1.

) Republic of the Philippines A careful consideration of the issues presented in the petition as well as
SUPREME COURT the comments thereon and the findings of fact by the courts below in the
Manila light of applicable laws and precedents convinces us, however, that the
constitutional dimension need not be reached in order to resolve those
EN BANC issues adequately. For, as herein discussed, the merits of the petition
could be determined without delving into aspects of the cited
  constitutional guarantee vis-a-vis provisions 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
G.R. No. 110782 September 25, 1998
this petition.
IRMA IDOS, petitioner,
The petitioner herein, Irma L. Idos, is a businesswoman engaged in
vs.
leather tanning. Her accuser for violation of B.P. 22 is her erstwhile
COURT OF APPEALS and PEOPLE OF THE
supplier and business partner, the complainant below, Eddie Alarilla.
PHILIPPINES, respondents.
As narrated by the Court of Appeals, the background of this case is as
follows:

The complainant Eddie Alarilla supplied chemicals and

QUISUMBING, J.:
Before this Court is the petition for review of the Decision of respondent
Court of Appeals   dismissing petitioner's appeal in CA-G.R. CR No.
1
11960; and affirming her conviction as well as the sentence imposed on
her by the Regional Trial Court of Malolos, Bulacan, in Criminal Case No.
1395-M-88   as follows:
2
WHEREFORE . . . the (c)ourt finds the accused Irma Idos
guilty beyond reasonable doubt and is hereby sentenced
to suffer the penalty of 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
question of P135,000.00 at 12% interest from the time of
the filing of the (i)nformation (August 10, 1988) until said
amount has been fully paid.
rawhide to the accused-appellant Irma L. Idos for use in
the latter's business of manufacturing leather. In 1985, he
joined the accused-appellant's business and formed with
her a partnership under the style "Tagumpay
Manufacturing," with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January,
1986 the parties agreed to terminate their partnership.
Upon liquidation of the business the partnership had as of
May 1986 receivables and stocks worth P1,800,000.00.
The complainant's share of the assets was P900,000.00
to pay for which the accused-appellant issued the
following postdated checks, all drawn against Metrobank
Branch in Mandaue, Cebu:
CHECK NO. DATE AMOUNT

Elevated from the Third Division  of this Court, the case was accepted for
3
1) 103110295 8-15-86 P135,828.87
resolution en banc on the initial impression that here, a constitutional
question might be involved.   It was opined that petitioner's sentence,
4

particularly six months' imprisonment, might be in violation of the 2) 103110294 P135,828.87

constitutional guarantee against imprisonment for non-payment of a
debt.5 3) 103115490 9-30-86 P135,828.87

4) 103115491 10-30-86 P126,656.01

 The complainant was able to encash the first, second,
and fourth checks, but the third check (Exh. A) which is
the subject of this case, was dishonored on October 14,
1986 for insufficiency of funds. The complainant
demanded payment from the accused-appellant but the
latter failed to pay. Accordingly, on December 18, 1986,
through counsel, he made a formal demand for payment.
(Exh. B) In a letter dated January 2, 1987, the accused-
appellant denied liability. She claimed that 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 not supposed to be deposited
until the stocks had been sold.
Complainant then filed his complaint in the Office of the
Provincial Fiscal of Bulacan which on August 22, 1988
filed an information for violation of BP Blg. 22 against
accused-appellant.
Complainant danied that the checks issued to him by
accused-appellant were subject to the disposition of the
stocks and the collection of receivables of the business.
But the accused-appellant insisted that the complainant
had known that the checks were to be funded from the
proceeds of the sale of the stocks and the collection of
receivables. She claimed that the complainant himself
asked for the checks because he did not want to continue
in the tannery business and had no use for a share of the
stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13,
1989; id., pp. 12, 16, 20, Feb. 14, 1990; id, p. 14, June 4,
1990).
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 by the trial
court in its order dated April 12, 1991.
6
Herein respondent court thereafter affirmed on appeal the decision of the
trial court. Petitioner timely moved for a reconsideration, but this was
subsequently denied by respondent court in its Resolution  dated June
7
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 resolutions  dated
8
August 30, 1993, took note of the compromise agreement executed
between the parties, regarding the civil aspect of the case, as manifested
by petitioner in a Motion to Render Judgment based on Compromise
Agreement  filed on August 5, 1993. After submission of the
9
Comment  by the Solicitor General, and the Reply  by petitioner, this
10 11
case was deemed submitted for decision.
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:
1. The Honorable Court of Appeals has
decided against the innocence of the
accused based on mere probabilities
which, on the contrary, should have
warranted her acquittal on reasonable
doubt. Even then, the conclusion of the
trial court is contrary to the evidence on
record, including private complainant's
judicial admission that there was no
consideration for the check.
2 The Honorable Court of Appeals has
confused and merged into one the legal
concepts of dissolution, liquidation and
termination of a partnership and on the
basis of such misconception of the law,
disregarded the fact of absence of
consideration of the check and convicted
the accused.
3 While this appeal was pending, the
parties submitted for the approval of the
Honorable Court a compromise
agreement on the civil liability. The
accused humbly submits that this
supervening event, which by its terms puts
to rest any doubt the Court of Appeals had
entertained against the defense of lack of
consideration, should have a legal effect
favorable to the accused, considering that
the dishonored check constitutes a private
transaction between partners which does
 not involve the public interest, and Sec. 1. Checks without sufficient funds. — Any person
considering further that the offense is not who makes or draws and issues any check to apply on
one involving moral turpitude. account or for value, knowing at the time of issue that he
does not have sufficient funds in or credit with the drawee
4 The Honorable Court of Appeals failed bank for the payment of such check in full upon its
to appreciate the fact that the accused presentment, which check is subsequently dishonored by
had warned private complainant that the the drawee bank for insufficiency of funds or credit or
check was not sufficiently funded, which would have been dishonored for the same reason had not
should have exonerated the accused the drawer, without any valid reason, ordered the bank to
pursuant to the ruling in the recent case stop payment, shall be punished by imprisonment of not
of Magno vs. Court of Appeals, 210 SCRA less than thirty days but not more than one (1) year or by
471, which calls for a more flexible and a fine of not less than but not more than double the
less rigid application of the Bouncing amount of the check which fine shall in no case exceed
Checks law. 12 Two hundred thousand pesos, or both such fine and
imprisonment at the discretion of the court.
For a thorough consideration of the merits of petitioner's appeal, we find
pertinent and decisive the following issues: The same penalty shall be imposed upon any person who
having sufficient funds in or credit with the drawee bank
1. Whether respondent court erred in holding that the subject check was when he makes or draws and issues a check, shall fail to
issued by petitioner to apply on account or for value, that is, as part of the keep sufficient funds or to maintain a credit or to cover the
consideration of a "buy-out" of said complainant's interest in the full amount of the check if presented within a period of
partnership, and not merely as a commitment on petitioner's part to return ninety (90) days from the date appearing thereon, for
the investment share of complainant, along with any profit pertaining to which reason it is dishonored by the drawee bank.
said share, in the partnership.
Where the check is drawn by a corporation, company or
2. Whether the respondent court erred in concluding that petitioner issued entity, the person or persons who actually signed the
the subject check knowing at the time of issue that she did not have check in behalf of such drawer shall be liable under this
sufficient funds in or credit with the drawee bank and without Act.
communicating this fact of insufficiency of funds to the complainant.
Sec. 2. Evidence of knowledge of insufficient funds. —
Both inquiries boil down into one ultimate issue: Did the respondent court The making, drawing and issuance of a check payment of
err in affirming the trial court's judgment that she violated Batas which is refused by the drawee because of insufficient
Pambansa Blg. 22? funds in or credit with such bank, when presented within
ninety (90) days from the date of the check, shall
be prima facie evidence of knowledge of such
Considering that penal statutes are strictly construed against the state
insufficiency of funds or credit unless such maker or
and liberally in favor of the accused, it bears stressing that for an act to
drawer pays the holder thereof the amount due thereon or
be punishable under the B.P. 22, it "must come clearly within both the
makes arrangements for payment in full by the drawee of
spirit and the letter of the statue.   Otherwise, the act has to be declared
13

such check within five (5) banking days after receiving

outside the law's ambit and a plea of innocence by the accused must be
notice that such check has not been paid by the drawee.
sustained.
(Emphasis supplied)
The relevant provisions of B.P. 22 state that:
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 knowledge of the maker, partner ceasing to be
drawer or issuer that at the time of issue he does not have sufficient associated in the carrying
funds in or credit with the drawee bank for the payment of such check in on of the business (Art.
full upon its presentment; and (3) subsequent dishonor of the check by 1828). It is that point of
the drawee bank for insufficiency of funds or credit or dishonor for the time the time the partners
same reason had not the drawer, without any valid cause, ordered the cease to carry on the
bank to stop payment.  14
business tonether.
(Citation omitted).
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 (2) Winding Up Defined
be collected and goods to be sold by the partnership, and only when such
collection and sale were realized.   Thus, there is sufficient basis for the
15
Winding up is the process
assertion that the petitioner issued the subject check (Metrobank Check of settling business affairs
No. 103115490 dated October 30, 1986, in the amount of P135,828.87) of dissolution.
to evidence only complainant's share or interest in the partnership, or at
best, to show her commitment that when receivables are collected and (NOTE: Examples of
goods are sold, she would give to private complainant the net amount winding up: the paying of
due him representing his interest in the partnership. It did not involve a previous obligations; the
debt of or any account due and payable by the petitioner. collecting of assets
previously demandable;
Two facts stand out. Firstly, three of four checks were properly encashed even new business if
by complainant; only one (the third) was not. But eventually even this one needed to wind up, as the
was redeemed by petitioner. Secondly, even private complainant contracting with a
admitted that there was no consideration whatsoever for the issuance of demolition company for the
the check, whose funding was dependent on future sales of goods and demolition of the garage
receipts of payment of account receivables. used in a "used car"
partnership.)
Now, it could not be denied that though the parties — petitioner and
complainant — had agreed to dissolve the partnership, such ageement (3) Termination Defined
did not automatically put an end to the partnership, since they still had to
sell the goods on hand and collect the receivables from debtors. In short, Termination is the point in time after all the partnership affairs have been
they were still in the process of "winding up" the affairs of the partnership, wound up.   [Citation omitted] (Emphasis supplied).
16

when the check in question was issued.

These final stages in the life of a partnership are recognized under the
Under the Civil Code, the three final stages of a partnership are (1) Civil Code that explicitly declares that upon dissolution, the partnership is
dissolution; (2) winding-up; and (3) termination. These stages are not terminated, to wit:
distinguished, to wit:
Art 1828. The dissolution of a partnership is the change in
(1) Dissolution Defined the relation of the partners caused by any partner ceasing
to be associated in the carrying on as distinguished from
Dissolution is the change the winding up of the business.
in the relation of the
partners caused by any
 Art. 1829. On dissolution the partnership is not
terminated, but continues until the winding up of
partnership affairs is completed. (Emphasis supplied.)
The best evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the trial court. Since the
partnership has not been terminated, the petitioner and private
complainant remained as co-partners. The check was thus issued by the
petitioner to complainant, as would a partner to another, and not as
payment from a debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was
issued merely to evidence the complainant's share in the partnership
property, or to assure the latter that he would receive in time his due
share therein. The alternative view that the check was in consideration of
a "buy out" is but a theory, favorable to the complainant, but lacking
support in the record; and must necessarily be discarded.
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 therefrom is that the petitioner
exerted her best efforts to sell the remaining goods and to collect the
receivables of the partnership, in order to come up with the amount
necessary to 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 issued merely to
evidence complainant's interest in the partnership. Thus, we are
persuaded that the check was not intended to apply on account or for
value; rather it should be deemed as having been drawn without
consideration at the time of issue.
Absent the first element of the offense penalized under B.P. 22, which is
"the making, drawing and issuance of any check to apply on account or
for value", petitioner's issuance of the subject check was not an act
contemplated in nor made punishable by said statute.
As to the second issue, the Solicitor General contends that under the
Bouncing Checks Law, the elements of deceit and damage are not
essential or required to constitute a violation thereof. In his view, the only
essential element is the knowledge on the part of the maker or drawer of
the check of the insufficiency of his/her funds at the time of the issuance
of said check.
The Bouncing Checks Law makes the mere act of issuing a bad or
worthless check a special offense punishable by law. "Malice or intent in
issuing the worthless check is immaterial, the offense being malum
prohibitum,"   so goes the argument for the public respondents.
17
But of course this could not be an absolute proposition without
descending to absurdity. For if a check were issued by a kidnap victim to
a kidnapper for ransom, it would be absurd to hold the drawer liable
under B.P. 22, if the check is dishonored and unpaid. That would go
against public policy and common sense.
Public respondents further contend that "since petitioner issued the check
in favor of complainant. Alarilla and when notified that it was returned for
insufficiency of funds, failed to make good the check, then petitioner is
liable for violation of B.P. 22.  Again, this matter could not be all that
18
simple. For while "the maker's knowledge of the insufficiency of funds is
legally presumed from the dishonor of his checks for insufficiency of
funds,  this presumption is rebuttable.
19
In the instant case, there is only a prima facie presumption which did not
preclude the presentation of contrary evidence.  In fact, such contrary
20
evidence on two points could be gleaned from the record concerning (1)
lack of actual knowledge of insufficiency of funds; and (2) lack of
adequate notice of dishonor.
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.  It must be proved, particularly where
21
the prima facie presumption of the existence of this element has been
rebutted. The prima facie presumption arising from the fact of drawing,
issuing or making a check, the payment of which was subsequently
refused for insufficiency of funds is, moreover, not sufficient proof of guilt
by the issuer.
In the case of Nieva v. Court of Appeals,  it was held that the subsequent
22
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
The prosecution has a duty to prove all the elements of
the crime, including the acts that give rise to the prima
facie presumption; petitioner, on the other hand, has a
right to rebut the prima facie presumption. Therefore, if
 such knowledge of insufficiency of funds is proven to be
actually absent or non-existent, the accused should not
be held liable for the offense defined under the first
paragraph of Section 1 of B.P. 22. Although the offense
charged is a malum prohibitum, the prosecution is not
thereby excused from its responsibility of proving beyond
reasonable doubt all the elements of the offense, one of
which is knowledge of the insufficiency of funds.
Sec. 1 of B.P. 22 specifically requires that the person in making, drawing
or issuing the check, be shown that he knows at the time of issue, that he
does not have sufficient funds in or credit with the drawee bank for the
payment of such check in full upon its presentment.
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 that share in the
partnership was conditioned on the subsequent realization of profits from
the unsold goods and collection of the receivables of the firm. This
condition must be satisfied or complied with before the complainant can
actually "encash" the check. The 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
assets. Thus, prior to the selling of the goods and collecting of the
receivables, the complainant could not, as of yet, demand his
proportionate share in the business. This situation would hold true until
after the winding up, and subsequent termination of the partnership. For
only then, when the goods were already sold and receivables paid that
cash money could be availed of by the erstwhile partners.
Complainant did not present any evidence that petitioner signed and
issued four checks actually knowing that funds therefor would be
insufficient at the time complainant would present them to the drawee
bank. For it was uncertain at the time of issuance of the checks whether
the unsold goods would have been sold, or whether the receivables
would have 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.
Since petitioner issued these four checks without actual knowledge of the
insufficiency of funds, she could not be held liable under B.P. 22 when
one was not honored right away. For it is basic doctrine that penal
statutes such as B.P. 22 "must be construed with such strictness as to
carefully safeguard the rights of the defendant . . ."  The element of
24
knowledge of 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 evidence.
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 sent by the
complainant or by the drawee bank to the petitioner. On this point, the
record is bereft of evidence to the contrary.
But in fact, while the subject check initially bounced, it was later made
good by petitioner. In addition, the terms of the parties' compromise
agreement, entered into during the pendency of this case, effectively
invalidates the allegation of failure to pay or to make arrangement for the
payment of the check in full. Verily, said compromise agreement
constitutes an arrangement for the payment in full of the subject check.
The absence of notice of dishonor is crucial in the present case. As held
by this Court in prior cases:
Because no notice of dishonor was actually sent to and
received by the petitioner, the prima facie presumption
that she knew about the insufficiency of funds cannot
apply. Section 2 of B.P. 22 clearly provides 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 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
arrangement for its payment in full by the drawee of such
check.   [Emphasis supplied.]
25
The absence of a notice of dishonor necessarily deprives
an accused an opportunity to preclude a criminal
prosecution. Accordingly, procedural due process clearly
enjoins that a notice of dishonor be actually served on
petitioner. Petitioner has a right to demand — and the
basic postulates of fairness require — that the notice of
dishonor be actually sent to and received by her to afford
her the opportunity to avert prosecution under
B.P. 26
Further, what militates strongly against public respondents' stand is the
fact that petitioner repeatedly notified the complainant of the insufficiency
of funds. Instructive is the following pronouncement of this Court
in Magno v. Court of Appeals:
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 payment of such check in full upon its
presentment, which check is subsequently dishonored by
the drawee bank for insufficiency of funds or credit or
would have been dishonored for the same reason . . ." is
inversely applied in this case. From the very beginning.
petitioner never hid the fact that he did not have the funds
with which to put up the warranty deposit and as a matter
of fact, he openly intimated this to the vital conduit of the
transaction, Joey Gomez, to whom petitioner was
introduced by Mrs. Teng. It would have been different if
this predicament was not communicated to all the parties
he dealt with regarding the lease agreement the financing
or which was covered by L.S. Finance Management. "  27
In the instant case, petitioner intimated to private complainant the
possibility that funds might be insufficient to cover the subject check, due
to the fact that the partnership's goods were yet to be sold and
receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to
safeguard the interest of the banking system and the
legitimate public checking account user. It did not intend
to shelter or favor nor encourage users of the system to
enrich themselves through manipulations and
circumvention of the noble purpose and objective of the
law. Least should it be used also as a means of
jeopardizing honest-to-goodness transactions with some
color of "get-rich" scheme to the prejudice of well-
meaning businessmen who are the pillars of society.
x x x           x x x          x x x
Thus, it behooves upon a court of law that in applying the
punishment imposed upon the accused, the objective of
retribution of a wronged 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 used to collateralize an accommodation, and
not to cover the receipt of an actual "account or credit for
value" as this was absent, and therefore petitioner should
not be punished for mere issuance of the checks in
question. Following the aforecited theory, in petitioner's
stead the "potential wrongdoer," whose operation could
be a menace to society, should not be glorified by
convicting the petitioner. 
28
Under the circumstances obtaining in this case, we find the petitioner to
have issued the check in good faith, with every intention of abiding by her
commitment to return, as soon as able, the investments of complainant in
the partnership. Evidently, petitioner issued the check with benign
considerations in mind, and not for the purpose of committing fraud,
deceit, or violating public policy.
To recapitulate, we find the petition impressed with merit. Petitioner may
not be held liable for violation of B.P. 22 for the following reasons: (1) the
subject check was not made, drawn and issued by petitioner in exchange
for value received as to qualify it as a check on account or for value; (2)
there is no sufficient basis to conclude that petitioner, at the time of issue
of the check, had actual knowledge of the insufficiency of funds; and (3)
there was no notice of dishonor of said check actually served on
petitioner, thereby depriving her of the opportunity to pay or make
arrangements for the payment of the check, to avoid criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition
meritorious, we no longer need to pass upon the validity and legality or
necessity of the purported compromise agreement on civil liability
between the petitioner and the complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE
PETITIONER ACQUITTED. The Decision of the respondent Court of
Appeals in CA-G.R. CR No. 11960 is hereby REVERSED and the
Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is
hereby SET ASIDE.
NO COSTS.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, 14 Ibid., p. 131; citing Navarro vs. Court of Appeals, 234 SCRA
Vitug, Kapunan, Panganiban, Martinez and Purisima, JJ., concur. 639, 643-644 (1994); citing People vs. Laggui, 171 SCRA 305
(1989). See also Reyes, Luis B., The Revised Penal Code,
Mendoza, J., took no part. Criminal Law, Book Two, p. 700 (1993).

Footnotes Justice Luis B. Reyes, enumerates the elements of the said

offense, thus:
1 Rollo, pp. 44-53; Third Division, composed of J. Vicente V.
Mendoza, ponente; and JJ. Jorge S. Imperial and Quirino P. 1. That a person makes or draws
Abad Santos, Jr. and issues any check.

2 Records, p. 161; Judge Candido R. Belmonte, ponente. 2 That the check is made or drawn
and issued to apply on account or
3 Composed of J. Hilario G. Davide, Jr., Chairman, JJ. Josue N. for value.
Bellosillo, Santiago M. Katipunan, Jose C. Vitug and Regino C.
Hermosisima, Jr., ponente. 3. That the person who makes or
draws and issues the check knows
4 Resolution En Banc, February 10, 1998. at the time of issue that he does
not have sufficient funds in or
credit with the drawee bank for the
5 Constitution, Art. III, Sec. 20.
payment of such check in full upon
its presentment.
6 Rollo, pp. 44-46.
4. That the check is subsequently
7 Rollo, p. 55-56. dishonored by the drawee bank for
insufficiency of funds or credit, or
8 Rollo, p.14. would have been dishonored for
the same reason had not the
9 Rollo, pp. 10-13. drawer, without any valid reason,
ordered the bank to stop payment.
10 Rollo, pp. 65-79. This was signed by Solicitor General Raul I.
Goco, Assistant Solicitor General Edgardo L. Kilayko, and 15 TSN, February 14, 1990, pp. 30 and 35; TSN, June 4, 1990,
Associate Solicitor Maria Liza L. Young. p.14.

11 Rollo, pp. 85-92. 16 Paras, Civil Code of the Philippines, Vol. V. 7th., p. 516.

12 Rollo, pp. 19-20. All caps in the original. See G.R. No. 96132,
Magno v. CA, June 26, 1992.
13 Lina Lim Lao vs. Court of Appeals and the People of the
Philippines, G.R. No. 119178, p. 12, June 20, 1997, per
Panganiban, J., citing Agpalo, Ruben E., Statutory Constructionm
p. 208, (1990).
17 Comment, pp. 6-7; rollo, pp. 70-71.
18 Ibid., p. 7; Rollo, p. 71.
19 Supra, footnote no. 13 at pp. 14-15; citing People v. Laggui,
171 SCRA 305 (1989); Meras v. Hon. Auxencio C. Dacuycuy,
181 SCRA 1 (1990).
 20 Ibid., p. 25.
21 Ibid., p. 15; citing Reyes, Luis B. The Revised Penal Code,
Criminal Law, Book Two p. 700 (1993). See also Nitafan G.,
Notes and Comments on the Bouncing Checks Law (B.P. Bldg.
22), p. 62, (1995); Antonio Nieva vs. Court of Appeals, G.R. Nos.
95796-97, May 2, 1997.
22 G.R. Nos. 95796-97, May 2, 1997.
23 Ibid., p. 16.
24 Ibid., p. 22; citing Alfredo L. Azarcon vs.
Sandiganbayan, et. al., G.R. No. 116033, p. 19, February 26,
1997.
25 Ibid., p. 27.
26 Ibid., p. 28.
27 210 SCRA 471, 482 (1992).
28 Ibid., pp. 478-479.
1. Idos v CA 296 SCRA 205
1.) Idos v. Court of Appeals
G.R. No. 110782, 25 September 1998
FACTS:
Petitioner, Irma L. Idos, is a businesswoman engaged in leather tanning
was accused by the complainant, Eddie Alarilla her erstwhile supplier and
business partner for violation of B.P. 22. The complainant Eddie Alarilla
supplied chemicals and rawhide to the accused-appellant Irma L. Idos for
use in the latter’s business of manufacturing leather. He joined the
accused-appellant’s business and formed with her the short-lived
partnership under the style “Tagumpay Manufacturing which was
dissolved by agreement of the parties.
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 and to pay such share for accused-appellant
issued four (4) postdated checks where one of the checks bounced. The
complainant demanded payment from the accused-appellant but the
latter failed to pay. In a letter reply, the accused-appellant denied liability.
She claimed that 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 not supposed to be deposited until the stocks
had been sold. Complainant then filed an action before the court for
violating BP 22 against petitioner.
Accused-appellant insisted that the complainant had known that the
checks were to be funded from the proceeds of the sale of the stocks and
the collection of receivables. She claimed that the complainant himself
asked for the checks because he did not want to continue in the tannery
business and had no use for a share of the stocks.
Trail court rendered a decision finding the petitioner guilty and her motion
for reconsideration was denied. The decision was affirmed by the
appellate court, hence, this petition.
ISSUE:
Whether or not the agreement between the petitioner and complainant to
dissolve the partnership automatically terminated the partnership in
question.
RULING:
It could not be denied that though the parties — petitioner and
complainant — had agreed to dissolve the partnership, such ageement
did not automatically put an end to the partnership, since they still had to
sell the goods on hand and collect the receivables from debtors. In short,
they were still in the process of “winding up” the affairs of the partnership,
when the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1)
dissolution; (2) winding-up; and (3) termination. These stages are
distinguished, to wit:
1. Dissolution Defined
Dissolution is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on of the business (Art.
1828). It is that point of time the time the partners cease to carry on the
business tonether. (Citation omitted).
2. Winding Up Defined
Winding up is the process of settling business affairs of dissolution.
3. Termination Defined
Termination is the point in time after all the partnership affairs have been
wound up.
These final stages in the life of a partnership are recognized under the
Civil Code that explicitly declares that upon dissolution, the partnership is
not terminated, to wit:
Art 1828. The dissolution of a partnership is the change in the relation of
the partners caused by any partner ceasing to be associated in the
carrying on as distinguished from the winding up of the business.
Art. 1829. On dissolution the partnership is not terminated, but continues
until the winding up of partnership affairs is completed. (Emphasis
supplied.)
The best evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the trial court. Since the
partnership has not been terminated, the petitioner and private
complainant remained as co-partners. The check was thus issued by the
petitioner to complainant, as would a partner to another, and not as
payment from a debtor to a creditor.
*Case digest by Jay Mark P. Balbosa, JD-IV, Andres Bonifacio Law School,
SY 2019-2020
2.) FIRST DIVISION
G.R. No. 127405               October 4, 2000
MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-
G.R. CV No. 41616, affirming the Decision of the Regional Trial Court of
1 
Makati, Branch 140, in Civil Case No. 88-509. 2
Fresh from her stint as marketing adviser of Technolux in Bangkok,
Thailand, private respondent Nenita A. Anay met petitioner William T.
Belo, then the vice-president for operations of Ultra Clean Water Purifier,
through her former employer in Bangkok. Belo introduced Anay to
petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen
cookwares. Belo volunteered to finance the joint venture and assigned to
Anay the job of marketing the product considering her experience and
established relationship with West Bend Company, a manufacturer of
kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as
capitalist, Tocao as president and general manager, and Anay as head of
the marketing department and later, vice-president for sales. Anay
organized the administrative staff and sales force while Tocao hired and
fired employees, determined commissions and/or salaries of the
employees, and assigned them to different branches. The parties agreed
that Belo’s name should not appear in any documents relating to their
transactions with West Bend Company. Instead, they agreed to use
Anay’s name in securing distributorship of cookware from that company.
The parties agreed further that Anay would be entitled to: (1) ten percent
(10%) of the annual net profits of the business; (2) overriding commission
of six percent (6%) of the overall weekly production; (3) thirty percent
(30%) of the sales she would make; and (4) two percent (2%) for her
demonstration services. The agreement was not reduced to writing on the
strength of Belo’s assurances that he was sincere, dependable and
honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the
West Bend Company and organized the administrative staff and the sales
force, the cookware business took off successfully. They operated under
the name of Geminesse Enterprise, a sole proprietorship registered in
Marjorie Tocao’s name, with office at 712 Rufino Building, Ayala Avenue,
Makati City. Belo made good his monetary commitments to Anay.
Thereafter, Roger Muencheberg of West Bend Company invited Anay to
the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July
19 to 21, 1987 and to the southwestern regional convention in Pismo
Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the
invitation with the consent of Marjorie Tocao who, as president and
general manager of Geminesse Enterprise, even wrote a letter to the
Visa Section of the U.S. Embassy in Manila on July 13, 1987. A portion of
the letter reads:
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West
Bend Co. for twenty (20) years now, acquired the distributorship of Royal
Queen cookware for Geminesse Enterprise, is the Vice President Sales
Marketing and a business partner of our company, will attend in response
to the invitation." (Italics supplied.)
3
Anay arrived from the U.S.A. in mid-August 1987, and immediately
undertook the task of saving the business on account of the
unsatisfactory sales record in the Makati and Cubao offices. On August
31, 1987, she received a plaque of appreciation from the administrative
and sales people through Marjorie Tocao for her excellent job
4 
performance. On October 7, 1987, in the presence of Anay, Belo signed
a memo entitling her to a thirty-seven percent (37%) commission for her
5 
personal sales "up Dec 31/87." Belo explained to her that said
commission was apart from her ten percent (10%) share in the profits. On
October 9, 1987, Anay learned that Marjorie Tocao had signed a
letter addressed to the Cubao sales office to the effect that she was no
6 
longer the vice-president of Geminesse Enterprise. The following day,
October 10, she received a note from Lina T. Cruz, marketing manager,
that Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices. Anay attempted to
7 
contact Belo. She wrote him twice to demand her overriding commission
for the period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits. When her letters were
not answered, Anay consulted her lawyer, who, in turn, wrote Belo a
letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of
P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint
for sum of money with damages against Marjorie D. Tocao and William
8 
Belo before the Regional Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her,
jointly and severally, the following: (1) P32,00.00 as unpaid overriding
commission from January 8, 1988 to February 5, 1988; (2) P100,000.00
as moral damages, and (3) P100,000.00 as exemplary damages. The
plaintiff also prayed for an audit of the finances of Geminesse Enterprise
from the inception of its business operation until she was "illegally
dismissed" to determine her ten percent (10%) share in the net profits.
She further prayed that she be paid the five percent (5%) "overriding
commission" on the remaining 150 West Bend cookware sets before her
"dismissal."
In their answer, Marjorie Tocao and Belo asserted that the "alleged
9 
agreement" with Anay that was "neither reduced in writing, nor ratified,"
was "either unenforceable or void or inexistent." As far as Belo was
concerned, his only role was to introduce Anay to Marjorie Tocao. There
could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao.
Because Anay merely acted as marketing demonstrator of Geminesse
Enterprise for an agreed remuneration, and her complaint referred to
either her compensation or dismissal, such complaint should have been
lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the
complaint on account of "ill-will and resentment" because Marjorie Tocao
did not allow her to "lord it over in the Geminesse Enterprise." Anay had
acted like she owned the enterprise because of her experience and
expertise. Hence, petitioners were the ones who suffered actual damages
"including unreturned and unaccounted stocks of Geminesse Enterprise,"
and "serious anxiety, besmirched reputation in the business world, and
various damages not less than P500,000.00." They also alleged that, to
"vindicate their names," they had to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not
the plaintiff was an employee or partner of Marjorie Tocao and Belo, and
(b) whether or not the parties are entitled to damages.10
In their defense, Belo denied that Anay was supposed to receive a share
in the profit of the business. He, however, admitted that the two had
agreed that Anay would receive a three to four percent (3-4%) share in
the gross sales of the cookware. He denied contributing capital to the
business or receiving a share in its profits as he merely served as a
guarantor of Marjorie Tocao, who was new in the business. He attended
and/or presided over business meetings of the venture in his capacity as
a guarantor but he never participated in decision-making. He claimed that
he wrote the memo granting the plaintiff thirty-seven percent (37%)
commission upon her dismissal from the business venture at the request
of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral
partnership agreement with Anay. However, she admitted that Anay was
an expert in the cookware business and hence, they agreed to grant her
the following commissions: thirty-seven percent (37%) on personal sales;
five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel.
Marjorie denied that they agreed on a ten percent (10%) commission on
the net profits. Marjorie claimed that she got the capital for the business
out of the sale of the sewing machines used in her garments business
and from Peter Lo, a Singaporean friend-financier who loaned her the
funds with interest. Because she treated Anay as her "co-equal," Marjorie
received the same amounts of commissions as her. However, Anay failed
to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part
of which is as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the
partnership affairs for the years 1987 and 1988 pursuant to Art. 1809 of
the Civil Code in order to determine the ten percent (10%) share of
plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission
for the one hundred and fifty (150) cookware sets available for disposition
when plaintiff was wrongfully excluded from the partnership by
defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total
production which for the period covering January 8, 1988 to February 5,
1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and
P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorney’s fees and
P20,000.00 as costs of suit.
SO ORDERED."
The trial court held that there was indeed an "oral partnership agreement
between the plaintiff and the defendants," based on the following: (a)
there was an intention to create a partnership; (b) a common fund was
established through contributions consisting of money and industry, and
(c) there was a joint interest in the profits. The testimony of Elizabeth
Bantilan, Anay’s cousin and the administrative officer of Geminesse
Enterprise from August 21, 1986 until it was absorbed by Royal
International, Inc., buttressed the fact that a partnership existed between
the parties. The letter of Roger Muencheberg of West Bend Company
stating that he awarded the distributorship to Anay and Marjorie Tocao
because he was convinced that with Marjorie’s financial contribution and
Anay’s experience, the combination of the two would be invaluable to the
partnership, also supported that conclusion. Belo’s claim that he was
merely a "guarantor" has no basis since there was no written evidence
thereof as required by Article 2055 of the Civil Code. Moreover, his acts
of attending and/or presiding over meetings of Geminesse Enterprise
plus his issuance of a memo giving Anay 37% commission on personal
sales belied this. On the contrary, it demonstrated his involvement as a
partner in the business.
The trial court further held that the payment of commissions did not
preclude the existence of the partnership inasmuch as such practice is
often resorted to in business circles as an impetus to bigger sales
volume. It did not matter that the agreement was not in writing because
Article 1771 of the Civil Code provides that a partnership may be
"constituted in any form." The fact that Geminesse Enterprise was
registered in Marjorie Tocao’s name is not determinative of whether or
not the business was managed and operated by a sole proprietor or a
partnership. What was registered with the Bureau of Domestic Trade was
merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from
a partnership is an innocent partner. Hence, the guilty partner must give
him his due upon the dissolution of the partnership as well as damages or
share in the profits "realized from the appropriation of the partnership
business and goodwill." An innocent partner thus possesses "pecuniary
interest in every existing contract that was incomplete and in the trade
name of the co-partnership and assets at the time he was wrongfully
expelled."
Petitioners’ appeal to the Court of Appeals was dismissed, but the
11 
amount of damages awarded by the trial court were reduced to
P50,000.00 for moral damages and P50,000.00 as exemplary damages.
Their Motion for Reconsideration was denied by the Court of Appeals for
lack of merit. Petitioners Belo and Marjorie Tocao are now before this
12 
Court on a petition for review on certiorari, asserting that there was no
business partnership between them and herein private respondent Nenita
A. Anay who is, therefore, not entitled to the damages awarded to her by
the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals
erroneously held that a partnership existed between them and private
respondent Anay because Geminesse Enterprise "came into being"
exactly a year before the "alleged partnership" was formed, and that it
was very unlikely that petitioner Belo would invest the sum of
P2,500,000.00 with petitioner Tocao contributing nothing, without any
"memorandum whatsoever regarding the alleged partnership." 13
The issue of whether or not a partnership exists is a factual matter which
are within the exclusive domain of both the trial and appellate courts. This
Court cannot set aside factual findings of such courts absent any showing
that there is no evidence to support the conclusion drawn by the court a
quo. In this case, both the trial court and the Court of Appeals are one in
14 
ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute money,
property or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves. It may be constituted in
15 
any form; a public instrument is necessary only where immovable
property or real rights are contributed thereto. This implies that since a
16 
contract of partnership is consensual, an oral contract of partnership is as
good as a written one. Where no immovable property or real rights are
involved, what matters is that the parties have complied with the
requisites of a partnership. The fact that there appears to be no record in
the Securities and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article 1772 of the
Civil Code did not cause the nullification of the partnership. The pertinent
17 
provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to comply
with the requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in
the business of distributorship of cookware. Private respondent
contributed such expertise to the partnership and hence, under the law,
she was the industrial or managing partner. It was through her reputation
with the West Bend Company that the partnership was able to open the
business of distributorship of that company’s cookware products; it was
through the same efforts that the business was propelled to financial
success. Petitioner Tocao herself admitted private respondent’s
indispensable role in putting up the business when, upon being asked if
private respondent held the positions of marketing manager and vice-
president for sales, she testified thus:
"A: No, sir at the start she was the marketing manager because there
were no one to sell yet, it’s only me there then her and then two (2)
people, so about four (4). Now, after that when she recruited already
Oscar Abella and Lina Torda-Cruz these two (2) people were given the
designation of marketing managers of which definitely Nita as superior to
them would be the Vice President." 18
By the set-up of the business, third persons were made to believe that a
partnership had indeed been forged between petitioners and private
respondents. Thus, the communication dated June 4, 1986 of Missy
Jagler of West Bend Company to Roger Muencheberg of the same
company states:
"Marge Tocao is president of Geminesse Enterprises. Geminesse will
finance the operations. Marge does not have cookware experience. Nita
Anay has started to gather former managers, Lina Torda and Dory Vista.
She has also gathered former demonstrators, Betty Bantilan, Eloisa
Lamela, Menchu Javier. They will continue to gather other key people
and build up the organization. All they need is the finance and the
products to sell."
19
On the other hand, petitioner Belo’s denial that he financed the respondent received only commissions and transportation and
partnership rings hollow in the face of the established fact that he representation allowances and not a fixed salary. Petitioner Tocao
28  29 

presided over meetings regarding matters affecting the operation of the
business. Moreover, his having authorized in writing on October 7, 1987,
on a stationery of his own business firm, Wilcon Builders Supply, that
private respondent should receive thirty-seven (37%) of the proceeds of
her personal sales, could not be interpreted otherwise than that he had a
proprietary interest in the business. His claim that he was merely a
guarantor is belied by that personal act of proprietorship in the business.
Moreover, if he was indeed a guarantor of future debts of petitioner
Tocao under Article 2053 of the Civil Code, he should have presented
20 
documentary evidence therefor. While Article 2055 of the Civil Code
simply provides that guaranty must be "express," Article 1403, the Statute
of Frauds, requires that "a special promise to answer for the debt, default
or miscarriage of another" be in writing. 21
testified:
"Q: Of course. Now, I am showing to you certain documents already
marked as Exhs. ‘X’ and ‘Y.’ Please go over this. Exh. ‘Y’ is denominated
`Cubao overrides’ 8-21-87 with ending August 21, 1987, will you please
go over this and tell the Honorable Court whether you ever came across
this document and know of your own knowledge the amount ---
A: Yes, sir this is what I am talking about earlier. That’s the one I am
telling you earlier a certain percentage for promotions, advertising,
incentive.

