or with grave abuse of
to divide the fishpond so that he could administer his own share, such division to be subject discretion... (emphasis supplied)
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 In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the
there were allegedly no appropriate grounds to support the same and, moreover, the conflict appellant's fishpond application 1717 and awarded to him the possession of the area in
over the fishpond had not been finally resolved. 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,
The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein exercised unconstitutional powers, or acted with arbitrariness and in disregard of his duty, or
the former expressed his determination to administer the fishpond himself because the with grave abuse of discretion, we can do no less than respect and maintain unfettered his
decision of the Government was in his favor and the only reason why administration had official acts in the premises. It is a salutary rule that the judicial department should not
been granted to the Deluaos was because he was indebted to them. In the same letter, the dictate to the executive department what to do with regard to the administration and
appellant forbade Felipe Deluao from sending the couple's encargado, Jesus Donesa, to the disposition of the public domain which the law has entrusted to its care and administration.
fishpond. In reply thereto, Felipe Deluao wrote a letter20 dated January 5, 1951 in which he Indeed, courts cannot superimpose their discretion on that of the land department and
reiterated his refusal to grant the administration of the fishpond to the appellant, stating as a compel the latter to do an act which involves the exercise of judgment and discretion. 22
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 Therefore, with the view that we take of this case, and even assuming that the injunction was
we may privately take may not meet the procedure of legal order." 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
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective acquired by the lower court that it was the appellant's application over the fishpond which
resolutions not to share the fishpond with each other — in direct violation of the undertaking was given due course. After the Secretary of Agriculture and Natural Resources approved the
for which they have established their partnership — each must be deemed to have expressly appellant's application, he became to all intents and purposes the legal permittee of the area
withdrawn from the partnership, thereby causing its dissolution pursuant to art. 1830(2) of with the corresponding right to possess, occupy and enjoy the same. Consequently, the lower
the Civil Code which provides, inter alia, that dissolution is caused "by the express will of any court erred in issuing the preliminary mandatory injunction. We cannot overemphasize that
partner at any time." 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
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, However, pursuant to our holding that there was a partnership between the parties for the
more specifically, with regard to the grant or withholding of licenses, permits, leases and exploitation of the fishpond before it was awarded to Casteel, this case should be remanded
contracts over portions of the public domain to be utilized as fishponds. 21, Thus, we held to the lower court for the reception of evidence relative to an accounting from November 25,
in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and reiterated in Ganitano vs. Secretary 1949 to September 15, 1950, in order for the court to determine (a) the profits realized by
of Agriculture and Natural Resources, et al. the partnership, (b) the share (in the profits) of Casteel as industrial partner, (e) the share (in
(L-21167, March 31, 1966), that 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
... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural
continued in possession and enjoyment of the fishpond even after it was awarded to Casteel,
Resources) by law regarding the disposition of public lands such as granting of
she did so no longer in the concept of a capitalist partner but merely as creditor of the
licenses, permits, leases, and contracts, or approving, rejecting, reinstating, or
appellant, and therefore, she must likewise submit in the lower court an accounting of the
cancelling applications, or deciding conflicting applications, are all executive and
proceeds of the sales of all the fishes harvested from the fishpond from September 16, 1950
administrative in nature. It is a well-recognized principle that purely administrative
until Casteel shall have been finally given the possession and enjoyment of the same. In the
and discretionary functions may not be interfered with by the courts (Coloso v.
event that the appellee Deluao has received more than her lawful credit of P27,000 (or
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
whatever amounts have been advanced to Casteel), plus 6% interest thereon per annum, 1. Defendant be ordered to render the proper accounting of all the assets and
then she should reimburse the excess to the appellant. liabilities of the partnership at bar; and

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby 2. After due notice and hearing defendant be ordered to
rendered: (1) dissolving the injunction issued against the appellant, (2) placing the latter back pay/remit/deliver/surrender/yield to the plaintiffs the following:
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 A. No less than One Third (1/3) of the assets, properties, dividends, cash,
in the premises, at the termination of which the court shall render judgment accordingly. The land(s), fishing vessels, trucks, motor vehicles, and other forms and
appellant's counterclaim is dismissed. No pronouncement as to costs. substance of treasures which belong and/or should belong, had accrued
and/or must accrue to the partnership;
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando and Capistrano,
JJ., concur. B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral

FIRST DIVISION C. Attorney's fees equivalent to Thirty Percent (30%) of the entire
share/amount/award which the Honorable Court may resolve the
G.R. No. 126334 November 23, 2001 plaintiffs as entitled to plus P1,000.00 for every appearance in court. 4

EMILIO EMNACE, petitioner, Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of
vs. jurisdiction over the nature of the action or suit, and lack of capacity of the estate of Tabanao
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO, VICENTE WILLIAM to sue.5 On August 30, 1994, the trial court denied the motion to dismiss. It held that venue
TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA was properly laid because, while realties were involved, the action was directed against a
TABANAO and VINCENT TABANAO, respondents. particular person on the basis of his personal liability; hence, the action is not only a personal
action but also an action in personam. As regards petitioner's argument of lack of jurisdiction
YNARES-SANTIAGO, J.: over the action because the prescribed docket fee was not paid considering the huge amount
involved in the claim, the trial court noted that a request for accounting was made in order
that the exact value of the partnership may be ascertained and, thus, the correct docket fee
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a
may be paid. Finally, the trial court held that the heirs of Tabanao had aright to sue in their
business concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986, they
own names, in view of the provision of Article 777 of the Civil Code, which states that the
decided to dissolve their partnership and executed an agreement of partition and distribution
rights to the succession are transmitted from the moment of the death of the decedent. 6
of the partnership properties among them, consequent to Jacinto Divinagracia's withdrawal
from the partnership.1 Among the assets to be distributed were five (5) fishing boats, six (6)
vehicles, two (2) parcels of land located at Sto. Niño and Talisay, Negros Occidental, and cash The following day, respondents filed an amended complaint, 7 incorporating the additional
deposits in the local branches of the Bank of the Philippine Islands and Prudential Bank. prayer that petitioner be ordered to "sell all (the partnership's) assets and thereafter
pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding share in the proceeds
thereof. In due time, petitioner filed a manifestation and motion to dismiss, 8arguing that the
Throughout the existence of the partnership, and even after Vicente Tabanao's untimely
trial court did not acquire jurisdiction over the case due to the plaintiffs' failure to pay the
demise in 1994, petitioner failed to submit to Tabanao's heirs any statement of assets and
proper docket fees. Further, in a supplement to his motion to dismiss, 9 petitioner also raised
liabilities of the partnership, and to render an accounting of the partnership's finances.
prescription as an additional ground warranting the outright dismissal of the complaint.
Petitioner also reneged on his promise to turn over to Tabanao's heirs the deceased's 1/3
share in the total assets of the partnership, amounting to P30,000,000.00, or the sum of
P10,000,000.00, despite formal demand for payment thereof. 2 On June 15, 1995, the trial court issued an Order, 10 denying the motion to dismiss inasmuch
as the grounds raised therein were basically the same as the earlier motion to dismiss which
has been denied. Anent the issue of prescription, the trial court ruled that prescription begins
Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action for
to run only upon the dissolution of the partnership when the final accounting is done. Hence,
accounting, payment of shares, division of assets and damages.3 In their complaint,
prescription has not set in the absence of a final accounting. Moreover, an action based on a
respondents prayed as follows:
written contract prescribes in ten years from the time the right of action accrues.

