G.R. No.

167330               September 18, 2009

PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS:
Petitioner is a domestic corporation whose primary purpose is “[t]o establish, maintain, conduct and operate a prepaid
group practice health care delivery system or a health maintenance organization to take care of the sick and disabled
persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the
organization”. Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various
preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and other
professional technical staff participating in the group practice health delivery system at a hospital or clinic owned,
operated or accredited by it.

On January 27, 2000, respondent Commissioner of Internal Revenue (CIR) sent petitioner a formal demand letter and the
corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the
taxable years 1996 and 1997 in the total amount of P224,702,641.18.

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement with the
members of its health care program pursuant to Section 185 of the 1997 Tax Code

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner
filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST
assessments.

CTA’s decision: Cancelled the DST assessment. Ordered the payment of VAT deficiency.

CIR appealed the decision to the CA contending that petitioner’s health care agreement was a contract of insurance
subject to DST under Section 185 of the 1997 Tax Code.

CA’s decision: The health care agreement was in the nature of a non-life insurance contract subject to DST.

SC’s decision on Petition for Review: Denied on the ground that petitioner’s health care agreement during the pertinent
period was in the nature of non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares and Philamcare Health Systems, Inc. v. CA. It ruled that petitioner’s contention that it is a health maintenance
organization (HMO) and not an insurance company is irrelevant because contracts between companies like petitioner and
the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax on the business
transacted but an excise on the privilege, opportunity or facility offered at exchanges for the transaction of the business.

Petitioner filed a motion for reconsideration and supplemental motion for reconsideration.

ISSUES:

1. Whether or not petitioner as an HMO is engaged in an insurance business.

2. Whether or not petitioner is liable for the payment of DST on Health Care Agreement of HMOS in accordance with
Section 185.

Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) – Stamp tax on fidelity bonds and other
insurance policies. – On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage, or
liability made or renewed by any person, association or company or corporation transacting the business of accident,
fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance
(except life, marine, inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for the
performance of the duties of any office or position, for the doing or not doing of anything therein specified, and on all
obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city,
municipality, or other public body or organization, and on all obligations guaranteeing the title to any real estate, or
guaranteeing any mercantile credits, which may be made or renewed by any such person, company or corporation, there
shall be collected a documentary stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or fractional part thereof,
of the premium charged.

RULING:

1. No. Health Maintenance Organizations are not engaged in the insurance business. Under RA 7875 (or “The National
Health Insurance Act of 1995”), an HMO is an entity that provides, offers or arranges for coverage of designated health
services needed by plan members for a fixed prepaid premium. To determine whether an HMO is an insurance business or
not, one test – principal object and purpose test – may be applied, that is to determine whether the assumption of risk and
indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that
of insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance.
HMO’s principal object and purpose is service rather than indemnity.

Additionally, petitioner is not supervised by the Insurance Commission but by the Department of Health.

2. No. Health care agreements are not subject to DST. From the language of Section 185, it is evident that two requisites
must concur before the DST can apply, namely: (1) the document must be a policy of insurance or an obligation in the
nature of indemnity and (2) the maker should be transacting the business of accident, fidelity, employer’s liability, plate,
glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and
fire insurance).

NOTES:

Even if a contract contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it is
not a contract of insurance.

Distinctions between a minute resolution and a decision

The constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and
the law on which the judgment is based must be expressed clearly and distinctly applies only to decisions, not to minute
resolutions. A minute resolution is signed only by the clerk of court by authority of the justices, unlike a decision. It does
not require the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the
Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision. Indeed, as a rule, this Court
lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by the members of
the Court and certified by the Chief Justice.
G.R. No. 168402             August 6, 2008

ABOITIZ SHIPPING CORPORATION, petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.

FACTS: On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS)
procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a
transshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching
Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines. 3 ICNA issued an “all-risk” open
marine policy, 4 stating:

This Company, in consideration of a premium as agreed and subject to the terms and conditions printed
hereon, does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the
title holder: — Loss, if any, payable to the Assured or order.

The cargo, packed inside one container van, was shipped “freight prepaid” from Hamburg, Germany on board M/S
Katsuragi. A clean bill of lading 6 was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center,
Sudlon Lahug, Cebu City.