Q: I see. Now, this promotion, advertising, incentive, there is a figure here

and words which I quote: ‘Overrides Marjorie Ann Tocao P21,410.50’ this
Petitioner Tocao, a former ramp model, was also a capitalist in the
22 
means that you have received this amount?
partnership. She claimed that she herself financed the business. Her and
petitioner Belo’s roles as both capitalists to the partnership with private
A: Oh yes, sir.
respondent are buttressed by petitioner Tocao’s admissions that
petitioner Belo was her boyfriend and that the partnership was not their
only business venture together. They also established a firm that they Q: I see. And, by way of amplification this is what you are saying as one
called "Wiji," the combination of petitioner Belo’s first name, William, and representing commission, representation, advertising and promotion?
her nickname, Jiji. The special relationship between them dovetails with
23 

petitioner Belo’s claim that he was acting in behalf of petitioner Tocao. A: Yes, sir.
Significantly, in the early stage of the business operation, petitioners
requested West Bend Company to allow them to "utilize their banking Q: I see. Below your name is the words and figure and I quote ‘Nita D.
and trading facilities in Singapore" in the matter of importation and Anay P21,410.50’, what is this?
payment of the cookware products. The inevitable conclusion, therefore,
24 

was that petitioners merged their respective capital and infused the A: That’s her overriding commission.
amount into the partnership of distributing cookware with private
respondent as the managing partner. Q: Overriding commission, I see. Of course, you are telling this
Honorable Court that there being the same P21,410.50 is merely by
The business venture operated under Geminesse Enterprise did not coincidence?
result in an employer-employee relationship between petitioners and
private respondent. While it is true that the receipt of a percentage of net A: No, sir, I made it a point that we were equal because the way I look at
profits constitutes only prima facie evidence that the recipient is a partner her kasi, you know in a sense because of her expertise in the business
in the business, the evidence in the case at bar controverts an employer-
25 
she is vital to my business. So, as part of the incentive I offer her the
employee relationship between the parties. In the first place, private same thing.
respondent had a voice in the management of the affairs of the cookware
distributorship, including selection of people who would constitute the
26 
Q: So, in short you are saying that this you have shared together, I mean
administrative staff and the sales force. Secondly, petitioner Tocao’s having gotten from the company P21,140.50 is your way of indicating
admissions militate against an employer-employee relationship. She that you were treating her as an equal?
admitted that, like her who owned Geminesse Enterprise, private
27 
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati the other
one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure ‘Overrides Marjorie Ann
Tocao P15,314.25’ the amount there you will acknowledge you have
received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is
also an indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these
two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir." (Italics supplied.) 30
If indeed petitioner Tocao was private respondent’s employer, it is difficult
to believe that they shall receive the same income in the business. In a
partnership, each partner must share in the profits and losses of the
venture, except that the industrial partner shall not be liable for the
losses. As an industrial partner, private respondent had the right to
31 
demand for a formal accounting of the business and to receive her share
in the net profit.32
The fact that the cookware distributorship was operated under the name
of Geminesse Enterprise, a sole proprietorship, is of no moment. What
was registered with the Bureau of Domestic Trade on August 19, 1987
was merely the name of that enterprise. While it is true that in her
33 
undated application for renewal of registration of that firm name,
petitioner Tocao indicated that it would be engaged in retail of
"kitchenwares, cookwares, utensils, skillet," she also admitted that the
34 
enterprise was only "60% to 70% for the cookware business," while 20%
to 30% of its business activity was devoted to the sale of water sterilizer
or purifier. Indubitably then, the business name Geminesse Enterprise
35 
was used only for practical reasons - it was utilized as the common name
for petitioner Tocao’s various business activities, which included the
distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return
the "unaccounted and unremitted stocks of Geminesse Enterprise
amounting to P208,250.00." Obviously a ploy to offset the damages
36 
awarded to private respondent, that claim, more than anything else,
proves the existence of a partnership between them. In Idos v. Court of
Appeals, this Court said:
"The best evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the trial court. Since the
partnership has not been terminated, the petitioner and private
complainant remained as co-partners. x x x." 37
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she still
received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent
from the partnership to reap for herself and/or for petitioner Belo financial
gains resulting from private respondent’s efforts to make the business
venture a success. Thus, as petitioner Tocao became adept in the
business operation, she started to assert herself to the extent that she
would even shout at private respondent in front of other people. Her
38 
instruction to Lina Torda Cruz, marketing manager, not to allow private
respondent to hold office in both the Makati and Cubao sales offices
concretely spoke of her perception that private respondent was no longer
necessary in the business operation, and resulted in a falling out
39 
between the two. However, a mere falling out or misunderstanding
between partners does not convert the partnership into a sham
organization. The partnership exists until dissolved under the law. Since
40 
the partnership created by petitioners and private respondent has no
fixed term and is therefore a partnership at will predicated on their mutual
desire and consent, it may be dissolved by the will of a partner. Thus:
"x x x. The right to choose with whom a person wishes to associate
himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner’s capability to give it, and the
absence of cause for dissolution provided by the law itself. Verily, any
one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but
that it can result in a liability for damages."
41
An unjustified dissolution by a partner can subject him to action for
damages because by the mutual agency that arises in a partnership, the
doctrine of delectus personae allows the partners to have
the power, although not necessarily the right to dissolve the partnership.
In this case, petitioner Tocao’s unilateral exclusion of private respondent
from the partnership is shown by her memo to the Cubao office plainly
stating that private respondent was, as of October 9, 1987, no longer the
vice-president for sales of Geminesse Enterprise. By that memo,
43 
petitioner Tocao effected her own withdrawal from the partnership and
considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless, the
partnership was not terminated thereby; it continues until the winding up
of the business. 44
The winding up of partnership affairs has not yet been undertaken by the
partnership.  This is manifest in petitioners’ claim for stocks that had been
1âwphi1
entrusted to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the
factual findings upon which it is based is primarily the task of the trial
court. The Court of Appeals may modify that amount only when its
45 
factual findings are diametrically opposed to that of the lower court, or
46 
the award is palpably or scandalously and unreasonably
excessive. However, exemplary damages that are awarded "by way of
47 
example or correction for the public good," should be reduced to
48 
P50,000.00, the amount correctly awarded by the Court of Appeals.
Concomitantly, the award of moral damages of P100,000.00 was
excessive and should be likewise reduced to P50,000.00. Similarly,
attorney’s fees that should be granted on account of the award of
exemplary damages and petitioners’ evident bad faith in refusing to
satisfy private respondent’s plainly valid, just and demandable
claims, appear to have been excessively granted by the trial court and
49 
should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED.
The partnership among petitioners and private respondent is ordered
dissolved, and the parties are ordered to effect the winding up and
liquidation of the partnership pursuant to the pertinent provisions of the
Civil Code. This case is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed decisions of the
Regional Trial Court and the Court of Appeals are AFFIRMED with
MODIFICATIONS, as follows ---
1. Petitioners are ordered to submit to the Regional Trial Court a
formal account of the partnership affairs for the years 1987 and
42
1988, pursuant to Article 1809 of the Civil Code, in order to
determine private respondent’s ten percent (10%) share in the net
profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private
respondent five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition
since the time private respondent was wrongfully excluded from
the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private
respondent overriding commission on the total production which,
for the period covering January 8, 1988 to February 5, 1988,
amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private
respondent moral damages in the amount of P50,000.00,
exemplary damages in the amount of P50,000.00 and attorney’s
fees in the amount of P25,000.00.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
Footnotes shall appear in a public instrument, which must be recorded in the
Office of the Securities and Exchange Commission.
Presiding Justice Nathanael P. de Pano, Jr., ponente; Associate
1 

Justices Fermin A. Martin, Jr. and Conchita Carpio Morales, Failure to comply with the requirements of the preceding
concurring. paragraph shall not affect the liability of the partnership
and the members thereof to third persons.
Presided by Judge Leticia P. Morales.
2 

18 
TSN, November 12, 1991, p. 49.
Exh. VV.
3 

19 
Exh. C-5-A.
Exh. WW.
4 

Civil Code, Art. 2053. A guaranty may also be given as security

20 

Exh. CC.
5  for future debts, the amount of which is not yet known; there can
be no claim against the guarantor until the debt is liquidated. A
Exh. JJ.
6  conditional obligation may also be secured.

Exh. HH.
7  V TOLENTINO, CIVIL CODE OF THE PHILIPPINES, p. 507,
21 

1992 ed.
Rollo, p. 67-73.
8 

22 
TSN, November 12, 1991, p. 4.
Rollo, pp. 79-82.
9 

23 
Ibid., p. 44.
10 
Record, p. 71.
24 
Exh. C-4; TSN, December 16, 1991, pp. 15-18.
11 
Decision dated August 9, 1996; Rollo, pp. 24-37.
25 
Sardane v. Court of Appeals, 167 SCRA 524, 530-531 (1998).
12 
Resolution dated December 5, 1996; Rollo, pp. 39-43.
26 
Ibid.
13 
Petition, p. 15.
27 
TSN, November 12, 1991, pp. 54.
14 
Alicbusan v. Court of Appeals, 336 Phil. 321, 326-327 (1997).
28 
Ibid., pp. 52-53.
Civil Code, Art. 1767; Fue Leung v. Intermediate Appellate
15 

Court, 169 SCRA 746, 754 (1989); citing Yulo v. Yang Chiao
29 
Ibid., p. 50.
Cheng, 106 Phil. 110 (1959).
30 
Ibid., pp. 56-59.
Civil Code, Art. 1771; Agad v. Mabato, 132 Phil. 634, 636
16 

(1968). Civil Code, Art. 1797; Moran, Jr. v. Court of Appeals, 218 Phil.
31 

105, 112 (1984).

Civil Code, Art. 1772. Every contract of partnership having a
17 

capital of three thousand pesos or more, in money or property, Civil Code, Art. 1799; Evangelista & Co. v. Abad Santos, 151-A
32 

Phil. 853, 860 (1973).

 33 
Exh. 5. 6.) FACTS:
7.)
34 
Exh. 5-A. 8.) Private respondent Nenita A. Anay met petitioner William
T. Belo, then the vice-president for operations of Ultra
35 
TSN, November 12, 1991, p. 42. Clean Water Purifier, through her former employer in
Bangkok. Belo introduced Anay to petitioner Marjorie
36 
Petition, p. 10; Rollo, p. 18.
Tocao, who conveyed her desire to enter into a joint
37 
296 SCRA 194, 206 (1998). venture with her for the importation and local distribution
of kitchen cookwares
38 
TSN, June 14, 1989, pp. 5-6. 9.)
10.) Under the joint venture, Belo acted as capitalist, Tocao
39 
TSN, November 12, 1991, p. 35. as president and general manager, and Anay as head of
the marketing department and later, vice-president for
40 
Muñasque v. Court of Appeals, 139 SCRA 533, 540 (1985). sales
11.)
41 
Ortega v. Court of Appeals, 315 Phil. 573, 580-581 (1995). 12.) The parties agreed that Belo's name should not
appear in any documents relating to their transactions
42 
Ibid., at p. 581. with West Bend Company. Anay having secured the
distributorship of cookware products from the West Bend
43 
Exh. 7.
Company and organized the administrative staff and the
44 
Singsong v. Isabela Sawmill, 88 SCRA 623 (1979). sales force, the cookware business took off successfully.
They operated under the name of Geminesse Enterprise,
45 
Air France v. Carrascoso, 124 Phil. 722, 742 (1966). a sole proprietorship registered in Marjorie Tocao's name.

Prudencio v. Alliance Transport System, Inc., 148 SCRA 440,

46 

447 (1987). The parties agreed further that Anay would be entitled
to: 
Ibid.; Philippine Airlines, Inc. v. Court of Appeals, 226 SCRA
47 
(1) ten percent (10%) of the annual net profits of the
423, 425 (1993).
business; 
48 
Civil Code, Art. 2229. (2) overriding commission of six percent (6%) of the
overall weekly production; 
49 
Civil Code, Art. 2208 (1) & (5). (3) thirty percent (30%) of the sales she would make;
and 
2. Tocao v CA 342 SCRA 20 (4) two percent (2%) for her demonstration services. The
2.) TOCAO V. CA agreement was not reduced to writing on the strength of
3.) G.R. No. 127405; October 4, 2000 Belo's assurances that he was sincere, dependable and
4.) Ponente: J. Ynares-Santiago honest when it came to financial commitments.
5.) 13.)
14.) On October 9, 1987, Anay learned that Marjorie Tocao
had signed a letter addressed to the Cubao sales office to
the effect that she was no longer the vice-president of
Geminesse Enterprise.
15.)
16.) Anay attempted to contact Belo. She wrote him twice to
demand her overriding commission for the period of
January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits.
17.)
Anay still received her five percent (5%) overriding
commission up to December 1987. The following year,
1988, she did not receive the same commission although
the company netted a gross sales of P 13,300,360.00.
18.)
19.) On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-
509, a complaint for sum of money with damages against
Marjorie D. Tocao and William Belo before the Regional
Trial Court of Makati, Branch 140
20.)
21.) The trial court held that there was indeed an "oral
partnership agreement between the plaintiff and the
defendants. The Court of Appeals affirmed the lower
court’s decision.
22.)
23.) ISSUE:
24.)           Whether the parties formed a partnership
25.)
26.) HELD:
27.)
28.)           Yes, the parties involved in this case formed a WILLIE SY, petitioners,
partnership
29.)
30.) The Supreme Court held that to be considered a juridical
personality, a partnership must fulfill these requisites:
31.)
32.) (1) two or more persons bind themselves to contribute
money, property or industry to a common fund; and
33.)
34.) (2) intention on the part of the partners to divide the
profits among themselves. It may be constituted in any
form; a public instrument is necessary only where
immovable property or real rights are contributed
thereto. 
35.)
36.) This implies that since a contract of partnership is
consensual, an oral contract of partnership is as good as
a written one.
37.)
38.) In the case at hand, Belo acted as capitalist while Tocao
as president and general manager, and Anay as head of
the marketing department and later, vice-president for
sales. Furthermore, Anay was entitled to a percentage of
the net profits of the business.
39.)
40.) Therefore, the parties formed a partnership.
3.) Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 94285           August 31, 1999
JESUS SY, JAIME SY, ESTATE OF JOSE SY, ESTATE OF VICENTE
SY,
HEIR OF MARCIANO SY represented by JUSTINA VDA. DE SY and
vs.
THE COURT OF APPEALS, INTESTATE ESTATE OF SY YONG HU,
SEC. HEARING OFFICER FELIPE TONGCO, SECURITIES AND
EXCHANGE COMMISSION, respondents.
-----------------------------
G.R. No. 100313           August 31, 1999
SY YONG HU & SONS, JOHN TAN, BACOLOD CANVAS AND
UPHOLSTERY SUPPLY CO., AND NEGROS ISUZU
SALES, petitioners,
vs.
HONORABLE COURT OF APPEALS (11th Division),
INTESTATE ESTATE OF THE LATE SY YONG HU, JOSE FALSIS,
JR., AND HON. BETHEL KATALBAS-MOSCARDON, RTC OF
NEGROS OCCIDENTAL, Branch 51, respondents.
PURISIMA, J.:
At bar are two consolidated petitions for review on certiorari under Rule
45 of the Revised Rules of Court, docketed as G.R. Nos. 94285 and G.R.
No. 100313, respectively, seeking to reinstate the Resolution of the Court
of Appeals in CA-G.R. SP No. 17070 and its Decision in CA-G.R. SP No.
24189.
In G.R. No. 94285, the petitioners assail the Resolution 1 dated June 27,
1990 of the Court of Appeals granting the Motion for Reconsideration
interposed by the petitioners (now the private respondents) of its
Decision2, promulgated on January 15, 1990, which affirmed the
Order3 issued on January 16, 1989 by the Securities and Exchange
Commission (SEC) en banc and the Order4 of SEC Hearing Officer Felipe
Tongco, dated October 5, 1988.
The facts that matter are as follows:
Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose
Sy, Jayme Sy, Marciano Sy, Willie Sy, Vicente Sy, and Jesus Sy,
registered with the SEC on March 29, 1962, with Jose Sy as managing
partner. The partners and their respective shares are reflected in the
Amended Articles of Partnership5 as follows:
AMOUNT
NAMES
CONTRIBUTED
SY YONG HU P 31,000.00
JOSE S. SY 205,000.00
JAYME S. SY 112,000.00
MARCIANO S. SY 143,000.00
WILLIE S. SY 85,000.00
VICENTE SY 85,000.00
JESUS SY 88,000.00
Partners Sy Yong Hu, Jose Sy, Vicente Sy, and Marciano Sy died on
May 18, 1978, August 12, 1978, December 30, 1979 and August 7, 1987,
respectively.6 At present, the partnership has valuable assets such as
tracts of lands planted to sugar cane and commercial lots in the business
district of Bacolod City.
Sometime in September, 1977, during the lifetime of all the partners,
Keng Sian brought an action, 7 docketed as Civil Case No. 13388 before
the then Court of First Instance of Negros Occidental, against the
partnership as well as against the individual partners for accounting of all
the properties allegedly owned in common by Sy Yong Hu and the
plaintiff (Keng Sian), and for the delivery or reconveyance of her one-half
(1/2) share in said properties and in the fruits thereof. Keng Sian averred
that she was the common law wife of partner Sy Yong Hu, that Sy Yong
Hu, together with his children, 8 who were partners in the partnership,
connived to deprive her of her share in the properties acquired during her
cohabitation with Sy Yong Hu, by diverting such properties to the
partnership.9
In their answer dated November 3, 1977, the defendants, including Sy
Yong Hu himself, countered that Keng Sian is only a house helper of Sy
Yong Hu and his wife, subject properties "are exclusively owned by
defendant partnership, and plaintiff has absolutely no right to or interest
therein."10
On September 20, 1978, during the pendency of said civil case, Marciano
Sy filed a petition for declaratory relief against partners Vicente Sy, Jesus
Sy and Jayme Sy, docketed as SEC Case No. 1648, praying that he be
appointed managing partner of the partnership, to replace Jose Sy who
died on August 12, 1978. Answering the petition, Vicente Sy, Jesus Sy
and Jaime Sy, who claim to represent the majority interest in the
partnership, sought the dissolution of the partnership and the
appointment of Vicente Sy as managing partner. In due time, Hearing
Officer Emmanuel Sison came out with a decision 11 (Sison Decision)
dismissing the petition, dissolving the partnership and naming Jesus Sy,
in lieu of Vicente Sy who had died earlier, as the managing partner in
charge of winding the affairs of the partnership.
The Sison decision was affirmed in toto by the SEC en banc in a
decision12 (Abello decision) dated June 8, 1982, disposing thus:
WHEREFORE, the Commission en banc affirms the dispositive
portion of the decision of the Hearing Officer, but clarifies that: (1)
the partnership was dissolved by express will of the majority and
not ipso facto because of the death of any partner in view of the
stipulation of Articles of Partnership and the provisions of the New
Civil Code particularly Art. 1837 [2] and Art. 1841. (2) The
Managing Partner designated by the majority, namely Jesus Sy,
vice Vicente Sy (deceased) shall only act as a manager in
liquidation and he shall submit to the Hearing Officer an
accounting and a project of partition, within 90 days from receipt
of this decision. (3) The petitioner is also required within the same
period to submit his counter-project of partition, from date of
receipt of the Managing Partner's project of partition. (4) The case
is remanded to the Hearing Officer for evaluation and approval of
the accounting and project of partition.
On the basis of the above decision of the SEC en banc, Hearing Officer
Sison approved a partial partition of certain partnership assets in an
order13 dated December 2, 1986. Therefrom, respondents seasonably
appealed.
In 1982, the children of Keng Sian with Sy Yong Hu, namely, John Keng
Seng, Carlos Keng Seng, Tita Sy, Yolanda Sy and Lolita Sy, filed a
petition, docketed as SEC Case No. 2338, to revoke the certificate of
registration of Sy Yong Hu & Sons, and to have its assets reverted to the
estate of the late Sy Yong Hu. After hearings, the petition was dismissed
by Hearing Officer Bernardo T. Espejo in an Order, dated January 11,
1984, which Order became final since no appeal was taken therefrom. 14
After the dismissal of SEC Case No. 2338, the children of Keng Sian
sought to intervene in SEC Case No. 1648 but their motion to so
intervene was denied in an Order dated May 9, 1985. There was no
appeal from said order.15
In the meantime, Branch 43 of the Regional Trial Court of Negros
Occidental appointed one Felix Ferrer as a Special Administrator for the
Intestate Estate of Sy Yong Hu in Civil Case No. 13388. Then, on August
30, 1985, Alex Ferrer moved to intervene in the proceedings in SEC
Case No. 1648, for the partition and distribution of the partnership assets,
on behalf of the respondent Intestate Estate.16
It appears that sometime in December, 1985, Special Administrator
Ferrer filed an Amended Complaint on behalf of respondent Intestate
Estate in Civil Case No. 13388, wherein he joined Keng Sian as plaintiff
and thereby withdrew as defendant in the case. Special Administrator
Ferrer adopted the theory of Keng Sian that the assets of the partnership
belong to Keng Sian and Sy Yong Hu (now represented by the Estate of
Sy Yong Hu) in co-ownership, which assets were wrongfully diverted in
favor of the defendants.17
The motion to intervene in SEC Case No. 1648, filed by Special
Administrator Alex Ferrer on behalf of the respondent Estate, was denied
in the order issued on May 9, 1986 by Hearing Officer Sison. With the
denial of the motion for reconsideration, private respondent Intestate
Estate of Sy Yong Hu appealed to the Commission en banc.
In its decision (Sulit decision) on the aforesaid appeal from the Order
dated May 9, 1986, and the Order dated December 2, 1986, the SEC en
banc18 ruled:
WHEREFORE, in the interest of Justice and equity, substantive
rights of due process being paramount over the rules of
procedure, and in order to avoid multiplicity of suits; the order of
the hearing officer below dated May 9, 1986 denying the motion
to intervene in SEC Case No. 1648 of appellant herein as well as
the order dated December 2, 198619 denying the motion for
reconsideration are hereby reversed and the motion to intervene
given due course. The instant case is hereby remanded to the
hearing officer below for further proceeding on the aspect of
partition and/or distribution of partnership assets. The urgent
motion for the issuance of a restraining order is likewise hereby
remanded to the hearing officer below for appropriate action. 20
The said decision of the SEC en banc reiterated that the Abello decision
of June 8, 1982, which upheld the order of dissolution of the partnership,
had long become final and executory. No further appeal was taken from
the Sulit Decision.
During the continuation of the proceedings in SEC Case No. 1648, now
presided over by Hearing Officer Felipe S. Tongco who had substituted
Hearing Officer Sison, the propriety of placing the Partnership under
receivership was taken up. The parties brought to the attention of the
Hearing Officer the fact of existence of Civil Case No. 903 (formerly Civil
Case No. 13388) pending before the Regional Trial Court of Negros
Occidental. They also agreed that during the pendency of the aforesaid
court case, there will be no disposition of the partnership assets.21 On
October 5, 1988, Hearing Officer Tongco came out with an
Order22 (Tongco Order) incorporating the above submissions of the
parties and placing23 the partnership under a receivership committee,
explaining that "it is the most equitable fair and just manner to preserve
the assets of the partnership during the pendency of the civil case in the
Regional Trial Court of Bacolod City."
On October 22, 1988, a joint Notice of Appeal to the SEC en banc was
filed by herein petitioners Jayme Sy, Jesus Sy, Estate of Jose Sy, Estate
of Vicente Sy, Heirs of Marciano Sy (represented by Justina Vda. de Sy),
and Willie Sy, against the Intervenor (now private respondent). In an
order (Lopez Order) dated January 16, 1989, the SEC en banc24 affirmed
the Tongco Order.
With the denial of their Motion for Reconsideration, 25 petitioners filed a
special civil action for certiorari with the Court of Appeals.
On January 15, 1990, the Court of Appeals granted the petition and set
aside the Tongco and Lopez Orders, and remanded the case for further
execution of the 1982 Abello and 1988 Sulit Decisions, ordering the
partition and distribution of the partnership properties. 26
Private respondent seasonably interposed a motion for reconsideration of
such decision of the Court of Appeals.
Acting thereupon on June 27, 1990, the Court of Appeals issued its
assailed Resolution, reversing its Decision of January 15, 1990, and
remanding the case to the SEC for the formation of a receivership
committee, as envisioned in the Tongco Order. 1âwphi1.nêt
G.R. No. 100313 came about in view of the dismissal by the Court of
Appeals27 of the Petition for Certiorari with a Prayer for Preliminary
Injunction, docketed as CA-G.R. SP No. 24189, seeking to annul and set
aside the orders, dated January 24, 1991 and April 19, 1989,
respectively, in Civil Case No. 5326 before the Regional Trial Court of
Bacolod City.
The antecedent facts are as follows:
Sometime in June of 1988, petitioner Sy Yong Hu & Sons through its
Managing Partner, Jesus Sy, applied for a building permit to reconstruct
its building called Sy Yong Hu & Sons Building, located in the central
business district of Bacolod City, which had been destroyed by fire in the
late 70's. On July 5, 1988, respondent City Engineer issued Building
Permit No. 4936 for the reconstruction of the first two floors of the
building. Soon thereafter, reconstruction work began. In January, 1989,
upon completion of its reconstruction, the building was occupied by the
herein petitioners, Bacolod and Upholstery Supply Company and Negros
Isuzu Sales, which businesses are owned by successors-in-interest of
the deceased partners Jose Sy and Vicente Sy. Petitioner John Tan, who
is also an occupant of the reconstructed building, is the brother-in-law of
deceased partner Marciano Sy.28
From the records on hand, it can be gleaned that the Tongco Order 29,
dated October 5, 1988, in SEC Case No. 1648, had, among others,
denied a similar petition of the intervenors therein (now private
respondents) for a restraining order and/or injunction to enjoin the
reconstruction of the same building. However, on October 10, 1988,
respondent Intestate Estate sent a letter to the City Engineer claiming
that Jesus Sy is not authorized to act for petitioners Sy Yong Hu & Sons
with respect to the reconstruction or renovation of the property of the
partnership. This was followed by a letter dated November 11, 1988,
requesting the revocation of Building Permit No. 4936.
Respondent City Engineer inquired30 later from Jesus Sy for an "authority
to sign for and on behalf of Sy Yong Hu & Sons" to justify the latter's
signature in the application for the building permit, informing him that
absent any proof of his authority, he would not be issued an occupancy
permit.31 On December 27, 1988, respondent Intestate Estate reiterated
its objection to the authority of Jesus Sy to apply for a building permit and
pointing out that in view of the creation of a receivership committee,
Jesus Sy no longer had any authority to act for the partnership. 32
In reply, Jesus Sy informed the City Engineer that the Tongco Order had
been elevated to the SEC en banc, making him still the authorized
manager of the partnership. He then requested that an occupancy permit
be issued as Sy Yong Hu & Sons had complied with the requirements of
the City Engineer's Office and the National Building Code. 33
Unable to convince the respondent City Engineer to revoke subject
building permit, respondent Intestate Estate brought a "Petition for
Mandamus with prayer for a Writ of Preliminary Injunction," docketed as
Civil Case No. 5326 before the Regional Trial Court of Bacolod City and
entitled "Intestate Estate of the Late Sy Yong Hu vs. Engineer Jose P.
Falsis, Jr."34 The Complaint concluded with the following prayer:
 WHEREFORE PREMISES CONSIDERED, it is respectfully
prayed of the Honorable Court that:
1. A writ of Preliminary Injunction be issued to the respondent,
after preliminary hearing is had, compelling his office to padlock
the premises occupied, without the requisite Certificate of
Occupancy; to stop all construction activities, and barricade the
same premises so that the unwary public will not be subject to
undue hazards due to lack of requisite safety precaution;
2. The Respondent be ordered to enforce without exemption
every requisite provision of the Building Code as so mandated by
it."35
Petitioners Sy Yong Hu & Sons, the owners of the building sought to be
padlocked were not impleaded as party to the petition dated February 22,
1989. Neither were the lessees-occupants thereon so impleaded. Thus,
they were not notified of the hearing scheduled for April 5, 1989, on which
date the Petition was heard. Subsequently, however, the Regional Trial
Court issued an order dated April 19, 1989 for the issuance of a Writ of
Preliminary Mandatory Injunction ordering the City Engineer to padlock
the building.36
On May 9, 1989, upon learning of the issuance of the Writ of Preliminary
Injunction, dated May 4, 1989, 0petitioners immediately filed the: (1)
Motion for Intervention; (2) Answer in Intervention; and (3) Motion to set
aside order of mandatory injunction. In its order dated June 22, 1989, the
Motion for Intervention was granted by the lower court through Acting
Presiding Judge Porfirio A. Parian.
On August 3, 1989, respondent Intestate Estate presented a Motion to
cite Engineer Jose Falsis, Jr. in contempt of court for failure to implement
the injunctive relief.
On August 15, 1989, petitioners submitted an "Amended Answer in
Intervention". Reacting thereto, respondent Intestate Estate filed a
"Motion to Strike or Expunge from the Record" the Amended Answer in
Intervention.37
On January 25, 1990, petitioner Sy Yong Hu & Sons again wrote the
respondent City Engineer to reiterate its request for the immediate
issuance of a certificate of occupancy, alleging that the Court of Appeals
in its Decision of January 15, 1990 in CA-G.R. No. 17070 had reversed
the SEC decision which approved the appointment of a receivership
committee. However, the City Engineer refused to issue the Occupancy
Permit without the conformity of the respondent Intestate Estate and one
John Keng Seng who claims to be an Illegitimate son of the Late Sy Yong
Hu.38
In an order issued on January 24, 1991 upon an "Ex Parte Motion to
Have All Pending Incidents Resolved" filed by respondent Intestate
Estate, Judge Bethel Katalbas-Moscardon issued an order modifying the
Writ of Preliminary Mandatory Injunction, and directing the respondent
City Engineer to:
. . . immediately order stoppage of any work affecting the
construction of the said building under Lot 259-A-2 located at
Gonzaga Street adjacent to the present Banco de Oro Building,
BACOLOD City, to cancel or cause to be cancelled the Building
Permit it had issued; to order the discontinuance of the
occupancy or use of said building or structure or portion thereof
found to be occupied or used, the same being contrary and
violative of the provisions of the Code; and to desist from issuing
any certificate of Occupancy until the merits of this case can
finally be resolved by this Court. . . .
Again, it is emphasized that the issue involved is solely question
of law and the Court cannot see any logical reason that the
intervenors should be allowed to intervene as earlier granted in
the Order of the then Presiding Judge Porfirio A. Parian, of June
22, 1989. Much less the said intervenors to move for presentation
of additional parties, only on the argument of Intervenors that any
restraining order to be issued by this Court upon the respondent
would prejudice their present occupancy which is self serving,
whimsical and in fact immoral. It is axiomatic that the means
would not justify the end nor the end justify the means. Assuming
damage to the present occupants will occur and assuming further
that they are entitled, the same should be ventilated in a different
action against the lessor or landlord, and the present petition
cannot be the proper forum, otherwise, while it maybe argued that
there is a multiplicity of suit which actually is groundless, on the
other hand, there will be only confusion of the issues to be
resolved by the Court. Well valid enough is to reiterate that the
present petition is not the proper forum for the intervenors to shop
for whatever relief.
 In view of the above, the Order allowing the intervenors in this
case is likewise hereby withdrawn for the purposes above
discussed. Consequently, the Motion to present additional parties
is deemed denied, and the Motion to Strike Or Expunge From
The Records the Amended Answer In Intervention is deemed
granted as in fact the same become moot and academic with the
elimination of the Intervenors in this case.39
Pursuant to the above Order of January 24, 1991, respondent City
Engineer served a notice upon petitioners revoking Building Permit No.
4936, ordering the stoppage of all construction work on the building, and
commanding discontinuance of the occupancy thereof.
On February 15, 1991, the aggrieved petitioners filed a Petition
for Certiorari with Prayer for Preliminary Injunction with the Court of
Appeals, docketed as CA-G.R. SP No. 24189.
On February 27, 1991, the Court of Appeals issued a Temporary
Restraining Order enjoining the respondent Judge from implementing the
questioned orders dated January 24, 1991 and April 19, 1989. 40
After the respondents had sent in their answer, petitioners filed a Reply
with a prayer for the issuance of a writ of mandamus directing the
respondent City Engineer to reissue the building permit previously issued
in favor of petitioner Sy Yong Hu & Sons, and to issue a certificate of
occupancy on the basis of the admission by respondent City Engineer
that petitioner had complied with the provisions of the National Building
Code.41
On May 31, 1991, the Court of Appeals rendered its questioned decision
denying the petition.42
From the Resolution of the Court of Appeals granting the motion for
reconsideration in CA-G.R. SP No. 17070 and the Decision in CA-G.R.
SP No. 24189, petitioners have come to this Court for relief.
In G.R. No. 94285, petitioners contend by way of assignment of
errors,43 that:
I THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION
RESPONDENT COURT OF APPEALS ERRED IN REVERSING ITS
MAIN DECISION IN CA-G.R. No. 17070, WHICH DECISION HAD
REMANDED TO THE SEC THE CASE FOR THE PROPER
IMPLEMENTATION OF THE 1982 ABELLO AND 1988 SULIT
DECISIONS WHICH IN TURN ORDERED THE DISTRIBUTION AND
PARTITION OF THE PARTNERSHIP PROPERTIES.
II
RESPONDENT COURT OF APPEALS ERRED IN REINSTATING THE
TONGCO ORDER, WHICH HAD SUSPENDED THE DISSOLUTION OF
THE PARTNERSHIP AND THE DISTRIBUTION OF ITS ASSETS, AND
IN PLACING THE PARTNERSHIP PROPERTIES UNDER
RECEIVERSHIP PENDING THE RESOLUTION OF CIVIL CASE NO.
903 (13388), ON A GROUND NOT MADE THE BASIS OF THE SEC
RESOLUTION UNDER REVIEW, I.E., THE DISPOSITION BY A
PARTNER OF SMALL PROPERTIES ALREADY ADJUDICATED TO
HIM BY A FINAL SEC ORDER DATED DECEMBER 2, 1986 AND MADE
LONG BEFORE THE AGREEMENT OF JUNE 28, 1988 OF THE
PETITIONERS NOT TO DISPOSE OF THE PARTNERSHIP ASSETS.
In G.R. No. 100313, Petitioners assign as errors, that: 44
I
THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION)
ERRED IN HOLDING THAT RESPONDENT JUDGE DID NOT ACT
WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF
JURISDICTION IN ISSUING THE WRIT OF PRELIMINARY
MANDATORY INJUNCTION.
II
THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION)
ERRED IN HOLDING THAT THE RESPONDENT JUDGE DID NOT ACT
WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF
DISCRETION IN DISALLOWING THE INTERVENTION OF
PETITIONERS IN CIVIL CASE NO. 5326.
III
IN ISSUING AND ORDERING THE IMPLEMENTATION OF THE WRIT
OF PRELIMINARY MANDATORY INJUNCTION DESPITE THE
ABSENCE OR LACK OF AN INJUNCTION BOND.45
On the two (2) issues raised in G.R. No. 94285, the Court rules for
respondents.
Petitioners fault the Court of Appeals for affirming the 1989 Decision of
the SEC which approved the appointment of a receivership committee as
ordered by Hearing Officer Felipe Tongco. They theorize that the 1988
Tongco Decision varied the 1982 Abello Decision affirming the dissolution
of the partnership, contrary to the final and executory tenor of the said
judgment. To buttress their theory, petitioners offer the 1988 Sulit
Decision which, among others, expressly confirmed the finality of the
Abello Decision.
On the same premise, petitioners aver that when Hearing Officer Tongco
took over from Hearing Officer Sison, he was left with no course of action
as far as the proceedings in the SEC Case were concerned other than to
continue with the partition and distribution of the partnership assets.
Thus, the Order placing the partnership under a receivership committee
was erroneous and tainted with excess of jurisdiction.
The contentions are untenable. Petitioners fail to recognize the basic
distinctions underlying the principles of dissolution, winding up and
partition or distribution. The dissolution of a partnership is the change in
the relation of the parties caused by any partner ceasing to be associated
in the carrying on, as might be distinguished from the winding up, of its
business. Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business
culminating in its termination.46
The dissolution of the partnership did not mean that the juridical entity
was immediately terminated and that the distribution of the assets to its
partners should perfunctorily follow. On the contrary, the dissolution
simply effected a change in the relationship among the partners. The
partnership, although dissolved, continues to exist until its termination, at
which time the winding up of its affairs should have been completed and
the net partnership assets are partitioned and distributed to the partners. 47
The error, therefore, ascribed to the Court of Appeals is devoid of any
sustainable basis. The Abello Decision though, indeed, final and
executory, did not pose any obstacle to the Hearing Officer to issue
orders not inconsistent therewith. From the time a dissolution is ordered
until the actual termination of the partnership, the SEC retained
jurisdiction to adjudicate all incidents relative thereto. Thus, the disputed
order placing the partnership under a receivership committee cannot be
said to have varied the final order of dissolution. Neither did it suspend
the dissolution of the partnership. If at all, it only suspended the partition
and distribution of the partnership assets pending disposition of Civil
Case No. 903 on the basis of the agreement by the parties and under the
circumstances of the case. It bears stressing that, like the appointment of
a manager in charge of the winding up of the affairs of the partnership,
said appointment of a receiver during the pendency of the dissolution is
interlocutory in nature, well within the jurisdiction of the SEC.
Furthermore, having agreed with the respondents not to dispose of the
partnership assets, petitioners effectively consented to the suspension of
the winding up or, more specifically, the partition and distribution of
subject assets. Petitioners are now estopped from questioning the order
of the Hearing Officer issued in accordance with the said agreement. 48
Petitioners also assail the propriety of the receivership theorizing that
there was no necessity therefor, and that such remedy should be granted
only in extreme cases, with respondent being duty-bound to adduce
evidence of the grave and irremediable loss or damage which it would
suffer if the same was not granted. It is further theorized that, at any rate,
the rights of respondent Intestate Estate are adequately protected since
notices of lis pendens of the aforesaid civil case have been annotated on
the real properties of the partnership. 49
To bolster petitioners' contention, they maintain that they are the majority
partners of the partnership Sy Yong Hu & Sons controlling Ninety Six per
cent (96%) of its equity. As such, they have the greatest interest in
preserving the partnership properties for themselves, 50 and therefore,
keeping the said properties in their possession will not bring about any
feared damage or dissipation of such properties, petitioner's stressed.
Sec. (6) of Presidential Decree No. 902-A, as amended, reads:
Sec. 6. In order to effectively exercise such jurisdiction, the
Commission shall possess the following powers:
xxx     xxx     xxx
(c) To appoint one or more receivers of the property, real
or personal, which is the subject of the action pending
before the commission in accordance with the pertinent
provisions of the Rules of Court, and in such other cases,
whenever necessary in order to preserve the rights of
 parties-litigants and/or protect the interest of the investing
public and creditors; . . . .
The findings of the Court of Appeals accord with existing rules and
jurisprudence on receivership. Conformably, it stated that: 51
. . . From a reexamination of the issues and the evidences
involved, We find merit in respondent's motion for
reconsideration.
This Court notes with special attention the order dated June 28,
1988 issued by Hearing Officer Felipe S. Tongco in SEC Case
No. 1648 (Annex to Manifestation, June 16, 1990) wherein all the
parties agreed on the following:
1. That there is a pending case in court wherein the
plaintiffs are claiming in their complaint that all the assets
of the partnership belong to Sy Yong Hu;
2. That the parties likewise agreed that during the
pendency of the court case, there will be no disposition of
the partnership assets and further hearing is suspended. .
..
As observed by the SEC Commission (sic) in its Order dated January 16,
1989:
Ordinarily, appellants' contention would be correct, except that
the en banc order of April 29th appears to have been overtaken,
and accordingly, rendered inappropriate, by subsequent
developments in SEC Case No. 1648, particularly the entry in that
proceedings, as of April 29, 1988, of an intervenor who claims a
superior and exclusive ownership right to all the partnership
assets and property. This claim of superior ownership right is
presently pending adjudication before the Regional Trial Court of
Negros Occidental, And precisely because if this supervening
development, it would appear that the parties in SEC Case No.
1648 agreed among themselves, as of June 28, 1988, that during
the pendency of the Negros Occidental case just mentioned,
there should be no disposition of partnership assets or property,
and further, that the proceedings in SEC Case No. 1648 should
be suspended in the meantime (p. 2, Order; p. 12, Rollo).
As alleged by the respondents and as shown by the records there is now
pending civil case entitled "Keng Sian and Intestate of Sy Yong Hu vs.
Jayme Sy, Jesus Sy, Marciano Sy, Willy Sy, Intestate of Jose Sy,
Intestate of Vicente Sy, Sy Yong Hu & co and Sy Yong Hu & Sons"
denominated as Civil Case No. 903 before Branch 50 of the Regional
Trial Court of Bacolod City.
Moreover, a review of the records reveal that certain properties in
question have already been sold as of 1987, as evidenced by deeds of
absolute sale executed by Jesus in favor of Reynaldo Navarro (p.
331, Rollo), among others.
To ensure that no further disposition shall be made of the questioned
assets and in view of the pending civil case in the lower court, there is a
compelling necessity to place all these properties and assets under the
management of a receivership committee. The receivership committee,
which will provide active participation, through a designated
representative, on the part of all interested parties, can best protect the
properties involved and assure fairness and equity for all.
Receivership, which is admittedly a harsh remedy, should be granted with
extreme caution.52 Sound bases therefor must appear on record, and
there should be a clear showing of its necessity.53 The need for a
receivership in the case under consideration can be gleaned from the
aforecited disquisition by the Court of Appeals finding that the properties
of the partnership were in danger of being damaged or lost on account of
certain acts of the appointed manager in liquidation.
The dispositions of certain properties by the said manager, on the basis
of an order of partial partition, dated December 2, 1986, by Hearing
Officer Sison, which was not yet final and executory, indicated that the
feared irreparable injury to the properties of the partnership might happen
again. So also, the failure of the manager in liquidation to submit to the
SEC an accounting of all the partnership assets as required in its order of
April 29, 1988, justified the SEC in placing the subject assets under
receivership.
Moreover, it has been held by this Court that an order placing the
partnership under receivership so as to wind up its affairs in an orderly
manner and to protect the interest of the plaintiff (herein private
respondent) was not tainted with grave abuse of discretion. 54 The
allegation that respondents' rights are adequately protected by the
notices of lis pendens in Civil Case 903 is inaccurate. As pointed out in
their Comment to the Petition, the private respondents claim that the
partnership assets include the income and fruits thereof. Therefore,
protection of such rights and preservation of the properties involved are
best left to a receivership committee in which the opposing parties are
represented.
What is more, as held in Go Tecson vs. Macaraig:55
The power to appoint a receiver pendente lite is
discretionary with the judge of the court of first instance;
and once the discretion is exercised, the appellate court
will not interfere, except in a clear case of abuse thereof,
or an extra limitation of jurisdiction.
Here, no clear abuse of discretion in the appointment of a
receiver in the case under consideration can be discerned.
With respect to G.R. No. 100313.56
Petitioners argue in this case that the failure of the private respondents to
implead them in Civil Case No. 5326 constituted a violation of due
process. It is their submission that the ex parte grant of said petition by
the trial court worked to their prejudice as they were deprived of an
opportunity to be heard on the allegations of the petition concerning
subject property and assets. The recall of the order granting their Motion
to Intervene was done without the observance of due process and
consequently without jurisdiction on the part of the lower court.
Commenting on the Petition, private respondents maintain that the only
issue in the present case is whether or not there was a violation of the
Building Code. They contend that after due and proper hearing before the
lower court, it was fully established that the provisions of the said Code
had been violated, warranting issuance of the Writ of Preliminary
Injunction dated April 19, 1989. They further asseverate that the
petitioners, who are the owner and lessees in the building under
controversy, have nothing to do with the case for mandamus since it is
directed against the respondent building official to perform a specific duty
mandated by the provisions of the Building Code.
In his Comment, the respondent City Engineer, relying on the validity of
the order of the trial court to padlock the building, denied any impropriety
in his compliance with the said order.
After a careful examination of the records on hand, the Court finds merit
in the petition.
In opposing the petition, respondent intestate estate anchors its stance
on the existence of violations of pertinent provisions of the aforesaid
Code. As regards due process, however, a distinction must be made
between matters of substance. 57 In essence, procedural due process
"refers to the method or manner by which the law is enforced," while
substantive due process "requires that the law itself, not merely the
procedure by which the law would be enforced, is fair, reasonable, and
just".58 Although private respondent upholds the substantive aspect of
due process, it, in the same breath, brushes aside its procedural aspect,
which is just as important, if the constitutional injunction against
deprivation of property without due process is to be observed.
Settled is the rule that the essence of due process is the opportunity to be
heard. Thus, in Legarda vs. Court of Appeals et al.,59 the Court held that
as long as a party was given the opportunity to defend her interest in due
course, he cannot be said to have been denied due process of law.
Contrary to these basic tenets, the trial court gave due course to the
petition for mandamus, and granted the prayer for the issuance of a writ
of preliminary injunction on May 4, 1989, notwithstanding the fact that the
owner (herein petitioner Sy Yong Hu) of the building and its
occupants60 were not impleaded as parties in the case. Affirming the
same, the Court of Appeals acknowledged that the lower court came out
with the said order upon the testimony of the lone witness for the
respondent, in the person of the City Engineer, whose testimony was not
effectively traversed by the petitioners. This conclusion arrived at by the
Court of Appeals is erroneous in the face of the irrefutable fact that the
herein petitioners were not made parties in the said case and,
consequently, had absolutely no opportunity to cross examine the
witness of private respondent and to present contradicting evidence.
To be sure, the petitioners are indispensable parties in Civil Case No.
5326, which sought to close subject building. Such being the case, no
final determination of the claims thereover could be had. 61 That the
petition for mandamus with a prayer for the issuance of a writ of
preliminary mandatory injunction was only directed against the City
Engineer is of no moment. No matter how private respondent justifies its
failure to implead the petitioners, the alleged violation of the provisions of
the Building Code relative to the reconstruction of the building in
question, by petitioners, did not warrant an ex parte and summary
resolution of the petition. The violation of a substantive law should not be
confused with punishment of the violator for such violation. The former
merely gives rise to a cause of action while the latter is its effect, after
compliance with the requirements of due process.
The trial court failed to give petitioners their day in court to be heard
before they were condemned for the alleged violation of certain
provisions of the Building Code. Being the owner of the building in
question and lessees thereon, petitioners possess property rights entitled
to be protected by law. Their property rights cannot be arbitrarily
interfered with without running afoul with the due process rule enshrined
in the Bill of Rights.
For failure to observe due process, the herein respondent court acted
without jurisdiction. As a result, petitioners cannot be bound by its orders.
building, and disposed of the case before him even before it was heard
on the merits by the simple expedient of issuing the said writ of
preliminary injunction. In Ortigas & Company Limited Partnership
vs. Court of Appeals et al. this Court held that courts should avoid issuing
a writ of preliminary injunction which in effect disposes of the main case
without trial.64
Resolution of the third issue has become moot and academic in view of
the Court's finding of grave abuse of discretion tainting the issuance of
the Writ of Preliminary Injunction in question.
WHEREFORE, the Resolution of the Court of Appeals in CA-G.R. No.
17070 is AFFIRMED and its Decision in CA-G.R. No. 24189 REVERSED.
No pronouncement as to costs. 1âwphi1.nêt

Generally accepted is the principle that no man shall be affected by any

proceeding to which he is a stranger, and strangers to a case are not SO ORDERED.
bound by judgment rendered by the court.62
Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.
In similar fashion, the respondent court acted with grave abuse of
discretion when it disallowed the intervention of petitioners in Civil Case
No. 5326. As it was, the issuance of the Writ of Preliminary Injunction
directing the padlocking of the building was improper for non-conformity
with the rudiments of due process.
Footnotes
Parenthetically, the trial court, in issuing the questioned order, ignored
established principles relative to the issuance of a Writ of Preliminary
Injunction. For the issuance of the writ of preliminary injunction to be
proper, it must be shown that the invasion of the right sought to be
protected is material and substantial, that the right of complainant is clear
1
 Penned by Associate Justice Conrado T. Limcaoco and
and unmistakable and that there is an urgent and paramount necessity concurred in by Associate Justices Arturo B. Buena and Jainal D.
for the writ to prevent serious damage.63 Rasul; Rollo, pp. 197-199.