Petitioner filed a petition for certiorari before the Court of Appeals,11 raising the following We do not agree. The trial court does not have to employ guesswork in ascertaining the
issues: estimated value of the partnership's assets, for respondents themselves voluntarily pegged
the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is one which is
I. Whether or not respondent Judge acted without jurisdiction or with grave really not beyond pecuniary estimation, but rather partakes of the nature of a simple
abuse of discretion in taking cognizance of a case despite the failure to pay the collection case where the value of the subject assets or amount demanded is pecuniarily
required docket fee; determinable.13 While it is true that the exact value of the partnership's total assets cannot be
shown with certainty at the time of filing, respondents can and must ascertain, through
informed and practical estimation, the amount they expect to collect from the partnership,
II. Whether or not respondent Judge acted without jurisdiction or with grave
particularly from petitioner, in order to determine the proper amount of docket and other
abuse of discretion in insisting to try the case which involve (sic) a parcel of land
fees.14 It is thus imperative for respondents to pay the corresponding docket fees in order that
situated outside of its territorial jurisdiction;
the trial court may acquire jurisdiction over the action. 15

III. Whether or not respondent Judge acted without jurisdiction or with grave
Nevertheless, unlike in the case of Manchester Development Corp. v. Court of
abuse of discretion in allowing the estate of the deceased to appear as party
Appeals,16 where there was clearly an effort to defraud the government in avoiding to pay the
plaintiff, when there is no intestate case and filed by one who was never appointed
correct docket fees, we see no attempt to cheat the courts on the part of respondents. In
by the court as administratrix of the estates; and
fact, the lower courts have noted their expressed desire to remit to the court "any payable
balance or lien on whatever award which the Honorable Court may grant them in this case
IV. Whether or not respondent Judge acted without jurisdiction or with grave should there be any deficiency in the payment of the docket fees to be computed by the Clerk
abuse of discretion in not dismissing the case on the ground of prescription. of Court."17 There is evident willingness to pay, and the fact that the docket fee paid so far is
inadequate is not an indication that they are trying to avoid paying the required amount, but
On August 8, 1996, the Court of Appeals rendered the assailed decision, 12 dismissing the may simply be due to an inability to pay at the time of filing. This consideration may have
petition for certiorari, upon a finding that no grave abuse of discretion amounting to lack or moved the trial court and the Court of Appeals to declare that the unpaid docket fees shall be
excess of jurisdiction was committed by the trial court in issuing the questioned orders considered a lien on the judgment award.
denying petitioner's motions to dismiss.
Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning
Not satisfied, petitioner filed the instant petition for review, raising the same issues resolved the non-payment of the proper legal fees and in allowing the same to become a lien on the
by the Court of Appeals, namely: monetary or property judgment that may be rendered in favor of respondents. There is merit
in petitioner's assertion. The third paragraph of Section 16, Rule 141 of the Rules of Court
I. Failure to pay the proper docket fee; states that:

II. Parcel of land subject of the case pending before the trial court is outside the The legal fees shall be a lien on the monetary or property judgment in favor of the
said court's territorial jurisdiction; pauper-litigant.

III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and Respondents cannot invoke the above provision in their favor because it specifically applies to
pauper-litigants. Nowhere in the records does it appear that respondents are litigating as
paupers, and as such are exempted from the payment of court fees. 18
IV. Prescription of the plaintiff heirs' cause of action.

The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court, which
It can be readily seen that respondents' primary and ultimate objective in instituting the defines the two kinds of claims as: (1) those which are immediately ascertainable; and (2)
action below was to recover the decedent's 1/3 share in the partnership' s assets. While they those which cannot be immediately ascertained as to the exact amount. This second class of
ask for an accounting of the partnership' s assets and finances, what they are actually asking claims, where the exact amount still has to be finally determined by the courts based on
is for the trial court to compel petitioner to pay and turn over their share, or the equivalent evidence presented, falls squarely under the third paragraph of said Section 5(a), which
value thereof, from the proceeds of the sale of the partnership assets. They also assert that provides:
until and unless a proper accounting is done, the exact value of the partnership' s assets, as
well as their corresponding share therein, cannot be ascertained. Consequently, they feel
justified in not having paid the commensurate docket fee as required by the Rules of

In case the value of the property or estate or the sum claimed is less or more in In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine,
accordance with the appraisal of the court, the difference of fee shall be refunded allowing the plaintiff to pay the proper docket fees within a reasonable time before the
or paid as the case may be. (Underscoring ours) expiration of the applicable prescriptive or reglementary period. 24