The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993,
the ship arrived and docked at the Manila International Container Port where the container van was again off-loaded. On
July 26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized
booking representative, Aboitiz Transport System. The bill of lading 7 issued by Aboitiz contained the notation “grounded
outside warehouse”. The container van was stripped and transferred to another crate/container van without any notation on
the condition of the cargo on the Stuffing/Stripping Report. 8 On August 1, 1993, the container van was loaded on board
petitioner’s vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993.

On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International
Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities.
In the Stripping Report 9 dated August 5, 1993, petitioner’s checker noted that the crates were slightly broken or cracked
at the bottom. On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching
Improvement Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was
received by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a
telephone call from Willig informing him that the cargo sustained water damage. Perez, upon receiving the call,
immediately went to the bonded warehouse and checked the condition of the container and other cargoes stuffed in the
same container. He found that the container van and other cargoes stuffed there were completely dry and showed no sign
of wetness.

Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely
dry and had no water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He
further explained that the “grounded outside warehouse” notation in the bill of lading referred only to the container van
bearing the cargo. In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the
cargo. 12 The letter stated that the crate was broken at its bottom part such that the contents were exposed. The work tools
and workbenches were found to have been completely soaked in water with most of the packing cartons already
disintegrating. The crate was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized metal
bands were nailed onto all the edges. The letter concluded that apparently, the damage was caused by water entering
through the broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen
Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the
goods sustained water damage, molds, and corrosion which were discovered upon delivery to consignee. On September
21, 1993, the consignee filed a formal claim 14 with Aboitiz in the amount of P276,540.00. In a Supplemental Report
dated October 20, 1993, 15 CAC reported to ICNA that based on official weather report from the Philippine Atmospheric,
Geophysical and Astronomical Services Administration, it would appear that heavy rains on July 28 and 29, 1993 caused
water damage to the shipment. CAC noted that the shipment was placed outside the warehouse of Pier No. 4, North
Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the warehouse as can be
gleaned from the bill of lading issued by Aboitiz which contained the notation “grounded outside warehouse”. It was only
on July 31, 1993 when the shipment was stuffed inside another container van for shipment to Cebu

Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A
subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt
executed in its favor. Despite follow-ups, however, no reply was received from Aboitiz.

ISSUES:

(a) Is respondent ICNA the real party-in-interest that possesses the right of subrogation to claim reimbursement from
petitioner Aboitiz?

HELD:

A. YES. A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a
suit in local courts. Only when that foreign corporation is “transacting” or “doing business” in the country will a license
be necessary before it can institute suits. It may, however, bring suits on isolated business transactions, which is not
prohibited under Philippine law. Thus, this Court has held that a foreign insurance company may sue in Philippine courts
upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine
carrier, even if it has no license to do business in this country. It is the act of engaging in business without the prescribed
license, and not the lack of license per se, which bars a foreign corporation from access to our courts.

In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine
policy, the present suit was filed by the said company’s authorized agent in Manila. It was the domestic corporation that
brought the suit and not the foreign company. Its authority is expressly provided for in the open policy which includes the
ICNA office in the Philippines as one of the foreign company’s agents.

As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS,
the shipper, in favor of STIP of Don Bosco Technical High School, the consignee.

The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the
company who issued the insurance, or against any of its listed agents worldwide. MSAS accepted said provision when it
signed and accepted the policy. The acceptance operated as an acceptance of the authority of the agents. Hence, a formal
indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer.
White Gold Marine Services Inc. v Pioneer Insurance & Surety
Corporation (Insurance)

[G.R. No. 154514. July 28, 2005]

WHITE GOLD MARINE SERVICES, INC., petitioner, vs. PIONEER INSURANCE AND SURETY CORPORATION AND THE
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., respondents.

FACTS:
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels from The
Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and Surety
Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and Acceptance. Pioneer also issued receipts
evidencing payments for the coverage. When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew
the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latter’s unpaid
balance.

DECISION OF LOWER COURTS:

(1) Insurance Commissioner: dismissed the complaint. There was no violation of the Insurance Code and the respondents do
not need license as insurer and insurance agent/broker because it was not engaged in the insurance business. It explained that
Steamship Mutual was a Protection and Indemnity Club (P & I Club). Moreover, Pioneer was already licensed, hence, a
separate license solely as agent/broker of Steamship Mutual was already superfluous.
(2) CA: affirmed Insurance Commissioner.

ISSUES:
(1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines? (2) Does Pioneer need a license as
an insurance agent/broker for Steamship Mutual?