In light of the allegations supporting the prayer for the issuance of a writ
2
 Ibid., pp. 177-185.
of preliminary injunction, the Court is at a loss as to the basis of the
respondent judge in issuing the same. What is clear is that complainant 3
 Rosario N. Lopez, Chairman; Gonzalo T. Santos, Rodolfo L.
(now private respondent) therein, which happens to be a juridical person Samarista and Jose C. Laureta, Associate Commissioners; Rollo,
(Estate of Sy Yong Hu), made general allegations of hazard and serious pp. 171-173.
damage to the public due to violations of various provisions of the
Building Code, but without any showing of any grave damage or injury it 4
 Ibid., pp. 311-317.
was bound to suffer should the writ not issue.
5
 Rollo, pp. 48-54.
Finally, the Court notes, with disapproval, what the respondent court did
in ordering the ejectment of the lawful owner and the occupants of the 6
 Ibid., p. 14.
7
 Rollo, pp. 55-61. and further proceedings in this case is suspended; 3) The
because the parties failed to agree on who should
8
 By the late Si Ho Ti, the alleged first wife of Sy Yong Hu; Rollo, manage the partnership assets during the pendency of
p. 57. the court case, respondents insisting on the partners
and/or their legal representatives while the intervenor
9
 Rollo, p. 14. insisting on a receivership committee, the parties upon
motion, were granted a fifteen (15) days to submit their
respective position papers/memorandum in support of
10
 Ibid., p. 15.
their respective stand; 4) On the intervenor's urgent
motion for a restraining order and/or injunction to enjoin
11
 Annex D of Petition; Rollo, pp. 69-89. the construction of a building on partnership lots (Lot No.
1596-B-3 and Lot No. 259-A-2], respondents upon
 Docketed as SEC-AC No. 057; Annex E of Petition; Manuel G.
12
motion, were granted fifteen (15) days to file opposition to
Abello, Chairman; Rosario N. Lopez, Gonzalo T. Santos, Julio A. the intervenor's urgent motion and intervenor was given
Sulit and Jesus Valdes, Associate Commissioners.; Rollo, pp. 90- ten (10) days from receipt of the opposition to file a reply
96. thereto.
13
 Annex I of Petition; Rollo, pp. 159-160. 22
 Annex I; Rollo, pp. 311-17.
14
 Rollo, p.16. 23
 Petitioners' motion for the appointment of a receiver or
receivers filed on September 15, 1983 was adopted by the
15
 Ibid. Intervenor Intestate Estate of Sy Yong Hu filed on June 27,
1988; Rollo, p. 311.
16
 Rollo, p. 17.
 Rosario N. Lopez, Chairman; Gonzalo T. Santos, Rodolfo L.
24

17
 Ibid., p.18. Samarista and Jose C. Laureta, Associate Commissioners; Rollo,
pp. 171-173.
 Julio A. Sulit, Jr., Chairman; Rosario N. Lopez, Jesus J. Valdes,
18

Monico V. Jacob, and Gonzalo T. Santos (On Official Leave), 25

 Order dated February 14, 1989; Rollo, p. 175.
Associate Commissioners; Rollo, pp. 151-158.
26
 Petition, Rollo, 27.
19
 This should have been the order of partial partition.
 Penned by Associate Justice Bonifacio A. Cacdac, Jr. and
27

20
 Rollo, p. 157. concurred in by Associate Justices Nathanael P. De Pano, Jr.
and Fortunato Vailoces; Rollo, pp. 49-57.
 On June 28, 1988 an order was issued containing the following
21

stipulations of facts: 28
 Petition; Rollo, p. 8-9.

1) That there is a pending case in court wherein the  Tongco Order, placing the partnership under a receivership
29

plaintiffs are claiming in their complaint that all the assets committee.
of the partnership belong to Sy Hong Hu; 2) The parties
agreed that during the pendency of the aforesaid court 30
 Letter dated November 27, 1988; Rollo, p. 9.
case, there will be no disposition of the partnership assets
31
 Rollo, p. 9. 50
 Ibid., p. 41.

32
 Ibid. 51
 Court of Appeals Resolution; Rollo, pp. 197-199.

33
 Ibid., p. 10. 52
 Mendiola vs. Court of Appeals, et al.; 106 SCRA 130, 137.

34
 Petition dated February 22, 1989. 53
 Ibid.

35
 Annex "J" of Petition, Rollo, pp. 131-137.  Recentes et al., vs. Court of First Instance of Zamboanga del
54

Norte, Branch 1, et al. 123 SCRA 778, 781.

 The Writ of Preliminary Mandatory Injunction was issued on
36

May 4, 1989; Rollo, pp. 11-12. 55

 88 Phil 604.

37
 Rollo, pp. 12-13.  On July 8, 1991, the Court issued a Temporary Restraining
56

Order enjoining respondents from enforcing, implementing or

38
 Rollo, pp. 13-14. giving effect to the writ of mandatory injunction dated May 4, 1989
or to the orders dated April 19, 1989 and January 24, 1991,
39
 Annex "T" of Petition, Rollo, pp. 173-177. respectively, of the Regional Trial Court, Branch 51, Bacolod City.

40
 Rollo, p. 16.  Corona et al. vs. United Harbor Pilots Association of the
57

Philippines et. al.; 283 SCRA 31, 39.

41
 Ibid., p. 17. 58
 Ibid.
42
 Annex "A" of Petition; Rollo, pp. 48-57. 59
 280 SCRA 642, 657.
43
 Petition; Rollo, p. 31.
 At present, petitioners John Tan and Bacolod Canvas &
60

Upholstery Supply Co. have already vacated the building.

44
 Petition; Rollo, p. 20.
61
 Sec. 7, Rule 3, Revised Rules of Court.
 This third assigned error was taken from the Supplement to the
45

petition; Rollo, p. 318.
 Matuguina Integrated Wood Products. Inc.. vs. the Hon. Court
62

of Appeals et. al.; 263 SCRA 490, 505.

 Gregorio F. Ortega et al. vs. Court of Appeals, et al. 245 SCRA
46

529, 536; citing Articles 1828-1829 of the Civil Code. 63

 Arcega et. al. vs. Court of Appeals et. al. 275 SCRA 176, 180.
47
 Comment of the Solicitor General; Rollo, 403. 64
 162 SCRA 165, 169.
48
 Rollo, p. 313.

49
 Petition; Rollo, p. 40.
  
 
ISSUE: Whether Sahot is an industrial partner
 
RULING:
 
3.) Sy v CA 313 SCRA 328 No. Article 1767 of the Civil Code states that in a contract of partnership two
or more persons bind themselves to contribute money, property or industry to
a common fund, with the intention of dividing the profits among themselves.
SY vs. COURT OF APPEALS Not one of these circumstances is present in this case. No written agreement
exists to prove the partnership between the parties. Private respondent did
VICENTE SY, TRINIDAD PAULINO, 6B’S TRUCKING CORPORATION,
and SBT TRUCKING CORPORATION, petitioners, vs. HON. COURT OF not contribute money, property or industry for the purpose of engaging in the
APPEALS and JAIME SAHOT, respondents. [G.R. No. 142293. February supposed business. There is no proof that he was receiving a share in the
27, 2003] profits as a matter of course, during the period when the trucking business
was under operation. Neither is there any proof that he had actively
participated in the management, administration and adoption of policies of
the business. Thus, the NLRC and the CA did not err in reversing the finding
of the Labor Arbiter that private respondent was an industrial partner from
1958 to 1994. On this point, the Court affirmed the findings of the appellate
FACTS: Sometime in 1958, private respondent Jaime Sahot[5] started court and the NLRC. Private respondent Jaime Sahot was not an industrial
working as a truck helper for petitioners’ family-owned trucking business partner but an employee of petitioners from 1958 to 1994. The existence of
named Vicente Sy Trucking. In 1965, he became a truck driver of the same an employer-employee relationship is ultimately a question of fact and the
family business, renamed T. Paulino Trucking Service, later 6B’s Trucking findings thereon by the NLRC, as affirmed by the Court of Appeals, deserve
Corporation in 1985, and thereafter known as SBT Trucking Corporation not only respect but finality when supported by substantial evidence.
since 1994. Throughout all these changes in names and for 36 years, private Substantial evidence
respondent continuously served the trucking business of petitioners. When is such amount of relevant evidence which a reasonable mind might accept
Sahot was 59 years old, he incurred several absences due to various as adequate to justify a conclusion.
ailments. Particularly causing him pain was his left thigh, which greatly
affected the performance of his task as a driver. He inquired about his
medical and retirement benefits with the Social Security System (SSS) on
April 25, 1994, but discovered that his premium payments had not been
remitted by his employer.Sahot filed a week-long leave to get medical
attention. He was treated for EOR, presleyopia, hypertensive retinopathy G II
and heart enlargement. Because of such, Belen Paulino of the SBT Trucking
Service management told him to file a formal request for extension of his
leave. When Sahot applied for an extended leave, he was threatened of
termination of employment should he refuse to go back to work. Eventually,
Sahot was dismissed from employment which prompted the latter to file an 4. Tocao v CA 342 SCRA 23
illegal dismissal case with the NLRC. For their part, petitioners admitted they
had a trucking business in the 1950s but denied employing helpers and
drivers. They contend that private respondent was not illegally dismissed as 4.) September 20, 2001
a driver because he was in fact petitioner’s industrial partner. They add that it
was not until the year 1994, when SBT Trucking Corporation was
established, and only then did respondent Sahot become an employee of the
company, with a monthly salary that reached P4,160.00 at the time of his
separation. The NLRC and the CA ruled that Sahot was an employee of the
petitioner.
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, respondent's own witness, Elizabeth Bantilan, during her cross-
vs. examination. Furthermore, Bantilan testified that it was Peter Lo
COURT OF APPEALS and NENITA A. ANAY, respondent. who was the company's financier. Thus:

RESOLUTION Q     -    You mentioned a while ago the name William Belo. Now,
what is the role of William Belo with Geminesse Enterprise?
YNARES-SANTIAGO, J.:
A     -    William Belo is the friend of Marjorie Tocao and he was
The inherent powers of a Court to amend and control its
the guarantor of the company.
processes and orders so as to make them conformable to law and
justice includes the right to reverse itself, especially when in its Q     -    What do you mean by guarantor?
honest opinion it has committed an error or mistake in judgment,
A     -    He guarantees the stocks that she owes somebody who is
and that to adhere to its decision will cause injustice to a party
Peter Lo and he acts as guarantor for us. We can borrow money
litigant.1
from him.
On November 14, 2001, petitioners Marjorie Tocao and William T.
Q     -    You mentioned a certain Peter Lo. Who is this Peter Lo?
Belo filed a Motion for Reconsideration of our Decision dated
October 4, 2000. They maintain that there was no partnership A     -    Peter Lo is based in Singapore.
between petitioner Belo, on the one hand, and respondent Nenita
A. Anay, on the other hand; and that the latter being merely an Q     -    What is the role of Peter Lo in the Geminesse Enterprise?

employee of petitioner Tocao.

A     -    He is the one fixing our orders that open the L/C.

After a careful review of the evidence presented, we are

Q     -    You mean Peter Lo is the financier?
convinced that, indeed, petitioner Belo acted merely as guarantor
of Geminesse Enterprise. This was categorically affirmed by A     -    Yes, he is the financier.
Q     -    And the defendant William Belo is merely the guarantor of
Geminesse Enterprise, am I correct?
A     -    Yes, sir2
The foregoing was neither refuted nor contradicted by
respondent's evidence. It should be recalled that the business
relationship created between petitioner Tocao and respondent
Anay was an informal partnership, which was not even recorded
with the Securities and Exchange Commission. As such, it was
understandable that Belo, who was after all petitioner Tocao's
good friend and confidante, would occasionally participate in the
affairs of the business, although never in a formal or official
capacity.3 Again, respondent's witness, Elizabeth Bantilan,
confirmed that petitioner Belo's presence in Geminesse
Enterprise's meetings was merely as guarantor of the company
and to help petitioner Tocao.4
Furthermore, no evidence was presented to show that petitioner
Belo participated in the profits of the business enterprise.
Respondent herself professed lack of knowledge that petitioner
Belo received any share in the net income of the partnership.5 On
the other hand, petitioner Tocao declared that petitioner Belo was
not entitled to any share in the profits of Geminesse
Enterprise.6 With no participation in the profits, petitioner Belo
cannot be deemed a partner since the essence of a partnership is
that the partners share in the profits and losses.7
Consequently, inasmuch as petitioner Belo was not a partner in
Geminesse Enterprise, respondent had no cause of action against
him and her complaint against him should accordingly be
dismissed.
As regards the award of damages, petitioners argue that
respondent should be deemed in bad faith for failing to account for
stocks of Geminesse Enterprise amounting to P208,250.00 and
that, accordingly, her claim for damages should be barred to that
extent. We do not agree. Given the circumstances surrounding
private respondent's sudden ouster from the partnership by
petitioner Tocao, her act of withholding whatever stocks were in
her possession and control was justified, if only to serve as
security for her claims against the partnership. However, while we
do not agree that the same renders private respondent in bad faith
and should bar her claim for damages, we find that the said sum
of P208,250.00 should be deducted from whatever amount is
finally adjudged in her favor on the basis of the formal account of
the partnership affairs to be submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the Motion for
Reconsideration of petitioners is PARTIALLY GRANTED. The
Regional Trial Court of Makati is hereby ordered to DISMISS the
complaint, docketed as Civil Case No. 88-509, as against
petitioner William T. Belo only. The sum of P208,250.00 shall be
deducted from whatever amount petitioner Marjorie Tocao shall be
held liable to pay respondent after the normal accounting of the
3 See T.S.N., 26 June 1989, p. 25; 28 June 1991, pp. 15-17 and
28 October 1991, pp. 29-31.
4 See T.S.N., 25 June 1990, pp. 23-24.
5 See T.S.N., 26 June 1989, p. 25.
6 See T.S.N., 28 October 1991, p. 31.

partnership affairs.
7 Heirs of Tan Eng Kee v. Court of Appeals, G.R. No. 126881, 3

SO ORDERED. October 2000, citing Moran v. Court of Appeals, 133 SCRA 88, 95

11984).
Davide, Jr., Kapunan, and Pardo; JJ., concur.
Puno, J., on official leave. 5.)
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

Footnotes G.R. No. L-11840          December 10, 1963

ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants,

1 Vitarich Corporation v. National Relations Commission, G.R.
No., 121905, 20 May 199, citing Astraquillo v. Javier, L-20034,
January 26, 1965, 13 SCRA 125
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Norberto J. Quisumbing and Sycip, Salazar and Associates for
defendants-appellees.
Jose C. Calayco for plaintiffs-appellants..