In Pilipinas Shell Petroleum Corporation v. Court of Appeals, 19 this Court pronounced that the In the recent case of National Steel Corp. v. Court of Appeals,25 this Court held that:
above-quoted provision "clearly contemplates an Initial payment of the filing fees
corresponding to the estimated amount of the claim subject to adjustment as to what later The court acquires jurisdiction over the action if the filing of the initiatory pleading
may be proved."20 Moreover, we reiterated therein the principle that the payment of filing is accompanied by the payment of the requisite fees, or, if the fees are not paid at
fees cannot be made contingent or dependent on the result of the case. Thus, an initial the time of the filing of the pleading, as of the time of full payment of the fees
payment of the docket fees based on an estimated amount must be paid simultaneous with within such reasonable time as the court may grant, unless, of course, prescription
the filing of the complaint. Otherwise, the court would stand to lose the filing fees should the has set in the meantime.
judgment later turn out to be adverse to any claim of the respondent heirs.
It does not follow, however, that the trial court should have dismissed the
The matter of payment of docket fees is not a mere triviality. These fees are necessary to complaint for failure of private respondent to pay the correct amount of docket
defray court expenses in the handling of cases. Consequently, in order to avoid tremendous fees. Although the payment of the proper docket fees is a jurisdictional
losses to the judiciary, and to the government as well, the payment of docket fees cannot be requirement, the trial court may allow the plaintiff in an action to pay the same
made dependent on the outcome of the case, except when the claimant is a pauper-litigant. within a reasonable time before the expiration of the applicable prescriptive or
reglementary period. If the plaintiff fails to comply within this requirement, the
Applied to the instant case, respondents have a specific claim - 1/3 of the value of all the defendant should timely raise the issue of jurisdiction or else he would be
partnership assets - but they did not allege a specific amount. They did, however, estimate considered in estoppel. In the latter case, the balance between the appropriate
the partnership's total assets to be worth Thirty Million Pesos (P30,000,000.00), in a docket fees and the amount actually paid by the plaintiff will be considered a lien or
letter21 addressed to petitioner. Respondents cannot now say that they are unable to make an any award he may obtain in his favor. (Underscoring ours)
estimate, for the said letter and the admissions therein form part of the records of this case.
They cannot avoid paying the initial docket fees by conveniently omitting the said amount in Accordingly, the trial court in the case at bar should determine the proper docket fee based
their amended complaint. This estimate can be made the basis for the initial docket fees that on the estimated amount that respondents seek to collect from petitioner, and direct them to
respondents should pay. Even if it were later established that the amount proved was less or pay the same within a reasonable time, provided the applicable prescriptive or reglementary
more than the amount alleged or estimated, Rule 141, Section 5(a) of the Rules of Court period has not yet expired, Failure to comply therewith, and upon motion by petitioner, the
specifically provides that the court may refund the 'excess or exact additional fees should the immediate dismissal of the complaint shall issue on jurisdictional grounds.
initial payment be insufficient. It is clear that it is only the difference between the amount
finally awarded and the fees paid upon filing of this complaint that is subject to adjustment
On the matter of improper venue, we find no error on the part of the trial court and the
and which may be subjected to alien.
Court of Appeals in holding that the case below is a personal action which, under the Rules,
may be commenced and tried where the defendant resides or may be found, or where the
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,22 this Court plaintiffs reside, at the election of the latter. 26
held that when the specific claim "has been left for the determination by the court, the
additional filing fee therefor shall constitute a lien on the judgment and it shall be the
Petitioner, however, insists that venue was improperly laid since the action is a real action
responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and
involving a parcel of land that is located outside the territorial jurisdiction of the court a
assess and collect the additional fee." Clearly, the rules and jurisprudence contemplate the
quo. This contention is not well-taken. The records indubitably show that respondents are
initial payment of filing and docket fees based on the estimated claims of the plaintiff, and it
asking that the assets of the partnership be accounted for, sold and distributed according to
is only when there is a deficiency that a lien may be constituted on the judgment award until
the agreement of the partners. The fact that two of the assets of the partnership are parcels
such additional fee is collected.
of land does not materially change the nature of the action. It is an action in
personam because it is an action against a person, namely, petitioner, on the basis of his
Based on the foregoing, the trial court erred in not dismissing the complaint outright despite personal liability. It is not an action in rem where the action is against the thing itself instead
their failure to pay the proper docket fees. Nevertheless, as in other procedural rules, it may of against the person.27 Furthermore, there is no showing that the parcels of land involved in
be liberally construed in certain cases if only to secure a just and speedy disposition of an this case are being disputed. In fact, it is only incidental that part of the assets of the
action. While the rule is that the payment of the docket fee in the proper amount should be partnership under liquidation happen to be parcels of land.
adhered to, there are certain exceptions which must be strictly construed. 23

10 | P a g e
The time-tested case of Claridades v. Mercader, et al.,28 settled this issue thus: The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3)
termination.36 The partnership, although dissolved, continues to exist and its legal personality
The fact that plaintiff prays for the sale of the assets of the partnership, including is retained, at which time it completes the winding up of its affairs, including the partitioning
the fishpond in question, did not change the nature or character of the action, such and distribution of the net partnership assets to the partners. 37 For as long as the partnership
sale being merely a necessary incident of the liquidation of the partnership, which exists, any of the partners may demand an accounting of the partnership's business.
should precede and/or is part of its process of dissolution. Prescription of the said right starts to run only upon the dissolution of the partnership when
the final accounting is done.38
The action filed by respondents not only seeks redress against petitioner. It also seeks the
enforcement of, and petitioner's compliance with, the contract that the partners executed to Contrary to petitioner's protestations that respondents' right to inquire into the business
formalize the partnership's dissolution, as well as to implement the liquidation and partition affairs of the partnership accrued in 1986, prescribing four (4) years thereafter, prescription
of the partnership's assets. Clearly, it is a personal action that, in effect, claims a debt from had not even begun to run in the absence of a final accounting. Article 1842 of the Civil Code
petitioner and seeks the performance of a personal duty on his part. 29 In fine, respondents' provides:
complaint seeking the liquidation and partition of the assets of the partnership with damages
is a personal action which may be filed in the proper court where any of the parties The right to an account of his interest shall accrue to any partner, or his legal
reside.30 Besides, venue has nothing to do with jurisdiction for venue touches more upon the representative as against the winding up partners or the surviving partners or the
substance or merits of the case.31 As it is, venue in this case was properly laid and the trial person or partnership continuing the business, at the date of dissolution, in the
court correctly ruled so. absence of any agreement to the contrary.

On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the
legal capacity to sue since she was never appointed as administratrix or executrix of his above-cited provision states that the right to demand an accounting accrues at the date of
estate. Petitioner's objection in this regard is misplaced. The surviving spouse does not need dissolution in the absence of any agreement to the contrary. When a final accounting is
to be appointed as executrix or administratrix of the estate before she can file the action. She made, it is only then that prescription begins to run. In the case at bar, no final accounting has
and her children are complainants in their own right as successors of Vicente Tabanao. From been made, and that is precisely what respondents are seeking in their action before the trial
the very moment of Vicente Tabanao' s death, his rights insofar as the partnership was court, since petitioner has failed or refused to render an accounting of the partnership's
concerned were transmitted to his heirs, for rights to the succession are transmitted from the business and assets. Hence, the said action is not barred by prescription.
moment of death of the decedent.32
In fine, the trial court neither erred nor abused its discretion when it denied petitioner's
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were motions to dismiss. Likewise, the Court of Appeals did not commit reversible error in
transmitted to respondents by operation of law, more particularly by succession, which is a upholding the trial court's orders. Precious time has been lost just to settle this preliminary
mode of acquisition by virtue of which the property, rights and obligations to the extent of issue, with petitioner resurrecting the very same arguments from the trial court all the way
the value of the inheritance of a person are transmitted. 33Moreover, respondents became up to the Supreme Court. The litigation of the merits and substantial issues of this
owners of their respective hereditary shares from the moment Vicente Tabanao died. 34 controversy is now long overdue and must proceed without further delay.