RULING:
(1) Yes. To continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the
Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or insurance
company is allowed to engage in the insurance business without a license or a certificate of authority from the Insurance
Commission.
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license to do business in
the Philippines although Pioneer is its resident agent. This relationship is reflected in the certifications issued by the Insurance
Commission.
It cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals as “an association composed of
shipowners in general who band together for the specific purpose of providing insurance cover on a mutual basis against
liabilities incidental to shipowning that the members incur in favor of third parties.”
The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act required to be
performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which
the performance becomes requisite. It is not by what it is called.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and insured. In it,
the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and
liabilities are paid, and where the profits are divided among themselves, in proportion to their interest. Additionally, mutual
insurance associations, or clubs, provide three types of coverage, namely, protection and indemnity, war risks, and defense
costs. A P & I Club is “a form of insurance against third party liability, where the third party is anyone other than the P & I
Club and the members.” By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the
marine insurance business.
(2) Yes. Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for
Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for
insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company
doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner,
which must be renewed annually on the first day of January, or within six months thereafter. 
Paramount Life & General Insurance Corporation vs. Cherry T. Castro and Glenn Anthony Castro GR No.
195728

Facts:Virgilio Castro husband of Cherry and father Glenn obtained a housing loan from Philippine Postal Saving Bank
in the amount of 1.5MoRequired Virgilio to apply for a mortgage of redemption insurance from Paramount to cover the
loanoCherry and Glenn as beneficiariesoParamount issued a certificate in his favorVirgilio died of septic shockoClaim
for his death benefits was institutedoParamount denied the claim, on the ground thatVirgilio failed to disclose material
information or material concealment –made material misrepresentations –answered no to adverse health
historyParamount filed a complaint with the RTC prayed for the insurance of Virgilio be declared null and void by
reason of misrepresentationDefendants argued that Virgilio did not made any material misrepresentationParamount
claims that the defendants are estoppedDefendants filed for counterclaim for actual and exemplary damages for alleged
breach of contract of ParamountoFiled for motion to include Philippine Postal Bank as in indispensable party defendant –
RTC denied

Issue: W/N third party complaint is validW/N the defendant’s action to implead Philippine Postal Bank through a third-
party complaint is valid, YES

Ruling:

In allowing the inclusion of the PPSBI as a third-party defendant, the Court recognizes the inseparable interest of the bank
(as policyholder of the group policy) in the validity of the individual insurance certificates issued by Paramount. The
PPSBI need not institute a separate case, considering that its cause of action is intimately related to that of Paramount as
against the Castro’s. The soundness of admitting a third-party complaint hinges on causal connection between the claim of
the plaintiff in his complaint and a claim for contribution, indemnity or other relief of the defendant against the third-party
defendant.In this case, the Castro’s stand to incur a bad debt to the PPSBI -the exact event that is insured against by Group
Master Policy No. G-086 -in the event that Paramount succeeds in nullifying Virgilio's Individual Insurance
Certificate.Paramount further argues that the propriety of a third-party complaint rests on whether the possible third-party
defendant (in this case PPSBI) can raise the same defenses that the third-party plaintiffs (the Castro’s) have against the
plaintiff. However, the Rules do not limit the third-party defendant's options to such a condition. Thus:Section 13.Answer
to third (fourth, etc.)-party complaint.–A third (fourth, etc.)-party defendant may allege in his answer his defenses,
counterclaims or cross-claims, including such defenses that the third (fourth, etc.)-party plaintiff may have against the
original plaintiffs claim. In proper cases, he may also assert a counterclaim against the original plaintiff in respect of the
latter's claim against the third-party plaintiff.As seen above, the same defenses the third-party plaintiff has against the
original plaintiff are just some of the allegations a third-party defendant may raise in its answer. Section 13 even gives the
third-party defendant the prerogative to raise a counterclaim against the original plaintiff in respect of the latter's original
claim against the defendant/third-party plaintiff.
Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners,  vsCOURT OF APPEALS and CKS

Spouses Cha, as lessees, entered into a lease contract with CKS Development Corporation (CKS), as lessor. One of the
stipulations of the one (1) year lease contract states: “18. x x x. The LESSEE shall not insure against fire the chattels,
merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first
obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the
consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit; x xx”
Notwithstanding the above stipulation, the Cha spouses insured against loss by fire their merchandise inside the leased
premises P500,000.00 with the United Insurance Co., Inc. (United) without the written consent of private respondents
CKS. On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of
the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer a demand letter asking that
the proceeds of the insurance contract be paid directly to CKS, based on its lease contract with Cha spouses. United
refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United. The RTC of Manila rendered
a decision ordering therein defendant United to pay CKS the insurance proceeds and the Cha spouses to pay exemplary
damages, attorneys fees and costs of suit. On appeal, respondent Court of Appeals affirmed the trial court’s decision,
deleting however the awards for exemplary damages and attorneys fees. A motion for reconsideration by United was
denied. Hence, this petition.