2 T.S.N.,25 June 1990, PP. 22-23 RESOLUTION

REYES, J.B.L., J.:
The matter now pending is the appellant's motion for reconsideration of
our main decision, wherein we have upheld the validity of the sale of the
lands owned by the partnership Goquiolay & Tan Sin An, made in 1949
by the widow of the managing partner, Tan Sin An (Executed in her dual
capacity as Administratrix of the husband's estate and as partner in lieu
of the husband), in favor of the buyers Washington Sycip and Betty Lee
for the following consideration:
Cash paid P37,000.00
Debts assumed by purchaser:
To Yutivo 62,415.91
To Sing Yee Cuan & Co., 54,310.13
TOTAL P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insist that,
contrary to our holding, Kong Chai Pin, widow of the deceased partner
Tan Sin An, never became more than a limited partner, incapacitated by
law to manage the affairs of partnership; that the testimony of her witness
Young and Lim belies that she took over the administration of the
partnership property; and that, in any event, the sale should be set aside
because it was executed with the intent to defraud appellant of his share
in the properties sold.
Three things must be always held in mind in the discussion of this motion
to reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by
one partner, acting in behalf of the firm, to a stranger. There is no
question between partners inter se, and this aspect to the case was
expressly reserved in the main decision of 26 July 1960;
(b) That partnership was expressly organized: "to engage in real estate
business, either by buying and selling real estate". The Articles of co-
partnership, in fact, expressly provided that:
IV. The object and purpose of the copartnership are as follows:
1. To engage in real estate business, either by buying and selling
real estates; to subdivide real estates into lots for the purpose of
leasing and selling them.;
(c) That the properties sold were not part of the contributed capital (which
was in cash) but land precisely acquired to be sold, although subject to a
mortgage in favor of the original owners, from whom the partnership had
acquired them.
With these points firmly in mind, let us turn to the points insisted upon by
appellant.
It is first averred that there is "not one iota of evidence" that Kong Chai
Pin managed and retained possession of the partnership properties.
Suffice it to point out that appellant Goquiolay himself admitted that —
... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai
Pin continue to manage the properties (as) she had no other
means of income. Then I said, because I wanted to help Mrs.
Kong Chai Pin, she could just do it and besides I am not
interested in agricultural lands. I allowed her to take care of the
properties in order to help her and because I believe in God and
— wanted to help her.
Q — So the answer to my question is you did not take any
steps?
A — I did not.
Q — And this conversation which you had with Mrs. Yu
Eng Lai was few months after 1945?
A — In the year 1945. (Emphasis supplied).
The appellant subsequently ratified this testimony in his deposition of 30
June 1956, pages 8-9, wherein he stated:
that plantation was being occupied at that time by the widow, Mrs.
Tan Sin An, and of course they are receiving quiet a lot
benefit from the plantation.
Discarding the self-serving expressions, these admissions of Goquiolay
are certainly entitled to greater weight than those of Hernando Young and
Rufino Lim, having been made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young,
that the witness found the properties "abandoned and undeveloped",
omits to mention that said part of the testimony started with the question:
Now, you said that about 1942 or 1943 you returned to Davao.
Did you meet Mrs. Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of
the partnership were undeveloped, and the family of the widow (Kong
Chai Pin) did not receive any income from the partnership properties, was
given in answer to the question:
According to Mr. Goquiolay, during the Japanese occupation Tan
Sin an and his family lived on the plantation of the partnership
and derived their subsistence from that plantation. What can you
say to that? (Dep. 19 July 1956, p. 8).
And also —
What can you say as to the development of these other
properties of the partnership which you saw during the
occupation? (Dep. p. 13, Emphasis supplied).
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third
property which is in Tigato is about eleven (11) hectares and
planted with abaca seedlings planted by Mr. Sin An. When I went
there with Hernando Young we saw all the abaca destroyed. The
place was occupied by the Japanese Army. They planted
camotes and vegetables to feed the Japanese Army. Of course
they never paid any money to Tan Sin An or his family. (Dep.,
Lim, pp. 13-14. Emphasis supplied).
Plainly, both Young and Lim's testimonies do not belie, or contradict,
Goquiolay's admission that he told Mr. Yu Eng Lai that the widow "could
just do it" (i.e., continue to manage the properties). Witnesses Lim and
Young referred to the period of Japanese occupation; but Goquiolay's
authority was, in fact, given to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong
Chai Pin carried out no acts of management during the Japanese
occupation (1942-1944) does not mean that she did not do so from 1945
to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and
Young; he actually manifested his willingness that the widow should
manage the partnership properties. Whether or not she complied with this
authority is a question between her and the appellant, and is not here
involved. But the authority was given, and she did have it when she made
the questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai
Pin was only to manage the property, and that it did not include the
power to alienate, citing Article 1713 of the Civil Code of 1889. What this
argument overlooks is that the widow was not a mere agent, because she
had become a partner upon her husband's death, as expressly provided
by the articles of copartnership. Even more, granting that by succession
to her husband, Tan Sin An, the widow only became a limited
partner, Goquiolay's authorization to manage the partnership property
was proof that he considered and recognized her as general partner, at
least since 1945. The reason is plain: Under the law (Article 148, last
paragraph, Code of Commerce), appellant could not empower the widow,
if she were only a limited partner, to administer the properties of the firm,
even as a mere agent:
Limited partners may not perform any act of administration with
respect to the interests of the copartnership, not even in the
capacity of agents of the managing partners. (Emphasis
supplied).
By seeking authority to manage partnership property, Tan Sin An's widow
showed that she desired to be considered a general partner. By
authorizing the widow to manage partnership property (which a limited
partner could not be authorized to do), Goquiolay recognized her as such
partner, and is now in estoppel to deny her position as a general partner,
with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and
we did not say "necessarily") becomes a limited partner for his own
protection, because he would normally prefer to avoid any liability in
excess of the value of the estate inherited so as not to jeopardize his
personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect
to become a collective or general partner, with all the rights and privileges
of one, and answering for the debts of the firm not only with the
inheritance but also with the heir's personal fortune. This choice pertains
exclusively to the heir, and does not require the assent of the surviving
partner.
It must be remember that the articles of co-partnership here involved
expressly stipulated that:
In the event of the death of any of the partners at any time before
the expiration of said term, the co-partnership shall not be
dissolved but will have to be continued and the deceased partner
shall be represented by his heirs or assigns in said co-partnership
(Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be
merely limited partners; on the contrary, they expressly stipulated that in
case of death of either partner "the co-partnership ... will have to be
continued" with the heirs or assigns. It certainly could not be continued if
it were to be converted from a general partnership into a limited
partnership, since the difference between the two kinds of associations is
fundamental; and specially because the conversion into a
limited association would have the heirs of the deceased partner without
a share in the management. Hence, the contractual stipulation does
actually contemplate that the heirs would become general partners rather
than limited ones.
Of course, the stipulation would not bind the heirs of the deceased
partner should they refuse to assume personal and unlimited
responsibility for the obligations of the firm. The heirs, in other words, can
not be compelled to become general partners against their wishes. But
because they are not so compellable, it does not legitimately follow that
they may not voluntarily choose to become general partners, waiving the
protective mantle of the general laws of succession. And in the latter
event, it is pointless to discuss the legality of any conversion of a limited
partner into a general one. The heir never was a limited partner, but
chose to be, and became, a general partner right at the start.
It is immaterial that the heir's name was not included in the firm name,
since no conversion of status is involved, and the articles of co-
partnership expressly contemplated the admission of the partner's heirs
into the partnership.
It must never be overlooked that this case involved the rights acquired by
strangers, and does not deal with the rights existing between partners
Goquiolay and the widow of Tan Sin An. The issues between the
partners inter se were expressly reserved in our main decision. Now, in
determining what kind of partner the widow of partner Tan Sin an Had
elected to become, strangers had to be guided by her conduct and
actuations and those of appellant Goquiolay. Knowing that by law a
limited partner is barred from managing the partnership business or
property, third parties (like the purchasers) who found the widow
possessing and managing the firm property with the acquiescence (or at
least without apparent opposition) of the surviving partners were perfectly
justified in assuming that she had become a general partner, and,
therefore, in negotiating with her as such a partner, having authority to
act for, and in behalf of the firm. This belief, be it noted, was shared even
by the probate court that approved the sale by the widow of the real
property standing in the partnership name. That belief was fostered by
the very inaction of appellant Goquiolay. Note that for seven long years,
from partner Tan Sin An's death in 1942 to the sale in 1949, there was
more than ample time for Goquiolay to take up the management of these
properties, or at least ascertain how its affairs stood. For seven years
Goquiolay could have asserted his alleged rights, and by suitable notice
in the commercial registry could have warned strangers that they must
deal with him alone, as sole general partner. But he did nothing of the
sort, because he was not interested (supra), and he did not even take
steps to pay, or settle the firm debts that were overdue since before the
outbreak of the last war. He did not even take steps, after Tan Sin An
died, to cancel, or modify, the provisions of the partnership articles that
he (Goquiolay) would have no intervention in the management of the
partnership. This laches certainly contributed to confirm the view that the
widow of Tan Sin An had, or was given, authority to manage and deal
with the firm's properties apart from the presumption that a general
partner dealing with partnership property has to requisite authority from
his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in
our main decision, p. 11).
The stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the
partnership with the consent of the other, undoubtedly creates on
obligation between the two partners, which consists in asking the
other's consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who
contracts with the partnership. Neither it is necessary for the third
person to ascertain if the managing partner with whom he
contracts has previously obtained the consent of the other.
 A third person may and has a right to presume that the partner
with whom he contracts has, in the ordinary and natural course of
business, the consent of his copartner; for otherwise he would not
enter into the contract. The third person would naturally not
presume that the partner with whom he enters into the transaction
is violating the articles of partnership, but on the contrary is acting
in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been
followed (No. 18, section 334, Code of Civil Procedure), and that
the law has been obeyed (No. 31, section 334). This last
presumption is equally applicable to contracts which have the
force of law between the parties. (Litton vs. Hill & Ceron, et al., 67
Phil. 409, 516). (Emphasis supplied.)
It is next urged that the widow, even as a partner, had no authority to sell
the real estate of the firm. This argument is lamentably superficial
because it fails to differentiate between real estate acquired and held
as stock-in-trade and real estate held merely as business site (Vivante's
"taller o banco social") for the partnership. Where the partnership
business is to deal in merchandise and goods, i.e., movable property, the
sale of its real property (immovables) is not within the ordinary powers of
a partner, because it is not in line with the normal business of the firm.
But where the express and avowed purpose of the partnership is to buy
and sell real estate (as in the present case), the immovables thus
acquired by the firm from part of its stock-in-trade, and the sale thereof is
in pursuance of partnership purposes, hence within the ordinary powers
of the partner. This distinction is supported by the opinion of Gay de
Montella1 , in the very passage quoted in the appellant's motion for
reconsideration:
La enajenacion puede entrar en las facultades del gerante,
cuando es conforme a los fines sociales. Pero esta facultad de
enajenar limitada a las ventas conforme a los fines sociales,
viene limitada a los objetos de comercio o a los productos de la
fabrica para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo caso el
gerente estaria facultado para otorgar las ventas que fuere
necesario. (Montella) (Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either
partner has the legal right to sell the firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one
partner has ample power, as a general agent of the firm, to enter into an
executory contract for the sale of real estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep.
83:
If the several partners engaged in the business of buying and
selling real estate can not bind the firm by purchases or sales of
such property made in the regular course of business, then they
are incapable of exercising the essential rights and powers of
general partners and their association is not really a partnership
at all, but a several agency.
Since the sale by the widow was in conformity with the express objective
of the partnership, "to engage ... in buying and selling real estate" (Art.
IV, No. 1 Articles of Copartnership), it can not be maintained that the sale
was made in excess of her power as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme
Court of Ohio in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the
facts of that case are vastly different from the one before us. In the
McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the
sense that its property was insufficient to pay its debts, though it
still had good credit, and was actively engaged in the prosecution
of its business. On that day, which was Saturday, the plaintiff
caused to be prepared, ready for execution, the four chattel
mortgages in question, which cover all the tangible property then
belonging to the firm, including the counters, shelving, and other
furnishings and fixtures necessary for, and used in carrying on,
its business, and signed the same in this form: "In witness
whereof, the said Cowen & McGrath, a firm, and Owen McGrath,
surviving partner, of said firm, and Owen McCrath, individually,
have hereunto set their hands, this 20th day of May, A.D. 1893.
Cowen & Mcgrath, by Owen McGrath. Owen McGrath, Surviving
partner of Cowen & McGrath. Owen McGrath." At the same time,
 the plaintiff had prepared, ready for filing, the petition for the
dissolution of the partnership and appointment of a receiver which
he subsequently filed, as hereinafter stated. On the day the
mortgages were signed, they were placed in the hands of the
mortgagees, which was the first intimation to them that there was
any intention to make them. At the time none of the claims
secured by the mortgages were due, except, it may be, a small
part of one of them, and none of the creditors to whom the
mortgages were made had requested security, or were pressing
for the payment of their debts. ... The mortgages appear to be
without a sufficient condition of defiance, and contain a stipulation
authorizing the mortgagees to take immediate possession of the
property, which they did as soon as the mortgages were filed
through the attorney who then represented them, as well as the
plaintiff; and the stores were at once closed, and possession
delivered by them to the receiver appointed upon the filing of the
petition. The avowed purposes of the plaintiff, in the course
pursued by him, was to terminate the partnership, place its
properly beyond the control of the firm, and insure the preference
of the mortgagees, all of which was known to them at the time; ....
(Cas cit., p. 343, Emphasis supplied).
It is natural that form these facts the Supreme Court of Ohio should draw
the conclusion that the conveyances were made with intent to terminate
the partnership, and that they were not within the powers of McGrath as a
partner. But there is no similarity between those acts and the sale by the
widow of Tan Sin An. In the McGrath case, the sale included even the
fixtures used in the business; in our case, the lands sold were those
acquired to be sold. In the McGrath case, none of the creditors were
pressing for payment; in our case, the creditors had been unpaid for more
than seven years, and their claims had been approved by the probate
court for payment. In the McGrath case, the partnership received nothing
beyond the discharge of its debts; in the present case, not only were its
debts assumed by the buyers, but the latter paid, in addition, P37,000.00
in cash to the widow, to the profit of the partnership. Clearly, the McGrath
ruling is not applicable.
We will now turn to the question of fraud. No direct evidence of it exists;
but appellant point out, as indicia thereof, the allegedly low price paid for
the property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for
a total of P153,726.04, of which P37,000.00 was in cash, and the rest in
partnership debts assumed by the purchaser. These debts (62,415.91 to
Yutivo, and P54,310.13 to Sing Ye Cuan & Co.) are not questioned; they
were approved by the court, and its approval is now final. The claims
were, in fact, for the balance on the original purchase price of the land
sold (sue first to La Urbana, later to the Banco Hipotecario) plus accrued
interests and taxes, redeemed by the two creditors-claimants. To show
that the price was inadquate, appellant relies on the testimony of the
realtor Mata, who is 1955, six years after the sale in question, asserted
that the land was worth P312,000.00. Taking into account the continued
rise of real estate values since liberation, and the fact that the sale in
question was practically a forced sale because the partnership had no
other means to pay its legitimate debts, this evidence certainly does not
show such "gross inadequacy" as to justify recission of the sale. If at the
time of the sale (1949) the price of P153,726.04 was really low, how is it
that appellant was not able to raise the amount, even if the creditor's
representative, Yu Khe Thai, had already warned him four years before
(1945) that the creditors wanted their money back, as they were justly
entitled to?
It is argued that the land could have been mortgaged to raise the sum
needed to discharge the debts. But the lands were already mortgaged,
and had been mortgaged since 1940, first to La Urbana, and then to the
Banco Hipotecario. Was it reasonable to expect that other persons would
loan money to the partnership when it was unable even to pay the taxes
on the property, and the interest on the principal since 1940? If it had
been possible to find lenders willing to take a chance on such a bad
financial record, would not Goquiolay have taken advantage of it? But the
fact is clear on the record that since liberation until 1949 Goquiolay never
lifted a finger to discharge the debts of the partnership. Is he entitled now
to cry fraud after the debts were discharged with no help from him.
With regard to the relationship between the parties, suffice it to say that
the Supreme Court has ruled that relationship alone is not a badge of
fraud (Oria Hnos. vs. McMicking, 21 Phil. 243; also Hermandad del Smo.
Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence
that the original buyers, Washington Sycip and Betty Lee, were without
independent means to purchase the property. That the Yutivos should be
willing to extend credit to them, and not to appellant, is neither illegal nor
immoral; at the very least, these buyers did not have a record of
inveterate defaults like the partnership "Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a
conspiracy between the Yutivo firm and their component members. But
no proof is adduced. If he was such a victim, he could have easily
defeated the conspirators by raising money and paying off the firm's Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.
debts between 1945 and 1949; but he did not; he did not even care to Regala, J., took no part.
look for a purchaser of the partnership assets. Were it true that the
conspiracy to defraud him arose (as he claims) because of his refusal to  
sell the lands when in 1945 Yu Khe Thai asked him to do so, it is certainly
strange that the conspirators should wait 4 years, until 1949, to have the  
sale effected by the widow of Tan Sin An, and that the sale should have
been routed through the probate court taking cognizance of Tan Sin An's
Separate Opinions
estate, all of which increased the risk that the supposed fraud should be
detected.
BAUTISTA ANGELO, J., dissenting:
Neither was there any anomaly in the filing of the claims of Yutivo and
Sing Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in This is an appeal from a decision of the Court of First Instance of Davao
proceedings for the settlement of the estate of Tan Sin An. This for two dismissing the complaint filed by Antonio C. Goquiolay, et al., seeking to
reasons: First, Tan Sin An and the partnership "Tan Sin An & Goquiolay" annul the sale made Z. Sycip and Betty Y. Lee on the ground that it was
were solidary (Joint and several)debtors (Exhibits "N", mortgage to the executed without proper authority and under fraudulent circumstances. In
Banco Hipotecario), and Rule 87, section 6 is the effect that: a decision rendered on July 26, 1960 we affirmed this decision although
on grounds different from those on which the latter is predicted. The case
is once more before us on a motion for reconsideration filed by appellants
Where the obligation of the decedent is joint and several with
raising both questions of fact and of law.
another debtor, the claim shall be filed against the decedent as if
he were the only debtor, without prejudice to the right of the
estate to recover contribution from the other debtor. (Emphasis On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in
supplied). Davao City a commercial partnership for a period of ten years with a
capital of P30,000.00 of which Goquiolay contributed P18,000.00
representing 60% while Tan Sin An P12,000.00 representing 40%. The
Secondly, the solidary obligation was guaranteed by a mortgage on the
business of the partnership was to engage in buying real estate
properties of the partnership and those of Tan Sim An personally, and a
properties for subdivision, resale and lease. The partnership was duly
mortgage is indivisible, in the sense that each and every parcel under
registered, and among the conditions agreed upon in the partnership
mortgage answers for the totality of the debt (Civ. Code of 1889, Article
agreement which are material to this case are: (1) that Tan Sin An would
1860; New Civil Code, Art. 2089).
be the exclusive managing partner, and (2) in the event of the death of
any of the partners the partnership would continue, the deceased to be
A final and conclusive consideration: The fraud charged not being one represented by his heirs. On May 31, 1940, Goquiolay executed a
used to obtain a party's consent to a contract (i.e., not being deceit general power of attorney in favor of Tan Sin An appointing the latter
or dolus in contrahendo), if there is fraud at al, it can only be a fraud of manager of the partnership and conferring upon him the usual powers of
creditors that gives rise to a rescission of the offending contract. But by management.
express provision of law (Article 1294, Civil Code of 1889; Article 1383,
New Civil Code) "the action for rescission is subsidiary; it can not be
On May 29, 1940, the partnership acquired three parcels of land known
instituted except when the party suffering damage has no other legal
as Lots Nos. 526, 441 and 521 of the cadastral survey of Davao, the only
means to obtain reparation for the same". Since there is no allegation, or
assets of the partnership, with the capital orginally invested, financing the
evidence, that Goquiolay can not obtain reparation from the widow and
balance of the purchase price with a mortgage in favor of "La Urbana
heirs of Tan Sin An, the present suit to rescind the sale in question is not
Sociedad Mutua de Construccion Prestamos" in the amount of
maintainable, even if the fraud charged actually did exist.
P25,000.00, payable in ten years. On the same date, Tan Sin An, in his
individual capacity, acquired 46 parcels of land executing a mortgage
PREMISES CONSIDERED, the motion for reconsideration is denied. thereon in favor of the same company for the sum of P35,000.00. On
September 25, 1940, these two mortgage obligations were consolidated
and transferred to the Banco Hipotecario de Filipinas and as a result Tan
Sin An, in his individual capacity, and the partnership bound themselves
to pay jointly and severally the total amount of P52,282.80, with 8%
annual interest thereon within a period of eight years mortgaging in favor
of said entity the 3 parcels of land belonging to the partnership and the 46
parcels of land belonging individually to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow,
defendant Kong Chai Pin, and four children, all of whom are minors of
tender age. On March 18, 1944, Kong Chai Pin, was appointed
administratrix of the intestate estate of Tan Sin An. And on the same
date, Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the
remaining unpaid balance of the mortgage obligation of the partnership
amounting to P46,116.75 in Japanese currency.
Sometimes in 1945, after the liberation of Manila, Yu Khe Thai, president
and general manager of Yutivo Sons Hardware Co. and Sing, Yee and
Cuan Co., Inc., called for Goquiolay and the two had a conference in the
office of the former during which he offered to buy the interest of
Goquiolay in the partnership. In 1948, Kong Chai Pin, the widow, sent her
counsel, Atty. Dominador Zuño, to ask Goquiolay to execute in her favor
a power of attorney. Goquiolay refused both to sell his interest in the
partnership as well as to execute the power of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo
Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. filed in November,
1946 a claim each in the intestate proceedings of Tan Sin An for the sum
of P84,705.48 and P66,529.91, respectively, alleging that they represent
obligations of both Tan Sin An and the partnership. After first denying any
knowledge of the claims, Kong Chai Pin, as administratrix, admitted later
without qualification the two claims in an amended answer she filed on
February 28, 1947. The admission was predicted on the ground that she
and the creditors were closely related by blood, affinity and business ties.
In due course, these two claims were approved by the court.
On March 29, 1949, more than two years after the approval of the claims,
Kong Chai Pin filed a petition in the probate court to sell all the properties
of the partnership as well as some of the conjugal properties left by Tan
Sin An for the purpose of paying the claims. Following approval by the
court of the petition for authority to sell, Kong Chai Pin, in her capacity as
administratrix, and presuming to act as managing partner of the
partnership, executed on April 4, 1949 a deed of sale of the properties
owned by Tan Sin An and by the partnership in favor of Betty Y. Lee and
Washington Z. Sycip in consideration of the payment to Kong Chai Pin of
the sum of P37,000.00, and the assumption by the buyers of the claims
filed by Yutivo & Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in
whose favor the buyers executed a mortgage on the properties
purchased. Betty Y. Lee and Washington Z. Zycip subsequently executed
a deed of sale of the same properties in favor of their co-defendant
Insular Development Company, Inc. It should be noted that these
transactions took place without the knowledge of Goquiolay and it is
admitted that Betty Lee and Washington Z. Sycip bought the properties
on behalf of the ultimate buyer, the Insular Development Company, Inc.,
with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed on
July 25, 1949 in the intestate proceedings a petition to set aside the order
of the court approving the sale. The court granted the petition. While the
order was pending appeal in the Supreme Court, Goquiolay filed the
present case on January 15, 1953 seeking to nullify the sale as stated in
the early part of this decision. In the meantime, the Supreme Court
remanded the original case to the probate court for rehearing due to lack
of necessary parties.
The plaintiffs in their complaint challenged the authority of Kong Chai Pin
to sell the partnership properties on the ground that she had no authority
to sell because even granting that she became a partner upon the death
of Tan Sin An the power of attorney granted in favor of the latter expired
after his death.
Defendants, on the other hand, defended the validity of the sale on the
theory that she succeeded to all the rights and prerogatives of Tan Sin an
as managing partner.
The trial court sustained the validity of the sale on the ground that under
the provisions of the articles of partnership allowing the heirs of the
deceased partner to represent him in the partnership after his death Kong
Chai Pin became a managing partner, this being the capacity held by Tan
Sin an when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this
decision but on different grounds, among which the salient points are: (1)
the power of attorney given by Goquiloay to Tan Sin An as manager of
the partnership expired after his death; (2) his widow Kong Chai Pin did
not inherit the management of the partnership, it being a personal right;
(3) as a general rule, the heirs of a deceased general partner come into
the partnership in the capacity only of limited partners; (4) Kong Chai Pin,
however, became a general partner because she exercised certain
alleged acts of management; and (5) the sale being necessary to pay the
obligations of the partnership properties without the consent of Goquiolay
under the principle of estoppel the buyers having the right to rely on her
acts of management and to believe her to be in fact the managing
partner.
Considering that some of the above findings of fact and conclusions of
law are without legal or factual basis, appellants have in due course filed
a motion for reconsideration which because of the importance of the
issues therein raised has been the subject of mature deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule
enter the partnership as limited partners only, therefore Kong
Chai Pin, who must necessarily have entered the partnership as a
limited partner originally, could have not chosen to be a general
partner by exercising the alleged acts of management, because
under Article 148 of the Code of Commerce a limited
partner cannot intervene in the management of the partnership,
even if given a power of attorney by the general partners. An Act
prohibited by law cannot given rise to any right and is void under
the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them
being members of the Yu (Yutivo) family, the rest, members of
the law firm which handles the Yutivo interests and handled the
papers of sale. They did not rely on the alleged acts of
management — they believed (this was the opinion of their
lawyers) that Kong Chai Pin succeeded her husband as a
managing partner and it was on this theory alone that they
submitted the case in the lower court.
3. The alleged acts of management were denied and
repudiated by the very witnesses presented by the defendants
themselves.
The arguments advanced by appellants are in our opinion well-taken and
furnish sufficient to reconsider our decision if we want to do justice to
Antonio C. Goquiolay. And to justify this conclusion, it is enough that we
lay stress on the following points: (1) there is no sufficient factual basis to
conclude that Kong Chai Pin executed acts of management to give her
the character of general manager of the partnership, or to serve as basis
for estoppel that may benefit the purchasers of the partnership properties;
(92) the alleged acts of management, even if proven, could not give Kong
Chai Pin the character of general manager for the same contrary to law
and well-known authorities; (3) even if Kong Chai Pin acted as general
manager she had no authority to sell the partnership properties as to
make it legal and valid; and (4) Kong Chai Pin had no necessity to sell
the properties to pay the obligation of the partnership and if she did so it
was merely to favor the purchasers who were close relatives to the
prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of
management imputed to her our ruling cannot be sustained. In making
our aforesaid ruling we apparently gave particular importance to the fact
that it was Goquiolay himself who tried to prove the acts of management.
Appellants, however, have emphasized the fact, and with reason,
the appellees themselves are the ones who denied and refuted the so-
called acts of management imputed to Kong Chai Pin. To have a clear
view of this factual situation, it becomes necessary that we analyze the
evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he
had a conversation with one Hernando Young in Manila in the year 1945
who informed him that Kong Chai Pin "was attending to the properties
and deriving some income therefrom and she had no other means of
livelihood except those properties and some rentals derived from the
properties." He went on to say by way of remark that she could continue
doing this because he wanted to help her. One point that he emphasized
was that he was "no interested in agricultural lands."
On the other hand, defendants presented Hernando Young, the same
person referred to by Goquiolay, who was a close friend of the family of
Kong Chai Pin, for the purpose of denying the testimony of Goquiolay.
Young testified that in 1945 he was still in Davao, and insisted no less
than six times during his testimony that he was not in Manila in 1945, the
year when he allegedly gave the information to Goquiolay, stating that he
arrived in Manila for the first time in 1947. He testified further that he had
visited the partnership properties during the period covered by the
alleged information given by him to Goquiolay and that he found them
"abandoned and underdeveloped," and that Kong Chai Pin was not
deriving any income from them.
The other witness for the defendants, Rufino Lim, also testified that he
had seen the partnership properties and corroborated the testimony of
Hernando Young in all respects: "the properties in Mamay were
underdeveloped, the shacks were destroyed in Tigato, and the family of
Kong Chai Pin did not receive my income from the partnership
properties." He specifically rebutted the testimony of Goquiolay, in his
deposition given on June 30, 1956 that Kong Chai Pin and her family
were living in the partnership properties, and stated that the "family never
actually lived in the properties of the partnership even before the war or
after the war."
It is unquestionable that Goquiolay was merely repeating an information
given to him by a third person, Hernando Young — he stressed this point
twice. A careful analysis of the substance of Goquiolay's testimony will
show that he merely had no objection to allowing Kong Chai Pin to
continue attending to the properties in order to give her some means of
livelihood, because, according to the information given him by Hernando
Young, which he assumed to be true, Kong Chai Pin had no other means
of livelihood. But certainly he made it very clear that he did not allow her
to manage the partnership when he explained his reason for refusing to
sign a general power of attorney for Kong Chai Pin which her counsel,
Atty. Zuño, brought with him to his house in 1948. He said:
... Then Mr. Yu Eng Lai told me that he brought with him Atty.
Zuño and he asked me if I could execute a general power of
attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuño what is the
use of executing a general power of attorney for Mrs. Kong Chai
Pin when Mrs. Kong Chai Pin had already got that plantation for
agricultural purposes, I said for agricultural purposes she can use
that plantation ... (T.S.N. p. 9, Hearing on May 5, 1955).
It must be noted that in his testimony Goquiolay was categorically stating
his opposition to the management of the partnership by Kong Chai Pin
and carefully made the distinction that his conformity was for her to
attend to the partnership properties in order to give her merely a means
of livelihood. It should be stated that the period covered by the testimony
refers to the period of occupation when living condition was difficult and
precarious. And Atty. Zuño, it should also be stated, did not deny the
statement of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin
exercised certain acts of management of the partnership properties is
highly controverted. The most that we can say is that the alleged acts are
doubtful more so when they are disputed by the defendants themselves
who later became the purchasers of the properties, and yet these alleged
acts, if at all, only refer to management of the properties and not to
management of the partnership, which are two different things.
In resume, we may conclude that the sale of the partnership properties by
Kong Chai Pin cannot be upheld on the ground of estoppel, first, because
the alleged acts of management have not been clearly proven; second,
because the record clearly shows that the defendants, or the buyers,
were not misled nor did they rely on the acts of management, but instead
they acted solely on the opinion of their counsel, Atty. Quisumbing, to the
effect that she succeeded her husband in the partnership as managing
partner by operation of law; and third, because the defendants are
themselves estopped to invoke a defense which they tried to dispute and
repudiate.
2. Assuming arguendo that the acts of management imputed to Kong
Chai Pin are true, could such acts give as we have concluded in our
decision?
Our answer is in the negative because it is contrary to law and
precedents. Garrigues, a well-known commentator, is clearly of the
opinion that mere acceptance of the inheritance does not maked the heir
of a general partner a general partner himself. He emphasized that
heir must declare that he is entering the partnership as a general partner
unless the deceased partner has made it an express condition in his will
that the heir accepts the condition of entering the partnership as a
prerequisite of inheritance, in which case acceptance of the inheritance is
enough.1 But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to
become a general partner by exercising acts of management? We
believe not, for, in consonance with our ruling that as a general rule the
heirs of a deceased partner succeed as limited partners only by operation
of law, it is obvious that the heirs, upon entering the partnership, must
make a declaration of his characters, otherwise he should be deemed as
having succeeded as limited partner by the mere acceptance of the
inheritance. And here Kong Chai Pin did not make such declaration.
Being then a limited partner upon the death of Tan Sin An by operation of
law, the peremptory prohibition contained in Article 1482 of the Code of
Commerce became binding upon her and as a result she could not
change her status by violating its provisions not only under the general
principle that prohibited acts cannot produce any legal effect, but also
because under the provisions of Article 1473 of the same Code she was
precluded from acquiring more rights than those pertaining to her as a
limited partner. The alleged acts of management, therefore, did not give
Kong Chai Pin the character of general manager to authorized her to bind
the partnership.
Assuming also arguendo that the alleged acts of management imputed to
Kong Chai Pin gave her the character of a general partner, could she sell
the partnership properties without authority from the other partners?
Our answer is also in the negative in the light of the provisions of the
articles of partnership and the pertinent provisions of the Code of
Commerce and the Civil Code. Thus, Article 129 of the Code of
Commerce says: —
If the management of the general partnership has not been
limited by special agreement to any of the members, all shall
have the power to take part in the direction and management of
the common business, and the members present shall come to
an agreement for all contracts or obligations which may concern
the association.
And the pertinent portions of the articles of partnership provides:
VII. The affairs of the co-partnership shall be managed
exclusively by the managing partner or by his authorized agent,
and it is expressly stipulated that the managing partner may
delegate the entire management of the affairs of the co-
partnership by irrevocable power of attorney to any person, firm
or corporation he may select, upon such terms as regards
compensation as he may deem proper, and vest in such person,
firm or corporation full power and authority, as the agent of the
co-partnership and in his name, place and stead to do anything
for it or on his behalf which he as such managing partner might
do or cause to be done. (Page 23, Record on Appeal).
It would thus be seen that the powers of the managing partner are not
defined either under the provisions of the Code of Commerce or in the
articles of partnership, a situation which, under Article 2 of the same
Code, renders applicable herein the provisions of the Civil Code. And
since, according to well-known authorities, the relationship between a
managing partner and the partnership is substantially the same as that of
the agent and his principal,4 the extent of the power of Kong Chai Pin
must, therefore, be determined under the general principles governing
agency. And, on this point, the law says that an agency created in
general terms includes only acts of administrations, but with regard to the
power to compromise, sell mortgage, and other acts of strict ownership,
an express power of attorney is required.5 Here Kong Chai Pin did not
have such power when she sold the properties of the partnership.
Of course, there is authority to the effect that a managing partner, even
without express power of attorney may perform acts affecting ownership
if the same are necessary to promote or accomplish a declared object of
the partnership, but here the transaction is not for this purpose. It was
effected not to promote any avowed object of the partnership. 6 Rather,
the sale was affected to pay an obligation of the partnership by selling its
real properties which Kong Chai Pin could not do without express
authority. The authorities supporting this view are overwhelming.
La enajenacion puede entrar en las facultades del
gerente, cuando es conforme a los fines sociales. Pero esta
facultad de enajenar limitada a las ventas conforme a los fines
sociales, viene limitada a los objetos de comercio, o a los
productos de la fabrica para explotacion de los cauale se ha
constituido la Sociedad. Ocurrira una cosa parecida cuando el
objeto de la Sociedad fuese la compra y venta de inmuebles, en
cuyo caso el gerente estaria facultado para otorgar las ventas
que fuere necesario. Por el contrario el generente no tiene
attribuciones para vender las instalaciones del comercio, ni la
fabrica, ni las maquinarias, vehiculos de transporte, etc. que
forman parte de la explotacion social. En todos estas casos,
equalmente que sisse tratase de la venta de una marca o
procedimiento mecanico o quimico, etc., siendo actos de
disposicion, seria necesario contar con la conformidad expresa
de todos los socios. (R. Gay de Montella, id., pp. 223-224;
Emphasis supplied).
Los poderes de los Administradores no tienen ante el silencio del
contrato otros limites que los señalados por el objeto de la
Sociedad y, por consiguiente, pueden llevar a cabo todas las
operaciones que sirven para aquel ejercicio, incluso cambiando
repetidas veces los propios acuerdos segun el interest convenido
de la Sociedad. Pueden contratar y despedir a los empleados.
tomar en arriendo almacenes y tiendas; expedir cambiales,
girarlas, avalarlas, dar en prenda o en hipoteca los bienes de la
sociedad y adquirir inmuebles destinados a su explotacion o al
empleo, estable de sus capitales. Pero no podran ejecutar los
actos que esten en contradiccion con la explotacion que les fue
confiada; no podran cambiar el objeto, el domicilio, la razon
 social; fundir a la Sociedad en otro; ceder la accion, y por tanto,
el uso de la firma social a otro, renunciar definitivamente el
ejercicio de uno de otro ramo comercio que se les haya confiado
y enajenar o pignorar el taller o el banco social, excepto que la
venta o pignoracion tengan por el objeto procurar los medios
necesarios para la continuacion de la empresa social. (Cesar
Vivante, Tratado de Derecho Mercantil, pp. 124-125, Vol. II, 1a.
ed.; Emphasis supplied).
The act of one partner, to bind the firm, must be necessary for the
carrying one of its business. If all that can be said of it was that it
was convenient, or that it facilitated the transaction of the
business of the firm, that is not sufficient, in the absence of
evidence of sanction by other partners. Nor, it, seems, will
necessity itself be sufficient if it be an extraordinary necessity.
What is necessary for carrying on the business of the firm under
ordinary circumstances and in the usual way, is the test. Lindl.
Partn. Sec. 126. While, within this rule, one member of a
partnership may, in the usual and ordinary course of its business,
make a valid sale or pledge, by way of mortgage or otherwise, of
all or part of its effects intended for sale, to a bona fide purchaser
of mortgagee, without the consent of the other members of the
firm, it is not within the scope of his implied authority to make a
final disposition of al of its effects, including those employed as
the means of carrying on its business, the object and effect of
which is to immediately terminate the partnership, and place its
property beyond its control. Such a disposition, instead of being
within the scope of the partnership business, or in the usual and
ordinary way of carrying it on, is necessarily subversive of the
object of the partnership, and contrary to the presumed intention
of the partnership in its formation. (McGrath, et al. vs. Cowen, et
al., 49 N.E., 338, 343; Emphasis supplied).
Since Kong Chai Pin sold the partnership properties not in line with the
business of the partnership but to pay its obligation without first obtaining
the consent of the other partners the sale is invalid in excess of her
authority.
4. Finally, the sale under consideration was effected in a suspicious
manner as may be gleaned from the following circumstances:
(a) The properties subject of the instant sale which consist of three
parcels of land situated in the City of Davao have an area of 200 hectares
more or less, or 2,000,000 square meters. These properties were
purchased by the partnership for purposes of subdivision. According to
realtor Mata, who testified in court, these properties could command at
the time he testified a value of not less than P312,000.00, and according
to Dalton Chen, manager of the firm which took over the administration,
since the date of sale no improvement was ever made thereon precisely
because of this litigation. And yet, for said properties, aside from the sum
of P37,000.00 which was paid for the properties of the deceased and the
partnership, only the paltry sum of P66,529.91 was paid as a
consideration therefor, of which the sum of P46,116.75 was even paid in
Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid
reason to sell them if her purpose was only to pay the partnership
obligation. She could have negotiated a loan if she wanted to pay it by
placing the properties as security, but preferred to sell them even at such
low price because of her close relationship with the purchasers and
creditors who conveniently organized a partnership to exploit them, as
may be seen from the following relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a grandaughter of Jose
P. Yutivo, founder of the defendant Yutivo Sons Hardware Co.
YUTIVO SONS HARDWARE CO. and SING, YEE & CUAN CO.,
INC., alleged creditors, are owned by the heirs of Jose P. Yutivo
(Sing, Yee & Cuan are the three children of Jose). YU KHE THAI
is a grandson of the same Jose P. Yutivo, and president of the
two alleged creditors. He is the acknowledged head of the Yu
families. WASHINGTON Z. SYCIP, one of the original buyers, is
married to Ana Yu, a daughter of Yu Khe Thai. BETTY Y. LEE,
the other original buyer is also a daughter of Yu Khe Thai. The
INSULAR DEVELOPMENT CO., the ultimate buyer, was
organized for the specific purpose of buying the partnership
properties. Its incorporators were: Ana Yu and Betty Y. Lee,
Attys. Quisumbing and Salazar, the lawyers who studied the
papers of the sale and have been counsel for the Yutivo interests;
Dalton Chen, a brother-in-law of Yu Khe Thai and an executive of
Sing, Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an
executive of Yutivo Sons Hardware, and Simeon Daguiwag, a
trusted employee of the Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were
close relatives of Kong Chai Pin, have already conceived the idea of
possessing the lands for purposes of subdivision, excluding Goquilolay
from their plan, and this is evident from the following sequence of
events;lawphil.net
 Tan Sin An died in 1942 and intestate proceedings were opened
in 1944. In 1946, the creditors of the partnership filed their claim
against the partnership in the intestate proceedings. The creditors
studied ways and means of liquidating the obligation of the
partnership, leading to the formation of the defendant Insular
Development Co., composed of members of the Yutivo family and
the counsel of record of the defendants, which subsequently
bought the properties of the partnership and assumed the
obligation of the latter in favor of the creditors of the partnership,
Yutivo Sons Hardware and Sing, Yee & Cuan, also of the Yutivo
family. The buyers took time to study the commercial
potentialities of the partnership properties and their lawyers
carefully studied the document and other papers involved in the
transaction. All these steps led finally to the sale of the three
partnership properties.
UPON THE STRENGTH OF THE FOREGOING CONSIDERATIONS, I
vote to grant the motion for reconsideration.
Labrador, Paredes, and Makalintal, JJ., concur.
Footnotes
1 Tratado de Derecho Mercantil, Tomo I, Vol. 38, pp. 1211-1212.
2 ... The limited partner may not perform any act in the
administration of the interests of the company, even in the
capacity of attorney-in-fact of the managing partners.
3 Should any limited partner include his name or allow its
inclusion in the firm name, he shall be subject, with respect to
person not members, without acquiring more rights than those
corresponding to his character as limited partner. (Emphasis
supplied).
4 Derecho Mercanti, David Supino, 4a ed., p. 179; Cesar Vivante,
Tratado de Derecho Mercantil, pp. 124-125, Vol. II, 1a. ed., R.
Gay de Montella, Tratado Practico de Sociedades Mercantiles,
pp. 223-224, Tomo I, 3a. ed.
5 Article 1713, Spanish Civil Code.
6 The main business of the partnership is to engage in real estate
business in general, particularly in buying and selling real estate.
(Page 23, Record on Appeal)
5. Goquiolay v Sycip 9 SCRA 663
5.)
Antonio C. Goquilay, ET AL. vs.
Washington Z. Sycip, ET AL.
Antonio C. Goquilay, ET AL. vs. Washington Z. Sycip, ET AL. GR NO. L-
11840, December 10, 1963
FACTS:
 Tan Sin An and Goquiolay entered into a general commercial partnership
under the partnership name “Tan Sin An and Antonio Goquiolay” for the
purpose of dealing in real estate. The agreement lodged upon Tan Sin An the
sole management of the partnership affairs. The lifetime of the partnership
was fixed at ten years and the Articles of Co-partnership stipulated that in the
event of death of any of the partners before the expiration of the term, the
partnership will not be dissolved but will be continued by the heirs or assigns
of the deceased partner. But the partnership could be dissolved upon mutual
agreement in writing of the partners. Goquiolay executed a GPA in favor of
Tan Sin An. The plaintiff partnership purchased 3 parcels of land which was
mortgaged to “La Urbana” as payment of P25,000. Another 46 parcels of
land were purchased by Tan Sin An in his individual capacity which he
assumed payment of a mortgage debt for P35K. A downpayment and the
amortization were advanced by Yutivo and Co. The two obligations were
consolidated in an instrument executed by the partnership and Tan Sin An,
whereby the entire 49 lots were mortgaged in favor of “Banco Hipotecario”
Tan Sin An died leaving his widow, Kong Chai Pin and four minor children.
The widow subsequently became the administratrix of the estate. Repeated
demands were made by Banco Hipotecario on the partnership and on Tan
Sin An. Defendant Sing Yee, upon request of defendant Yutivo Sons , paid
the remaining balance of the mortgage debt, the mortgage was cancelled
Yutivo Sons and Sing Yee filed their claim in the intestate proceedings of Tan
Sin An for advances, interest and taxes paid in amortizing and discharging
their obligations to “La Urbana” and “Banco Hipotecario.” Kong Chai Pin filed
a petition with the probate court for authority to sell all the 49 parcels of land.
She then sold it to Sycip and Lee in consideration of P37K and of the
vendees assuming payment of the claims filed by Yutivo Sons and Sing Yee.
Later, Sycip and Lee executed in favor of Insular Development a deed of
transfer covering the 49 parcels of land.When Goquiolay learned about the
sale to Sycip and Lee, he filed a petition in the intestate proceedings to set
aside the order of the probate court approving the sale in so far as his
interest over the parcels of land sold was concerned. Probate court annulled
the sale executed by the administratrix w/ respect to the 60% interest of
Goquiolay over the properties Administratrix appealed.The decision of
probate court was set aside for failure to include the indispensable parties.
New pleadings were filed. The second amended complaint prays for the
annulment of the sale in favor of Sycip and Lee and their subsequent
conveyance to Insular Development. The complaint was dismissed by the
lower court hence this appeal.
ISSUE/S: Whether or not a widow or substitute become also a general
partner or only a limited partner. Whether or not the lower court err in holding
that the widow succeeded her husband Tan Sin An in the sole management
of the partnership upon Tan’s death Whether or not the consent of the other
partners was necessary to perfect the sale of the partnership properties to
Sycip and Lee?
 
 
HELD:
Kong Chai Pin became a mere general partner. By seeking authority to
manage partnership property, Tan Sin An’s widow showed that she desired
to be considered a general partner. By authorizing the widow to manage
partnership property (which a limited partner could not be authorized to do),
Goqulay recognized her as such partner, and is now in estoppel to deny her
position as a general partner, with authority to administer and alienate
partnership property. The articles did not provide that the heirs of the
deceased would be merely limited partners; on the contrary, they expressly
stipulated that in case of death of either partner, “the co partnership will have
to be continued” with the heirs or assignees. It certainly could not be
continued if it were to be converted from a general partnership into a limited
partnership since the difference between the two kinds of associations is
fundamental, and specially because the conversion into a limited association
would leave the heirs of the deceased partner without a share in the
management. Hence, the contractual stipulation actually contemplated that
the heirs would become general partners rather than limited ones.
6.)
FIRST DIVISION
[G.R. No. 17024. March 24, 1922. ]
DOMINGO BEARNEZA, Plaintiff-Appellee, v. BALBINO
DEQUILLA, Defendant-Appellant.
C. Lozano and Cecilo I. Lim for Appellant.
Montinola, Montinola & Hontiveros for Appellee.
SYLLABUS
1. PARTNERSHIP; DISSOLUTION. — When, in the organization
of a partnership, none of the mercantile forms has been
adopted and, therefore, the provisions of the Code of Commerce
are not applicable to it, said partnership is dissolved by the
death of any of the members, as provided in subsection 3 of
article 1700 of the Civil Code, unless there is a stipulation to the
contrary, pursuant to the provisions of article 1704 of the same
Code.
2. ID.; ID.; LIQUIDATION. — After the dissolution of a
partnership by the death of one of its members, its legal status
is that of a partnership in liquidation, and the only rights and
interests transmitted to the legal successor or successors of the
said deceased are those resulting in his favor from such
liquidation.
DECISION
ROMUALDEZ, J. :

In the year 1903, Balbino Dequilla, the herein defendant, and
Perpetua Bearneza formed a partnership for the purpose of
exploiting a fish pond situated in the barrio of Talisay,
municipality of Barotac Nuevo, Province of Iloilo, Perpetua
obligating herself to contribute to the payment of the expenses
of the business, which obligation she made good, and both
agreeing to divide the profits between themselves, which they
had been doing until the death of the said Perpetua in the year
1912.
The deceased left a will in one of the clauses of which she
appointed Domingo Bearneza, the herein plaintiff, as her heir to
succeed to all her rights and interests in the fish pond in
question.
Demand having been made upon Balbino Dequilla by Domingo
Bearneza for the delivery of the part of the fish pond belonging
to his decedent, Perpetua, and delivery having been refused,
Domingo Bearneza brought this action to recover said part of
the fish pond and one-half of the profits received by the
defendant from the fish pond from the year 1913-1919, as
damages (the amended complaint was filed on April 12, 1920),
amounting, according to plaintiff, to the sum of thirteen
thousand one hundred pesos (P13,100).
In his answer, the defendant denies generally and specifically
the allegations of the complaint, and alleges, as special defense,
that "the formation of the supposed partnership between the
plaintiff and the defendant for the exploitation of the aforesaid
fish pond was not carried into effect, on account of the plaintiff
having refused to defray the expenses of reconstruction and
exploitation of said fish pond." As another special defense, the
defendant alleges "that in the event that the court should hold
the plaintiff to be entitled to the undivided one-half of the fish
pond, claimed in the complaint, the plaintiff’s action has
prescribed, the time for bringing the same having elapsed." cralaw virtua1aw library
Proceedings having been held as usual, the court below
rendered judgment, declaring the plaintiff owner of one-half of
the fish pond, which composed of the portions known as
"Alimango" and "Dalusan," but without awarding him any of the
damages claimed by him, the same not having been proven, in
the opinion of the court, and ordering the defendant to pay the
costs.
From this judgment the defendant appeals, making various
assignments of error. The plaintiff did not appeal from that part
of the judgment denying his claim for damages; hence the only
question we are called upon to decide is whether or not the
plaintiff has any right to maintain an action for the recovery of
one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino
Dequilla, as to the existence of which the proof contained in the
record is conclusive and there is no dispute, was of a civil
nature. It was particular partnership, as defined in article 1678
of the Civil Code, it having had for its subject-matter a specified
thing, to wit, the exploitation of the aforementioned fish pond.
Although, as the trial court says in its decision, the defendant,
in his letters to Perpetua or her husband, makes reference to
the fish pond, calling it "our," or "your fish pond," this reference
cannot be held to include the land on which the said fish pond,
was built. It has not been proven that Perpetua Bearneza
participated in the ownership of said land, and Exhibits 2 and 3
of the defendant show that he has been paying, as exclusive
owner of the fish pond, the land tax thereon, although in Exhibit
X he says that the said land belongs to the State. The
conclusion, therefore, from the evidence is that the land on
which the fish pond was constructed did not constitute a part of
the subject-matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of
a mercantile partnership, and, therefore, the provisions of the
Code of Commerce not being applicable thereto (article 1670 of
the Civil Code), it was dissolved by the death of Perpetua
Bearneza, and falls under the provisions of article 1700,
subsection 3, of the same Code, and not under the exception
established in the last paragraph of said article 1700 of the Civil
Code.
Neither can it be maintained that the partnership continued to
exist after the death of Perpetua, inasmuch as it does not
appear that any stipulation to that effect has ever been made
by her and the defendant, pursuant to the provisions of article
1704 of the Code last cited.
The partnership having been dissolved by the death of Perpetua
Bearneza, its subsequent legal status was that of a partnership
in liquidation, and the only rights inherited by her testamentary
heir, the herein plaintiff, were those resulting from the said
liquidation in favor of the deceased partner, and nothing more.
Before this liquidation is made, which up to the present has not
been effected, it is impossible to determine what rights or
interests, if any, the deceased had, the partnership bond having
been dissolved.
There is no sufficient ground for that a community of property
existed between plaintiff and the defendant, it not being known
whether the deceased still had any interest in the partnership
property which could have been transmitted by will to the
plaintiff. There being no community of property, article 395 of
the Civil Code cited by the plaintiff in support of his contention
can have no application to the case at bar.
Neither can it be said that the partnership continued between
the plaintiff and the defendant. It is true that the latter’s act in
requiring the heirs of Perpetua to contribute to the payment of
the expenses of exploitation of the aforesaid fishing industry
was an attempt to continue the partnership, but it is also true
that neither the said heirs collectively, nor the plaintiff
individually, took any action in response to that requirement,
nor new contract of partnership existed.
We find that the plaintiff has not sufficiently shown his right of
action.
The judgment appealed from is modified, the same being
affirmed insofar as it denies the plaintiff’s claim for damages,
and reversed insofar as it declares the said plaintiff owner of
one-half of the fish pond, "Alimango" and "Dalusan," here in
dispute.
No special finding as to costs is made. So ordered.
Araullo, C.J., Malcolm, Avanceña, Villamor, Ostand, and
Johns, JJ., concur.
6.) Bearneza v Dequilla 43 Phil 237
FIRST DIVISION
[G.R. No. 17024. March 24, 1922. ]
DOMINGO BEARNEZA, Plaintiff-Appellee, v. BALBINO
DEQUILLA, Defendant-Appellant.
C. Lozano and Cecilo I. Lim for Appellant.
Montinola, Montinola & Hontiveros for Appellee.
SYLLABUS
1. PARTNERSHIP; DISSOLUTION. — When, in the organization
of a partnership, none of the mercantile forms has been
adopted and, therefore, the provisions of the Code of Commerce
are not applicable to it, said partnership is dissolved by the
death of any of the members, as provided in subsection 3 of
article 1700 of the Civil Code, unless there is a stipulation to the
contrary, pursuant to the provisions of article 1704 of the same
Code.
2. ID.; ID.; LIQUIDATION. — After the dissolution of a
partnership by the death of one of its members, its legal status
is that of a partnership in liquidation, and the only rights and
interests transmitted to the legal successor or successors of the
said deceased are those resulting in his favor from such
liquidation.
DECISION
ROMUALDEZ, J. :

In the year 1903, Balbino Dequilla, the herein defendant, and
Perpetua Bearneza formed a partnership for the purpose of
exploiting a fish pond situated in the barrio of Talisay,
municipality of Barotac Nuevo, Province of Iloilo, Perpetua
obligating herself to contribute to the payment of the expenses
of the business, which obligation she made good, and both
agreeing to divide the profits between themselves, which they
had been doing until the death of the said Perpetua in the year
1912.
The deceased left a will in one of the clauses of which she
appointed Domingo Bearneza, the herein plaintiff, as her heir to
succeed to all her rights and interests in the fish pond in
question.
Demand having been made upon Balbino Dequilla by Domingo
Bearneza for the delivery of the part of the fish pond belonging
to his decedent, Perpetua, and delivery having been refused,
Domingo Bearneza brought this action to recover said part of
the fish pond and one-half of the profits received by the
defendant from the fish pond from the year 1913-1919, as
damages (the amended complaint was filed on April 12, 1920),
amounting, according to plaintiff, to the sum of thirteen
thousand one hundred pesos (P13,100).
In his answer, the defendant denies generally and specifically
the allegations of the complaint, and alleges, as special defense,
that "the formation of the supposed partnership between the
plaintiff and the defendant for the exploitation of the aforesaid
fish pond was not carried into effect, on account of the plaintiff
having refused to defray the expenses of reconstruction and
exploitation of said fish pond." As another special defense, the
defendant alleges "that in the event that the court should hold
the plaintiff to be entitled to the undivided one-half of the fish
pond, claimed in the complaint, the plaintiff’s action has
prescribed, the time for bringing the same having elapsed." cralaw virtua1aw library
Proceedings having been held as usual, the court below
rendered judgment, declaring the plaintiff owner of one-half of
the fish pond, which composed of the portions known as
"Alimango" and "Dalusan," but without awarding him any of the
damages claimed by him, the same not having been proven, in
the opinion of the court, and ordering the defendant to pay the
costs.
From this judgment the defendant appeals, making various
assignments of error. The plaintiff did not appeal from that part
of the judgment denying his claim for damages; hence the only
question we are called upon to decide is whether or not the
plaintiff has any right to maintain an action for the recovery of
one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino
Dequilla, as to the existence of which the proof contained in the
record is conclusive and there is no dispute, was of a civil
nature. It was particular partnership, as defined in article 1678
of the Civil Code, it having had for its subject-matter a specified
thing, to wit, the exploitation of the aforementioned fish pond.
Although, as the trial court says in its decision, the defendant,
in his letters to Perpetua or her husband, makes reference to
the fish pond, calling it "our," or "your fish pond," this reference
cannot be held to include the land on which the said fish pond,
was built. It has not been proven that Perpetua Bearneza
participated in the ownership of said land, and Exhibits 2 and 3
of the defendant show that he has been paying, as exclusive
owner of the fish pond, the land tax thereon, although in Exhibit
X he says that the said land belongs to the State. The
conclusion, therefore, from the evidence is that the land on
which the fish pond was constructed did not constitute a part of
the subject-matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of
a mercantile partnership, and, therefore, the provisions of the
Code of Commerce not being applicable thereto (article 1670 of
the Civil Code), it was dissolved by the death of Perpetua
Bearneza, and falls under the provisions of article 1700,
subsection 3, of the same Code, and not under the exception
established in the last paragraph of said article 1700 of the Civil
Code.
Neither can it be maintained that the partnership continued to
exist after the death of Perpetua, inasmuch as it does not
appear that any stipulation to that effect has ever been made
by her and the defendant, pursuant to the provisions of article
1704 of the Code last cited.
The partnership having been dissolved by the death of Perpetua
Bearneza, its subsequent legal status was that of a partnership
in liquidation, and the only rights inherited by her testamentary
heir, the herein plaintiff, were those resulting from the said
liquidation in favor of the deceased partner, and nothing more.
Before this liquidation is made, which up to the present has not
been effected, it is impossible to determine what rights or
interests, if any, the deceased had, the partnership bond having
been dissolved.
There is no sufficient ground for that a community of property
existed between plaintiff and the defendant, it not being known
whether the deceased still had any interest in the partnership
property which could have been transmitted by will to the
plaintiff. There being no community of property, article 395 of
the Civil Code cited by the plaintiff in support of his contention
can have no application to the case at bar.
Neither can it be said that the partnership continued between
the plaintiff and the defendant. It is true that the latter’s act in
requiring the heirs of Perpetua to contribute to the payment of
the expenses of exploitation of the aforesaid fishing industry
was an attempt to continue the partnership, but it is also true
that neither the said heirs collectively, nor the plaintiff
individually, took any action in response to that requirement,
nor new contract of partnership existed.
We find that the plaintiff has not sufficiently shown his right of
action.
The judgment appealed from is modified, the same being
affirmed insofar as it denies the plaintiff’s claim for damages,
and reversed insofar as it declares the said plaintiff owner of
one-half of the fish pond, "Alimango" and "Dalusan," here in
dispute.
No special finding as to costs is made. So ordered.
Araullo, C.J., Malcolm, Avanceña, Villamor, Ostand, and
Johns, JJ., concur.
BEARNEZA VS. DEQUILLA
Good Law
G. R. No. 17024, March 24, 1922 DOMINGO BEARNEZA,
PLAINTIFF AND APPELLEE, VS. BALBINO DEQUILLA,
DEFENDANT AND APPELLANT.
DECISION
ROMUALDEZ, J.:
In the year 1903, Balbino Dequilla, the herein defendant, and
Perpetua Bearneza formed a partnership for the purpose of
exploiting a fish pond situated in the barrio of Talisay, municipality
of Barotac Nuevo, Province of Iloilo, Perpetua obligating herself to
contribute to the payment of the expenses of the business, which
obligation she made good, and both agreeing to divide the profits
between themselves, which they had been doing until the death of
the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she
appointed Domingo Bearneza, the herein plaintiff, as her
heir to succeed to all her rights and interests in the fish pond
in question.
Demand having been made upon Balbino Dequilla by
Domingo Bearneza for the delivery of the part of the fish
pond belonging to his decedent, Perpetua, and delivery
having been refused, Domingo Bearneza brought this action
to recover said part of the fish pond and one-half of the
profits received by the defendant from the fish pond from
the year 1913 to 1919, as damages (the amended complaint
was filed on April 12, 1920), amounting, according to plaintiff,
to the sum of thirteen thousand one hundred pesos
(P13,100).
In his answer, the defendant denies generally and specifically
the allegations of the complaint, and alleges, as special
defense, that "the formation of the supposed partnership
between the plaintiff and the defendant for the exploitation
of the aforesaid fish pond was not carried into effect, on
account of the plaintiff having refused to defray the
expenses of reconstruction and exploitation of said fish
pond, As another special defense, the defendant alleges
"that in the event that the court should hold the plaintiff to
be entitled to the undivided one-half of the fish pond,
claimed in the complaint, the plaintiff's action has
prescribed, the time for bringing the same having elapsed."
Proceedings having been held as usual, the court below
rendered judgment, declaring the plaintiff owner of one-half
of the fish pond, which was composed of the portions known
as "Alimango" and "Dalusan," but without awarding him any
of the damages claimed by him, the same not having been
proven, in the opinion of the court, and ordering the
defendant to pay the costs.
From this judgment the defendant appeals, making various
assignments of error. The plaintiff did not appeal from that
part of the judgment denying his claim for damages; hence
the only question we are called upon to decide is whether or
not the plaintiff has any right to maintain an action for the
recovery of one-half of the. said fish pond.
The partnership formed by Perpetua Bearneza and Balbino
Dequilla, as to the existence of which the proof contained in
the record is conclusive and there is no dispute, was of a civil
nature. It was a particular partnership, as defined in article
1678 of the Civil Code, it having had for its subject-matter a
specified thing, to wit, the exploitation of the
aforementioned fish pond. Although, as the trial court says in
its decision, the defendant, in his letters to Perpetua or her
husband, makes reference to the fish pond, calling it "our,"
or "your fish pond," this reference cannot be held to include
the land on which the said fish pond was built. It has not
been proven that Perpetua Bearneza participated in the
ownership of said land, and Exhibits 2 and 3 of the
defendant show that he has been paying, as exclusive owner
of the fish pond, the land tax thereon, although in Exhibit X
he says that the said land belongs to the State. The
conclusion, therefore, from the evidence is that the land on
which the fish pond was constructed did not constitute a
part of the subject-matter of the aforesaid partnership.
Now, this partnership not having been organized in the form
of a mercantile partnership, and, therefore, the provisions of
the Code of Commerce not being applicable thereto (article
1670 of the Civil Code), it was dissolved by the death of
Perpetua Bearneza, and falls under the provisions of article
1700, subsection 3, of the same Code, and not under the
exception established in the last paragraph of said article
1700 of the Civil Code.
Neither can it be maintained that the partnership continued the plaintiff individually, took any action in response to that
to exist after the death of Perpetua, inasmuch as it does not requirement, nor made any promise to that effect, and
appear that any stipulation to that effect has ever been therefore no new contract of partnership existed.
made by her and the defendant, pursuant to the provisions
of article 1704 of the Code last cited.
We find that the plaintiff has not sufficiently shown his right
of action.
The partnership having been dissolved by the death of
Perpetua Bearneza, its subsequent legal status was that of a
The judgment appealed from is modified, the same being
partnership in liquidation, and the only rights inherited by
affirmed insofar as it denies the plaintiff's claim for damages,
her testamentary heir, the herein plaintiff, were those
and reversed insofar as it declares the said plaintiff owner of
resulting from the said liquidation in favor of the deceased
one-half of the fish pond, "Alimango" and "Dalusan," here in
partner, and nothing more. Before this liquidation is made,
dispute.
which up to the present has not been effected, it is
impossible to determine what rights or interests, if any, the
deceased had, the partnership bond having been dissolved. No special finding as to costs is made. So ordered.