A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit, and
or administratrix, is not necessary for any of the heirs to acquire legal capacity to sue. As the case is REMANDED to the Regional Trial Court of Cadiz City, Branch 60, which
successors who stepped into the shoes of their decedent upon his death, they can commence is ORDERED to determine the proper docket fee based on the estimated amount that
any action originally pertaining to the decedent.35 From the moment of his death, his rights as plaintiffs therein seek to collect, and direct said plaintiffs to pay the same within a reasonable
a partner and to demand fulfillment of petitioner's obligations as outlined in their dissolution time, provided the applicable prescriptive or reglementary period has not yet expired.
agreement were transmitted to respondents. They, therefore, had the capacity to sue and Thereafter, the trial court is ORDERED to conduct the appropriate proceedings in Civil Case
seek the court's intervention to compel petitioner to fulfill his obligations. No. 416-C.

Finally, petitioner contends that the trial court should have dismissed the complaint on the Costs against petitioner.1âwphi1.nêt
ground of prescription, arguing that respondents' action prescribed four (4) years after it
accrued in 1986. The trial court and the Court of Appeals gave scant consideration to SO ORDERED.
petitioner's hollow arguments, and rightly so.

11 | P a g e
Republic of the Philippines respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold
SUPREME COURT and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta
Manila and himself, private respondent Willy Co acquired the great bulk of the partnership interest.
The partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to use
THIRD DIVISION the old firm name of Jade Mountain, though they moved the firm's main office from Makati
to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum Agreement
relating to the operation of the marble quarry was entered into with the Cruz spouses in
February of 1988.2 The actual operations of the business enterprise continued as before. All
the employees of the partnership continued working in the business, all, save petitioner
G.R. No. 97212 June 30, 1993 Benjamin Yu as it turned out.

BENJAMIN YU, petitioner, On 16 November 1987, having learned of the transfer of the firm's main office from Makati to
vs. Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY met private respondent Willy Co for the first time. Petitioner was informed by Willy Co that
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO- the latter had bought the business from the original partners and that it was for him to decide
FU, respondents. whether or not he was responsible for the obligations of the old partnership, including
petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade
Jose C. Guico for petitioner. Mountain business enterprise. His unpaid salaries remained unpaid. 3

Wilfredo Cortez for private respondents. On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of
unpaid salaries accruing from November 1984 to October 1988, moral and exemplary
damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private
respondents. The partnership and Willy Co denied petitioner's charges, contending in the
main that Benjamin Yu was never hired as an employee by the present or new partnership. 4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying had been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him
and export business operated by a registered partnership with the firm name of "Jade his claim for unpaid salaries, backwages and attorney's fees.5
Mountain Products Company Limited" ("Jade Mountain"). The partnership was originally
organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general partners and Chin
Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as limited On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the
partners. The partnership business consisted of exploiting a marble deposit found on land Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990.
owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province, under a The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta
Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The partnership had had bought the Jade Mountain business, that the new partnership had not retained
its main office in Makati, Metropolitan Manila. petitioner Yu in his original position as Assistant General Manager, and that there was no law
requiring the new partnership to absorb the employees of the old partnership. Benjamin Yu,
therefore, had not been illegally dismissed by the new partnership which had simply declined
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as to retain him in his former managerial position or any other position. Finally, the NLRC held
Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu, that Benjamin Yu's claim for unpaid wages should be asserted against the original members
however, he actually received only half of his stipulated monthly salary, since he had accepted of the preceding partnership, but these though impleaded had, apparently, not been served
the promise of the partners that the balance would be paid when the firm shall have secured with summons in the proceedings before the Labor Arbiter. 6
additional operating funds from abroad. Benjamin Yu actually managed the operations and
finances of the business; he had overall supervision of the workers at the marble quarry in
Bulacan and took charge of the preparation of papers relating to the exportation of the firm's Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set
products. aside and annul the Resolution of the NLRC as a product of grave abuse of discretion
amounting to lack or excess of jurisdiction.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal
and Rhodora Bendal sold and transferred their interests in the partnership to private

12 | P a g e
The basic contention of petitioner is that the NLRC has overlooked the principle that a where the circumstances do not
partnership has a juridical personality separate and distinct from that of each of its members. permit a dissolution under any
Such independent legal personality subsists, petitioner claims, notwithstanding changes in other provision of this article, by
the identities of the partners. Consequently, the employment contract between Benjamin Yu the express will of any partner at
and the partnership Jade Mountain could not have been affected by changes in the latter's any time;
xxx xxx xxx
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the
partnership which had hired petitioner Yu as Assistant General Manager had been (Emphasis supplied)
extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel
Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner Yu
In the case at bar, just about all of the partners had sold their partnership interests
could nonetheless assert his rights under his employment contract as against the new
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta.
The record does not show what happened to the remaining 18% of the original partnership
interest. The acquisition of 82% of the partnership interest by new partners, coupled with the
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the retirement or withdrawal of the partners who had originally owned such 82% interest, was
legal effect of the changes in the membership of the partnership was the dissolution of the enough to constitute a new partnership.
old partnership which had hired petitioner in 1984 and the emergence of a new firm
composed of Willy Co and Emmanuel Zapanta in 1987.
The occurrence of events which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the termination of the legal personality
The applicable law in this connection — of which the NLRC seemed quite unaware — is found of the old partnership. Article 1829 of the Civil Code states that:
in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as
[o]n dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed.
Art. 1828. The dissolution of a partnership is the change in the relation of
the partners caused by any partner ceasing to be associated in the
In the ordinary course of events, the legal personality of the expiring partnership persists for
carrying on as distinguished from the winding up of the business.
the limited purpose of winding up and closing of the affairs of the partnership. In the case at
(Emphasis supplied)
bar, it is important to underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing the procedures
Article 1830 of the same Code must also be noted: relating to dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceeding partnership,
Art. 1830. Dissolution is caused: and continued using the old name of Jade Mountain Products Company Limited, without
winding up the business affairs of the old partnership, paying off its debts, liquidating and
(1) without violation of the agreement between the partners; distributing its net assets, and then re-assembling the said assets or most of them and
opening a new business enterprise. There were, no doubt, powerful tax considerations which
underlay such an informal approach to business on the part of the retiring and the incoming
xxx xxx xxx
partners. It is not, however, necessary to inquire into such matters.