Issue:

Whether or not the stipulation of the lease contract entered into between CKS and the Cha spouses is valid insofar as it
provides that any fire insurance policy obtained by the lessee over their merchandise inside the leased premises is
deemed assigned or transferred to the lessor if said policy is obtained without the prior written of the latter.

Held:

It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law,
morals, good customs, public order or public policy. Sec. 18 of the Insurance Code provides that “No contract or policy of
insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the
property insured.” A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the
insurance takes effect and at the time the loss occurs.[4] The basis of such requirement of insurable interest in property
insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which
he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the
contract of insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides that “Every
stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in the
property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of
gaming or wagering, is void.” In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide: “The
measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury
thereof. herefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire
insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise
remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the
lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance
policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein copetitioners). The insurer (United)
cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in
the property insured. Disposition: The decision of the Court of Appeals was SET ASIDE and a new decision was entered,
awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
G.R. No. 112360               July 18, 2000

RIZAL SURETY & INSURANCE COMPANY, petitioner,

vs.
COURT OF APPEALS and TRANSWORLD KNITTING MILLS, INC., respondents.

Facts:

On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued
Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc.
(Transworld), initially for One Million (₱1,000,000.00) Pesos and eventually
increased to One Million Five Hundred Thousand (₱1,500,000.00) Pesos, covering
the period from August 14, 1980 to March 13, 1981.
Pertinent portions of subject policy on the buildings insured, and location thereof, read:

“‘On stocks of finished and/or unfinished products, raw materials and supplies of every kind and
description, the properties of the Insureds and/or held by them in trust, on commission or on joint
account with others and/or for which they (sic) responsible in case of loss whilst contained and/or
stored during the currency of this Policy in the premises occupied by them forming part of the
buildings situate (sic) within own Compound at MAGDALO STREET, BARRIO UGONG, PASIG,
METRO MANILA, PHILIPPINES, BLOCK NO. 601.’

x x x           x x x          x x x

‘Said building of four-span lofty one storey in height with mezzanine portions is constructed of
reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as
hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices, warehouse and
caretaker’s quarters.

‘Bounds in front partly by one-storey concrete building under galvanized iron roof occupied as
canteen and guardhouse, partly by building of two and partly one storey constructed of concrete
below, timber above undergalvanized iron roof occupied as garage and quarters and partly by
open space and/or tracking/ packing, beyond which is the aforementioned Magdalo Street; on its
right and left by driveway, thence open spaces, and at the rear by open spaces.'”

The same pieces of property insured with the petitioner were also insured with New India Assurance
Company, Ltd., (New India).

On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion of its
four-span building and partly gutting the left and right sections thereof. A two-storey building (behind
said four-span building) where fun and amusement machines and spare parts were stored, was also
destroyed by the fire.

Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India
Assurance Company but to no avail.

It is petitioner’s submission that the fire insurance policy litigated upon protected only the contents of
the main building (four-span), and did not include those stored in the two-storey annex building. On
the other hand, the private respondent theorized that the so called “annex” was not an annex but was
actually an integral part of the four-span building and therefore, the goods and items stored therein
were covered by the same fire insurance policy.
Issue:

            Whether or not the ‘Annex” building was covered by insurance policy.

Ruling:

So also, considering that the two-storey building aforementioned was already existing when subject
fire insurance policy contract was entered into on January 12, 1981, having been constructed
sometime in 1978, petitioner should have specifically excluded the said two-storey building from the
coverage of the fire insurance if minded to exclude the same but if did not, and instead, went on to
provide that such fire insurance policy covers the products, raw materials and supplies stored within
the premises of respondent Transworld which was an integral part of the four-span building occupied
by Transworld, knowing fully well the existence of such building adjoining and intercommunicating
with the right section of the four-span building.