There is no sufficient ground for holding that a community of Araullo, C. J., Malcolm, Avanceña, Villamor, Ostrand, and Johns,
property existed between the plaintiff and the defendant, it JJ., concur.
not being known whether the deceased still had any interest
in the partnership property which could have been
transmitted by will to the plaintiff. There being no
community of property, article 395 of the Civil Code cited by
the plaintiff in support of his contention can have no
application to the case at bar.
7.)
Republic of the Philippines
Neither can it be said that the partnership continued SUPREME COURT
Manila
between the plaintiff and the defendant. It is true that the
latter's act in requiring the heirs of Perpetua to contribute to EN BANC
the payment of the expenses of exploitation of the aforesaid
fishing industry was an attempt to continue the partnership, G.R. No. L-25532             February 28, 1969
but it is also true that neither the said heirs collectively, nor
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor
General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and
T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was
formed on 30 September 1947 by herein respondent William J. Suter as
the general partner, and Julia Spirig and Gustav Carlson, as the limited
partners. The partners contributed, respectively, P20,000.00, P18,000.00
and P2,000.00 to the partnership. On 1 October 1947, the limited
partnership was registered with the Securities and Exchange
Commission. The firm engaged, among other activities, in the
importation, marketing, distribution and operation of automatic
phonographs, radios, television sets and amusement machines, their
parts and accessories. It had an office and held itself out as a limited
partnership, handling and carrying merchandise, using invoices, bills and
letterheads bearing its trade-name, maintaining its own books of
accounts and bank accounts, and had a quota allocation with the Central
Bank.
In 1948, however, general partner Suter and limited partner Spirig got
married and, thereafter, on 18 December 1948, limited partner Carlson
sold his share in the partnership to Suter and his wife. The sale was duly
recorded with the Securities and Exchange Commission on 20 December
1948.
The limited partnership had been filing its income tax returns as a
corporation, without objection by the herein petitioner, Commissioner of
Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law, but his
request was denied. Unable to secure a reconsideration, he appealed to
the Court of Tax Appeals, which court, after trial, rendered a decision, on
11 November 1965, reversing that of the Commissioner of Internal
Revenue.
The present case is a petition for review, filed by the Commissioner of
Internal Revenue, of the tax court's aforesaid decision. It raises these
issues:
(a) Whether or not the corporate personality of the William J. Suter
"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig
Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the
partners, respondent William J. Suter and Julia Spirig Suter and the
subsequent sale to them by the remaining partner, Gustav Carlson, of his
participation of P2,000.00 in the partnership for a nominal amount of
P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that
the marriage of Suter and Spirig and their subsequent acquisition of the
interests of remaining partner Carlson in the partnership dissolved the
limited partnership, and if they did not, the fiction of juridical personality of
the partnership should be disregarded for income tax purposes because
the spouses have exclusive ownership and control of the business;
consequently the income tax return of respondent Suter for the years in
question should have included his and his wife's individual incomes and
that of the limited partnership, in accordance with Section 45 (d) of the
National Internal Revenue Code, which provides as follows:
(d) Husband and wife. — In the case of married persons, whether
citizens, residents or non-residents, only one consolidated return
for the taxable year shall be filed by either spouse to cover the
income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of
Tax Appeals held, that his marriage with limited partner Spirig and their
acquisition of Carlson's interests in the partnership in 1948 is not a
ground for dissolution of the partnership, either in the Code of Commerce
or in the New Civil Code, and that since its juridical personality had not
been affected and since, as a limited partnership, as contra distinguished
from a duly registered general partnership, it is taxable on its income
similarly with corporations, Suter was not bound to include in his
individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co.,
Ltd., has been dissolved by operation of law because of the marriage of
the only general partner, William J. Suter to the originally limited partner,
Julia Spirig one year after the partnership was organized is rested by the
appellant upon the opinion of now Senator Tolentino in Commentaries
and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th
Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract
of general copartnership, because under the Civil Code, which
applies in the absence of express provision in the Code of
Commerce, persons prohibited from making donations to each
other are prohibited from entering into universal partnerships. (2
Echaverri 196) It follows that the marriage of partners necessarily
brings about the dissolution of a pre-existing partnership. (1 Guy
de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but
a particular one. As appears from Articles 1674 and 1675 of the Spanish
Civil Code, of 1889 (which was the law in force when the subject firm was
organized in 1947), a universal partnership requires either that the object
of the association be all the present property of the partners, as
contributed by them to the common fund, or else "all that the partners
may acquire by their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was not such a
universal partnership, since the contributions of the partners were fixed
sums of money, P20,000.00 by William Suter and P18,000.00 by Julia
Spirig and neither one of them was an industrial partner. It follows that
William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses
were forbidden to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan,
in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1,
says with regard to the prohibition contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el
contrato de sociedad universal, pero o podran constituir sociedad
particular? Aunque el punto ha sido muy debatido, nos
inclinamos a la tesis permisiva de los contratos de sociedad
particular entre esposos, ya que ningun precepto de nuestro
Codigo los prohibe, y hay que estar a la norma general segun la
que toda persona es capaz para contratar mientras no sea
declarado incapaz por la ley. La jurisprudencia de la Direccion de
los Registros fue favorable a esta misma tesis en su resolution de
3 de febrero de 1936, mas parece cambiar de rumbo en la de 9
de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it,
such marriage not being one of the causes provided for that purpose
either by the Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company
became a single proprietorship, is equally erroneous. The capital
contributions of partners William J. Suter and Julia Spirig were separately
owned and contributed by them before their marriage; and after they
were joined in wedlock, such contributions remained their respective
separate property under the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin"
Co., Ltd. did not become common property of both after their marriage in
1948.
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and separate
from that of its partners (unlike American and English law that does not
recognize such separate juridical personality), the bypassing of the
existence of the limited partnership as a taxpayer can only be done by
ignoring or disregarding clear statutory mandates and basic principles of
our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members.
True, section 24 of the Internal Revenue Code merges registered general
co-partnerships (compañias colectivas) with the personality of the
individual partners for income tax purposes. But this rule is exceptional in
its disregard of a cardinal tenet of our partnership laws, and can not be
extended by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs.
University of the Visayas, L-13554, Resolution of 30 October 1964, and
Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding
the fiction of legal personality of the corporations involved therein are not
applicable to the present case. In the cited cases, the corporations were
already subject to tax when the fiction of their corporate personality was
pierced; in the present case, to do so would exempt the limited
partnership from income taxation but would throw the tax burden upon
the partners-spouses in their individual capacities. The corporations, in
the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate
personalities for tax purposes. This is not true in the present case. Here,
the limited partnership is not a mere business conduit of the partner-
spouses; it was organized for legitimate business purposes; it conducted
its own dealings with its customers prior to appellee's marriage, and had
been filing its own income tax returns as such independent entity. The
change in its membership, brought about by the marriage of the partners
and their subsequent acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of Section 24 of the tax
code, requiring it to pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter buy the interests of
the remaining partner with the premeditated scheme or design to use the
partnership as a business conduit to dodge the tax laws. Regularity, not
otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to
require that income to be included in the individual tax return of
respondent Suter is to overstretch the letter and intent of the law. In fact,
it would even conflict with what it specifically provides in its Section 24:
for the appellant Commissioner's stand results in equal treatment, tax
and preservation of the paraphernal capital of the wife. Then again, the
appellant's argument erroneously confines itself to the question of the
legal personality of the limited partnership, which is not essential to the
income taxability of the partnership since the law taxes the income of
even joint accounts that have no personality of their own.  1 Appellant is,
likewise, mistaken in that it assumes that the conjugal partnership of
gains is a taxable unit, which it is not. What is taxable is the "income of
both spouses" (Section 45 [d] in their individual capacities. Though the
amount of income (income of the conjugal partnership vis-a-vis the joint
income of husband and wife) may be the same for a given taxable year,
their consequences would be different, as their contributions in the
business partnership are not the same.
The difference in tax rates between the income of the limited partnership
being consolidated with, and when split from the income of the spouses,
is not a justification for requiring consolidation; the revenue code, as it
presently stands, does not authorize it, and even bars it by requiring the
limited partnership to pay tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby
affirmed. No costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro,
Fernando, Capistrano and Teehankee, JJ., concur.
Barredo, J., took no part.
Footnotes
V. Evangelists vs. Collector of Internal Revenue, 102 Phil 140;
1

wise, of a general copartnership (compañia colectiva) and a limited Collector vs. Batangas Transportation Co., 102 Phil. 822.
partnership, when the code plainly differentiates the two. Thus, the code
taxes the latter on its income, but not the former, because it is in the case
of compañias colectivas that the members, and not the firm, are taxable
in their individual capacities for any dividend or share of the profit derived
from the duly registered general partnership (Section 26, N.I.R.C.;
Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89). lawphi1 .nêt

But it is argued that the income of the limited partnership is actually or

constructively the income of the spouses and forms part of the conjugal
partnership of gains. This is not wholly correct. As pointed out in Agapito 6.) Bearneza v Dequilla 43 Phil 237
vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of
Manila, 60 Phil. 167, the fruits of the wife's parapherna become conjugal
only when no longer needed to defray the expenses for the administration
7.) CIR v Suter 27 SCRA 152
CIR v. Suter and CTA
27 SCRA 152
Facts:
A Partnership was formed byin 1947 by Suter, Spirig and Carlson, with Suter as the
General Partner and the last two as limited partner. Thereafter, they registered it with
the
SEC. In 1948, Suter and Spirig got married and Carlson sold his share to the couple.
The
firm pays its taxes as a corporation until 1959 when CIR consolidated the income of
the
firm with the income of the spouses. CIR assessed tax deficiency to Suter in the
amount
of P2,678.06 for 1954 and P4,567.00 for 1955..
Suter sought for reconsideration of the order but was denied. CIR argued that
Partnership
was dissolved upon the marriage of Suter and Spirig. On appeal to CTA, CTA
reversed
the decision of CIR, hence the case to Supreme Court.
Issue:
Whether or not the Partnership is dissolved upon the marriage of Suter and Spirig.
Held:
No, the Partnership is not dissolved.
The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universalpartnership, but a particular one. As appears
from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law
in
force when the subject firm was organized in 1947), a universal partnership requires
either that the object of the association be all the present property of the partners, as
contributed by them to the common fund, or else "all that the partners may acquire
by
their industry or work during the existence of the partnership". William J. Suter
"Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of
the
partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by
Julia Spirig and neither one of them was an industrial partner. It follows that William
J.
Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter
by
Article 1677 of the Civil Code of 1889
8.) EN BANC
[G.R. No. L-3518. February 29, 1952. ]
URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as
Administrator of the Estate of Urbano Lota), Plaintiff-Appellant, v.
BENIGNO TOLENTINO, Defendant-Appellee.
Manuel P. Calanog and Jose A. Buendia, for Appellant.
Potenciano Villegas, for Appellee.
SYLLABUS
1. PARTNERSHIPS; ACCOUNTING AND LIQUIDATION; ACTION FOR,
CANNOT BE CONTINUED AGAINST HEIRS OF DECEASED PARTNER. —
Plaintiff’s action for accounting and liquidation of the partnership formed
between plaintiff and the deceased defendant who was the industrial and
managing partner can not be continued against the heirs of the deceased
defendant. It is well settled that when a member of mercantile partnership
dies, the duty of liquidating its affairs devolves upon the surviving
member, or members, of the firm, not upon the legal representatives of
the deceased partner.
2. ID.; ID.; ID.; ACTIONS; DISMISSAL FOR LACK OF PROSECUTION. —
Plaintiff never amended his complaint in order to substitute the deceased
defendant with the administrator or legal representative and in the
administration proceeding, the letters of administration were never issued
to defendant’s surviving spouse for her failure to qualify. If plaintiff was
genuinely interested in substituting the proper party, he should have taken
timely measures to have the administratrix appointed, qualify or in case of
her failure or refusal, to procure the appointment of another administrator.
Certainly, inaction for almost eight years on the part of the plaintiff,
sufficiently implied indifference to or desistance from his suit. Dismissal for
lack of prosecution was proper.
3. ID.; ID.; ID.; ID.; ID.; SUBSTITUTION OF HEIRS IN POSSESSION OF
PARTNERSHIP PROPERTY. — The heirs may not be substituted for the
deceased defendant simply because they are in possession of the property
alleged to belong to the partnership. Apart from the fact that such
allegation seems to refer to a cause of action foreign to the claim for
accounting and liquidation against the deceased defendant and which
should have been made in a proper pleading to be duly admitted by the
lower court, the filing of the appellant’s motion for substitution more than
twelve years after the institution of the complaint came too late and
already called for the application of the rule requiring dismissal for lack of
prosecution.
DECISION
PARAS, C.J.  :

This is an appeal from a resolution of the Court of First Instance of
Batangas of May 4, 1949, worded in full as follows: jgc:chanrobles.com.ph
"On April 6, 1949, counsel for plaintiff filed a motion praying that deceased
defendant be substituted by his heirs, Marta Sadiasa and Efigenia,
Resurreccion and Mercedes, all surnamed Tolentino, as parties defendant
in this case. To said motion counsel for defendant interposed an opposition
upon the following grounds: chanrob1es virtual 1aw library
‘I. That the nature of the action for accounting and liquidation of the
partnership filed by plaintiff since March 3, 1937, is purely personal in
character and, upon the death of the defendant on November 22, 1939,
the claim was already extinguished. II. Assuming that the action for
accounting and liquidation of the partnership is not purely personal in
character and that such claim is not yet extinguished, the case should now
be dismissed in view of the failure of the plaintiff to prosecute his action
for an unreasonable length of time. III. Assuming further that the
plaintiff’s claim was not yet extinguished upon the death of the defendant
on November 22, 1939, the rights, if any, sought to be enforced by the
plaintiff in the complaint have already been lost by laches.’
"The question before the Court therefore is whether the motion for
substitution should be granted and the case allowed to go to trial on the
merits, or whether the defendant’s opposition should be sustained and the
case dismissed. The following factual background appears of record:
"On March 3, 1937, plaintiff filed an action against defendant to order the
latter (a) to render an accounting of his management of their partnership,
and (b) to deliver to plaintiff whatever share he may have in the assets of
the partnership after the liquidation has been approved by the Court.
"The partnership above-mentioned was entered into by and between
plaintiff and defendant in the year 1918, whereby they agreed to engage
in general business in the municipality of Alabat, province of Batangas,
both to divide the profits and losses share and share alike, and defendant
to be manager of the partnership. Plaintiff alleges that from 1918 until
1928 defendant had rendered an annual accounting, but had refused to do
so from 1929 to 1937, hence, plaintiff’s complaint.
"To plaintiff’s complaint, defendant filed answer, alleging that defendant
was the industrial partner in said partnership; that he rendered a yearly
accounting and liquidation thereof from 1918 to 1932, and that in the
latter year, 1932, the partnership was dissolved and defendant delivered
all its properties and assets to the plaintiff. Hence, defendant prays for the
dismissal of plaintiff’s complaint.
"The plaintiff died in 1938, and on September 23, 1939, he was
substituted by the administrator of his estate, Solomon Lota.
"On December 8, 1939, defendant’s counsel made a suggestion upon the
record that defendant died on November 26, 1939. On January 9, 1940,
the Court gave plaintiff 30 days to amend the complaint by substituting for
the deceased defendant the administrator of his estate or his legal
representative.
"On January 28, 1941, the Court ordered the dismissal of the case for lack
of prosecution. This order was reconsidered and set aside upon a showing
by plaintiff that on March 28, 1941, he had filed a petition for the issuance
of letters of administration to deceased defendants’ surviving spouse,
Marta Sadiasa, for the purpose of substituting her for the deceased
defendant, said petition being Special Proceedings No. 3859 of this Court
entitled ’Intestate Estate of the late Benigno Tolentino, Solomon
Lota, Petitioner.’ This special proceedings was, however, dismissed for
failure of the administratrix to file a bond and to take her oath.
"It will thus be seen that from defendant’s death on November 26, 1939,
to the present, or almost ten years, no administrator or legal
representative has been actually substituted to take the place of said
defendant. It was only on April 6, 1949, that plaintiff made another try to
substitute said deceased by filing his motion, referred to in the first
paragraph of this resolution, praying that defendant’s heirs be substituted
for him as parties defendant.
jgc:chanrobles.com.ph
"The following considerations stand in the way of plaintiff’s motion for
substitution:jgc:chanrobles.com.ph
"1. It being undisputed that defendant was the manager of the partnership
formed by and between him and the plaintiff, and that said defendant died
on November 26, 1939, during the pendency of the present action for
accounting and liquidation against defendant, the said action should have
been discontinued as it could no longer be maintained against the
deceased defendant. Under these circumstances, the remedy and duty of
the plaintiff are as set out in the following ruling of the Supreme Court in
Po Yeng Cheo v. Lim Ka Yam, 44 Phil. 172, 178): chanrob1es virtual 1aw library
‘In the first place, it is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affairs devolves upon the
surviving member, or members of the firm, not upon the legal
representative of the deceased partner. (Wahl. v. Donaldson Sim & Co., 5
Phil., 11; Sugo and Shibata v. Green, 6 Phil., 744). And the same rule
must be equally applicable to a civil partnership clothed with the form of a
commercial association (ART. 1670, Civil Code; Lichauco v. Lichauco, 33
Phil., 350).’
"If, as it appears of record, plaintiff died prior to defendant’s death, the
duty to liquidate devolved upon the legal representative of the plaintiff
because it was the latter who sought to establish a claim against the
defendant.
"2. If after such liquidation, there should be found money or property due
the partnership from the deceased defendant, a claim therefor should be
filed against the latter’s estate in administration. Again, this is the
procedure marked out in the case just cited: chanrob1es virtual 1aw library
‘Upon the death of Lim Ka Yam it therefore became the duty of his
surviving associates to take the proper steps to settle the affairs of the
firms, and any claim against him, or his estate, for a sum of money due to
the partnership by reason of any misappropriation of its funds by him or
damages resulting from his wrongful acts as manager, should be
prosecuted against his estate in administration in the manner pointed out
in sections 686 to 701, inclusive, of the Code of Civil Procedure. Moreover,
when it appears, as here, that the property pertaining to Kwong Cheong
Tay, like the shares in the Ya Sieng Chyip Konski and Manila Electric
Railroad and Light Company, are in the possession of the deceased
partner, the proper step for the surviving associates to take would be to
make application to the court having charge of the administration to
require the administrator to surrender such property. (Po Yeng Cheo v.
Lim Ka Yam, supra.)
"This procedure was not also followed in the case at bar because plaintiff,
or his legal representative, did not procure the appointment and
qualification of an administrator of the estate of deceased defendant, altho
he had already filed a petition looking towards such administration. This
plaintiff was under a duty to do if he considered himself a creditor with a
legitimate claim enforceable against the estate of deceased defendant.
"3. What plaintiff, or his legal representative, insisted on doing in the
present case is to continue and press his action for accounting and
liquidation against the heirs of deceased defendant, a procedure which, as
above stated, runs counter to that set out in the Po Yeng Cheo v. Lim Ka
Yam case. But even in this, plaintiff, or his legal representative, proceeded
half-heartedly, because he only filed a petition for the appointment of an
administrator for the estate of deceased defendant, but did not see to it
that said administrator file a bond and qualify as such. Hence, the said
petition for administration was dismissed.
"4. Also, conceding, without admitting, that the present action for
accounting would lie against defendant, it is this Court’s opinion that such
a duty to account died with the defendant, was extinguished upon his
death, and was not shifted upon his heirs. The heirs of the defendant have
never been partners in the partnership formed by and between plaintiff
and defendant, and said heirs are hardly in a position and hardly called
upon to effect an accounting of said partnership,
"5. Finally, it will be recalled that the partnership in question was
organized in 1918 and dissolved in 1932. The action for accounting was
commenced on March 3, 1937. And the present motion for substitution
was filed on April 6, 1949, only. Trial on the merits at this late date might
prove futile and fruitless if no partnership property is found in the
possession of defendant’s heirs, let alone the allegation of said defendant
in his answer to the complaint back in 1937 that he had already delivered
all the properties and assets of the partnership to the plaintiff. If the
principle of laches is ever to be applied, it should be applied to this case.
"Wherefore, the plaintiff’s action for substitution is denied and defendant’s
prayer for the dismissal of this case granted, with costs against the
plaintiff." cralaw virtua1aw library
The present appellant is Solomon Lota, in his capacity as administrator of
the estate of Urbano Lota, original plaintiff, who died in 1938. The decisive
question that arises is whether or not, after the death of the defendant
Benigno Tolentino on November 22, 1939, plaintiff’s action for accounting
and liquidation of the partnership formed in 1918 between Urbano Lota
and Benigno Tolentino, of which the latter was the industrial and managing
partner, may be continued against the heirs of Benigno Tolentino. This
question was decided adversely to the appellant by the lower court and, in
our opinion, correctly. The applicable authority is the case of Po Yeng Cheo
v. Lim Ka Yam, 44 Phil. 172, in which the following pronouncements were
made: jgc:chanrobles.com.ph
"In the first place, it is well settled that when a member of a mercantile
partnership dies, the duty of liquidating its affairs devolves upon the
surviving member, or members, of the firm, not upon the legal
representatives of the deceases partner. (Wahl v. Donaldson Sim & Co., 5
Phil., 11; Sugo and Shibata v. Green, 6 Phil., 744.) And the same rule
must be equally applicable to a civil partnership clothed with the form of a
commercial association (art. 1670, Civil Code: Lichauco v. Lichauco, 33
Phil., 350). Upon the death of Lim Ka Yam it therefore became the duty of
his surviving associates to take the proper steps to settle the affairs of the
firm, and any claim against him, or his estate, for a sum of money due to
the partnership by reason of any misappropriation of its funds by him, or
for damages resulting from his wrongful acts as manager, should be
prosecuted against his estate in administration in the manner pointed out
in sections 636 to 701, inclusive, of the Code of Civil Procedure. Moreover,
when it appears, as here, that the property pertaining to Kwong Cheong
Tay, like the shares in the Yut Siong Chyip Konski and the Manila Electric
Railroad and Light Company, are in the possession of the deceased
partner, the proper step for the surviving associates to take would be to
make application to the court having charge of the administration to
require the administrator to surrender such property.
"But, in the second place, as already indicated, the proceedings in this
cause, considered in the character of an action for an accounting, were
futile; and the court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator upon the supposed
liability of his intestate to respond for the plaintiff’s proportionate share of
the capital and assets. But of course the action was not maintainable in
this aspect after the death of the defendant; and the motion to discontinue
the action as against the administrator should have been granted." (pp.
178-179.)
Another ground — equally decisive against the appellant — correctly
advanced by the lower court in dismissing the present action for
accounting, is lack of prosecution on the part of the appellant. It may
fittingly be recalled that the action for accounting and liquidation was filed
on March 3, 1937. No sooner had the defendant Benigno Tolentino died on
November 22, 1939, than said fact was made of record by his attorney. On
January 9, 1940, the lower court gave the plaintiff (who had then died and
was substituted on September 28, 1939, by the administrator of his
estate, Solomon Lota), 30 days to amend the complaint by substituting the
administrator or legal representative of the deceased defendant Benigno
Tolentino. On January 28, 1941, the lower court dismissed the case for
lack of prosecution on the part of the plaintiff, but the order of dismissal
was reconsidered, upon a showing by the plaintiff that on March 28, 1941,
an administration proceeding for the estate of Benigno Tolentino was
instituted by the plaintiff. On August 8, 1941, the lower court issued, at
the instance of the plaintiff, letters of administration to Tolentino’s
surviving spouse, Marta Sadiasa, who however failed to qualify.
Accordingly, the court dismissed the administration proceeding on January
3, 1949, for lack of interest. It was only as late as April 6, 1949, that the
plaintiff filed the motion to substitute, not even the legal representative of
Benigno Tolentino, but his heirs.
If the plaintiff was genuinely interested in substituting the proper party,
assuming that plaintiff’s action may still be pursued after Tolentino’s
death, he should have taken timely measures to have the administratrix
appointed on August 8, 1941, qualify or, in case of her failure or refusal, to
procure the appointment of another administrator; because the plaintiff
could have availed himself of section 6, Rule 80, of the Rules of Court,
providing that "letters of administration may be granted to any qualified
applicant, though it appears that there are other competent persons
having better right to the administration, if such persons fail to appear
when notified and claim the issuance of letters to themselves." Certainly,
inaction for almost eight years (after the issuance of letters of
administration) on the part of the appellant, sufficiently implies
indifference to or desistance from its suit.
The theory of the appellant is that the heirs may properly be substituted
for the deceased Benigno Tolentino, because they are in possession of
property allegedly belonging to the partnership in question, and the
appellant seeks the recovery thereof. Apart from the fact that said
allegation seems to refer to a cause of action foreign to the claim for
accounting and liquidation against Tolentino, and should have been made
in a proper pleading to be duly admitted by the lower court, the filing of
appellant’s motion for substitution more than twelve years after the
institution of the complaint came too late and already called for the
application of the rule requiring dismissal for lack of prosecution. It is
immaterial that, before the appealed resolution was issued by the lower
court, the appellant attempted to have the case set for hearing, because
his counsel ought to have known that the deceased defendant had not yet
been properly substituted.
The resolution herein complained of will therefore be as it is hereby
affirmed, with costs against the appellant. So ordered.
Feria, Pablo, Padilla, Tuason, Montemayor, Reyes, Jugo and Bautista
Angelo, JJ., concur.
8.) Lota v Tolentino 90 Phil 829
URBANO LOTA vs. BENIGNO TOLENTINO
G.R. No. L-3518 February 29, 1952
90 Phil 829
PARAS, C.J.:
FACTS:
On March 3, 1937, Urbano Lota filed an action against defendant to
order Benigno Tolentino to render an accounting of his management of their
partnership, and to deliver whatever share Urbano may have in the assets of
the partnership after the liquidation has been approved by the Court.
Urbano died in 1938, and on September 28, 1939, he was substituted
by the administrator of his estate, Solomon Lota. Benigno died on November
26, 1939, and on January 9, 1940, the Court gave plaintiff 30 days to amend
the complaint by substituting for the deceased defendant the administrator of
his estate or his legal representative. This special proceedings was, however,
dismissed for failure of the administratrix to file a bond and to take her oath.
Almost ten years since Benigno’s death, no administrator or legal
representative had been actually substituted to take the place of said
defendant. It was only on April 6, 1949, that plaintiff made another try to
substitute said deceased, praying that defendant's heirs be substituted for
him as parties defendant.
ISSUE:
Whether or not, after the death of the defendant Benigno Tolentino
on November 22, 1939, plaintiff's action for accounting and liquidation of the
partnership formed in 1918 between Urbano Lota and Benigno Tolentino, of
which the latter was the industrial and managing partner, may be continued
against the heirs of Benigno Tolentino.
RULING:
Applying the decision in the case of Po Yeng Cheo vs. Lim Ka Yam,
44 Phil. 172, the court ruled that it is well settled that when a member of a
mercantile partnership dies, the duty of liquidating its affairs devolves upon
the surviving member, or members, of the firm, not upon the legal
representatives of the deceased partner. And the same rule must be equally
applicable to a civil partnership clothed with the form of a commercial
association.
If the plaintiff was genuinely interested in substituting the proper
party, assuming that plaintiff's action may still be pursued after Tolentino's
death, he should have taken timely measures to have the administratrix
appointed on August 8, 1941, qualify or, in case of her failure or refusal, to
procure the appointment of another administrator; because the plaintiff
could have availed himself of section 6, Rule 80, of the Rules of Court,
providing that "letters of administration may be granted to any qualified
applicant, though it appears that there are other competent persons having
better right to the administration, if such persons fail to appear when notified
and claim the issuance of letters to themselves." Certainly, inaction for almost
eight years (after the issuance of letters of administration) on the part of the
appellant, sufficiently implies indifference to or desistance from its suit.
9.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6304        December 29, 1953
SERGIO V. SISON, plaintiff-appellant,
vs.
HELEN J. MCQUAID, defendant-appellee.
Manansala and Manansala for appellant.
J.C. Orendain for appllee.
REYES, J.:
On March 28, 1951, plaintiff brought an action in the Court of First
Instance of Manila against defendant, alleging that during the year 1938
the latter borrowed from him various sums of money, aggregating
P2,210, to enable her to pay her obligation to the Bureau of Forestry and
to add to her capital in her lumber business, receipt of the amounts
advanced being acknowledged in a document, Exhibit A, executed by her
on November 10, 1938 and attached to the complaint; that as defendant
was not able to pay the loan in 1938, as she had promised, she proposed
to take in plaintiff as a partner in her lumber business, plaintiff to
contribute to the partnership the said sum of P2,210 due him from
defendant in addition to his personal services; that plaintiff agreed to
defendant's proposal and, as a result, there was formed between them,
under the provisions of the Civil Code, a partnership in which they were
to share alike in the income or profits of the business, each to get one-
half thereof; that in accordance with said contract, plaintiff, together with
defendant, rendered services to the partnership without compensation
from June 15, 1938 to December, 1941; that before the last World War,
the partnership sold to the United States Army 230,000 board feet of
lumber for P13,800, for the collection of which sum defendant, as
manager of the partnership, filed the corresponding claim with the said
army after the war; that the claim was "finally" approved and the full
amount paid — the complaint does not say when — but defendant has
persistently refused to deliver one-half of it, or P6,900, to plaintiff
notwithstanding repeated demands, investing the whole sum of P13,800
for her own benefit. Plaintiff, therefore, prays for judgment declaring the
existence of the alleged partnership and requiring the defendant to pay
him the said sum of P6,900, in addition to damages and costs.
Notified of the action, defendant filed a motion to dismiss on the grounds
that plaintiff's action had already prescribed, that plaintiff's claim was not
provable under the Statute of Frauds, and that the complaint stated no
cause of action. Sustaining the first ground, the court dismissed the case,
whereupon, plaintiff appealed to the Court of Appeals; but that court has
certified the case here on the ground that the appeal involved only
questions of law.
It is not clear from the allegations of the complaint just when plaintiff's
cause of action accrued. Consequently, it cannot be determined with
certainty whether that action has already prescribed or not. Such being
the case, the defense of prescription can not be sustained on a mere
motion to dismiss based on what appears on the face of the complaint.
But though the reason given for the order of dismissal be untenable, we
find that the said order should be upheld on the ground that the complaint
states no cause of action, which is also one of the grounds on which
defendant's motion to dismiss was based. Plaintiff seeks to recover from
defendant one-half of the purchase price of lumber sold by the
partnership to the United States Army. But his complaint does not show
why he should be entitled to the sum he claims. It does not allege that
there has been a liquidation of the partnership business and the said sum
has been found to be due him as his share of the profits. The proceeds
from the sale of a certain amount of lumber cannot be considered profits
until costs and expenses have been deducted. Moreover, the profits of
the business cannot be determined by taking into account the result of
one particular transaction instead of all the transactions had. Hence, the
need for a general liquidation before a member of a partnership may
claim a specific sum as his share of the profits.
In view of the foregoing, the order of dismissal is affirmed, but on the
ground that the complaint states no cause of action and without prejudice
to the filing of an action for accounting or liquidation should that be what
plaintiff really wants. Without costs in this instance.
1awphil.net
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Jugo, Bautista Angelo and
Labrador, JJ., concur.
9. Sison v McQuaid 94 Phil 201
URBANO LOTA vs. BENIGNO TOLENTINO
G.R. No. L-3518 February 29, 1952
90 Phil 829
PARAS, C.J.:
FACTS:
On March 3, 1937, Urbano Lota filed an action against defendant to
order Benigno Tolentino to render an accounting of his management of their
partnership, and to deliver whatever share Urbano may have in the assets of
the partnership after the liquidation has been approved by the Court.
Urbano died in 1938, and on September 28, 1939, he was substituted
by the administrator of his estate, Solomon Lota. Benigno died on November
26, 1939, and on January 9, 1940, the Court gave plaintiff 30 days to amend
the complaint by substituting for the deceased defendant the administrator of
his estate or his legal representative. This special proceedings was, however,
dismissed for failure of the administratrix to file a bond and to take her oath.
Almost ten years since Benigno’s death, no administrator or legal
representative had been actually substituted to take the place of said
defendant. It was only on April 6, 1949, that plaintiff made another try to
substitute said deceased, praying that defendant's heirs be substituted for
him as parties defendant.
ISSUE:
Whether or not, after the death of the defendant Benigno Tolentino
on November 22, 1939, plaintiff's action for accounting and liquidation of the
partnership formed in 1918 between Urbano Lota and Benigno Tolentino, of
which the latter was the industrial and managing partner, may be continued
against the heirs of Benigno Tolentino.
RULING:
Applying the decision in the case of Po Yeng Cheo vs. Lim Ka Yam,
44 Phil. 172, the court ruled that it is well settled that when a member of a
mercantile partnership dies, the duty of liquidating its affairs devolves upon
the surviving member, or members, of the firm, not upon the legal
representatives of the deceased partner. And the same rule must be equally
applicable to a civil partnership clothed with the form of a commercial
association.
If the plaintiff was genuinely interested in substituting the proper
party, assuming that plaintiff's action may still be pursued after Tolentino's
death, he should have taken timely measures to have the administratrix
appointed on August 8, 1941, qualify or, in case of her failure or refusal, to
procure the appointment of another administrator; because the plaintiff
could have availed himself of section 6, Rule 80, of the Rules of Court,
providing that "letters of administration may be granted to any qualified
applicant, though it appears that there are other competent persons having
better right to the administration, if such persons fail to appear when notified
and claim the issuance of letters to themselves." Certainly, inaction for almost
eight years (after the issuance of letters of administration) on the part of the
appellant, sufficiently implies indifference to or desistance from its suit.
10.) EN BANC
[G.R. No. 18707. December 9, 1922. ]
PO YENG CHEO, Plaintiff-Appellee, v. LIM KA YAM, Defendant-
Appellant.
F. R. Feria and Romualdez Bros. for Appellant.
Quintin Llorente and Carlos C. Viana for Appellee.
SYLLABUS
1. PARTNERSHIP; LIABILITY OF MANAGER ACCOUNT; LIQUIDATION. —
Though the manager of a mercantile partnership which has ceased to do
business is a accountable to his associates for any assets of the concern in
his hands, judgment cannot be rendered against him for the proportionate
share of the capital claimed by one of the partners in an action brought by
such partner alone, where the concern has not been liquidated and there is
no proof showing the existence of assets applicable to capital account.
2. ID.; ID.; ACTION BY SINGLE PARTNER. — Where the only assets in the
hands of the manager of a defunct partnership consists of shares in other
companies, the true value of which is not proved, it is error, in an action
for an accounting brought against him by one of the partners, to give
judgment in favor of the plaintiff for a sum of money equivalent to his
aliquot part of the of the par value of such shares. A single partner cannot
recover from another, without process of liquidation or division, a part of
the undivided property of the partnership.
3. ID. : LIQUIDATION; SURVIVING MEMBER. — When the manager of a
mercantile partnership dies the duty of liquidating it devolves upon the
surviving member, or members, of the firm and not upon the legal
representative of the deceased member.
4. ID.; CLAIM FOR DAMAGES AGAINST MANGER. — When the manager of
a mercantile partnership who is charged with the duty of liquidating the
same dies, his associates should take the proper steps to settle its affairs;
and any claim against him. or his estate, for damages incident to the
misappropriation of its funds by him or for damage resulting from his
wrongful acts as manager, in excess of his interest in the assets, should be
prosecuted against his estate in administration in the manner provided by
law.
5. EXECUTORS AND ADMINISTRATORS; PARTNERSHIPS; ACCOUNTING;
DISCONTINUANCE OF ACTION. — When the manger of a defunct
partnership who is named defendant in an action for an accounting of its
affairs and against whom judgment is sought for mismanagement or
misappropriation of its funds dies, the action should be discontinued, upon
motion to that effect by his personal representative, and the claim for
damages should be presented to the committee on claims in the
administration of his estate. It is error to prosecute such an action to
judgment over the objection of the administrator.
DECISION
STREET, J.:
By the amended complaint in this action, the present plaintiff, Po Yeng
Cheo, alleged sole owner of a business formerly conducted in the City of
Manila under the style of Kwong Cheong Tay. sough to obtain an
accounting from Lim Ka Yam, as managing partner in said business and to
recover from its properties and assets. The defendant having during the
pendency of the cause in the court below and the death suggested of
record, his administrator, one Lim Yock, was required to appear and make
defense.
In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in
the court below, found that the plaintiff entitled to an accounting from Lim
Ka Yam, the original defendant, as manager of the business already
referred to, and he accordingly required Lim Yock Tock, as administrator,
to present a liquidation of said business within a stated time. This order
bore no substantial fruit, for the reason that Lim Yock Tock personally
knew nothing about the aforesaid business (which had ceased operation
more than ten years previously) and was apparently unable to find any
books or documents that could shed any real light on its transaction.
However, he did submit to the a paper written by Lim Ka Yam in life
purporting to give, with vague and uncertain details a history of the
formation of the Knong Cheong Tay and some account of its disruption and
cessation from business in 1910. To this narrative was appended a
statement of assets and liabilities, purporting to show that after the
business was liquidated, it was actually debtor to Lim Ka Yam to the extent
of several thousand pesos. Appreciating the worthlessness of this so-called
statement, and all parties apparently realizing that nothing more was likely
to be discovered by further insisting on an accounting, the court
proceeded, on December 27, 1921, to tender final judgment in favor of the
plaintiff.
The decision made on this occasion takes as its basis the fact stated by the
court in its earlier decision of July 1, 1921, which may be briefly set forth
as follows:chanrob1es virtual 1aw library
The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased,
and as such Po Yeng Cheo inherited the interest left by Po Gui Yao in a
business conducted in Manila had been in existence in manila for many
years prior to 1903, as mercantile partnership, with a capitalization of
P160.000, engaged in the import and export trade; and after the death of
Po Gui Yao following seven persons were interested therein as partners in
the amounts set opposite their respective names, to wit: Po Yeng Cheo,
P60.000; Chua Chi Yek. P50,000; Lim Ka Yam, P10.000; Lee Kom Chuen,
P10,000; Ley Kwong, P10.000; Chan Liong Chao, P10,000; Lee Yuen,
P10,000. The manager of Kwong Cheong Tay, for many years prior to its
complete cessation from business in 1910, was Lim Ka Yam, the original
defendant herein.
Among the properties pertaining to Kwong Cheong Tay and constituting
part of its assets were ten shares of a total par value of P10,000 in an
enterprise conducted under the name of Yut Siong Chyip Konski and
certain shares to the amount of P1,000 in the Manila Electric Railroad and
Light Company, of Manila.
In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do
business, owing principally to the fact that the plaintiff ceased at that time
to transmit merchandise from Hongkong, where he ten then resided. Lim
Ka Yam appears at no time to have submitted to the partners any formal
liquidation of the business, though repeated demands to that effect have
been made upon him by the plaintiff.
In view of the facts above stated, the trial judge rendered judgment in
favor of the plaintiff, Po Yeng Cheo, to recover of the defendant Lim Yock
Tock, as administrator of Lim Ka Yam, the sum of sixty thousand pesos
(P60,000), constituting the interest of the plaintiff in the capital of Kwong
Cheong Tay, plus the plaintiff’s proportional interest in shares of the Yut
Siong Chyip Konski and Manila Electric Railroad and Light Company,
estimated at P11,000, together with the costs . From this judgment the
defendant appealed.
In beginning our comment on the case, it is to be observed that this court
finds itself strictly circumscribed so far as our power of review is
concerned, to the facts found by the trial judge, for the plaintiff did not
appeal from the decision of the court below in so far as it was unfavorable
to him, and the defendant, as appellant, has not caused a great part of the
oral testimony to be brought up. It results, as stated, that we must accept
the facts as found by the trial judge; and our review must be limited to the
error, or errors, if any, which may be apparent upon the face of the
appealed decision, in relation with the pleadings of record.
Proceeding then to consider the appealed decision in relation with the facts
therein stated and other facts appearing in the orders and proceedings in
the cause, it is quite apparent that the judgment cannot be sustained. In
the first place, it was erroneous in any event to give judgment in favor of
the plaintiff to the extent of his share of the capital of Kwong Cheong Tay.
The managing partner of a mercantile enterprise is not a debtor to the
shareholders for the capital embarked by them in the business; and he can
only be made liable for the capital when, upon liquidation of the business,
there are found to be assets in his hands applicable to capital account.
That the sum of the hundred and sixty thousand pesos (P160.000) was
embarked in this business many years ago reveals nothing as to the
condition of the capital account at the time the concern ceased to do
business; and even supposing — as the court possibly did — that the
capital was intact in 1908, this would to be a going concern; for in that
precise interval of time the capital may have been diminished or dissipated
from causes in on wise chargeable to the negligence or misfeasance of the
manager.
Again, so far as appears from the appealed decision, the only property
pertaining to Kwong Cheong Tay at the time this action was brought
consisted of shares in the two concerns already mentioned of the total par
value of P11,000, Of course, if these shares had been sold and converted
into money, the proceeds, if not needed to pay debts, would have been
distributable among the various persons in interest, that is, among the
various shareholders, in their respective proportions. But under the
circumstances revealed in this case, it was erroneous to give judgment in
favor of the plaintiff for his aliquot part of the par value of said shares. It is
elementary that one partner, suing alone, cannot recover of the managing
partner the value of such partner’s individual interest; and a liquidation of
the business is an essential prerequisite. It is true that in Lichauco v.
Lichauco (33 Phil., 350), this court permitted one partner to recover of the
manager the plaintiff’s aliquot part of the proceeds of the business, then
long since closed; but in that case the affairs of the defunct concern had
been actually liquidated by the manager to the extent that he had
apparently converted all its properties into money had pocketed the same
— which was admitted; — and nothing remained to be done except to
compel him to pay over the money to the persons in interest. In the
present case, the shares referred to — constituting the only assets of
Kwong Cheong Tay — have not been converted into ready money and
doubtless still remain in the name of Kwong Cheong Tay as owner. Under
these circumstances it is impossible to sustain a judgment in favor of the connection therewith to recover from the administrator of Lim Ka Yam the
plaintiff for this aliquot part of the par value of said shares, which would be shares in the two concerns mentioned above. No special pronouncement
equivalent to allowing one of several coowners to recover from another, will be made as to costs of either instance. So ordered.
without process of division, a part of an undivided property.
Araullo, C.J., Johnson, Malcolm, Avanceña, and Villamor, JJ., concur.
Another condition will be noted as present in this case which in our opinion
is fatal to the maintenance of the appealed judgment. This is that, after Ostrand, J., concurs in the result.
the death of the original defendant, Lim Ka Yam, the trial court allowed the
action to proceed against Lim Yock Tock, as his administrator, and entered Johns, and Romualdez, JJ., took no part in the decision of the case.
judgment for a sum of money against said administrator as the accounting
party, — notwithstanding the insistence of the attorneys for the latter that
the action should be discontinued in the form in which it was being 10. Po Yeng Cheo v Lim Ka Yam 44 Phil 172
prosecuted. The error of the trial court in so doing can be readily
demonstrated from more than one point of view.