(b) by the express will of any

What is important for present purposes is that, under the above described situation, not only
partner, who must act in good
the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which
faith, when no definite term or
continued the business of the old, dissolved, one, are liable for the debts of the preceding
particular undertaking is specified;
partnership. In Singson, et al. v. Isabela Saw Mill, et al,8 the Court held that under facts very
similar to those in the case at bar, a withdrawing partner remains liable to a third party
xxx xxx xxx creditor of the old partnership.9 The liability of the new partnership, upon the other hand, in
the set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil
(2) in contravention of the Code which reads as follows:
agreement between the partners,

13 | P a g e
Art. 1840. In the following cases creditors of the dissolved partnership Nothing in this article shall be held to modify any right of creditors to set
are also creditors of the person or partnership continuing the business: assignment on the ground of fraud.

(1) When any new partner is admitted into an existing partnership, or xxx xxx xxx
when any partner retires and assigns (or the representative of the
deceased partner assigns) his rights in partnership property to two or (Emphasis supplied)
more of the partners, or to one or more of the partners and one or more
third persons, if the business is continued without liquidation of the
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new
partnership affairs;
Jade Mountain which continued the business of the old one without liquidation of the
partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in
(2) When all but one partner retire and assign (or the representative of a respect of his claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired
deceased partner assigns) their rights in partnership property to the or previous partner insofar as such retired partner's interest in the dissolved partnership is
remaining partner, who continues the business without liquidation of concerned. It is not necessary for the Court to determine under which one or mare of the
partnership affairs, either alone or with others; above six (6) paragraphs, the case at bar would fall, if only because the facts on record are not
detailed with sufficient precision to permit such determination. It is, however, clear to the
(3) When any Partner retires or dies and the business of the dissolved Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid
partnership is continued as set forth in Nos. 1 and 2 of this Article, with salaries, as well as other claims relating to his employment with the previous partnership,
the consent of the retired partners or the representative of the deceased against the new Jade Mountain.
partner, but without any assignment of his right in partnership property;
It is at the same time also evident to the Court that the new partnership was entitled to
(4) When all the partners or their representatives assign their rights in appoint and hire a new general or assistant general manager to run the affairs of the business
partnership property to one or more third persons who promise to pay the enterprise take over. An assistant general manager belongs to the most senior ranks of
debts and who continue the business of the dissolved partnership; management and a new partnership is entitled to appoint a top manager of its own choice
and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not
(5) When any partner wrongfully causes a dissolution and remaining therefore constitute unlawful termination, or termination without just or authorized cause.
partners continue the business under the provisions of article 1837, We think that the precise authorized cause for termination in the case at bar
second paragraph, No. 2, either alone or with others, and without was redundancy. 10 The new partnership had its own new General Manager, apparently Mr.
liquidation of the partnership affairs; Willy Co, the principal new owner himself, who personally ran the business of Jade Mountain.
Benjamin Yu's old position as Assistant General Manager thus became superfluous or
redundant. 11It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of
(6) When a partner is expelled and the remaining partners continue the
one month's pay for each year of service that he had rendered to the old partnership, a
business either alone or with others without liquidation of the partnership
fraction of at least six (6) months being considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its
The liability of a third person becoming a partner in the partnership
employ, we consider that Benjamin Yu was very shabbily treated by the new partnership. The
continuing the business, under this article, to the creditors of the
old partnership certainly benefitted from the services of Benjamin Yu who, as noted,
dissolved partnership shall be satisfied out of the partnership property
previously ran the whole marble quarrying, processing and exporting enterprise. His work
only, unless there is a stipulation to the contrary.
constituted value-added to the business itself and therefore, the new partnership similarly
benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did
When the business of a partnership after dissolution is continued under not try to suggest that there was any cause consisting of some blameworthy act or omission
any conditions set forth in this article the creditors of the retiring or on the part of Mr. Yu which compelled the new partnership to terminate his services.
deceased partner or the representative of the deceased partner, have a Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the
prior right to any claim of the retired partner or the representative of the business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong
deceased partner against the person or partnership continuing the and the assumption by Mr. Willy Co of control of operations. The treatment (including the
business on account of the retired or deceased partner's interest in the refusal to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin
dissolved partnership or on account of any consideration promised for Yu was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which the
such interest or for his right in partnership property. new Jade Mountain may legitimately be required to respond by paying moral damages. This
14 | P a g e
Court, exercising its discretion and in view of all the circumstances of this case, believes that Republic of the Philippines
an indemnity for moral damages in the amount of P20,000.00 is proper and reasonable. SUPREME COURT
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of
six percent (6%) per annum on the amount of unpaid wages, and of his separation pay, EN BANC
computed from the date of promulgation of the award of the Labor Arbiter. Finally, because
the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in
the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the total
amount due from private respondent Jade Mountain.
G.R. No. 110782 September 25, 1998

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the
IRMA IDOS, petitioner,
Comment filed by private respondents is treated as their Answer to the Petition for Certiorari,
and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A
new Decision is hereby ENTERED requiring private respondent Jade Mountain Products
Company Limited to pay to petitioner Benjamin Yu the following amounts:

(a) for unpaid wages which, as found by the Labor

Arbiter, shall be computed at the rate of P2,000.00
per month multiplied by thirty-six (36) months QUISUMBING, J.:
(November 1984 to December 1987) in the total
amount of P72,000.00; Before this Court is the petition for review of the Decision of respondent Court of
Appeals 1 dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her conviction
(b) separation pay computed at the rate of P4,000.00 as well as the sentence imposed on her by the Regional Trial Court of Malolos, Bulacan, in
monthly pay multiplied by three (3) years of service or Criminal Case No. 1395-M-88 2 as follows:
a total of P12,000.00;
WHEREFORE . . . the (c)ourt finds the accused Irma Idos guilty beyond
(c) indemnity for moral damages in the amount of reasonable doubt and is hereby sentenced to suffer the penalty of
P20,000.00; imprisonment of six (6) months and to pay a fine of P135,000.00 and to
pay private complainant Eddie Alarilla the amount of the check in
(d) six percent (6%) per annum legal interest question of P135,000.00 at 12% interest from the time of the filing of the
computed on items (a) and (b) above, commencing on (i)nformation (August 10, 1988) until said amount has been fully paid.
26 December 1989 and until fully paid; and
Elevated from the Third Division3 of this Court, the case was accepted for resolution en
(e) ten percent (10%) attorney's fees on the total banc on the initial impression that here, a constitutional question might be involved. 4 It was
amount due from private respondent Jade Mountain. opined that petitioner's sentence, particularly six months' imprisonment, might be in
violation of the constitutional guarantee against imprisonment for non-payment of a debt. 5
Costs against private respondents.
A careful consideration of the issues presented in the petition as well as the comments
thereon and the findings of fact by the courts below in the light of applicable laws and
precedents convinces us, however, that the constitutional dimension need not be reached in
order to resolve those issues adequately. For, as herein discussed, the merits of the petition
Bidin, Davide, Jr., Romero and Melo, JJ., concur. could be determined without delving into aspects of the cited constitutional guarantee vis-a-
visprovisions of the Bouncing Checks Law (Batas Pambansa Blg. 22). There being no necessity
therefor, we lay aside discussions of the constitutional challenge to said law in deciding this