After a careful study, the Court does not find any basis for disturbing what the lower courts found and
arrived at.

Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has created a
doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil Code
provides:

“Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity”

Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety
Insurance Company, whose lawyer or managers drafted the fire insurance policy contract under
scrutiny. Citing the aforecited provision of law in point, the Court in Landicho vs. Government
Service Insurance System, ruled:

“This is particularly true as regards insurance policies, in respect of which it is settled that the
‘terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x x are to be
construed strictly and most strongly against the insurer, and liberally in favor of the insured so as
to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is
involved’ (29 Am. Jur., 181), and the reason for this is that the ‘insured usually has no voice in the
selection or arrangement of the words employed and that the language of the contract is selected
with great care and deliberation by experts and legal advisers employed by, and acting exclusively
in the interest of, the insurance company.’ (44 C.J.S., p. 1174).””
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CASE DIGEST: MARQUES VS FAR EAST BANK

Facts:

Jose Marques and Maxilite technologies entered into a Trust Receipt transaction with Far East Bank and Trust Company
(FEBTC). FEBTC also referred the incoming goods to Far East Bank Insurance Company (FEBIC) to insure said goods
from fire. Marques et al. were unable to comply with the trust agreement, and restructured the debt with FEBTC by
availing of a straight loan to pay for the initial obligation. At the same time, Marques et al. were unable to pay the
premium for the fire insurance. FEBIC notified FEBTC of the unpaid premium, and asked that Marquesaccount be
debited the amount. FEBTC was unable to do so. Subsequently, the warehouse where the goods in question were stored
burned down. Marques et al. sought to collect the insurance proceeds from Makati Insurance and FEBIC. Both refused
compliance as the insurance premium was unpaid. Marques et al. sued FEBTC, FEBIC, and Makati Insurance
companyfor actual, moral, and exemplary damages. The RTC found for Marques, and ruled that all respondents were
solidarilyliable to Marques for actual damages, with 12% interest per annum, as well as moral and exemplary damages.
On appeal, the CA affirmed the finding of the RTC but modified the interest to 6% per annum. Both parties
appealed.Marques contends that since the obligation is to render a sum of money, the proper interest is 12%. FEBTC, and
Makati Insurance Company raised the non-payment of premiums, as well as its separate juridical entity as defense.

ISSUES: Whether or not the reduction of interest is proper (G.R. No. 171379) and Whether or not FEBTC and Makati
Insurance Company can be held solidarily liable with FEBIC. (G.R. No. 171419)

HELD: Petition is without merit (G.R. 171379) Petition is partly meritorious (G.R. 171419)

Credit Transactions: 12% interest is granted from day of default for breaches of obligation of a sum of money. On the
other hand, 6% interest for unliquidated damages. In this case, the appellate court found that it was negligence of FEBTC
that lead to damages suffered by Marques et al. Hence, the interest on the award is properly 6%

Torts and damages: The appellate court has found that FEBTC is the cause of the damage suffered by Marques. It was the
one who referred the goods to the insurance company. It was also the entity approached by FEBIC for the debit of the
unpaid insurance premium. The loan that it extended to Marques was to cover all expenses related to the trust receipt,
including the insurance cost. Hence, FEBTC is clearly the one responsible to take care of the matters of the insurance
premium. Since it failed in its duty due to negligence, it is clearly liable for damages it caused to Marques, as Marques
was unable to get insurance proceeds for his loss.

Corporation Law: The appellate court only found FEBTC liable as it was through its negligence, i.e. failure to debit the
insurance premium from the account of Marques, which lead to the prejudice of Marques. FEBIC and Makati Insurance
Company, though subsidiaries, cannot be held solidarily liable by virtue of that fact alone. There are no sufficient grounds
to merit the application of the piercing the veil doctrine.
G.R. No. 168115              June 8, 2007

VICENTE ONG LIM SING, JR., petitioner,

vs.
FEB LEASING & FINANCE CORPORATION, respondent.