In the first place, it is well settled that when a member of a mercantile

partnership dies, the duty of liquidating its affairs devolves upon the
surviving member, or members, of the firm, not upon the legal
representative of the deceased partner. (Wahl vs Donaldson Sim & Co., 5
Phil., 11; Sugo and Shibata v. Green, 6 Phil., 744.) And the same rule
must be equally applicable to a civil partnership clothed with the form of a
commercial association (art. 1670, Civil; Lichauco v. Lichauco, 33 Phil.,
350) Upon the death of Lim Ka Yam it therefore became the duty of his
surviving associates to take the proper steps to settle the affairs of the
firm, and any claim against him, or his estate, for a sum of money due to
the partnership by reason of any misappropriation of its funds by him, or
for damages resulting from his wrongful acts manager, should be
prosecuted against his estate in administration in the manner pointed out
in sections 686 to 701, inclusive, of the Code of Civil Procedure. Moreover,
when it appears, as here, that the property pertaining to Kwong Cheong
Tay, like the shares in the Siong Chyip Konski and the Manila Electric
Railroad and Light Company, are in the possession of the deceased
partner, the proper step for the surviving associates to take would be to
make application to the court having charge of the administration to
require the administrator to surrender such property.

But, in the second place, as already indicated, the proceedings in this

cause, considered in the character of an action for an accounting, were
futile; and the court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator upon the supposed
liability of his intestate to capital and assets. But of course the action was
not maintainable in this aspect after the death of the defendant; and the
motion to discontinue the action as against the administrator should have
been grated.

The judgment must be reversed, and the defendant will be absolved from
the complaint; but it will be understood that this order is without prejudice
to any proceeding which may be undertaken by the proper person of
persons in interest to settle the affairs of Kwong Cheong Tay and in
11.) G.R. No. L-23726             August 27, 1925

In re estate of the deceased Domingo Florentino.

JOSE VILLANUEVA, executor, petitioner-appellant,
vs.
ROBERTA DE LEON, opponent-appellee.

Eusebio Orense for appellant.

Alberto Reyes, Benito Soliven, and Honorato de Leon for appellee.

MALCOLM, J.:

The salient points of this case are these:

Domingo Florentino died at Vigan, Ilocos Sur, on January 16, 1924,

leaving a considerable estate. Shortly thereafter, the will of the late
Florentino was admitted to probate and Jose Villanueva named executor.
Villanueva qualified as executor by filing the necessary bond in the
amount of P20,000. He was granted the usual letters of administration.

In the meantime, one Roberta de Leon had presented a motion in which

she prayed in effect that the court allow her to intervene in the
proceedings. She alleged that she and the deceased Florentino had been
living together as husband and wife since 1888; that in that year they
formed a partnership to which each contributed P1,000 for the purpose of
engaging in business; and that the partnership was dissolved by the
death of Florentino without there having been any liquidation. This motion
was denied by Judge Quintero as improper, inasmuch as the movant
could present her claims to the commissioners or institute an
independent action to confirm her rights in the estate. In accordance with
the suggestion of the court, Roberta de Leon did in fact bring suit against
Jose Villanueva, executor, in which she asked that she be declared the
owner of one-half of the property left by Domingo Florentino.

Later, Roberta de Leon filed another motion duly sworn to in which she
alleged that the executor had made it appear that the property of the
deceased was worth only P50,000, whereas the same was valued at over
P300,000. Specific mention was made by her of jewelry and tobacco leaf.
Accordingly, movant prayed the court to order the executor to correct the
inventory to the end that the true amount should appear in the same.
On October 31, 1924, Judge Mariano issued an order commanding the interested parties should welcome the participation of the same for their
executor within three days to give reasons under oath why the jewels own protection. (See Garwood vs. Garwood [1866], 29 Cal., 514, cited by
referred to in one of Roberta de Leon's motions, should not be included in appellant; Estate of Willey [1903], 140 Cal., 238.)
the inventory, and to explain what had been done with the tobacco leaf.
In the same order, the court ruled that Roberta de Leon had the right to On the supposition that that part of the order of the trial court which
intervene in the settlement of the accounts. The contents of this order relates to the right of Roberta de Leon, the alleged partner of the
were objected to by counsel for the executor and steps taken to perfect deceased, to intervene in the testate proceedings is appealable, we
an appeal. In turn, counsel for Roberta de Leon entered opposition on the entertain the view that the action taken by the trial judge was correct.
ground that the executor had no right of appeal. The court admitted the Accordingly, it results that the order is affirmed, with costs against the
appeal in so far as it related to the right of Roberta de Leon to intervene, appellant. So ordered.
but denied the appeal in so far as it related to the order to the executor to
state under oath why the jewels in question should not be included in the Avanceña, C.J., Johnson, Street, Villamor, Ostrand, and Johns, JJ.,
inventory and also to explain what had been done with the consignments concur.
of tobacco leaf.
11.) Villanueva v De Leon 47 Phil 780
In this court, three errors are assigned by the executor as appellant. The
second and third errors need not be discussed since they relate to
matters as to which the lower court denied appeal. Had appellant desired
to contest the correctness of the action taken by the trial judge in not 12.) THIRD DIVISION
certifying the bill of exceptions as to one question, he had his remedy
pursuant to section 499 of the Code of Civil Procedure. Not having taken  
advantage of this provision of the law, the appellate court is powerless to
interfere on questions which are not properly before it. (Code of Civil
G.R. No. 97212 June 30, 1993
Procedure, sec. 499; Somes vs. Crossfield and Molina [1907], 8 Phil.,
283; Lituaña and Calica vs. Oliveros [1918], 38 Phil., 628.) The single
question is whether or not an alleged partner of a deceased person has BENJAMIN YU, petitioner,
such interest in the estate of the deceased as to allow her to take part in vs.
the approval of the accounts. NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN
PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL,
LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.
It is the duly of the probate court to scrutinize carefully the accounts of
executors and administrators and to correct all errors founded in law or
fact. It is the right of all the creditors and distributees of the estate to be Jose C. Guico for petitioner.
present and, if so disposed, to contest the account of the executor or
administrator. Only a prima facie right at the time of filing the petition is Wilfredo Cortez for private respondents.
sufficient to entitle the applicant to intervene in the accounts of the
executor or administrator. It is for the trial court to determine whether the
person seeking to participate in the proceedings is a person interested
within the meaning of the law, or is merely an intruder who should be FELICIANO, J.:
excluded from any further participation. The determination of this
question must necessarily be largely discretionary in the trial court. Any Petitioner Benjamin Yu was formerly the Assistant General Manager of
doubt as to the interest of the petitioner ought, however, to be resolved in the marble quarrying and export business operated by a registered
favor of the petitioner, and any doubt arising in the appellate court ought partnership with the firm name of "Jade Mountain Products Company
to be resolved in favor of the action taken by the trial judge. Limited" ("Jade Mountain"). The partnership was originally organized on
Administrators and executors instead of opposing the intervention of 28 June 1984 with Lea Bendal and Rhodora Bendal as general partners
and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the
Republic of China (Taiwan), as limited partners. The partnership business
consisted of exploiting a marble deposit found on land owned by the Sps.
Ricardo and Guillerma Cruz, situated in Bulacan Province, under a
Memorandum Agreement dated 26 June 1984 with the Cruz
spouses.   The partnership had its main office in Makati, Metropolitan
1
Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14
March 1985, as Assistant General Manager with a monthly salary of
P4,000.00. According to petitioner Yu, however, he actually received only
half of his stipulated monthly salary, since he had accepted the promise
of the partners that the balance would be paid when the firm shall have
secured additional operating funds from abroad. Benjamin Yu actually
managed the operations and finances of the business; he had overall
supervision of the workers at the marble quarry in Bulacan and took
charge of the preparation of papers relating to the exportation of the
firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea Bendal and Rhodora Bendal sold and transferred their
interests in the partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and
transferred his interest in the partnership to Willy Co. Between Mr.
Emmanuel Zapanta and himself, private respondent Willy Co acquired
the great bulk of the partnership interest. The partnership now constituted
solely by Willy Co and Emmanuel Zapanta continued to use the old firm
name of Jade Mountain, though they moved the firm's main office from
Makati to Mandaluyong, Metropolitan Manila. A Supplement to the
Memorandum Agreement relating to the operation of the marble quarry
was entered into with the Cruz spouses in February of 1988.  The actual
2
operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, all, save
petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main
office from Makati to Mandaluyong, petitioner Benjamin Yu reported to
the Mandaluyong office for work and there met private respondent Willy
Co for the first time. Petitioner was informed by Willy Co that the latter
had bought the business from the original partners and that it was for him
to decide whether or not he was responsible for the obligations of the old
partnership, including petitioner's unpaid salaries. Petitioner was in fact
not allowed to work anymore in the Jade Mountain business enterprise.
His unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal
and recovery of unpaid salaries accruing from November 1984 to October
1988, moral and exemplary damages and attorney's fees, against Jade
Mountain, Mr. Willy Co and the other private respondents. The
partnership and Willy Co denied petitioner's charges, contending in the
main that Benjamin Yu was never hired as an employee by the present or
new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision
holding that petitioner had been illegally dismissed. The Labor Arbiter
decreed his reinstatement and awarded him his claim for unpaid salaries,
backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed
the decision of the Labor Arbiter and dismissed petitioner's complaint in a
Resolution dated 29 November 1990. The NLRC held that a new
partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had
bought the Jade Mountain business, that the new partnership had not
retained petitioner Yu in his original position as Assistant General
Manager, and that there was no law requiring the new partnership to
absorb the employees of the old partnership. Benjamin Yu, therefore, had
not been illegally dismissed by the new partnership which had simply
declined to retain him in his former managerial position or any other
position. Finally, the NLRC held that Benjamin Yu's claim for unpaid
wages should be asserted against the original members of the preceding
partnership, but these though impleaded had, apparently, not been
served with summons in the proceedings before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition
for Certiorari, asking us to set aside and annul the Resolution of the
NLRC as a product of grave abuse of discretion amounting to lack or
excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the
principle that a partnership has a juridical personality separate and
distinct from that of each of its members. Such independent legal
personality subsists, petitioner claims, notwithstanding changes in the
identities of the partners. Consequently, the employment contract
between Benjamin Yu and the partnership Jade Mountain could not have
been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at
bar: (1) whether the partnership which had hired petitioner Yu as
Assistant General Manager had been extinguished and replaced by a
new partnerships composed of Willy Co and Emmanuel Zapanta; and (2)
if indeed a new partnership had come into existence, whether petitioner
Yu could nonetheless assert his rights under his employment contract as
against the new partnership.
In respect of the first issue, we agree with the result reached by the
NLRC, that is, that the legal effect of the changes in the membership of
the partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co
and Emmanuel Zapanta in 1987.
The applicable law in this connection — of which the NLRC seemed quite
unaware — is found in the Civil Code provisions relating to partnerships.
Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change
in the relation of the partners caused by any partner
ceasing to be associated in the carrying on as
distinguished from the winding up of the business.
(Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the
partners;
x x x           x x x          x x x
(b) by the express will of
any partner, who must act
in good faith, when no
definite term or particular
undertaking is specified;
x x x           x x x          x x x
(2) in contravention of the
agreement between the
partners, where the
circumstances do not
permit a dissolution under
any other provision of this
article, by the express will
of any partner at any time;
x x x           x x x          x x x
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership
interests (amounting to 82% of the total partnership interest) to Mr. Willy
Co and Emmanuel Zapanta. The record does not show what happened to
the remaining 18% of the original partnership interest. The acquisition of
82% of the partnership interest by new partners, coupled with the
retirement or withdrawal of the partners who had originally owned such
82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of
dissolution of a partnership do not, however, automatically result in the
termination of the legal personality of the old partnership. Article 1829 of
the Civil Code states that:
[o]n dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is
completed.
In the ordinary course of events, the legal personality of the expiring
partnership persists for the limited purpose of winding up and closing of
the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing
the procedures relating to dissolution and winding up of its business
affairs. In other words, the new partnership simply took over the business
enterprise owned by the preceeding partnership, and continued using the
old name of Jade Mountain Products Company Limited, without winding
up the business affairs of the old partnership, paying off its debts,
liquidating and distributing its net assets, and then re-assembling the said
assets or most of them and opening a new business enterprise. There
were, no doubt, powerful tax considerations which underlay such an
informal approach to business on the part of the retiring and the incoming
partners. It is not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described
situation, not only the retiring partners (Rhodora Bendal, et al.)
but also the new partnership itself which continued the business of the
old, dissolved, one, are liable for the debts of the preceding partnership.
In Singson, et al. v. Isabela Saw Mill, et al,  the Court held that under
8
facts very similar to those in the case at bar, a withdrawing partner
remains liable to a third party creditor of the old partnership.  The liability
9
of the new partnership, upon the other hand, in the set of circumstances
obtaining in the case at bar, is established in Article 1840 of the Civil
Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved
partnership are also creditors of the person or
partnership continuing the business:
(1) When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or
the representative of the deceased partner assigns) his
rights in partnership property to two or more of the
partners, or to one or more of the partners and one or
more third persons, if the business is continued without
liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the
representative of a deceased partner assigns) their rights
in partnership property to the remaining partner,
who continues the business without liquidation of
partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of
the dissolved partnership is continued as set forth in Nos.
1 and 2 of this Article, with the consent of the retired
partners or the representative of the deceased partner,
but without any assignment of his right in partnership
property;
(4) When all the partners or their representatives assign
their rights in partnership property to one or more third
persons who promise to pay the debts and who continue
the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and
remaining partners continue the business under the
provisions of article 1837, second paragraph, No.
2, either alone or with others, and without liquidation of
the partnership affairs;
(6) When a partner is expelled and the remaining
partners continue the business either alone or with others
without liquidation of the partnership affairs;
The liability of a third person becoming a partner in the
partnership continuing the business, under this article, to
the creditors of the dissolved partnership shall be satisfied
out of the partnership property only, unless there is a
stipulation to the contrary.
When the business of a partnership after dissolution is
continued under any conditions set forth in this article the
creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior right
to any claim of the retired partner or the representative of
the deceased partner against the person or partnership
continuing the business on account of the retired or
deceased partner's interest in the dissolved partnership or
on account of any consideration promised for such
interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of
creditors to set assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also
creditors of the new Jade Mountain which continued the business of the
old one without liquidation of the partnership affairs. Indeed, a creditor of
the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim
for unpaid wages, is entitled to priority vis-a-vis any claim of any retired
or previous partner insofar as such retired partner's interest in the
dissolved partnership is concerned. It is not necessary for the Court to
determine under which one or mare of the above six (6) paragraphs, the
case at bar would fall, if only because the facts on record are not detailed
with sufficient precision to permit such determination. It is, however, clear
to the Court that under Article 1840 above, Benjamin Yu is entitled to
enforce his claim for unpaid salaries, as well as other claims relating to
his employment with the previous partnership, against the new Jade
Mountain.
It is at the same time also evident to the Court that the new partnership
was entitled to appoint and hire a new general or assistant general
manager to run the affairs of the business enterprise take over. An
assistant general manager belongs to the most senior ranks of
management and a new partnership is entitled to appoint a top manager
of its own choice and confidence. The non-retention of Benjamin Yu as
Assistant General Manager did not therefore constitute unlawful
termination, or termination without just or authorized cause. We think that
the precise authorized cause for termination in the case at bar
was redundancy.   The new partnership had its own new General
10
Manager, apparently Mr. Willy Co, the principal new owner himself, who
personally ran the business of Jade Mountain. Benjamin Yu's old position
as Assistant General Manager thus became superfluous or
redundant.   It follows that petitioner Benjamin Yu is entitled to separation
11
pay at the rate of one month's pay for each year of service that he had
rendered to the old partnership, a fraction of at least six (6) months being
considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner
Benjamin Yu in its employ, we consider that Benjamin Yu was very
shabbily treated by the new partnership. The old partnership certainly
benefitted from the services of Benjamin Yu who, as noted, previously
ran the whole marble quarrying, processing and exporting enterprise. His
work constituted value-added to the business itself and therefore, the
new partnership similarly benefitted from the labors of Benjamin Yu. It is
worthy of note that the new partnership did not try to suggest that there
was any cause consisting of some blameworthy act or omission on the
part of Mr. Yu which compelled the new partnership to terminate his
services. Nonetheless, the new Jade Mountain did not notify him of the
change in ownership of the business, the relocation of the main office of
Jade Mountain from Makati to Mandaluyong and the assumption by Mr.
Willy Co of control of operations. The treatment (including the refusal to
honor his claim for unpaid wages) accorded to Assistant General
Manager Benjamin Yu was so summary and cavalier as to amount to
arbitrary, bad faith treatment, for which the new Jade Mountain may
legitimately be required to respond by paying moral damages. This Court,
exercising its discretion and in view of all the circumstances of this case,
believes that an indemnity for moral damages in the amount of
P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest
at the legal rate of six percent (6%) per annum on the amount of unpaid
wages, and of his separation pay, computed from the date of
promulgation of the award of the Labor Arbiter. Finally, because the new
Jade Mountain compelled Benjamin Yu to resort to litigation to protect his
rights in the premises, he is entitled to attorney's fees in the amount of
ten percent (10%) of the total amount due from private respondent Jade
Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is
GRANTED DUE COURSE, the Comment filed by private respondents is
treated as their Answer to the Petition for Certiorari, and the Decision of
the NLRC dated 29 November 1990 is hereby NULLIFIED and SET
ASIDE. A new Decision is hereby ENTERED requiring private respondent
Jade Mountain Products Company Limited to pay to petitioner Benjamin
Yu the following amounts:
(a) for unpaid wages which, as found by
the Labor Arbiter, shall be computed at
the rate of P2,000.00 per month multiplied
by thirty-six (36) months (November 1984
to December 1987) in the total amount of
P72,000.00;
(b) separation pay computed at the rate of
P4,000.00 monthly pay multiplied by three
(3) years of service or a total of
P12,000.00;
(c) indemnity for moral damages in the
amount of P20,000.00;
(d) six percent (6%) per annum legal
interest computed on items (a) and (b)
above, commencing on 26 December
1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on
the total amount due from private
respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
 
# Footnotes
1 Rollo, pp. 11, 28, 31, 35 and 43.
2 Id., pp. 31, 43 and 68.
3 Id., pp. 36 and 44.
4 Id., pp. 40-41.
5 Id., pp. 36-38.
6 Id., pp. 45-46.
7 Id., pp. 9-10.
8 88 SCRA 623 (1979).
9 88 SCRA 642-643.
10 Art. 283. Closure of establishment and reduction of
personnel. — The employer may also terminate the
employment of any employee due to the installation of
labor-saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of
the establishment or undertaking unless the closing is for
the purpose of circumventing the provisions of this title, by
serving written notice on the workers and the Ministry of
Labor and Employment at least one (1) month before the
intended date thereof. In case of termination due to the
installation of labor-saving devices or redundancy, the
worker affected thereby shall be entitled to a separation
pay equivalent to at least his one (1) month pay or to at
least one (1) month pay for every year of service,
whichever is higher. In case of retrenchment to prevent
losses or in cases of closures or cessation of operations
of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay
shall be equivalent to one (1) month pay or at least one-
half (½) month pay for every year of service, whichever is
higher. A fraction of at least six (6) months shall be
considered one (1) whole year. (This provision is identical
with that existing in 1987, except that the provision was
numerically designated in 1987 as "Article 284"), Labor
Code.
11 See, in this connection, Wiltshire File Co., Inc. v.
National Labor Relations Commission, et al., 193 SCRA
665 (1991).
12. Yu v NLRC 224 SCRA 76
Yu v. NLRC GR No. 97212, June 30, 1993
Facts:
Benjamin Yu used to be the Assistant General Manager of Jade Mountain, a
partnership engaged in marble quarrying and export business. The majority
of the founding partners sold their interests in said partnership to Willy Co
and Emmanuel Zapanta without Yu’s knowledge. Said new partnership
continued operating under the same name and continued the business’s
operations. However, it transferred its main office from Makati to
Mandaluyong. Said new partnership did not anymore availed of the services
of Yu. Thus, he filed a complaint for illegal dismissal, recovery of unpaid
wages and damages.
Ruling :
 The legal effect of the changes in the membership of the partnership was the
dissolution of the old partnership which had hired Yu in 1984 and the
emergence of a new firm composed of Willy Co and Emmanuel Zapanta in
1987. The new partnership simply took over the business enterprise owned
by the preceeding partnership, and continued using the old name of Jade
Mountain Products Company Limited, without winding up the business affairs
of the old partnership, paying off its debts, liquidating and distributing its net
assets, and then re-assembling the said assets or most of them and opening
a new business enterprise. Not only the retiring partners but also the new
partnership itself which continued the business of the old, dissolved, one, are
liable for the debts of the preceding partnership.

13.) Laguna Trans Con Inc v SSS 107 Phil 833
G.R. No. L-14606             April 28, 1960
3. That respondent has served notice upon the petitioner
requiring it to register as member of the System and to remit the
premiums due from all the employees of the petitioner and the
contribution of the latter to the System beginning the month of
September, 1957;

LAGUNA TRANSPORTATION CO., INC., petitioner-appellant, 4. That sometime in 1949, the Biñan Transportation Co., a
vs. corporation duly registered with the Securities and Exchange
SOCIAL SECURITY SYSTEM, respondent-appellee. Commission, sold part of the lines and equipment it operates to
Gonzalo Mercado, Artemio Mercado, Florentino Mata and
Yatco & Yatco for appellant. Dominador Vera Cruz;
Solicitor General Edilberto Barot, Solicitor Camilo Quiason and Crispin
Baizas for appellee. 5. That after the sale, the said vendees formed an unregistered
partnership under the name of Laguna Transportation Company
BARRERA, J.: which continued to operate the lines and equipment bought from
the Biñan Transportation Company, in addition to new lines which
On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed with it was able to secure from the Public Service Commission;
the Court of First Instance of Laguna petition praying that an order be
issued by the court declaring that it is not bound to register as a member 6. That the original partners forming the Laguna Transportation
of respondent Social Security System and, therefore, not obliged to pay Company, with the addition of two new members, organized a
to the latter the contributions required under the Social Security Act. 1 To corporation known as the Laguna Transportation Company, Inc.,
this petition, respondent filed its answer on February 11, 1958 praying for which was registered with the Securities and Exchange
its dismissal due to petitioner's failure to exhaust administrative remedies, Commission on June 20, 1956, and which corporation is the
and for a declaration that petitioner is covered by said Act, since the plaintiff now in this case;
latter's business has been in operation for at least 2 years prior to
September 1, 1957. 7. That the incorporators of the Laguna Transportation Company,
Inc., and their corresponding shares are as follows:
On February 11, 1958, respondent filed a motion for preliminary hearing
on its defense that petitioner failed to exhaust administrative remedies.
Name No. of Shares Amount Amount
When the case was called for preliminary hearing, it was postponed by
Subscribed Paid
agreement of the parties. Subsequently, it was set for trial. On the date of
the trial, the parties agreed to present, in lieu of any other evidence, a Dominador Cruz 333 shares P33,300.00 P9,160.81
stipulation of facts, which they did on May 27, 1958, as follows:
Maura Mendoza 333 shares 33,300.00 9,160.81
1. That petitioner is a domestic corporation duly organized and Gonzalo Mercado 66 shares 6,600.00 1,822.49
existing under the laws of the Philippines, with principal place of
business at Biñan, Laguna; Artemio Mercado 94 shares 9,400.00 2,565.90

2. That respondent is an agency created under Republic Act No. Florentino Mata 110 shares 11,000.00 3,021.54
1161, as amended by Republic Act No. 1792, with the principal Sabina Borja     64 shares       6,400.00       1,750.00
place of business at the new GSIS Bldg., corner Arroceros and
Concepcion Streets, Manila, where it may be served with 1,000 shares P100,000.00 P27,481.55
summons;
 8. That the corporation continued the same transportation
business of the unregistered partnership;
9. That the plaintiff filed on August 30, 1957 an Employee's Data
Record . . . and a supplemental Information Sheet . . .;
10. That prior to November 11, 1957, plaintiff requested for
exemption from coverage by the System on the ground that it
started operation only on June 20, 1956, when it was registered
with the Securities and Exchange Commission but on November
11, 1957, the Social Security System notified plaintiff that it was
covered;
11. On November 14, 1957, plaintiff through counsel sent a letter
to the Social Security System contesting the claim of the System
that plaintiff was covered, . . .
12. On November 27, 1957, Carlos Sanchez, Manager of the
Production Department of the respondent System for and in
behalf of the Acting Administrator, informed plaintiff that plaintiff's
business has been in actual operation for at least two years, . . .
On the basis of the foregoing stipulation of facts, the court, on August 15,
1958, rendered a decision the dispositive part of which reads:
Wherefore, the Court is of the opinion and so declares that the
petitioner was an employer engaged in business as common
carrier which had been in operation for at least two years prior to
the enactment of Republic Act No. 1161, as amended by
Republic Act 1792 and by virtue thereof, it was subject to
compulsory coverage under said law. . . .
From this decision, petitioner appealed directly to us, raising purely
questions of law.
Petitioner claims that the lower court erred in holding that it is an
employer engaged in business as a common carrier which had been in
operation for at least 2 years prior to the enactment of the Social Security
Act and, therefore, subject to compulsory coverage thereunder.
Section 9 of the Social Security Act, in part, provides:
SEC. 9 Compulsory Coverage. — Coverage in the System shall
be compulsory upon all employees between the ages of sixteen
and sixty years, inclusive, if they have been for at least six
months in the service of an employer who is a member of the
System. Provided, That the Commission may not compel any
employer to become a member of the System unless he shall
have been in operation for at least two years . . . . (Italics
supplied.).
It is not disputed that the Laguna Transportation Company, an
unregistered partnership composed of Gonzalo Mercado, Artemio
Mercado, Florentina Mata, and Dominador Vera Cruz, commenced the
operation of its business as a common carrier on April 1, 1949. These 4
original partners, with 2 others (Maura Mendoza and Sabina Borja) later
converted the partnership into a corporate entity, by registering its articles
of incorporation with the Securities and Exchange Commission on June
20, 1956. The firm name "Laguna Transportation Company" was not
altered, except with the addition of the word "Inc." to indicate that
petitioner was duly incorporated under existing laws. The corporation
continued the same transportation business of the unregistered
partnership, using the same lines and equipment. There was, in effect,
only a change in the form of the organization of the entity engaged in the
business of transportation of passengers. Hence, said entity as an
employer engaged in business, was already in operation for at least 3
years prior to the enactment of the Social Security Act on June 18, 1954
and for at least two years prior to the passage of the amendatory act on
June 21, 1957. Petitioner argues that, since it was registered as a
corporation with the Securities and Exchange Commission only on June
20, 1956, it must be considered to have been in operation only on said
date. While it is true that a corporation once formed is conferred a
juridical personality separate and district from the persons composing it, it
is but a legal fiction introduced for purposes of convenience and to
subserve the ends of justice. The concept cannot be extended to a point
beyond its reasons and policy, and when invoked in support of an end
subversive of this policy, will be disregarded by the courts. (13 Am. Jur.
160.)
If any general rule can be laid down, in the present state of
authority, it is that a corporation will be looked upon as a legal
entity as a general rule, and until sufficient reason to the contrary
appears; but, when the motion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime,
the law will regard the corporation as an association of persons.
(1 Fletcher Cyclopedia Corporations [Perm. Ed.] 135-136; U.S.
 Milwaukee Refrigeration Transit Co., 142 Fed. 247, cited in Paras, C. J., Bengzon, Montemayor, Bautista Angelo, Labrador,
Koppel Philippines, Inc. vs. Yatco, 43 Off. Gaz., 4604.) Concepcion and Gutierrez, David, JJ., concur.

To adopt petitioner's argument would defeat, rather than promote, the

ends for which the Social Security Act was enacted. An employer could 14.) LAGUNA TRANSPORTATION vs SSS
easily circumvent the statute by simply changing his form of organization GR L-14606 / 28 April 1960 / J. Barrera
every other year, and then claim exemption from contribution to the Appeal from a Judgement of CFI Laguna
System as required, on the theory that, as a new entity, it has not been in
operation for a period of at least 2 years. the door to fraudulent FACTS
circumvention of the statute would, thereby, be opened. • SSS required Petitioner to register as a member and to remit the premiums and
contributions
due from all the employees.
Moreover, petitioner admitted that as an employer engaged in the • Biñan Transportation Co., sold part of the lines and equipment it operates to
business of a common carrier, its operation commenced on April 1, 1949 Mercado et al.
while it was a partnership and continued by the corporation upon its • After the sale, the vendees formed an unregistered partnership under the name of
formation on June 20, 1956. Unlike in the conveyance made by the Biñan Laguna
Transportation Company to the partners Gonzalo Mercado, Artemio Transportation Company which continued to operate the lines and equipment
Mercado, Florentino Mata, and Dominador Vera Cruz, no mention bought from Biñan
whatsoever is made either in the pleadings or in the stipulation of facts Transpo in addition to the new lines it was able to secure from Public Service
that the lines and equipment of the unregistered partnership had been Commission.
sold and transferred to the corporation, petitioner herein. This omission, • The original partners with 2 new members organized Laguna Transport Company.
to our mind, clearly indicates that there was, in fact, no transfer of They
interest, but a mere change in the form of the organization of the requested to be exempted from coverage by the System on the ground that it
employer engaged in the transportation business, i.e., from an started operation
unregistered partnership to that of a corporation. As a rule, courts will only on June 20, 1956 and registered w the SEC on Nov 11, 1957.
look to the substance and not to the form.(Colonial Trust Co. vs. Montolo • Petitioner filed a petition praying that an order be issued declaring that it is not
Eric Works, 172 Fed. 310; Metropolitan Holding Co. vs. Snyder, 79 F. 2d bound to register
263, 103 A.L.R. 612; Arnold vs. Willits, et al., 44 Phil., 634; 1 Fletcher as a member of SSS and therefore, not required to pay the contributions required
Cyclopedia Corporations [Perm. Ed.] 139-140.) under the
Social Security Act.
• SSS filed an answer praying for its dismissal due to petitioner’s failure to exhaust
Finally, the weight of authority supports the view that where a corporation administrative
was formed by, and consisted of members of a partnership whose remedies and for a declaration that petitioner is covered by the said act since the
business and property was conveyed and transferred to the corporation petitioner’s
for the purpose of continuing its business, in payment for which corporate business has been in operation for at least 2 years prior to Sept 1, 1957.
capital stock was issued, such corporation is presumed to have assumed • Trial Court declared that the petitioner was an employer had been in actual
partnership debts, and is prima facie liable therefor. (Stowell vs. Garden operation for at least
City News Corps., 57 P. 2d 12; Chicago Smelting & Refining Corp. vs. 2 years, and hence, subject to compulsory coverage under the law.
Sullivan, 246 IU, App. 538; Ball vs. Bross., 83 June 19, N.Y. Supp. 692.)
The reason for the rule is that the members of the partnership may be ISSUE: WON Petitioner is covered by the SS Law – YES.
said to have simply put on a new coat, or taken on a corporate cloak, and
the corporation is a mere continuation of the partnership. (8 Fletcher DISPOSITIVE: Judgment is hereby Affirmed.
Cyclopedia Corporations [Perm. Ed.] 402-411.)
RATIO:
Wherefore, finding no error in the judgment of the court a quo, the same • Although a corporation once formed is conferred a juridical personality separate
and distinct from
is hereby affirmed, with costs against petitioner-appellant. So ordered.
 the persons composing it, it is but a legal fiction introduced for purposes of fee of P600. Petitioner was ordered further to pay the corresponding
convenience and to administrative fee.  1

subserve the ends of justice. The concept cannot be extended to a point beyond its
reasons and G. B. Francisco, Inc. now submits the following assigned errors:
policy, and when invoked in support of an end subversive of this policy, will be
disregarded by
the courts. I
• The weight of authority supports the view that where a corporation was formed
by, and consisted That the Honorable Workmen's Compensation
of members of a partnership whose business and property was conveyed and Commission erred in holding that the claimant, Alejandro
transferred to the Urdas, was a former employee of petitioner, G. B.
corporation for the purpose of continuing its business, in payment for which Francisco, Inc.;
corporate capital
stock was issued, such corporation is presumed to have assumed partnership II
debts, and is
prima facie liable therefor.
That the Honorable Commission erred in reversing the
• The reason for the rule is that the members of the partnership may be said to have
simply put findings of facts of the Hearing Officer, Acting Referee
on a new coat, or taken on a corporate cloak, and the corporation is a mere Estratonico S. Anano who ordered the dismissal of R04-
continuation of the WCU case no. 165138, entitled Alejandro Urdas,
partnership. claimant, versus, G.B. Francisco, Inc., respondent;

14.) III

15.) G.R. No. L-42565 November 21, 1978 That the Honorable Commission erred in holding that the
claimant's illness supervened in the course of his
G. B. FRANCISCO, INC., petitioner, employment;
vs.
WORKMEN'S COMPENSATION COMMISSION and ALEJANDRO IV
URDAS, respondents.
That the Honorable Commission erred in not giving
Bausa, Ampil & Suarez for petitioner. petitioner an opportunity to present its own evidence, thus
depriving it of its day in court. (pp. 12-13, rollo)
Ricardo M. Perez for private respondent.
We gave due course to this petition to inquire into the veracity of
petitioner's submittal that the decision under review was rendered without
due process of law and for this purpose We caused the records of
respondent Commission to be elevated for examination.
MUÑOZ PALMA, J.:
The records of the Commission show that Alejandro Urdas filed with
In this petition, G. B. Francisco, Inc. seeks to set aside an award of the
Regional Office 4 of the Department of Labor a notice of sickness and
Workmen's Compensation Commission dated December 30, 1975 in
claim for compensation dated March 10, 1975, which was docketed as
R04-WCU Case No. 165138 granting to Alejandro Urdas disability
Case No. 165138 wherein he alleged that he was a painter of G. B.
compensation benefits in the maximum amount of P6,000 and attorney's
Francisco, Inc. with a daffy wage of P4.50 from February 5, 1966 to
January 16, 1967; in the course of his employment, more particularly on
January 15, 1967, he was examined by Dr. Remigio Reyes of the Central
Luzon Sanitarium and was found to have contracted "Hansen's Disease"
or leprosy in laymans parlance, and on January 16, 1967 he had to stop
working by reason of said sickness.   In his claimant gave the Central
2
Luzon Sanitarium, Tala, Caloocan City, as his address wherein he had in
confined since then.
In a report filed and received by Regional Office 4 on March 24, 1975, Dr.
Remigio B. Reyes, attending physician, certified that claimant Urdas was
confined at the Tala Leprosarium due to "mycobacterium leprae" which
was directly caused by claimant's employment and in pursuance of his
work,   and which resulted in his disability to continue with his
3
employment.
On July 15, 1975, the Workmen's Compensation Section through its
Acting Chief of Section served a copy of the claim for compensation to
the Manager of G. B. Francisco, Inc.   and on August 7, 1975, the
4
employer corporation through its lawyers, Bausa, Ampil & Suarez Law
Office, sent a letter stating that "said claimant is not and has never been
employed with them for which reason, they are not in a position to
controvert the notice of injury or sickness and claim for compensation
filed by the Said Alejandro P. Urdas with your office.  5
Claimant Urdas executed an affidavit on September 25, 1975, wherein he
alleged that "when he entered the employ of G. B. Francisco, Inc. as a
painter he was fund to be healthy and physically fit for work and it was
severe weeks before he stopped working that he felt the symptoms of his
illness. Together with this affidavit he submitted a pay envelope to prove
that he received his pay from G. B. Francisco, Inc. 6
On October 22, 1975, Team Leader and Acting Referee Estratonico S.
Anano issued an Order dismissing the claim of Alejandro Urdas on the
ground that there was no substantial proof that c t was employed with the
corporation and that "even granting that he worked with the respondent,
we do not find any reasonable connection between the claimant's illness
diagnosed as 'Hansen's D 'with his employment.
On December 10, 1975, claimant through his new counsel Ricardo M.
Perez filed with Regional Office 4 a motion for reconsideration on the
following grounds:
I. That the Honorable Hearing Referee erred in not finding
that claimant was a former employee of the respondent.
II. That the Honorable Hearing Referee erred in not
finding that claimant's supervened in the course of his
employment;
III. That the Honorable Hearing Referee erred in not
resolving doubt as to the compensability of the instant
case in favor of the claimant. (p. 19, WCC record.)
Danilo Reynante, Assistant Chief of Regional Office 4, in an Order dated
December 16, 1975, denied claimant's Motion for reconsideration but
nevertheless elevated the entire records of the case to the Workmen's
Compensation Commission for review.  7
A decision was rendered by the Commission on December 30,
1975, reversing the order of dismissal of the Acting Referee
and granting the claimant the total amount of Six Thousand Pesos as
disability compensation. The Commission held that:
... The record clearly shows that claimant was paid by
respondent thru 'Pay envelopes,' a xerox copy of one of
them is hereto attached as part of the records of this case
being ANNEX 'A' and forms part of claimant's evidence.
To believe in respondent's posture that it is not the
employer by a simple allegation without any
corresponding documentary or credible proof, then it
would be so easy and simple for any employer to deny
having employed any worker and thus easily escape
paying its liability without even lifting a finger, so to speak.
With respect to the compensability of the instant claim,
there is likewise no doubt that this falls within the ambit of
the Compensation Act as his illness had supervened at
the time of employment and thus presumed to arose out
of and in the course of employment or was aggravated
thereby and the further fact that his attending physician.
Dr. Remegio B. Reyes. had likewise declared and found
that claimant's illness was due to and in pursuance of his
work with respondent, and that it was aggravated thereby,
the merit of this case is now beyond challenge.
Furthermore, the failure of the respondent to file a timely
 and valid controversion is tantamount to malting the
presumption conclusive. Finally, if ever there may be
doubt as to the compensability of this case, the same is
resolved in favor of the claimant to serve better the ends
of social justice in this enlightened era of a
compassionate society. (pp. 12-13, WCC record;
Empahsis supplied)
Hence, this petition for review filed by G. B. Francisco, Inc.
1. Petitioner alleges that c t was not and had never been employed by it
and that "the submission of xerox copies of alleged I pay envelope' aces
not constitute sufficient and competent evidence to establish a
presumption of the existence of an employer-employee relationship."  8
Contrary to these allegations, respondent Commission, however, found
from the evidence adduced that Alejandro Urdas did work with petitioner.
It is significant that the corporation chose not to present any evidence to
disprove that fact and consequently claimant's evidence stands
unrebutted. This is clear from the commission's findings.
The assertion of petitioner that it was not given opportunity to Present its
evidence is not correct. Both parties were notified of the hearing. Only the
claimant submitted his proof. Petitioner thereby waived its right to present
its evidence at that hearing and it was too late for the case to be
reopened at the stage of the appeal before the Commission.
Findings of fact of the Commission are as a rule binding on this Court.
Thus, in the case of Abong vs. Workmen's Compensation Commission,
et al. where eight persons including two minors who were members of a
fishing outfit, the "IWAG," owned by the petitioner here, Dr. Agustino R.
Abong, drowned while fishing at sea somewhere off the coast of Northern
Negros, the court through then Justice Salvador Esguerra ruled that:
... this case is an appeal from the decision of the
Workmen's Compensation Commission. And in this class
of proceedings, only questions of law should be raised,
the findings of facts made by the Commission being
conclusive and binding upon this Court. Although this
Court is authorized to inquire into the facts, it only does so
when the conclusions therefrom are not supported by the
evidence. In the case at bar, however, this Court finds the
findings of fact made by Associate (Medical)
Commissioner Herminia Castelo-Sotto, M.D., and
concurred in by the Commission en banc to be fully
supported by the evidence on record which clearly points
out that petitioner Agustino R. Abong is the statutory
employer of the decedents ...
xxx xxx xxx
... It is well-settled that employer-employee relationship
involves findings of fact which are conclusive and binding
and not subject to review by this Court.  9
2. The second point set forth in this petition is on the lack of timeliness of
the filing of the claim.
Petitioner asserts that claimant Urdas filed his claim for compensation
way beyond the 2-month period after the date of the injury or sickness
required in Sec. 24 of the Workmen's Compensation Act for although
Urdas allegedly contracted his illness on January 15, 1967, it was only on
March 24, 1975, or after more than eight years that t filed his claim for
compensation. Petitioner further asserts that "the only statutory excuse
for a late claim is the making by the employer of compensation payments,
in part and in full and since in the case at bar, no such payments were
proven to have been made by the employer, the award by the
Commission despite of the late claim is not warranted by law."  10
Perforce, petitioner's argument cannot stand on the basis of the ruling of
this Court that the failure to file the claim within the period provided in the
aforementioned Sec. 24 does not affect the jurisdiction of the
Commission to entertain said claim and that compensation under the
Workmen's Compensation Act as amended is a liability vested by statute
which prescribes in ten years pursuant to Article 1144 (2) of the Civil
Code.  11
3. One last argument of petitioner is that leprosy known as "Hansen's
Disease" is not an occupational ailment and has no connection with
claimant's work as a painter.
The Workmen's Compensation Act which governs the present situation
expressly provides in its Section 44 that in the absence of substantial
evidence to the contrary it is presumed that a claim comes within the
provisions of this Act. Time and again this Court stated that under this
declaration of a benign and sound public policy, an employee is freed
from the burden of proving that his illness or injury was caused or
aggravated by the nature of his work. In fact, the cause of the ailment is
immaterial what is important is that it occured or was aggravated in the
course of employment and disabled the workman from pursuing his
ordinary occupation.
In the case of National Power Corporation vs. Workmen's Compensation
Commission et al. the Court speaking through then Justice Felix Bautista
Angelo, ruled that:
... While as a rule ulcer is not an occupational disease as
it is not inherent in the nature of the work of the
deceased, the same was however seriously aggravated
by the ty in which it was per formed when he often his
meals and on emergency occasions he had to work
overtime thereby causing pain or spasm in his stomach.
There is no evidence that he had that disease when he
entered petitioner's service in 1961, but he began feeling
its symptoms since 1955, and from that time on it
aggravated until he died in 1956 notwithstanding the
treatment extended to him by the employer's physician. ...
... This sickness which was contracted in the course of
employment and was aggravated because of the irregular
and intemperate nature of the work which the had to
perform because of the needs of the service imposed
upon him is compensable within the purview of the law as
found by the respondent Commission.  12
In Manila Railroad Company vs. Workmen's Compensation Commission,
et al. the Court held:
While it is true that lobar pneumonia' is directly caused by
the virus known as 'pneumococcus', and as such is not
occupation disease, it cannot however, be denied that the
sickness which brought the dismissed to his grave was
contracted in the course of his employment ...  13
To stress the variety of illnesses resulting in disability for labor which the
Court held to be compensable even in the absence of proof of the cause
of the illness or of its being work-connected, in National Housing
Corporation vs. Workmen's Compensation Commission et al. 1977, 79
SCRA 281, We enumerated those ailments and We here repeat them:
"chronic rheumatic arthritis,   intestinal amoebiasis,   post eclampsia in a
14 15
pregnant woman,   frontal sinusitis,   hernia,   carcinoma of the nasal
16 17 18
pharynx,   amoebic liver abscess,   optic neuritis, migraine and
19 20
dizziness,   malignant stomach tumor,   rheumatism,   nervous
21 22 23
depression leading to neurosis and
psychoasthenia   bangungot,   cirrhosis of the liver,   dermoid
24 25 26
cyst,   cerebral brain tumor   Chronic monomeuritis   cancer of the
27 28 29
liver,   and gastric ulcer. 
30 31
Turning to the unfortunate situation now before Us, there is no valid
reason for discounting leprosy, one of the most dreaded diseases there
is, from the above enumeration. All that We have is the bare assertion in
the pleadings of petitioner that leprosy is not compensable. Against that
assertion, however, as found by respondent Commission, is
the certification of the attending physician appearing in the record that
the disease of Urdas was caused in the course of and in pursuance of his
employment.   This is understandable considering that Urdas did painting
32
jobs for G. B. Francisco, Inc. in the latter's realty business in the course of
which he was exposed to chemicals, dust, heat, and other environmental
factors of air pollution and the like, all of which could have caused
or aggravated the leprosy which afflicted him.
IN VIEW OF THE FOREGOING, We hereby affirm the decision of
respondent Workmen's Compensation Commission. There being nothing
in the record to show that the extent of the illness has permanently and
totally incapacitated claimant from work, We direct petitioner company, G.
B. Francisco, Inc., to furnish Alejandro Urdas with such services,
appliances & supplies as the nature of his disability and the process of
his recovery may require at the Tala Leprosarium if still confined.
With costs against petitioner.
So Ordered.
Teehankee (Chairman), Fernandez and Guerrero, JJ., concur.
 