15 | P a g e
The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her Complainant danied that the checks issued to him by accused-appellant
accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the complainant were subject to the disposition of the stocks and the collection of
below, Eddie Alarilla. receivables of the business. But the accused-appellant insisted that the
complainant had known that the checks were to be funded from the
As narrated by the Court of Appeals, the background of this case is as follows: proceeds of the sale of the stocks and the collection of receivables. She
claimed that the complainant himself asked for the checks because he did
not want to continue in the tannery business and had no use for a share
The complainant Eddie Alarilla supplied chemicals and rawhide to the
of the stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp.
accused-appellant Irma L. Idos for use in the latter's business of
12, 16, 20, Feb. 14, 1990; id, p. 14, June 4, 1990).
manufacturing leather. In 1985, he joined the accused-appellant's
business and formed with her a partnership under the style "Tagumpay
Manufacturing," with offices in Bulacan and Cebu City. On February 15, 1992, the trial court rendered judgment finding the
accused-appellant guilty of the crime charged. The accused-appellant's
motion for annulment of the decision and for reconsideration was denied
However, the partnership was short lived. In January, 1986 the parties
by the trial court in its order dated April 12, 1991. 6
agreed to terminate their partnership. Upon liquidation of the business
the partnership had as of May 1986 receivables and stocks worth
P1,800,000.00. The complainant's share of the assets was P900,000.00 to Herein respondent court thereafter affirmed on appeal the decision of the trial court.
pay for which the accused-appellant issued the following postdated Petitioner timely moved for a reconsideration, but this was subsequently denied by
checks, all drawn against Metrobank Branch in Mandaue, Cebu: respondent court in its Resolution7 dated June 11, 1993. Petitioner has now appealed to us by
way of a petition for certiorari under Rule 45 of the Rules of Court.
During the pendency of this petition, this Court by a resolutions8 dated August 30, 1993, took
note of the compromise agreement executed between the parties, regarding the civil aspect
1) 103110295 8-15-86 P135,828.87
of the case, as manifested by petitioner in a Motion to Render Judgment based on
Compromise Agreement9 filed on August 5, 1993. After submission of the Comment10 by the
2) 103110294 P135,828.87 Solicitor General, and the Reply11 by petitioner, this case was deemed submitted for decision.

3) 103115490 9-30-86 P135,828.87 Contending that the Court of Appeals erred in its affirmance of the trial court's decision,
petitioner cites the following reasons to justify the review of her case:
4) 103115491 10-30-86 P126,656.01
1. The Honorable Court of Appeals has decided
The complainant was able to encash the first, second, and fourth checks, against the innocence of the accused based on mere
but the third check (Exh. A) which is the subject of this case, was probabilities which, on the contrary, should have
dishonored on October 14, 1986 for insufficiency of funds. The warranted her acquittal on reasonable doubt. Even
complainant demanded payment from the accused-appellant but the then, the conclusion of the trial court is contrary to
latter failed to pay. Accordingly, on December 18, 1986, through counsel, the evidence on record, including private
he made a formal demand for payment. (Exh. B) In a letter dated January complainant's judicial admission that there was no
2, 1987, the accused-appellant denied liability. She claimed that the check consideration for the check.
had been given upon demand of complainant in May 1986 only as
"assurance" of his share in the assets of the partnership and that it was 2 The Honorable Court of Appeals has confused and
not supposed to be deposited until the stocks had been sold. merged into one the legal concepts of dissolution,
liquidation and termination of a partnership and on
Complainant then filed his complaint in the Office of the Provincial Fiscal the basis of such misconception of the law,
of Bulacan which on August 22, 1988 filed an information for violation of disregarded the fact of absence of consideration of
BP Blg. 22 against accused-appellant. the check and convicted the accused.

16 | P a g e
3 While this appeal was pending, the parties Sec. 1. Checks without sufficient funds. — Any person who makes or
submitted for the approval of the Honorable Court a draws and issues any check to apply on account or for value, knowing at
compromise agreement on the civil liability. The the time of issue that he does not have sufficient funds in or credit with
accused humbly submits that this supervening event, the drawee bank for the payment of such check in full upon its
which by its terms puts to rest any doubt the Court of presentment, which check is subsequently dishonored by the drawee
Appeals had entertained against the defense of lack of bank for insufficiency of funds or credit or would have been dishonored
consideration, should have a legal effect favorable to for the same reason had not the drawer, without any valid reason,
the accused, considering that the dishonored check ordered the bank to stop payment, shall be punished by imprisonment of
constitutes a private transaction between partners not less than thirty days but not more than one (1) year or by a fine of not
which does not involve the public interest, and less than but not more than double the amount of the check which fine
considering further that the offense is not one shall in no case exceed Two hundred thousand pesos, or both such fine
involving moral turpitude. and imprisonment at the discretion of the court.

4 The Honorable Court of Appeals failed to appreciate The same penalty shall be imposed upon any person who having
the fact that the accused had warned private sufficient funds in or credit with the drawee bank when he makes or
complainant that the check was not sufficiently draws and issues a check, shall fail to keep sufficient funds or to maintain
funded, which should have exonerated the accused a credit or to cover the full amount of the check if presented within a
pursuant to the ruling in the recent case of Magno vs. period of ninety (90) days from the date appearing thereon, for which
Court of Appeals, 210 SCRA 471, which calls for a reason it is dishonored by the drawee bank.
more flexible and less rigid application of the
Bouncing Checks law.12 Where the check is drawn by a corporation, company or entity, the
person or persons who actually signed the check in behalf of such drawer
For a thorough consideration of the merits of petitioner's appeal, we find pertinent and shall be liable under this Act.
decisive the following issues:
Sec. 2. Evidence of knowledge of insufficient funds. — The making,
1. Whether respondent court erred in holding that the subject check was issued by petitioner drawing and issuance of a check payment of which is refused by the
to apply on account or for value, that is, as part of the consideration of a "buy-out" of said drawee because of insufficient funds in or credit with such bank, when
complainant's interest in the partnership, and not merely as a commitment on petitioner's presented within ninety (90) days from the date of the check, shall
part to return the investment share of complainant, along with any profit pertaining to said be prima facie evidence of knowledge of such insufficiency of funds or
share, in the partnership. credit unless such maker or drawer pays the holder thereof the amount
due thereon or makes arrangements for payment in full by the drawee of
2. Whether the respondent court erred in concluding that petitioner issued the subject check such check within five (5) banking days after receiving notice that such
knowing at the time of issue that she did not have sufficient funds in or credit with the check has not been paid by the drawee. (Emphasis supplied)
drawee bank and without communicating this fact of insufficiency of funds to the
complainant. As decided by this Court, the elements of the offense penalized under B.P. 22, are as follows:
"(1) the making, drawing and issuance of any check to apply to account or for value; (2) the
Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient
trial court's judgment that she violated Batas Pambansa Blg. 22? funds in or credit with the drawee bank for the payment of such check in full upon its
presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency
of funds or credit or dishonor for the same reason had not the drawer, without any valid
Considering that penal statutes are strictly construed against the state and liberally in favor of
cause, ordered the bank to stop payment. 14
the accused, it bears stressing that for an act to be punishable under the B.P. 22, it "must
come clearly within both the spirit and the letter of the statue. 13 Otherwise, the act has to be
declared outside the law's ambit and a plea of innocence by the accused must be sustained. In the present case, with regard to the first issue, evidence on record would show that the
subject check was to be funded from receivables to be collected and goods to be sold by the
partnership, and only when such collection and sale were realized. 15 Thus, there is sufficient
The relevant provisions of B.P. 22 state that:
basis for the assertion that the petitioner issued the subject check (Metrobank Check No.
103115490 dated October 30, 1986, in the amount of P135,828.87) to evidence only
17 | P a g e
complainant's share or interest in the partnership, or at best, to show her commitment that demolition of the garage used in a
when receivables are collected and goods are sold, she would give to private complainant the "used car" partnership.)
net amount due him representing his interest in the partnership. It did not involve a debt of
or any account due and payable by the petitioner. (3) Termination Defined