 
Separate Opinions
 
MAKASIAR, J., concurring:
I concur with the additional opinion that the respondent employer should
likewise be directed to continuously provide the claimant with such
medical, surgical and hospital services as well as appliances and
supplies as the nature of his disability and the progress of his recovery
may require and which will promote his early restoration to the maximum
level of his physical capacity. it is my consistent view that the provisions
of Section 13 of the Workmen's Compensation Act, as amended, and
Article 185 of the New Labor Code confer such right on the disabled
employee, whether his disability is temporary or permanent. This is in
compliance with the social justice guarantee of both the 1935 and 1973
Constitutions and in obedience to the directive of Article 4 of the New
Labor Code that "all doubts in the implementation and interpretation of
the provisions of this Code, including its implementing rules and
regulations, shall be resolved in favor of labor", which is a restatement of
existing jurisprudence as well as Article 1702 of the New Civil Code. to
limit such right to a temporarily disabled employee would inflict gross
injustice on those permanently disabled, who still need to be relieved
from the pain, trauma, social ostracism or humiliation generated by such
permanent disability.
 
 
Separate Opinions
MAKASIAR, J., concurring:
I concur with the additional opinion that the respondent employer should
likewise be directed to continuously provide the claimant with such
medical, surgical and hospital services as well as appliances and
supplies as the nature of his disability and the progress of his recovery
may require and which will promote his early restoration to the maximum
level of his physical capacity. it is my consistent view that the provisions
of Section 13 of the Workmen's Compensation Act, as amended, and
Article 185 of the New Labor Code confer such right on the disabled
employee, whether his disability is temporary or permanent. This is in
compliance with the social justice guarantee of both the 1935 and 1973
Constitutions and in obedience to the directive of Article 4 of the New
Labor Code that "all doubts in the implementation and interpretation of
the provisions of this Code, including its implementing rules and
regulations, shall be resolved in favor of labor", which is a restatement of
existing jurisprudence as well as Article 1702 of the New Civil Code. to
limit such right to a temporarily disabled employee would inflict gross
injustice on those permanently disabled, who still need to be relieved
from the pain, trauma, social ostracism or humiliation generated by such
permanent disability.
Footnotes
1 pp. 30-32, rollo.
2 p. 32, WCC record.
3 p. 35, Ibid.
4 p. 30, Ibid.
5 p. 29, Ibid.
6 p. 26, Ibid.
7 p. 15, Ibid.
8 p. 14, rollo.
9 pp. 385-336, 387, 54 SCRA 379. See also Bernardo vs.
Pascual 109 Phil. 936, 939; Alatco Transpo. Inc. vs.
WCC, et at, 42 SCRA 391; Abaya Plumbing vs. WCC, et
al. 61 SCRA 257.
10 pp. 17-18, rollo.
11 Vallo vs. WCC, et al. 73 SCRA 623, citing Manila Rail-
road Co. vs. Perez & WCC, 14 SCRA 504. See also the
following, Magpantay vs. WCC, 73 SCRA 533; Baterna
vs. WCC, et al. 75 SCRA 409; Guevarra vs. Republic, 77
SCRA 292; Caling vs. WCC, et al. 77 SCRA 309; Ybañez
vs. WCC, et al. 77 SCRA 501; Romero vs. WCC et al. 77
SCRA 482; Canonero vs. WCC, et al. 81 SCRA 712.
12 13 SCRA 116,118-119.
13 10 SCRA 41; emphasis supplied.
14 Dimaano vs. WCC, et al. 78 SCRA 506; Pros vs,
WCC, et al. 73 SCRA 92; Caparas vs. WCC, et al. 73
SCRA 221.
15 Morales vs. WCC, et al. 76 SCRA 239.
16 Francisco vs. WCC, et al. 76 SCRA 492.
17 Despe vs. WCC, et al. 75 SCRA 350.
18 Santos vs. WCC, et al. 75 SCRA 364.
19 Bihag vs. WCC, et al. 76 SCRA 357.
20 Marapo vs. Phil. Packing Corp., 75 SCRA 188.
21 Dometita vs. WCC, et al. 74 SCRA 217.
22 Vda. de Laron vs. WCC, et al. 73 SCRA 84.
23 Vda. de Leorna vs. WCC, et al. 73 SCRA 228;
Martinez vs. WCC, et al. 73 SCRA 271.
24 Camarillo vs. WCC, et al. 73 SCRA 497.
25 Vda. de Galler vs. WCC, et al. 75 SCRA 336.
26 Mercado vs. WCC, et al. 72 SCRA 260.
27 Simon vs. Republic, 71 SCRA 643.
28 Manila Electric Co. vs. WCC, et al. 39 SCRA 669; Uy
vs. WCC, et al. 64 SCRA 37.
29 Philippine Graphic Arts vs. Mariano, 53 SCRA 409.
30 Maria Cristina Fertilizer vs. WCC, et al. 60 SCRA 228.
31 National Power Corp. vs. WCC, 13 SCRA 116; Vicente
Galang vs. WCC, et al. 72 SCRA 455.
32 p. 35, WCC record.
14.)
EN BANC
[G.R. No. L-8715.  June 30, 1956.]
PHILIPPINE AIR LINES, INC., Petitioner, vs. ANTONIO BALANGUIT, ET AL.,
(PUBLIC UTILITIES EMPLOYEES ASSOCIATION [FEATI CHAPTER] and THE
COURT OF INDUSTRIAL RELATIONS, Respondents.
DECISION
MONTEMAYOR, J.:
This is a petition for certiorari filed by Philippine Air Lines, Inc. (later referred
to as the PAL) against Antonio Balanguit, et al., (Public Utilities Employees
Association [FEATI Chapter] — later referred to as the EMPLOYEES and the
Court of Industrial Relations (CIR) to review the order of the latter dated
December 10, 1954, directing the PAL “to pay the money value of whatever
vacation and sick leave might have accrued to the employees” listed in the
petition of Balanguit, et al., from August 1, 1946 up to June 15, 1947. For
the facts of the case, we adopt and reproduce the STATEMENT OF FACTS
made by Petitioner in its petition which the employees in their answer admit
to be substantially correct.
“1.  Sometime before May 21, 1947, the Philippine Air Lines, Inc.
(hereinafter referred to as PAL for brevity) purchased and acquired a
majority of the shares of the Far Eastern Air Transport, Inc. (hereinafter
referred to as FEATI, also for brevity). Those two airlines were, previous to
the said purchases, then competing in various air routes through the
Philippines, with the result that both companies were losing and it became
necessary to maintain only one airline. The purchase gave rise to the
problem of what to do with the FEATI employees. After some negotiations
between the representatives of the FEATI Employees Association and the
PAL, the parties finally reached an agreement on May 21, 1947, whereby
the PAL agreed to absorb some 70 per cent of the FEATI employees, and the
said employees agreed to work for PAL under the same terms and
conditions as they worked for the FEATI until such time as they come to a
definite understanding. The pertinent portion of the aforesaid Agreement
reads as follows:
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‘1.  That the PAL will absorb all the employees and laborers that could
possibly be absorbed by them belonging to the Public Utilities Employees
Association FEATI Chapter, and that these employees and laborers are to
work with the PAL in accordance with the provisions of the Collective
Bargaining Agreement entered into between the previous Management of
FEATI and the representatives of the Public Utilities Employees Association
FEATI Chapter, dated August 1, 1946, until such time as the said Association
and the PAL Employees organization come to a definite understanding.’ A
certified copy of the said Agreement is hereto attached and made a part
hereof an Annex “A” of this petition.
“2.  The Collective Bargaining Agreement with the FEATI referred to in the
above employment agreement of May 21, 1947 of the Public Utilities
Employees Association with the PAL was their Industrial Agreement of
August 1, 1946, the pertinent portion of which granted the said employees
certain privileges, among which were:
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‘IV. — Vacation and Sick Leave. — The employees will be entitled to twelve
(12) days vacation leave and twelve (12) days sick leave with pay every year,
which may be cumulative.’
A certified copy of the said Industrial Agreement is hereto attached and
made a part hereof as Annex “B”.
“3.  On July 9, 1947, the PAL reached a ‘definite understanding’ with the
Public Utilities Employees Association aforesaid whereby they entered into
an agreement cancelling the agreements of May 21, 1947 and August 1,
1946, and declaring them ‘void and of no further force and effect.’ It also
provided for the laying off of all the FEATI employees as of June 15, 1947
and the payment to them of one and a half month’s separation pay which
amounted, roughly to P150,000.00.
A certified copy of said Agreement is hereto attached and made a part
hereof as Annex “C”.
“4.  On November 11, 1952, almost six years from the time they were laid
off, the Public Utilities Employees Association aforesaid filed a petition with
the Court of Industrial Relations praying that the PAL be ordered to pay
them the twelve (12) days vacation leave and twelve (12) days sick leave
with pay, from August 1, 1946, which had already accrued at the time they
were laid off on June 15, 1947.
“5.  The PAL, in its Answer to the Employees’ petition, denied liability,
alleging that it was not a party to the Agreement of August 1, 1946. The said
employees were absorbed by the PAL only on May 21, 1947 and were laid
off on June 15, 1947.
“6.  On December 10, 1954, the Court of Industrial Relations, through
Associate Judge V. Jimenez Yanson, issued an Order requiring the PAL to pay
the said employees the money value of whatever vacation and sick leave
might have accrued to the said employees from August 1, 1946 to June 15,
1947.”
According to the PAL the amount involved, namely, the money equivalent of
the vacation and sick leave which it is directed to pay by the CIR is roughly
about P100,000.00. The question to determine is whether or not the PAL is
legally liable for the payment of this amount. It is unfortunate that the final
agreement of July 9, 1946, between the PAL and FEATI on one side and the
Employees on the other, failed to make any mention whatsoever about the
money equivalent of this vacation and sick leave, whether it was payable or
not and if payable, by whom. There is no question that this leave was
earned by the employees from the FEATI for the services rendered to it by
them from August 1, 1946 (the date of the industrial agreement between
them and the FEATI, when they were accorded this right to twelve (12) days
vacation leave and twelve (12) days sick leave for every year of service) up
to May 21, 1947, when they ceased to render said service to the FEATI. For
those employees who were absorbed and continued to render service to
the PAL from May 21, 1947 to June 15, 1947 (a period of less than one
month), when they were all laid-off, they may be said to have earned the
corresponding leave from the PAL. Did the PAL assume this obligation of the
FEATI to pay the equivalent of this leave which the employees earned from
the FEATI ? Nothing is said in the agreement of July 9, 1947. The employees
claim and also the CIR, though indirectly, that when the PAL bought out the
FEATI the former assumed all the rights and obligations of the latter. This is
too sweeping a statement. In some cases, when one company buys out
another and continues the business of the latter company, the buyer may be
said to assume the obligations of the company bought out when said
obligations are not of considerable amount or value, specially when incurred
in the ordinary course of trade, and when the business of the latter
company is continued. However, when said obligation is of extraordinary
value, as in this case, amounting to about P100,000, and the FEATI was
bought out not to continue its business but to stop its operation in order to
eliminate competition, as shown by the fact that all the employees of the
enable him to efficiently perform his duties, and not merely to give him
additional salary or bounty. This privilege must be demanded in its
opportune time and if he allows the years to go by in silence, he waives it. It
becomes a mere concession or act of grace of the employer.” ( Sun-Ripe
Coconut Products, Inc. vs. National Labor Union, 97 Phil., 691;  51 O.G.
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FEATI were laid-off, we cannot say that the vendee assumed all the 5133.)
obligations of the rival airline.
In view of the foregoing, the petition for certiorari is granted, and the order
What the employees should have done at the time of the, negotiation of the CIR of December 10, 1954, and the resolution of the CIR in banc of
among the PAL, the FEATI and themselves preparatory to the execution of December 29, 1954, are set aside, and the complaint of the employees
the agreement of July 9, 1947, was to raise the question as to who would (Association) against the PAL in Case No. 89-V(2) is hereby dismissed, with
pay them the equivalent of the vacation and sick leave already earned by costs.
them under the FEATI. Had they insisted on its payment, the FEATI could
Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Concepcion,
perhaps have been made to pay unless, of course, the PAL agreed to assume
Reyes, J.B.L., and Endencia, JJ., concur.
the obligation. When they (employees) failed to raise that question or have
it embodied in the agreement, said failure may be regarded as a waiver of
their right. And when they received a separation pay equivalent to one and
one half months and then kept quiet about their vacation and sick leave for
a period of more than five years, there is every reason to believe that there
was actually such renunciation and waiver. It would be no surprise if this
separation pay was understood and agreed upon by all parties to include
the equivalent of leave already earned by the employees. It may be recalled
that the separation pay was not only for one month but it was for one
month and a half, exceeding the “mesada” provided for in the Code of 15.) Bernardo v Pascual et al and the WCC 109 Phil 936
Commerce (still in force in 1947) by half a month. It is highly possible that
the extra half month pay was to take care of the vacation and sick leave,
especially when we consider the fact that at the time of separation on June
15, 1947, the employees had, for purposes of earning the leave, not yet
completed one year service (from August 1, 1946 to June 15, 1947). GUTIERREZ DAVID, J.:
Anyway, even assuming for a moment that the employees were entitled to
the payment of said leave, they were guilty of laches. It would be unfair now This is a petition to review on certiorari a decision of
to demand this payment from the PAL after more than five years when the the Workmen's Compensation Commission, awarding
papers and the records of the service of said employees from August 1, compensation to the widow and children of the
1946 to May or June, 1947, may no longer exist;  when the FEATI has long
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deceased Pedro Pascual who met death as a result of an

ceased operations and has long ceased to exist and when its officials who
were in a position to determine which employees because of their faithful,
efficient and continuous service were entitled to leave and for how many
days, may no longer be available.
“The purpose of vacation is to afford to a laborer a chance to get a much-
needed rest to replenish his worn out energies and acquire a new vitality to
accident while felling a tree in petitioner's lumber
concession.
The record shows that on March 9, 1955, the deceased
Pedro Pascual was, together with Rogelio Bacane and
Martin Quinto, in the woods at Corona, San Miguel,
Bulacan. Bacane and Quinto, both loggers admittedly
in the employ of herein petitioner, were cutting timber,
while fifty meters away from them the deceased was
felling a tree which he had started hewing three days
before. When Bacane and Quinto heard the sound of
the falling tree and following the practice among
loggers they shouted to Pascual to find out if he was
alright. As the latter did not answer, they rushed to
where he was and there found him prostrate on the
ground with blood trickling from his mouth. Shortly
thereafter, he died from a fractured skull and his
companions took his body home in petitioner's truck.
On March 31, 1955, the widow of the deceased on
behalf of herself and their children filed a claim for
compensation with the Workmen's Compensation
Commission. Originally filed against the Bernardo
Sawmill, the claim was on February 6, 1956 amended
to include herein petitioner Lino P. Bernardo, the
timber concessionaire and owner and operator of the
sawmill, as party respondent. In his answer, the latter
denied that he was a timber concessionaire before
October 13, 1955, or that he had an employer-employee
relationship with the deceased. He also objected to the
claim on the ground of prescription. The referee
assigned to hear the case having denied the claim, the
claimants petitioned for review. On August 27, 1957,
the reviewing commissioner reversed the referee's
decision and ordered Lino P. Bernardo to pay
claimants P3,120.00 as compensation, to reimburse
them P200.00 for burial expenses and to pay to the
Workmen's Compensation Fund P32.00 as fees.
Reconsideration of this award having been denied,
Lino P. Bernardo brought the present petition for
certiorari.
Petitioner first charges that the respondent
Commission abused its discretion in reversing the
decision of the referee and finding that the deceased
was his employee. Petitioner, however has failed to
substantiate the charge. On the other hand, Rogelio
Bacane and Martin Quinto, whose employment with
the petitioner was never denied and who were present
and were working together with the deceased at the
time the latter met his death, testified at the hearing of
the case that the said deceased was their co-laborer in
the lumber concession of petitioner Lino P. Bernardo.
Indeed, the respondent Commission, expressly found
that their testimonies "clearly point to the existence of
an employer-employee relation between the
respondent (herein petitioner) and the deceased." It
also appears that the deceased, Bacane and Quinto
used to receive their wages from Emilio Bautista,
petitioner's "katiwala". As a matter of fact, the widow
of the deceased received from said Bautista the wages
corresponding to services last rendered by her
husband. Petitioner claims that Bautista was a forest
guard of the Government and was not his employee.
This claim, however, loses its force when we consider
the fact that forest guards hired by lumber
concessionaires, though appointed by the Department
of Agriculture and Natural Resources (under Forestry
Order No. 11), are still deemed employees of the
concessionaires. (See Martha Lumber Mill vs.
Lagradante, et al., 99 Phil., 434; 52 Off. Gaz. [9] 4230.)
In disclaiming employer-employee relationship with specified the real party in interest in accordance with
the deceased, petitioner has made the rather reckless the rule that every action must be prosecuted in the
accusation that the said deceased was a "lumber name of such party in interest (Section 2, Rule 3, Rules
smuggler" who had been stealing timber from the of Court). Since the amendment did not state a new
concession area. No explanation, however, was given cause of action but merely made more determinate the
why the deceased at the time of his death was felling a real party respondent, it evidently relates back to the
tree in broad daylight and in the presence of date of the original complaint or claim, which was
petitioner's two loggers. In this connection, we might admittedly filed within the 3-month period from the
add that the finding of the respondent Commission death of the employee as fixed by tsection 24, of the
that the deceased was petitioner's employee at the time Workmen's Compensation Act.
of his death is a finding of fact and there being no
With respect to petitioner's claim that he became a
sufficient showing that the same is unsupported by
lumber concessionaire only on October 13, 1955, suffice
substantial evidence, the same should be deemed final
it to say that prior to that date, he was a partner to
and conclusive upon this Court. (Madrigal Shipping
several persons owning the concession in San Miguel,
Co. vs. Del Rosario, et al., G. R. No. L-13130, October
Bulacan, and subsequent thereto, he acquired the
31, 1959; NLU vs. Sta. Ana, 101 Phil., 297; 54 Off. Gaz.
interest of his partners and became the sole
[6] 1817; see also PAL vs. PAL Employees Association,
concessionaire. Under those circumstances he became
G. R. No. L-8197, October 31, 1958; Donato vs. Phil.
liable to the creditors of the partnership. (Art. 1840,
Marine Officers Association, G. R. No. L-12506, May
new Civil Code.)
18, 1958; 15c and Up Employees' Association vs. Dept.
and Bazaar Free Workers' Union, G. R. No. L-9168, Wherefore, the decision of the Workmen's
October 18, 1956; NLU vs. Dinglasan, 98 Phil., 649; 52 Compensation Commission sought to be reviewed is
Off. Gaz. (4) 1933; Batangas Transportation Co. vs. affirmed, with costs.
Rivera and WCC, supra, p.175.)
Paras, C.J., Bengzon, Padilla, Bautista Angelo,
Petitioner also argues that the claim was made out of Labrador, Reyes, J. B. L., Barrera, and Paredes, JJ.,
time and therefore already barred because it was filed concur.
only on February 6, 1956. It will be recalled that
Decision affirmed.
claimants filed their original claim on March 31, 1955
against the Bernardo Sawmill, and on February 6,
1956, amended it to include petitioner Lino P.
Bernardo as party respondent, it appearing that he was
the owner and operator of the sawmill. It will thus be
seen that in amending the claim, claimants merely
16.) In the Matter if the Petition for Authority to Continue
Use of the Firm Name "Ozaete, Romulo, etc." 92 SCRA 1

17.) FIRST DIVISION

 [G.R. No. 126334. November 23, 2001.]
1. Defendant be ordered to render the proper accounting of all
EMILIO EMNACE, Petitioner, v. COURT OF APPEALS, the assets and liabilities of the partnership at bar; and
ESTATE OF VICENTE TABANAO, SHERWIN TABANAO,
VICENTE WILLIAM TABANAO, JANETTE TABANAO 2. After due notice and hearing defendant be ordered to
DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA pay/remit/deliver/surrender/yield to the plaintiffs the
following:
TABANAO and VINCENT TABANAO, Respondents.
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A. No less than One Third (1/3) of the assets, properties,

DECISION dividends, cash, land(s), fishing vessels, trucks, motor vehicles,
and other forms and substance of treasures which belong
and/or should belong, had accrued and/or must accrue to the
YNARES-SANTIAGO, J.: partnership;

B. No less than Two Hundred Thousand Pesos (P200,000.00) as

moral damages;
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto
Divinagracia were partners in a business concern known as Ma.
C. Attorney’s fees equivalent to Thirty Percent (30%) of the
Nelma Fishing Industry. Sometime in January of 1986, they
entire share/amount/award which the Honorable Court may
decided to dissolve their partnership and executed an
resolve the plaintiffs as entitled to plus P1,000.00 for every
agreement of partition and distribution of the partnership
appearance in court. 4
properties among them, consequent to Jacinto Divinagracia’s
withdrawal from the partnership. 1 Among the assets to be
Petitioner filed a motion to dismiss the complaint on the
distributed were five (5) fishing boats, six (6) vehicles, two (2)
grounds of improper venue, lack of jurisdiction over the nature
parcels of land located at Sto. Niño and Talisay, Negros
of the action or suit, and lack of capacity of the estate of
Occidental, and cash deposits in the local branches of the Bank
Tabanao to sue. 5 On August 30, 1994, the trial court denied
of the Philippine Islands and Prudential Bank.
the motion to dismiss. It held that venue was properly laid
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because, while realties were involved, the action was directed

Throughout the existence of the partnership, and even after
against a particular person on the basis of his personal liability;
Vicente Tabanao’s untimely demise in 1994, petitioner failed to
hence, the action is not only a personal action but also an action
submit to Tabanao’s heirs any statement of assets and liabilities
in personam. As regards petitioner’s argument of lack of
of the partnership, and to render an accounting of the
jurisdiction over the action because the prescribed docket fee
partnership’s finances. Petitioner also reneged on his promise to
was not paid considering the huge amount involved in the
turn over to Tabanao’s heirs the deceased’s 1/3 share in the
claim, the trial court noted that a request for accounting was
total assets of the partnership, amounting to P30,000,000.00,
made in order that the exact value of the partnership may be
or the sum of P10,000,000.00, despite formal demand for
ascertained and, thus, the correct docket fee may be paid.
payment thereof. 2
Finally, the trial court held that the heirs of Tabanao had a right
to sue in their own names, in view of the provision of Article
Consequently, Tabanao’s heirs, respondents herein, filed
777 of the Civil Code, which states that the rights to the
against petitioner an action for accounting, payment of shares,
succession are transmitted from the moment of the death of the
division of assets and damages. 3 In their complaint,
decedent. 6
respondents prayed as follows: chanrob1es virtual 1aw library
The following day, respondents filed an amended complaint, 7
incorporating the additional 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, 8 arguing
that the trial court did not acquire jurisdiction over the case due
to the plaintiffs’ failure to pay the proper docket fees. Further,
in a supplement to his motion to dismiss, 9 petitioner also
raised prescription as an additional ground warranting the
outright dismissal of the complaint.
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 to run only upon the dissolution of
the partnership when the final accounting is done. Hence,
prescription has not set in the absence of a final accounting.
Moreover, an action based on a 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 issues: chanrob1es virtual 1aw library
I. Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in taking cognizance of a case
despite the failure to pay the required docket fee;
II. Whether or not respondent Judge acted without jurisdiction
or with grave abuse of discretion in insisting to try the case
which involve (sic) a parcel of land situated outside of its
territorial jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction
or with grave abuse of discretion in allowing the estate of the
deceased to appear as party plaintiff, when there is no intestate
case and filed by one who was never appointed by the court as
administratrix of the estates; and
IV. Whether or not respondent Judge acted without jurisdiction
or with grave abuse of discretion in not dismissing the case on
the ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed
decision, 12 dismissing the petition for certiorari, upon a finding
that no grave abuse of discretion amounting to lack or excess of
jurisdiction was committed by the trial court in issuing the
questioned orders denying petitioner’s motions to dismiss.
Not satisfied, petitioner filed the instant petition for review,
raising the same issues resolved by the Court of Appeals,
namely: chanrob1es virtual 1aw library
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial
court is outside the said court’s territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of
Vicente Tabanao; and
IV. Prescription of the plaintiff heirs’ cause of action.
It can be readily seen that respondents’ primary and ultimate
objective in instituting the action below was to recover the
decedent’s 1/3 share in the partnership’s assets. While they ask
for an accounting of the partnership’s assets and finances, what
they are actually asking is for the trial court to compel
petitioner to pay and turn over their share, or the equivalent
value thereof, from the proceeds of the sale of the partnership
assets. They also assert that 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 Court.
We do not agree. The trial court does not have to employ
guesswork in ascertaining the 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 really not
beyond pecuniary estimation, but rather partakes of the nature
of a simple collection case where the value of the subject assets
or amount demanded is pecuniarily 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,
particularly from petitioner, in order to determine the proper
amount of docket and other fees. 14 It is thus imperative for
respondents to pay the corresponding docket fees in order that
the trial court may acquire jurisdiction over the action. 15
Nevertheless, unlike in the case of Manchester Development
Corp. v. Court of Appeals, 16 where there was clearly an effort
to defraud the government in avoiding to pay the correct docket
fees, we see no attempt to cheat the courts on the part of
respondents. In 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 should there be any deficiency in the payment
of the docket fees to be computed by the Clerk 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 may simply be
due to an inability to pay at the time of filing. This consideration
may have moved the trial court and the Court of Appeals to
declare that the unpaid docket fees shall be considered a lien on
the judgment award.
Petitioner, however, argues that the trial court and the Court of
Appeals erred in condoning the non-payment of the proper legal
fees and in allowing the same to become a lien on the 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 states
that:chanrob1es virtual 1aw library
The legal fees shall be a lien on the monetary or property
judgment in favor of the pauper-litigant.
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
The rule applicable to the case at bar is Section 5(a) of Rule 141
of the Rules of Court, which defines the two kinds of claims as:
(1) those which are immediately ascertainable; and (2) those
which cannot be immediately ascertained as to the exact
amount. This second class of claims, where the exact amount
still has to be finally determined be the courts based on
evidence presented, falls squarely under the third paragraph of
said Section 5(a), which provides: chanrob1es virtual 1aw library
In case the value of the property or estate or the sum claimed
is less or more in accordance with the appraisal of the court, the
difference of fee shall be refunded or paid as the case may be.
(Emphasis ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals, 19
this Court pronounced that the 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 may be proved." 20 Moreover, we reiterated
therein the principle that the payment of filing fees cannot be
made contingent or dependent on the result of the case. Thus,
an initial payment of the docket fees based on an estimated
amount must be paid simultaneous with the filing of the
complaint. Otherwise, the court would stand to lose the filing
fees should the judgment later turn out to be adverse to any
claim of the respondent heirs.
The matter of payment of docket fees is not a mere triviality.
These fees are necessary to defray court expenses in the
handling of cases. Consequently, in order to avoid tremendous
losses to the judiciary, and to the government as well, the
payment of docket fees cannot be made dependent on the
outcome of the case, except when the claimant is a pauper-
litigant.
Applied to the instant case, respondents have a specific claim —
1/3 of the value of all the partnership assets — but they did not
allege a specific amount. They did, however, estimate the
partnership’s total assets to be worth Thirty Million Pesos
(P30,000,000.00), in a letter 21 addressed to petitioner.
Respondents cannot now say that they are unable to make an
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
their amended complaint. This estimate can be made the basis
for the initial docket fees that respondents should pay. Even if it
were later established that the amount proved was less or more
than the amount alleged or estimated, Rule 141, Section 5(a) of
the Rules of Court specifically provides that the court may
refund the excess or exact additional fees should the 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 and which
may be subjected to a lien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon.
Maximiano Asuncion, 22 this Court 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 responsibility of the Clerk of Court
or his duly authorized deputy to enforce said lien and assess
and collect the additional fee." Clearly, the rules and
jurisprudence contemplate the initial payment of filing and
docket fees based on the estimated claims of the plaintiff, and it
is only when there is a deficiency that a lien may be constituted
on the judgment award until such additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing
the complaint outright despite their failure to pay the proper
docket fees. Nevertheless, as in other procedural rules, it may
be liberally construed in certain cases if only to secure a just
and speedy disposition of an action. While the rule is that the
payment of the docket fee in the proper amount should be
adhered to, there are certain exceptions which must be strictly
construed. 23
In recent rulings, this Court has relaxed the strict adherence to
the Manchester doctrine, allowing the plaintiff to pay the proper
docket fees within a reasonable time before the expiration of
the applicable prescriptive or reglementary period. 24
In the recent case of National Steel Corp. v. Court of Appeals,
25 this Court held that: chanrob1es virtual 1aw library
The court acquires jurisdiction over the action if the filing of the
initiatory pleading is accompanied by the payment of the
requisite fees, or, if the fees are not paid at the time of the
filing of the pleading, as of the time of full payment of the fees
within such reasonable time as the court may grant, unless, of
course, prescription has set in the meantime.
It does not follow, however, that the trial court should have
dismissed the complaint for failure of private respondent to pay
the correct amount of docket fees. Although the payment of the
proper docket fees is a jurisdictional requirement, the trial court
may allow the plaintiff in an action to pay the same within a
reasonable time before the expiration of the applicable
prescriptive or reglementary period. If the plaintiff fails to
comply within this requirement, the defendant should timely
raise the issue of jurisdiction or else he would be considered in
estoppel. In the latter case, the balance between the
appropriate docket fees and the amount actually paid by the
plaintiff will be considered a lien or any award he may obtain in
his favor. (Emphasis ours)
Accordingly, the trial court in the case at bar should determine
the proper docket fee based on the estimated amount that
respondents seek to collect from petitioner, and direct them to
pay the same within a reasonable time, provided the applicable
prescriptive or reglementary period has not yet expired. Failure
to comply therewith, and upon motion by petitioner, the
immediate dismissal of the complaint shall issue on
jurisdictional grounds.
On the matter of improper venue, we find no error on the part
of the trial court and the 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 plaintiffs reside, at the election of the
latter. 26
Petitioner, however, insists that venue was improperly laid since
the action is a real action involving a parcel of land that is
located outside the territorial jurisdiction of the court a quo.
This contention is not well-taken. The records indubitably show
that respondents are asking that the assets of the partnership
be accounted for, sold and distributed according to the
agreement of the partners. The fact that two of the assets of
the partnership are parcels 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 personal liability. It is not an action in rem where the action
is against the thing itself instead of against the person. 27
Furthermore, there is no showing that the parcels of land
involved in this case are being disputed. In fact, it is only
incidental that part of the assets of the partnership under
liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, Et Al., 28
settled this issue thus:
chanrob1es virtual 1aw library
The fact that plaintiff prays for the sale of the assets of the
partnership, including the fishpond in question, did not change
the nature or character of the action, such sale being merely a
necessary incident of the liquidation of the partnership, which
should precede and/or is part of its process of dissolution.
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
formalize the partnership’s dissolution, as well as to implement
the liquidation and partition of the partnership’s assets. Clearly,
it is a personal action that, in effect, claims a debt from
petitioner and seeks the performance of a personal duty on his
part. 29 In fine, respondents’ 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 reside. 30 Besides, venue has nothing to do
with jurisdiction for venue touches more upon the substance or
merits of the case. 31 As it is, venue in this case was properly
laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse
of Vicente Tabanao has no legal capacity to sue since she was
never appointed as administratrix or executrix of his estate.
Petitioner’s objection in this regard is misplaced. The surviving
spouse does not need to be appointed as executrix or
administratrix of the estate before she can file the action. She
and her children are complainants in their own right as
successors of Vicente Tabanao. From the very moment of
Vicente Tabanao’s death, his rights insofar as the partnership
was concerned were transmitted to his heirs, for rights to the
succession are transmitted from the moment of death of the
decedent. 32
Whatever claims and rights Vicente Tabanao had against the
partnership and petitioner were transmitted to respondents by
operation of law, more particularly by succession, which is a
mode of acquisition by virtue of which the property, rights and
obligations to the extent of the value of the inheritance of a
person are transmitted. 33 Moreover, respondents became
owners of their respective hereditary shares from the moment
Vicente Tabanao died. 34
A prior settlement of the estate, or even the appointment of
Salvacion Tabanao as executrix or administratrix, is not
necessary for any of the heirs to acquire legal capacity to sue.
As successors who stepped into the shoes of their decedent
upon his death, they can commence any action originally
pertaining to the decedent. 35 From the moment of his death,
his rights as a partner and to demand fulfillment of petitioner’s
obligations as outlined in their dissolution agreement were
transmitted to respondents. They, therefore, had the capacity to
sue and seek the court’s intervention to compel petitioner to
fulfill his obligations.
Finally, petitioner contends that the trial court should have
dismissed the complaint on the 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 petitioner’s hollow arguments, and rightly
so.
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 is
retained, at which time it completes the winding up of its
affairs, including the partitioning and distribution of the net
partnership assets to the partners. 37 For as long as the
partnership exists, any of the partners may demand an
accounting of the partnership’s business. Prescription of the said
right starts to run only upon the dissolution of the partnership
when the final accounting is done. 38
Contrary to petitioner’s protestations that respondents’ right to
inquire into the business affairs of the partnership accrued in
1986, prescribing four (4) years thereafter, prescription had not
even begun to run in the absence of a final accounting. Article
1842 of the Civil Code provides: chanrob1es virtual 1aw library
The right to an account of his interest shall accrue to any
partner, or his legal representative as against the winding up
partners or the surviving partners or the person or partnership
continuing the business, at the date of dissolution, in the
absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal
with the duty to account, the above-cited provision states that
the right to demand an accounting accrues at the date of
dissolution in the absence of any agreement to the contrary.
When a final accounting is made, it is only then that
prescription begins to run. In the case at bar, no final
accounting has been made, and that is precisely what
respondents are seeking in their action before the trial court,
since petitioner has failed or refused to render an accounting of
the partnership’s business and assets. Hence, the said action is
not barred by prescription.
In fine, the trial court neither erred nor abused its discretion
when it denied petitioner’s motions to dismiss. Likewise, the
Court of Appeals did not commit reversible error in upholding
the trial court’s orders. Precious time has been lost just to settle
this preliminary issue, with petitioner resurrecting the very
same arguments from the trial court all the way up to the
Supreme Court. The litigation of the merits and substantial
issues of this controversy is now long overdue and must
proceed without further delay.
chanrob1es virtua1 1aw 1ibrary
WHEREFORE, in view of all the foregoing, the instant petition is
DENIED for lack of merit, and the case is REMANDED to the
Regional Trial Court of Cadiz City, Branch 60, which is ORDERED
to determine the proper docket fee based on the estimated
amount that plaintiffs therein seek to collect, and direct said
plaintiffs to pay the same within a reasonable time, provided
the applicable prescriptive or reglementary period has not yet
expired. Thereafter, the trial court is ORDERED to conduct the
appropriate proceedings in Civil Case No. 416-C.
Costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.
17.) Emnace v. Court of Appeals and the Estate of
Vicente Tabanao
G.R. No. 126334, November 23, 2001
Petitioners Emnace, Tabanao and Divigranacia were partners in
a business known as Ma. Nelma Fishing Industry. Sometime in
January 1986, they decided to dissolve their partnership and
executed an agreement of partition and distribution.
Throughout the existence of the partnership, and even after
Tabanao’s death, petitioner failed to submit to Tabanao’s heirs
any financial statements. Petitioner also reneged on his promise
to turn over the 1/3 share in the total assets of the partnership to
the heirs. Private respondents filed an action for accounting,
payment of shares, division of assets and damages. Petitioner
filed a motion to dismiss the complaint on the grounds of
improper venue, lack of jurisdiction and lack of capacity of the
estate of Tabanao to sue. The trial court denied the motion to
dismiss. The trial court held that the heirs of Tabanao had a
right to sue in their own names, in view of the provision of Art.
777 of the CC.
ISSUE: Whether the private respondents have the legal
capacity to sue.
YES. petitioner asserts that the surviving spouse of Vicente
Tabanao has no legal capacity to sue since she was never
appointed as administratrix or executrix of his estate.
Petitioner’s objection in this regard is misplaced. The surviving
spouse does not need to be appointed as executrix or
administratrix of the estate before she can file the action. She
and her children are complainants in their own right as
successors of Vicente Tabanao. From the very moment of
Vicente Tabanao’s death, his rights insofar as the partnership
was concerned were transmitted to his heirs, for rights to the
succession are transmitted from the moment of death of the
decedent. Whatever claims and rights Vicente Tabanao had
against the partnership and petitioner were transmitted to
respondents by operation of law, more particularly by
succession, which is a mode of acquisition by virtue of which the
property, rights and obligations to the extent of the value of the
inheritance of a person are transmitted. Moreover, respondents
became owners of their respective hereditary shares from the
moment Vicente Tabanao died. A prior settlement of the estate,
or even the appointment of Salvacion Tabanao as executrix or
administratrix, is not necessary for any of the heirs to acquire
legal capacity to sue. As successors who stepped into the shoes
of their decedent upon his death, they can commence any action
originally pertaining to the decedent. From the moment of his
death, his rights as a partner and to demand fulfillment of
petitioner’s obligations as outlined in their dissolution
agreement were transmitted to respondents. They, therefore,
had the capacity to sue and seek the court’s intervention to
compel petitioner to fulfill his obligations.
18.) G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG
YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.
GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of the then
Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed
the decision of the then Court of First Instance of Manila, Branch II in Civil
Case No. 116725 declaring private respondent Leung Yiu a partner of
petitioner Dan Fue Leung in the business of Sun Wah Panciteria and
ordering the petitioner to pay to the private respondent his share in the
annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with
the then Court of First Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the annual profits derived from
the operation of Sun Wah Panciteria since October, 1955 from petitioner
Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres
Street, Sta. Cruz, Manila, was established sometime in October, 1955. It
was registered as a single proprietorship and its licenses and permits
were issued to and in favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced evidence during the trial of
the case to show that Sun Wah Panciteria was actually a partnership and
that he was one of the partners having contributed P4,000.00 to its initial
establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational,
the private respondent gave P4,000.00 as his contribution to the
partnership. This is evidenced by a receipt identified as Exhibit "A"
wherein the petitioner acknowledged his acceptance of the P4,000.00 by
affixing his signature thereto. The receipt was written in Chinese
characters so that the trial court commissioned an interpreter in the
person of Ms. Florence Yap to translate its contents into English.
Florence Yap issued a certification and testified that the translation to the
best of her knowledge and belief was correct. The private respondent
identified the signature on the receipt as that of the petitioner (Exhibit A-
3) because it was affixed by the latter in his (private respondents')
presence. Witnesses So Sia and Antonio Ah Heng corroborated the
private respondents testimony to the effect that they were both present
when the receipt (Exhibit "A") was signed by the petitioner. So Sia further
testified that he himself received from the petitioner a similar receipt
(Exhibit D) evidencing delivery of his own investment in another amount
of P4,000.00 An examination was conducted by the PC Crime Laboratory
on orders of the trial court granting the private respondents motion for
examination of certain documentary exhibits. The signatures in Exhibits
"A" and 'D' when compared to the signature of the petitioner appearing in
the pay envelopes of employees of the restaurant, namely Ah Heng and
Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in the
two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation of
the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the
Savings Department of the China Banking Corporation testified that said
check (Exhibit B) was deposited by and duly credited to the private
respondents savings account with the bank after it was cleared by the
drawee bank, the Equitable Banking Corporation. Another witness Elvira
Rana of the Equitable Banking Corporation testified that the check in
question was in fact and in truth drawn by the petitioner and debited
against his own account in said bank. This fact was clearly shown and
indicated in the petitioner's statement of account after the check (Exhibit
B) was duly cleared. Rana further testified that upon clearance of the
check and pursuant to normal banking procedure, said check was
returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the
amount of P4,000.00. He contested and impugned the genuineness of
the receipt (Exhibit D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the
Sun Wah Panciteria. He used his savings from his salaries as an
employee at Camp Stotsenberg in Clark Field and later as waiter at the
Toho Restaurant amounting to a little more than P2,000.00 as capital in
establishing Sun Wah Panciteria. To bolster his contention that he was
the sole owner of the restaurant, the petitioner presented various
government licenses and permits showing the Sun Wah Panciteria was
and still is a single proprietorship solely owned and operated by himself
alone. Fue Leung also flatly denied having issued to the private
respondent the receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount of P12,000.00
(Exhibit B).
As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Hence, the court ruled in favor of the
private respondent. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiff and against the defendant, ordering the latter
to deliver and pay to the former, the sum equivalent to
22% of the annual profit derived from the operation of Sun
Wah Panciteria from October, 1955, until fully paid, and
attorney's fees in the amount of P5,000.00 and cost of
suit. (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the
nature of a motion for new trial and, as supplement to the said motion, he
requested that the decision rendered should include the net profit of the
Sun Wah Panciteria which was not specified in the decision, and allow
private respondent to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After
hearing the trial court rendered an amended decision, the dispositive
portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the
motion for reconsideration filed by the plaintiff, which was
granted earlier by the Court, is hereby reiterated and the
decision rendered by this Court on September 30, 1980,
is hereby amended. The dispositive portion of said
decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the
plaintiff (sic) and against the defendant, ordering the latter
to pay the former the sum equivalent to 22% of the net
profit of P8,000.00 per day from the time of judicial
demand, until fully paid, plus the sum of P5,000.00 as and
for attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further
modified by the appellate court. The dispositive portion of the appellate
court's decision reads:
 WHEREFORE, the decision appealed from is modified,
the dispositive portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of
temperate damages 22% of the net profit of P2,000.00 a
day from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of
P8,000.00 a day from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to
22% of the net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is
affirmed in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and
affirmed the lower court's decision. The dispositive portion of the
resolution reads:
WHEREFORE, the dispositive portion of the amended
judgment of the court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the
plaintiff and against the defendant, ordering the latter to
pay to the former the sum equivalent to 22% of the net
profit of P8,000.00 per day from the time of judicial
demand, until fully paid, plus the sum of P5,000.00 as and
for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the
date of judicial demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner
was denied.
Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and operations
of the panciteria. While the dispositive portions merely ordered the
payment of the respondents share, there is no question from the factual
findings that the respondent invested in the business as a partner.
Hence, the two courts declared that the private petitioner is entitled to a
share of the annual profits of the restaurant. The petitioner, however,
claims that this factual finding is erroneous. Thus, the petitioner argues:
"The complaint avers that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment of the Sun
Wah Panciteria, in return of which private respondent allegedly will
receive a share in the profits of the restaurant. The same complaint did
not claim that private respondent is a partner of the business. It was,
therefore, a serious error for the lower court and the Hon. Intermediate
Appellate Court to grant a relief not called for by the complaint. It was
also error for the Hon. Intermediate Appellate Court to interpret or
construe 'financial assistance' to mean the contribution of capital by a
partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955,
defendant sought the financial assistance of plaintiff in
operating the defendant's eatery known as Sun Wah
Panciteria, located in the given address of defendant; as
a return for such financial assistance. plaintiff would be
entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said
panciteria;
3. That on October 1, 1955, plaintiff delivered to the
defendant the sum of four thousand pesos (P4,000.00),
Philippine Currency, of which copy for the receipt of such
amount, duly acknowledged by the defendant is attached
hereto as Annex "A", and form an integral part hereof; (p.
11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria
was established, he gave P4,000.00 to the petitioner with the
understanding that he would be entitled to twenty-two percent (22%) of
the annual profit derived from the operation of the said panciteria. These
allegations, which were proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah Panciteria because
Article 1767 of the Civil Code provides that "By the contract of partnership
two or more persons bind themselves to contribute money, property or
industry to a common fund, with the intention of dividing the profits
among themselves".
Therefore, the lower courts did not err in construing the complaint as one
wherein the private respondent asserted his rights as partner of the
petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We
agree with the appellate court's observation to the effect that "... given its
ordinary meaning, financial assistance is the giving out of money to
another without the expectation of any returns therefrom'. It connotes
an ex gratia dole out in favor of someone driven into a state of destitution.
But this circumstance under which the P4,000.00 was given to the
petitioner does not obtain in this case.' (p. 99, Rollo) The complaint
explicitly stated that "as a return for such financial assistance, plaintiff
(private respondent) would be entitled to twenty-two percentum (22%) of
the annual profit derived from the operation of the said panciteria.' (p.
107, Rollo) The well-settled doctrine is that the '"... nature of the action
filed in court is determined by the facts alleged in the complaint as
constituting the cause of action." (De Tavera v. Philippine Tuberculosis
Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135
SCRA 37).
The appellate court did not err in declaring that the main issue in the
instant case was whether or not the private respondent is a partner of the
petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in
giving probative value to the PC Crime Laboratory Report (Exhibit "J") on
the ground that the alleged standards or specimens used by the PC
Crime Laboratory in arriving at the conclusion were never testified to by
any witness nor has any witness identified the handwriting in the
standards or specimens belonging to the petitioner. The supposed
standards or specimens of handwriting were marked as Exhibits "H" "H-
1" to "H-24" and admitted as evidence for the private respondent over the
vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower
court examined the signatures in the two receipts issued separately by
the petitioner to the private respondent and So Sia (Exhibits "A" and "D")
and compared the signatures on them with the signatures of the
petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of
Antonio Ah Heng and Maria Wong, employees of the restaurant. After the
usual examination conducted on the questioned documents, the PC
Crime Laboratory submitted its findings (Exhibit J) attesting that the
signatures appearing in both receipts (Exhibits "A" and "D") were the
signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1"
to "H-24") were presented by the private respondent for marking as
exhibits, the petitioner did not interpose any objection. Neither did the
petitioner file an opposition to the motion of the private respondent to
have these exhibits together with the two receipts examined by the PC
Crime Laboratory despite due notice to him. Likewise, no explanation has
been offered for his silence nor was any hint of objection registered for
that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be
rejected or ignored. The records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not resolving
the issue of prescription in favor of petitioner. The alleged receipt is dated
October 1, 1955 and the complaint was filed only on July 13, 1978 or
after the lapse of twenty-two (22) years, nine (9) months and twelve (12)
days. From October 1, 1955 to July 13, 1978, no written demands were
ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code
which provides:
Art. 1144. The following actions must be brought within
ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when
they are filed before the court, when there is a written
extra-judicial demand by the creditor, and when there is
any written acknowledgment of the debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Mrs. Licup stated:
Panciteria. The requisites of a partnership which are — 1) two or more
persons bind themselves to contribute money, property, or industry to a ATTY. HIPOLITO (direct examination to
common fund; and 2) intention on the part of the partners to divide the Mrs. Licup).
profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao
Cheng, 106 Phil. 110)-have been established. As stated by the Q Mrs. Witness, you stated that among
respondent, a partner shares not only in profits but also in the losses of your duties was that you were in charge of
the firm. If excellent relations exist among the partners at the start of the custody of the cashier's box, of the
business and all the partners are more interested in seeing the firm grow money, being the cashier, is that correct?
rather than get immediate returns, a deferment of sharing in the profits is
perfectly plausible. It would be incorrect to state that if a partner does not
A Yes, sir.
assert his rights anytime within ten years from the start of operations,
such rights are irretrievably lost. The private respondent's cause of action
is premised upon the failure of the petitioner to give him the agreed Q So that every time there is a customer
profits in the operation of Sun Wah Panciteria. In effect the private who pays, you were the one who
respondent was asking for an accounting of his interests in the accepted the money and you gave the
partnership. change, if any, is that correct?