Two facts stand out. Firstly, three of four checks were properly encashed by complainant; only Termination is the point in time after all the partnership affairs have been wound
one (the third) was not. But eventually even this one was redeemed by petitioner. Secondly, up. 16 [Citation omitted] (Emphasis supplied).
even private complainant admitted that there was no consideration whatsoever for the
issuance of the check, whose funding was dependent on future sales of goods and receipts of
These final stages in the life of a partnership are recognized under the Civil Code that
payment of account receivables.
explicitly declares that upon dissolution, the partnership is not terminated, to wit:

Now, it could not be denied that though the parties — petitioner and complainant — had
Art 1828. The dissolution of a partnership is the change in the relation of
agreed to dissolve the partnership, such ageement did not automatically put an end to the
the partners caused by any partner ceasing to be associated in the
partnership, since they still had to sell the goods on hand and collect the receivables from
carrying on as distinguished from the winding up of the business.
debtors. In short, they were still in the process of "winding up" the affairs of the partnership,
when the check in question was issued.
Art. 1829. On dissolution the partnership is not terminated, but continues
until the winding up of partnership affairs is completed. (Emphasis
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-
up; and (3) termination. These stages are distinguished, to wit:

The best evidence of the existence of the partnership, which was not yet terminated (though
(1) Dissolution Defined
in the winding up stage), were the unsold goods and uncollected receivables, which were
presented to the trial court. Since the partnership has not been terminated, the petitioner
Dissolution is the change in the and private complainant remained as co-partners. The check was thus issued by the
relation of the partners caused by petitioner to complainant, as would a partner to another, and not as payment from a debtor
any partner ceasing to be to a creditor.
associated in the carrying on of
the business (Art. 1828). It is that
The more tenable view, one in favor of the accused, is that the check was issued merely to
point of time the time the
evidence the complainant's share in the partnership property, or to assure the latter that he
partners cease to carry on the
would receive in time his due share therein. The alternative view that the check was in
business tonether. (Citation
consideration of a "buy out" is but a theory, favorable to the complainant, but lacking support
in the record; and must necessarily be discarded.

(2) Winding Up Defined

For there is nothing on record which even slightly suggest that petitioner ever became
interested in acquiring, much less keeping, the shares of the complainant. What is very clear
Winding up is the process of therefrom is that the petitioner exerted her best efforts to sell the remaining goods and to
settling business affairs of collect the receivables of the partnership, in order to come up with the amount necessary to
dissolution. satisfy the value of complainant's interest in the partnership at the dissolution thereof. To go
by accepted custom of the trade, we are more inclined to the view that the subject check was
(NOTE: Examples of winding up: issued merely to evidence complainant's interest in the partnership. Thus, we are persuaded
the paying of previous that the check was not intended to apply on account or for value; rather it should be deemed
obligations; the collecting of as having been drawn without consideration at the time of issue.
assets previously demandable;
even new business if needed to Absent the first element of the offense penalized under B.P. 22, which is "the making, drawing
wind up, as the contracting with a and issuance of any check to apply on account or for value", petitioner's issuance of the
demolition company for the subject check was not an act contemplated in nor made punishable by said statute.