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and A Yes.
1155 which is applicable. Article 1842 states:
Q Now, after 11:30 (P.M.) which is the
The right to an account of his interest shall accrue to any closing time as you said, what do you do
partner, or his legal representative as against the winding with the money?
up partners or the surviving partners or the person or
partnership continuing the business, at the date of A We balance it with the manager, Mr.
dissolution, in the absence or any agreement to the Dan Fue Leung.
contrary.
ATTY. HIPOLITO:
Regarding the prescriptive period within which the private respondent
may demand an accounting, Articles 1806, 1807, and 1809 show that the I see.
right to demand an accounting exists as long as the partnership exists.
Prescription begins to run only upon the dissolution of the partnership Q So, in other words, after your job, you
when the final accounting is done. huddle or confer together?

Finally, the petitioner assails the appellate court's monetary awards in A Yes, count it all. I total it. We sum it up.
favor of the private respondent for being excessive and unconscionable
and above the claim of private respondent as embodied in his complaint Q Now, Mrs. Witness, in an average day,
and testimonial evidence presented by said private respondent to support more or less, will you please tell us, how
his claim in the complaint. much is the gross income of the
restaurant?
Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. A For regular days, I received around
Licup, to testify on the income of the restaurant. P7,000.00 a day during my shift alone and
 during pay days I receive more than
P10,000.00. That is excluding the catering
outside the place.
Q What about the catering service, will
you please tell the Honorable Court how
many times a week were there catering
services?
A Sometimes three times a month;
sometimes two times a month or more.
xxx xxx xxx
Q Now more or less, do you know the cost
of the catering service?
A Yes, because I am the one who
receives the payment also of the catering.
Q How much is that?
A That ranges from two thousand to six
thousand pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for
your shift alone in a single day from 3:30
P.M. to 11:30 P.M. in the evening the
restaurant grosses an income of
P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay
day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November
15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor.
(T.S.N. p. 65, November 15, 1978). (Rollo,
pp. 127-128)
The statements of the cashier were not rebutted. Not only did the
petitioner's counsel waive the cross-examination on the matter of income
but he failed to comply with his promise to produce pertinent records.
When a subpoena duces tecum was issued to the petitioner for the
production of their records of sale, his counsel voluntarily offered to bring
them to court. He asked for sufficient time prompting the court to cancel
all hearings for January, 1981 and reset them to the later part of the
following month. The petitioner's counsel never produced any books,
prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun
Wah were registered or recorded in the daily sales book.
ledgers, journals and for this purpose, employed a
bookkeeper. This inspired the Court to ask counsel for the
defendant to bring said records and counsel for the
defendant promised to bring those that were available.
Seemingly, that was the reason why this case dragged for
quite sometime. To bemuddle the issue, defendant
instead of presenting the books where the same, etc.
were recorded, presented witnesses who claimed to have
supplied chicken, meat, shrimps, egg and other poultry
products which, however, did not show the gross sales
nor does it prove that the same is the best evidence. This
Court gave warning to the defendant's counsel that if he
failed to produce the books, the same will be considered
a waiver on the part of the defendant to produce the said
books inimitably showing decisive records on the income
of the eatery pursuant to the Rules of Court (Sec. 5(e)
 Rule 131). "Evidence willfully suppressed would be
adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due
process to the petitioner.
The defendant was given all the chance to present all
conceivable witnesses, after the plaintiff has rested his
case on February 25, 1981, however, after presenting
several witnesses, counsel for defendant promised that
he will present the defendant as his last witness. Notably
there were several postponement asked by counsel for
the defendant and the last one was on October 1, 1981
when he asked that this case be postponed for 45 days
because said defendant was then in Hongkong and he
(defendant) will be back after said period. The Court
acting with great concern and understanding reset the
hearing to November 17, 1981. On said date, the counsel
for the defendant who again failed to present the
defendant asked for another postponement, this time to
November 24, 1981 in order to give said defendant
another judicial magnanimity and substantial due process.
It was however a condition in the order granting the
postponement to said date that if the defendant cannot be
presented, counsel is deemed to have waived the
presentation of said witness and will submit his case for
decision.
On November 24, 1981, there being a typhoon prevailing
in Manila said date was declared a partial non-working
holiday, so much so, the hearing was reset to December
7 and 22, 1981. On December 7, 1981, on motion of
defendant's counsel, the same was again reset to
December 22, 1981 as previously scheduled which
hearing was understood as intransferable in character.
Again on December 22, 1981, the defendant's counsel
asked for postponement on the ground that the defendant
was sick. the Court, after much tolerance and judicial
magnanimity, denied said motion and ordered that the
case be submitted for resolution based on the evidence
on record and gave the parties 30 days from December
23, 1981, within which to file their simultaneous
memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila
in front of the Republic Supermarket. It is near the corner of Claro M.
Recto Street. According to the trial court, it is in the heart of Chinatown
where people who buy and sell jewelries, businessmen, brokers,
manager, bank employees, and people from all walks of life converge
and patronize Sun Wah.
There is more than substantial evidence to support the factual findings of
the trial court and the appellate court. If the respondent court awarded
damages only from judicial demand in 1978 and not from the opening of
the restaurant in 1955, it is because of the petitioner's contentions that all
profits were being plowed back into the expansion of the business. There
is no basis in the records to sustain the petitioners contention that the
damages awarded are excessive. Even if the Court is minded to modify
the factual findings of both the trial court and the appellate court, it cannot
refer to any portion of the records for such modification. There is no basis
in the records for this Court to change or set aside the factual findings of
the trial court and the appellate court. The petitioner was given every
opportunity to refute or rebut the respondent's submissions but, after
promising to do so, it deliberately failed to present its books and other
evidence.
The resolution of the Intermediate Appellate Court ordering the payment
of the petitioner's obligation shows that the same continues until fully
paid. The question now arises as to whether or not the payment of a
share of profits shall continue into the future with no fixed ending date.
Considering the facts of this case, the Court may decree a dissolution of
the partnership under Article 1831 of the Civil Code which, in part,
provides:
Art. 1831. On application by or for a partner the court shall
decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of
the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business that
 it is not reasonably practicable to carry on the business in
partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return
of capital, and other incidents of dissolution because the continuation of
the partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of
merit. The decision of the respondent court is AFFIRMED with a
MODIFICATION that as indicated above, the partnership of the parties is
ordered dissolved.
SO ORDERED.
Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
The Lawphil Project - Arellano Law Foundation
18.) DAN FUE LEUNG VS IAC and LEUNG YIU
FACTS:
Dan Fue Leung.The Sun Wah Panciteria was registered as a single
proprietorship and its licenses and permits were issued to and in favor of
petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu
adduced evidence during the trial of the case to show that Sun Wah
Panciteria was actually a partnership and that he was one of the partners
having contributed P4,000.00 to its initial establishment.Lower court ruled
in favor of the private respondent. Petitioner appealed the trial court's
amended decision. However,the questioned decision was further modified
and affirmed by the appellate court. 
Both the trial court and the appellate court declared that the private
petitioner is a partner and is entitled to a share of the annual profits of the
restaurant. Hence, an appeal to the SC.The petitioner argues that private
respondent extended 'financial assistance' to herein petitioner at the time
of the establishment of the Sun Wah Panciteria, in return of which private
respondent allegedly will receive a share in the profits of the restaurant. It
was, therefore, error for the Appellate Court to interpretor construe
'financial assistance' to mean the contribution of capital by a partner to a
partnership.
ISSUE:
WON the private respondent is a partner of the petitioner in the
establishment of Sun Wah Panciteria.
HELD:
In essence, the private respondent alleged that when Sun Wah Panciteria
was established, he gave P4,000.00 to the petitioner with the understanding
that he would be entitled to twenty-two percent (22%) of the annual profit
derived from the operation of the said panciteria. These allegations, which
were proved, make the private respondent and the petitioner partners in
the establishment of Sun Wah Panciteria because Article 1767 of the Civil
Code provides that"By the contract of partnership two or more persons bind
themselves to contribute money, property or industry to a common fund,
with the intention of dividing the profits among themselves". Therefore, the
lower courts did not err in construing the complaint as one wherein the
private respondent asserted his rights as partner of the petitioner in the
establishment of the Sun Wah Panciteria, notwithstanding the use of the
term financial assistance therein.SC affirmed appellate court's decision and
ordered the dissolution of the partnership.
 Up of Partnership Affairs, Accounting, Appraisal
and Recovery of Shares and Damages with Writ
19.) THIRD DIVISION
of Preliminary Attachment with the Regional Trial
G.R. No. 143340. August 15, 2001 Court, Branch 11, Sindangan, Zamboanga del
Norte.
LILIBETH SUNGA-CHAN and CECILIA
SUNGA, Petitioners, vs.  LAMBERTO T. Respondent alleged that in 1977, he verbally
CHUA, Respondent. entered into a partnership with Jacinto in the
distribution of Shellane Liquefied Petroleum Gas
DECISION (LPG) in Manila. For business convenience,
respondent and Jacinto allegedly agreed to
GONZAGA-REYES, J.: register the business name of their partnership,
SHELLITE GAS APPLIANCE CENTER (hereafter
Before us is a petition for review Shellite), under the name of Jacinto as a sole
on certiorari under Rule 45 of the Rules of Court proprietorship. Respondent allegedly delivered his
of the Decision 1 of the Court of Appeals dated initial capital contribution of P100,000.00 to
January 31, 2000 in the case entitled Lamberto T. Jacinto while the latter in turn produced
Chua vs. P100,000.00 as his counterpart contribution, with
the intention that the profits would be equally
Lilibeth Sunga Chan and Cecilia Sunga and of the divided between them. The partnership allegedly
Resolution dated May 23, 2000 denying the had Jacinto as manager, assisted by Josephine Sy
motion for reconsideration of herein petitioners (hereafter Josephine), a sister of the wife of
Lilibeth Sunga Chan and Cecilia Sunga (hereafter respondent, Erlinda Sy. As compensation, Jacinto
collectively referred to as petitioners). would receive a managers fee or remuneration of
10% of the gross profit and Josephine would
The pertinent facts of this case are as follows: receive 10% of the net profits, in addition to her
wages and other remuneration from the business.
On June 22, 1992, Lamberto T. Chua (hereafter
respondent) filed a complaint against Lilibeth Allegedly, from the time that Shellite opened for
Sunga Chan (hereafter petitioner Lilibeth) and business on July 8, 1977, its business operation
Cecilia Sunga (hereafter petitioner Cecilia), went quite well and was profitable. Respondent
daughter and wife, respectively of the deceased claimed that he could attest to the success of
Jacinto L. Sunga (hereafter Jacinto), for Winding their business because of the volume of orders
and deliveries of filled Shellane cylinder tanks
supplied by Pilipinas Shell Petroleum Corporation.
While Jacinto furnished respondent with the
merchandise inventories, balance sheets and net
worth of Shellite from 1977 to 1989, respondent
however suspected that the amount indicated in
these documents were understated and
undervalued by Jacinto and Josephine for their
own selfish reasons and for tax avoidance.
Upon Jacintos death in the later part of 1989, his
surviving wife, petitioner Cecilia and particularly
his daughter, petitioner Lilibeth, took over the
operations, control, custody, disposition and
management of Shellite without respondents
consent.
Despite respondents repeated demands upon
petitioners for accounting, inventory, appraisal,
winding up and restitution of his net shares in the
partnership, petitioners failed to comply.
Petitioner Lilibeth allegedly continued the
operations of Shellite, converting to her own use
and advantage its properties.
On March 31, 1991, respondent claimed that after
petitioner Lilibeth ran out of alibis and reasons to
evade respondents demands, she disbursed out
of the partnership funds the amount of
P200,000.00 and partially paid the same to
respondent. Petitioner Lilibeth allegedly informed
respondent that the P200,000.00 represented
partial payment of the latters share in the
partnership, with a promise that the former would
make the complete inventory and winding up of
the properties of the business establishment.
Despite such commitment, petitioners allegedly
failed to comply with their duty to account, and
continued to benefit from the assets and income
of Shellite to the damage and prejudice of
respondent.
On December 19, 1992, petitioners filed a Motion
to Dismiss on the ground that the Securities and
Exchange Commission (SEC) in Manila, not the
Regional Trial Court in Zambaonga del Norte had
jurisdiction over the action. Respondent opposed
the motion to dismiss.
On January 12, 1993, the trial court finding the
complaint sufficient in form and substance denied
the motion to dismiss.
On January 30, 1993, petitioners filed their
Answer with Compulsory Counterclaims,
contending that they are not liable for partnership
shares, unreceived income/profits, interests,
damages and attorneys fees, that respondent
does not have a cause of action against them,
and that the trial court has no jurisdiction over
the nature of the action, the SEC being the
agency that has original and exclusive jurisdiction
over the case. As counterclaim, petitioner sought
attorneys fees and expenses of litigation.
On August 2, 1993, petitioner filed a second
Motion to Dismiss this time on the ground that
the claim for winding up of partnership affairs,
accounting and recovery of shares in partnership
affairs, accounting and recovery of shares in
partnership assets /properties should be
dismissed and prosecuted against the estate of
deceased Jacinto in a probate or intestate
proceeding.
On August 16, 1993, the trial court denied the
second motion to dismiss for lack of merit.
On November 26, 1993, petitioners filed their
Petition for Certiorari, Prohibition and Mandamus
with the Court of Appeals docketed as CA-G.R. SP
No. 32499 questioning the denial of the motion to
dismiss.
On November 29, 1993, petitioners filed with the
trial court a Motion to Suspend Pre-trial
Conference.
On December 13, 1993, the trial court granted
the motion to suspend pre-trial conference.
On November 15, 1994, the Court of Appeals
denied the petition for lack of merit.
On January 16, 1995, this Court denied the
petition for review on certiorari filed by petitioner,
as petitioners failed to show that a reversible
error was committed by the appellate court." 2 cräläwvirtualibräry
On February 20, 1995, entry of judgment was
made by the Clerk of Court and the case was
remanded to the trial court on April 26, 1995.
On September 25, 1995, the trial court
terminated the pre-trial conference and set the
hearing of the case on January 17, 1996.
Respondent presented his evidence while
petitioners were considered to have waived their
right to present evidence for their failure to
attend the scheduled date for reception of
evidence despite notice.
On October 7, 1997, the trial court rendered its
Decision ruling for respondent. The dispositive
portion of the Decision reads:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendants,
as follows:
(1) DIRECTING them to render an accounting in
acceptable form under accounting procedures and
standards of the properties, assets, income and
profits of the Shellite Gas Appliance Center since
the time of death of Jacinto L. Sunga, from whom
they continued the business operations including
all businesses derived from the Shellite Gas
Appliance Center; submit an inventory, and
appraisal of all these properties, assets, income,
profits, etc. to the Court and to plaintiff for
approval or disapproval;
(2) ORDERING them to return and restitute to the
partnership any and all properties, assets, income
and profits they misapplied and converted to their
own use and advantage that legally pertain to the
plaintiff and account for the properties mentioned
in pars. A and B on pages 4-5 of this petition as
basis;
(3) DIRECTING them to restitute and pay to the
plaintiff shares and interest of the plaintiff in the
partnership of the listed properties, assets and
good will (sic) in schedules A, B and C, on pages
4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned
but unreceived income and profits from the
partnership from 1988 to may 30, 1992, when
the plaintiff learned of the closure of the store the
sum of P35,000.00 per month, with legal rate of
interest until fully paid;
(5) ORDERING them to wind up the affairs of the
partnership and terminate its business activities
pursuant to law, after delivering to the plaintiff all
the interest, shares, participation and equity in
the partnership, or the value thereof in money or
moneys worth, if the properties are not physically
divisible;
(6) FINDING them especially Lilibeth Sunga-Chan
guilty of breach of trust and in bad faith and hold
them liable to the plaintiff the sum of P50,000.00
as moral and exemplary damages; and,
(7) DIRECTING them to reimburse and pay the
sum of P25,000.00 as attorneys (sic) and
P25,00.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.3 cräläwvirtualibräry
On October 28, 1997, petitioners filed a Notice of
Appeal with the trial court, appealing the case to
the Court of Appeals.
On January 31, 2000, the Court of Appeals
dismissed the appeal. The dispositive portion of
the Decision reads:
WHEREFORE, the instant appeal is dismissed. The
appealed decision is AFFIRMED in all respects.4
cräläwvirtualibräry
On May 23, 2000, the Court of Appeals denied
the motion for reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon
the following grounds:
1. The Court of Appeals erred in making a legal
conclusion that there existed a partnership
between respondent Lamberto T. Chua and the
late Jacinto L. Sunga upon the latters invitation
and offer and that upon his death the partnership
assets and business were taken over by
petitioners.
2. The Court of Appeals erred in making the legal
conclusion that laches and/or prescription did not
apply in the instant case.
3. The Court of Appeals erred in making the legal
conclusion that there was competent and credible
evidence to warrant the finding of a partnership,
and assuming arguendo that indeed there was a
partnership, the finding of highly exaggerated
amounts or values in the partnership assets and
profits.5
cräläwvirtualibräry
Petitioners question the correctness of the finding
of the trial court and the Court of Appeals that a
partnership existed between respondent and
Jacinto from 1977 until Jacintos death. In the
absence of any written document to show such
partnership between respondent and Jacinto,
petitioners argue that these courts were
proscribed from hearing the testimonies of
respondent and his witness, Josephine, to prove
the alleged partnership three years after Jacintos
death. To support this argument, petitioners
invoke the Dead Mans Statute or Survivorship
Rule under Section 23, Rule 130 of the Rules of
Court that provides:
SEC. 23. Disqualification by reason of death or
insanity of adverse party.-- Parties or assignors of
parties to a case, or persons in whose behalf a
case is prosecuted, against an executor or
administrator or other representative of a
deceased person, or against a person of unsound
mind, upon a claim or demand against the estate
of such deceased person, or against such person
of unsound mind, cannot testify as to any matter
of fact occurring before the death of such
deceased person or before such person became
of unsound mind.
Petitioners thus implore this Court to rule that the
testimonies of respondent and his alter ego,
Josephine, should not have been admitted to
prove certain claims against a deceased person
(Jacinto), now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form,
except where immovable property or real rights
are contributed thereto, in which case a public
instrument shall be necessary. 6 Hence, based on
the intention of the parties, as gathered from the
facts and ascertained from their language and
conduct, a verbal contract of partnership may
arise. 7 The essential points that must be proven
to show that a partnership was agreed upon are
(1) mutual contribution to a common stock, and
(2) a joint interest in the
8
profits.   Understandably so, in view of the
absence of a written contract of partnership
between respondent and Jacinto, respondent
resorted to the introduction of documentary and
testimonial evidence to prove said partnership.
The crucial issue to settle then is whether or not
the Dead Mans Statute applies to this case so as
to render inadmissible respondents testimony and
that of his witness, Josephine.
The Dead Mans Statute provides that if one party
to the alleged transaction is precluded from
testifying by death, insanity, or other mental
disabilities, the surviving party is not entitled to
the undue advantage of giving his own
uncontradicted and unexplained account of the
transaction. 9 But before this rule can be
successfully invoked to bar the introduction of
testimonial evidence, it is necessary that:
1. The witness is a party or assignor of a party to
a case or persons in whose behalf a case is
prosecuted.
2. The action is against an executor or
administrator or other representative of a
deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or
demand against the estate of such deceased
person or against person of unsound mind;
4. His testimony refers to any matter of fact
which occurred before the death of such deceased
person or before such person became of unsound
mind.10
cräläwvirtualibräry
Two reasons forestall the application of the Dead
Mans Statute to this case.
First, petitioners filed a compulsory
11
counterclaim   against respondent in their
answer before the trial court, and with the filing
of their counterclaim, petitioners themselves
effectively removed this case from the ambit of
the Dead Mans Statute. 12 Well entrenched is the
rule that when it is the executor or administrator
or representatives of the estate that sets up the
counterclaim, the plaintiff, herein respondent,
may testify to occurrences before the death of the
deceased to defeat the counterclaim. 13 Moreover,
as defendant in the counterclaim, respondent is
not disqualified from testifying as to matters of
fact occurring before the death of the deceased,
said action not having been brought against but
by the estate or representatives of the
deceased. 14
cräläwvirtualibräry
Second, the testimony of Josephine is not
covered by the Dead Mans Statute for the simple
reason that she is not a party or assignor of a
party to a case or persons in whose behalf a case
is prosecuted. Records show that respondent
offered the testimony of Josephine to establish
the existence of the partnership between
respondent and Jacinto. Petitioners insistence
that Josephine is the alter ego of respondent does
not make her an assignor because the term
assignor of a party means assignor of a cause of
action which has arisen, and not the assignor of a
right assigned before any cause of action has
arisen. 15 Plainly then, Josephine is merely a
witness of respondent, the latter being the party
plaintiff.
We are not convinced by petitioners allegation
that Josephines testimony lacks probative value
because she was allegedly coerced by
respondent, her brother-in-law, to testify in his
favor. Josephine merely declared in court that she
was requested by respondent to testify and that if
she were not requested to do so she would not
have testified. We fail to see how we can
conclude from this candid admission that
Josephines testimony is involuntary when she did
not in any way categorically say that she was
forced to be a witness of respondent. Also, the
fact that Josephine is the sister of the wife of
respondent does not diminish the value of her
testimony since relationship per se, without more,
does not affect the credibility of witnesses. 16cräläwvirtualibräry
Petitioners reliance alone on the Dead Mans
Statute to defeat respondents claim cannot
prevail over the factual findings of the trial court
and the Court of Appeals that a partnership was
established between respondent and Jacinto.
Based not only on the testimonial evidence, but
the documentary evidence as well, the trial court
and the Court of Appeals considered the evidence
for respondent as sufficient to prove the
formation of a partnership, albeit an informal one.
Notably, petitioners did not present any evidence
in their favor during trial. By the weight of judicial
precedents, a factual matter like the finding of
the existence of a partnership between
respondent and Jacinto cannot be inquired into by
this Court on review. 17 This Court can no longer
be tasked to go over the proofs presented by the
parties and analyze, assess and weigh them to
ascertain if the trial court and the appellate court
were correct in according superior credit to this or
that piece of evidence of one party or the
other. 18 It must be also pointed out that
petitioners failed to attend the presentation of
evidence of respondent. Petitioners cannot now
turn to this Court to question the admissibility
and authenticity of the documentary evidence of
respondent when petitioners failed to object to
the admissibility of the evidence at the time that
such evidence was offered. 19 cräläwvirtualibräry
With regard to petitioners insistence that laches
and/or prescription should have extinguished
respondents claim, we agree with the trial court
and the Court of Appeals that the action for
accounting filed by respondent three (3) years
after Jacintos death was well within the
prescribed period. The Civil Code provides that an
action to enforce an oral contract prescribes in six
(6) years 20 while the right to demand an
accounting for a partners interest as against the
person continuing the business accrues at the
date of dissolution, in the absence of any contrary
agreement. 21 Considering that the death of a
partner results in the dissolution of the
partnership 22, in this case, it was after Jacintos
death that respondent as the surviving partner
had the right to an account of his interest as
against petitioners. It bears stressing that while
Jacintos death dissolved the partnership, the
dissolution did not immediately terminate the
partnership. The Civil Code 23 expressly provides
that upon dissolution, the partnership continues
and its legal personality is retained until the
complete winding up of its business, culminating
in its termination. 24
cräläwvirtualibräry
In a desperate bid to cast doubt on the validity of
the oral partnership between respondent and
Jacinto, petitioners maintain that said partnership
that had an initial capital of P200,000.00 should
have been registered with the Securities and
Exchange Commission (SEC) since registration is
mandated by the Civil Code. True, Article 1772 of
the Civil Code requires that partnerships with a
capital of P3,000.00 or more must register with
the SEC, however, this registration requirement is
not mandatory. Article 1768 of the Civil
Code 25 explicitly provides that the partnership
retains its juridical personality even if it fails to
register. The failure to register the contract of
partnership does not invalidate the same as
among the partners, so long as the contract has
the essential requisites, because the main
purpose of registration is to give notice to third
parties, and it can be assumed that the members
themselves knew of the contents of their
contract. 26 In the case at bar, non-compliance
with this directory provision of the law will not
invalidate the partnership considering that the
totality of the evidence proves that respondent
and Jacinto indeed forged the partnership in
question.
WHEREFORE , in view of the foregoing, the
petition is DENIED and the appealed decision is
AFFIRMED.
SO ORDERED.
Melo,  (Chairman), Vitug, Panganiban, and
Sandoval-Gutierrez, JJ., concur.
Endnotes:
1
 Per Associate Justice Delilah Vidallon-Magtolis and concurred in by Associate Justices
Bernardo P. Abesamis and Mercedes Gozo-Dadole, Court of Appeals, Fourteenth Division.
2
 Rollo, p. 185.
3
 Records, pp. 75-76; Decision, pp. 25-26.
 Rollo, p. 46; Decision, p. 11.
4
5
 Rollo, pp. 13-14; Petition. pp. 6-7.
6
 JOSE C. VITUG, COMPENDIUM OF CIVIL LAW AND JURISPRUDENCE, REV. ED. (1993), p.
712.
7
 RAMON C. AQUINO AND CAROLINA C. GRIO-AQUINO, THE CIVIL CODE OF THE
PHILIPPINES, VOL. 3 (1990), p. 295.
8
 ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF
THE PHILIPPINES, VOLUME 5 (1997), p. 320.
9
 Tan v. Court of Appeals, 295 SCRA 247 (1998), p. 258.
 OSCAR M. HERRERA, REMEDIAL LAW, REVISED RULES ON EVIDENCE, VOL. V (1999),
10
pp. 308-309.
11
 Records, pp. 47-51. 26
 TOLENTINO, supra, p. 325.

12
 See Goni v. Court of Appeals, 144 SCRA 222 (1986). 19.) Sunga-Chan v Chua 363 SCRA 251

13
 HERRERA, supra, p. 310.
Sunga-Chan v. Lamberto Chua
14
 Goni v. Court of Appeals, supra, p. 233.

15
 RICARDO J. FRANCISCO, EVIDENCE, THIRD EDITION (1996), p. 135. G.R. No. 143340, 15 August 2001

16
 People v. Nang, 289 SCRA 16 (1998), p. 32. Doctrine:
Partnership retains its juridical personality even if it fails to register
17
 Alicbusan v. Court of Appeals, 269 SCRA 336, p. 341
because registration merely gives notice to third parties.

FACTS:
18
 Ibid.
Respondent Lamberto Chua alleged that in 1977, he verbally entered into
19
 See Chua v. Court of Appeals, 301 SCRA 356 (1999). a partnership with Jacinto in the distribution of Shellane Liquefied
Petroleum Gas (LPG). Respondent and Jacinto allegedly agreed to
20
 The following actions must be commenced within six years: register the business name of their partnership, Shellite Gas Appliance
Center, under the name of Jacinto as a sole proprietorship. Respondent
(1) Upon an oral contract; and delivered his initial capital contribution of P100,000.00 to Jacinto while
the latter in turn produced P100,000.00, with the intention that the profits
(2) Upon a quasi-contract.
would be equally divided between them.
21
 Art. 1842, Civil Code:
Upon Jacinto’s death in 1989, his wife Cecilia and his daughter Lilibeth
The right to an account of his interest shall accrue to any partner, or his legal Sunga, took over the operations, control, custody, disposition and
representative as against the winding up partners or the surviving partners or the person management of Shellite without respondent’s consent. Despite
or partnership continuing the business, at the date of dissolution, in the absence of any respondent’s repeated demands upon petitioners for accounting,
agreement to the contrary.
inventory, appraisal, winding up and restitution, petitioners failed to
22
 Article 1830, Civil Code.
comply. Subsequently, Lilibeth gave P200,000.00 to the respondent
representing the latter’s share in the partnership. Still, petitioners failed to
23
 Art. 1828. The dissolution of a partnership is the change in the relation of the partners comply with their duty to account, and continued to benefit from Shellite.
caused by any partner ceasing to be associated in the carrying on as distinguished from
the winding up of the business.
On June 22, 1992, respondent filed a complaint against Lilibeth Sunga
Chan and Cecilia Sunga for “Winding Up of Partnership Affairs,
Art. 1829. On dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed. Accounting, Appraisal and Recovery of Shares and Damages with Writ of
Preliminary Attachment” with the Regional Trial Court.
24
 Sy v. Court of Appeals, 313 SCRA 328 (1999), p. 347.
The trial court rendered its Decision ruling for respondent. The court
 The partnership has a juridical personality separate and distinct from that of each of the
25
direct the petitioners to render an accounting, submit an inventory, and
partners, even in case of failure to comply with the requirements of article 1772, first
paragraph.
appraisal; order them to return and restitute to the partnership and the
plaintiff; order them to wind up the affairs of the partnership and terminate
its business activities pursuant to law; finding them especially Lilibeth
Sunga-Chan guilty of breach of trust and in bad faith, and hold them
liable for moral and exemplary damages, attorney’s fees and litigation
expenses. However, the Court of Appeals dismissed the appeal. The
decision is AFFIRMED in all respects.

ISSUE:

Whether or not the non-registration of the contract of partnership

invalidate the partnership.

RULING:

Petitioners maintain that said partnership had an initial capital of

P200,000.00 should have been registered with the Securities and
Exchange Commission (SEC) since registration is mandated by the Civil
Code.

True, Article 1772 of the Civil Code requires that partnerships with a
capital of P3,000.00 or more must register with the SEC, however, this
registration requirement is not mandatory. Article 1768 of the Civil Code
explicitly provides that the partnership retains its juridical personality even
if it fails to register. The failure to register the contract of partnership does
not invalidate the same as among the partners, so long as the contract
has the essential requisites, because the main purpose of registration is
to give notice to third parties, and it can be assumed that the members
themselves knew of the contents of their contract. In the case at bar,
noncompliance with this directory provision of the law will not invalidate
the partnership considering that the totality of the evidence proves that
respondent and Jacinto indeed forged the partnership in question.