18 | P a g e
As to the second issue, the Solicitor General contends that under the Bouncing Checks Law, of B.P. 22. Although the offense charged is a malum prohibitum, the
the elements of deceit and damage are not essential or required to constitute a violation prosecution is not thereby excused from its responsibility of proving
thereof. In his view, the only essential element is the knowledge on the part of the maker or beyond reasonable doubt all the elements of the offense, one of which is
drawer of the check of the insufficiency of his/her funds at the time of the issuance of said knowledge of the insufficiency of funds.
Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the check,
The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a special be shown that he knows at the time of issue, that he does not have sufficient funds in or
offense punishable by law. "Malice or intent in issuing the worthless check is immaterial, the credit with the drawee bank for the payment of such check in full upon its presentment.
offense being malum
prohibitum," 17 so goes the argument for the public respondents. In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the
proportionate share of complainant in the partnership assets upon its dissolution. Payment of
But of course this could not be an absolute proposition without descending to absurdity. For that share in the partnership was conditioned on the subsequent realization of profits from
if a check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd to the unsold goods and collection of the receivables of the firm. This condition must be
hold the drawer liable under B.P. 22, if the check is dishonored and unpaid. That would go satisfied or complied with before the complainant can actually "encash" the check. The
against public policy and common sense. reason for the condition is that petitioner has no independent means to satisfy or discharge
the complainant's share, other than by the future sale and collection of the partnership
Public respondents further contend that "since petitioner issued the check in favor of assets. Thus, prior to the selling of the goods and collecting of the receivables, the
complainant. Alarilla and when notified that it was returned for insufficiency of funds, failed complainant could not, as of yet, demand his proportionate share in the business. This
to make good the check, then petitioner is liable for violation of B.P. 22. 18 Again, this matter situation would hold true until after the winding up, and subsequent termination of the
could not be all that simple. For while "the maker's knowledge of the insufficiency of funds is partnership. For only then, when the goods were already sold and receivables paid that cash
legally presumed from the dishonor of his checks for insufficiency of funds, 19 this presumption money could be availed of by the erstwhile partners.
is rebuttable.
Complainant did not present any evidence that petitioner signed and issued four checks
In the instant case, there is only a prima facie presumption which did not preclude the actually knowing that funds therefor would be insufficient at the time complainant would
presentation of contrary evidence.20 In fact, such contrary evidence on two points could be present them to the drawee bank. For it was uncertain at the time of issuance of the checks
gleaned from the record concerning (1) lack of actual knowledge of insufficiency of funds; and whether the unsold goods would have been sold, or whether the receivables would have
(2) lack of adequate notice of dishonor. been collected by the time the checks would be encashed. As it turned out, three were fully
funded when presented to the bank; the remaining one was settled only later on.
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee bank
for the payment of a check upon its presentment is an essential element of the offense. 21 It Since petitioner issued these four checks without actual knowledge of the insufficiency of
must be proved, particularly where the prima facie presumption of the existence of this funds, she could not be held liable under B.P. 22 when one was not honored right away. For it
element has been rebutted. The prima facie presumption arising from the fact of drawing, is basic doctrine that penal statutes such as B.P. 22 "must be construed with such strictness as
issuing or making a check, the payment of which was subsequently refused for insufficiency to carefully safeguard the rights of the defendant . . ."24 The element of knowledge of
of funds is, moreover, not sufficient proof of guilt by the issuer. insufficiency of funds has to be proved by the prosecution; absent said proof, petitioner could
not be held criminally liable under that law. Moreover, the presumption of prima
facie knowledge of such insufficiency in this case was actually rebutted by petitioner's
In the case of Nieva v. Court of Appeals,22 it was held that the subsequent dishonor of the
subject check issued by accused merely engendered the prima facie presumption that she
knew of the insufficiency of funds, but did not render the accused automatically guilty under
B.P. 22.23 Further, we find that the prosecution also failed to prove adequate notice of dishonor of the
subject check on petitioner's part, thus precluding any finding of prima facie evidence of
knowledge of insufficiency of funds. There is no proof that notice of dishonor was actually
The prosecution has a duty to prove all the elements of the crime,
sent by the complainant or by the drawee bank to the petitioner. On this point, the record is
including the acts that give rise to the prima facie presumption;
bereft of evidence to the contrary.
petitioner, on the other hand, has a right to rebut the prima
faciepresumption. Therefore, if such knowledge of insufficiency of funds
is proven to be actually absent or non-existent, the accused should not be But in fact, while the subject check initially bounced, it was later made good by petitioner. In
held liable for the offense defined under the first paragraph of Section 1 addition, the terms of the parties' compromise agreement, entered into during the pendency

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of this case, effectively invalidates the allegation of failure to pay or to make arrangement for As Magno had well observed:
the payment of the check in full. Verily, said compromise agreement constitutes an
arrangement for the payment in full of the subject check. For all intents and purposes, the law was devised to safeguard the
interest of the banking system and the legitimate public checking account
The absence of notice of dishonor is crucial in the present case. As held by this Court in prior user. It did not intend to shelter or favor nor encourage users of the
cases: system to enrich themselves through manipulations and circumvention of
the noble purpose and objective of the law. Least should it be used also
Because no notice of dishonor was actually sent to and received by the as a means of jeopardizing honest-to-goodness transactions with some
petitioner, the prima faciepresumption that she knew about the color of "get-rich" scheme to the prejudice of well-meaning businessmen
insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides who are the pillars of society.
that this presumption arises not from the mere fact of drawing, making
and issuing a bum check; there must also be a showing that, within five xxx xxx xxx
banking days from receipt of the notice of dishonor, such maker or drawer
failed to pay the holder of the check the amount due thereon or to make Thus, it behooves upon a court of law that in applying the punishment
arrangement for its payment in full by the drawee of such imposed upon the accused, the objective of retribution of a wronged
check. 25 [Emphasis supplied.] society, should be directed against the "actual and potential wrongdoers".
In the instant case, there is no doubt that petitioner's four (4) checks were
The absence of a notice of dishonor necessarily deprives an accused an used to collateralize an accommodation, and not to cover the receipt of
opportunity to preclude a criminal prosecution. Accordingly, procedural an actual "account or credit for value" as this was absent, and therefore
due process clearly enjoins that a notice of dishonor be actually served on petitioner should not be punished for mere issuance of the checks in
petitioner. Petitioner has a right to demand — and the basic postulates of question. Following the aforecited theory, in petitioner's stead the
fairness require — that the notice of dishonor be actually sent to and "potential wrongdoer," whose operation could be a menace to society,
received by her to afford her the opportunity to avert prosecution under should not be glorified by convicting the petitioner. 28
B.P. 26
Under the circumstances obtaining in this case, we find the petitioner to have issued the
Further, what militates strongly against public respondents' stand is the fact that petitioner check in good faith, with every intention of abiding by her commitment to return, as soon as
repeatedly notified the complainant of the insufficiency of funds. Instructive is the following able, the investments of complainant in the partnership. Evidently, petitioner issued the
pronouncement of this Court in Magno v. Court of Appeals: check with benign considerations in mind, and not for the purpose of committing fraud,
deceit, or violating public policy.
Furthermore, the element of "knowing at the time of issue that he does
not have sufficient funds in or credit with the drawee bank for the To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable
payment of such check in full upon its presentment, which check is for violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn
subsequently dishonored by the drawee bank for insufficiency of funds or and issued by petitioner in exchange for value received as to qualify it as a check on account
credit or would have been dishonored for the same reason . . ." is or for value; (2) there is no sufficient basis to conclude that petitioner, at the time of issue of
inversely applied in this case. From the very beginning. petitioner never the check, had actual knowledge of the insufficiency of funds; and (3) there was no notice of
hid the fact that he did not have the funds with which to put up the dishonor of said check actually served on petitioner, thereby depriving her of the opportunity
warranty deposit and as a matter of fact, he openly intimated this to the to pay or make arrangements for the payment of the check, to avoid criminal prosecution.
vital conduit of the transaction, Joey Gomez, to whom petitioner was
introduced by Mrs. Teng. It would have been different if this predicament Having resolved the foregoing principal issues, and finding the petition meritorious, we no
was not communicated to all the parties he dealt with regarding the lease longer need to pass upon the validity and legality or necessity of the purported compromise
agreement the financing or which was covered by L.S. Finance agreement on civil liability between the petitioner and the complainant.
Management. " 27
In the instant case, petitioner intimated to private complainant the possibility that funds Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby REVERSED
might be insufficient to cover the subject check, due to the fact that the partnership's goods and the Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is hereby SET ASIDE.
were yet to be sold and receivables yet to be collected.

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