Facts: On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease of equipment and
motor vehicles with JVL Food Products (JVL). On the same date, Vicente Ong Lim Sing, Jr. (Lim) executed an
Individual Guaranty Agreement with FEB to guarantee the prompt and faithful performance of the terms and
conditions of the aforesaid lease agreement. Corresponding Lease Schedules with Delivery and Acceptance
Certificates over the equipment and motor vehicles formed part of the agreement. Under the contract, JVL was
obliged to pay FEB an aggregate gross monthly rental of One Hundred Seventy Thousand Four Hundred
Ninety-Four Pesos (P 170,494.00).  JVL defaulted in the payment of the monthly rentals. As of July 31, 2000,
the amount in arrears, including penalty charges and insurance premiums, amounted to Three Million Four
Hundred Fourteen Thousand Four Hundred Sixty Eight and 75/100 Pesos (P3,414,468.75). On August 23, 2000,
FEB sent a letter to JVL demanding payment of the said amount. However, JVL failed to pay.

Issue: Whether or not JVL as the lessee have an insurable interest over the leased items.

Held: Yes. The stipulation in Section 14 of the lease contract, that the equipment shall be insured at the cost and
expense of the lessee against loss, damage, or destruction from fire, theft, accident, or other insurable risk for
the full term of the lease, is a binding and valid stipulation. Petitioner, as a lessee, has an insurable interest in
the equipment and motor vehicles leased. Section 17 of the Insurance Code provides that the measure of an
insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. It
cannot be denied that JVL will be directly damnified in case of loss, damage, or destruction of any of the
properties leased.

It has also been held that the test of insurable interest in property is whether the assured has a right, title or
interest therein that he will be benefited by its preservation and continued existence or suffer a direct pecuniary
loss from its destruction or injury by the peril insured against.
G.R. No. 125678      March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,

vs.
COURT OF APPEALS and JULITA TRINOS, respondents

FACTS:

Ernani Trinos applied for a health care coverage with Philamcare Health Systems, Inc. To the
question ‘Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer?’, Ernani answered
‘No’. Under the agreement, Ernani is entitled to avail of hospitalization benefits and out-patient
benefits. The coverage was approved for a period of one year from March 1, 1988 to March 1, 1989.
The agreement was however extended yearly until June 1, 1990 which increased the amount of
coverage to a maximum sum of P75,000 per disability.

During the period of said coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month. While in the hospital, his wife Julita tried to claim the benefits
under the health care agreement. However, the Philamcare denied her claim alleging that the
agreement was void because Ernani concealed his medical history. Doctors at the MMC allegedly
discovered at the time of Ernani’s confinement that he was hypertensive, diabetic and asthmatic,
contrary to his answer in the application form. Thus, Julita paid for all the hospitalization expenses.

After Ernani was discharged from the MMC, he was attended by a physical therapist at home. Later,
he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was
feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital
where he died on the same day.

Julita filed an action for damages and reimbursement of her expenses plus moral damages
attorney’s fees against Philamcare and its president, Dr. Benito Reverente. The Regional Trial court
or Manila rendered judgment in favor of Julita. On appeal, the decision of the trial court was
affirmed but deleted all awards for damages and absolved petitioner Reverente. Hence, this petition
for review raising the primary argument that a health care agreement is not an insurance contract;
hence the “incontestability clause” under the Insurance Code does not apply.

ISSUES:

(1) Whether or not the health care agreement is not an insurance contract
(2) Whether or not there is concealment of material fact made by Ernani

HELD:

(1)YES. Section2 (1)of the Insurance Code defines a contract of insurance as an agreement whereby
one undertakes for a consideration to indemnify another against loss, damage, or liability arising
from an unknown or contingent event.

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
future, which my damnify a person having an insurable against him, may be insured against. Every
person has an insurable interest in the life and health of himself.

Section 10 provides that every person has an insurable interest in the life and health (1) of himself,
of his spouse and of his children.

The insurable interest of respondent’s husband in obtaining the health care agreement was his own
health. The health care agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.

(2) NO. The answer assailed by petitioner was in response to the question relating to the medical
history of the applicant. This largely depends on opinion rather than fact, especially coming from
respondent’s husband who was not a medical doctor. Where matters of opinion or judgment are
called for answers made I good faith and without intent to deceive will not avoid a policy even
though they are untrue.The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract. Concealment as a defense for the health care provider
or insurer to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without
the authority to investigate, petitioner is liable for claims made under the contract. Having assumed
a responsibility under the agreement, petitioner is bound to answer to the extent agreed upon. In
the end, the liability of the health care provider attaches once the member is hospitalized for the
disease or injury covered by the agreement or wherever he avails of the covered benefits which he
has prepaid.Being a contract of adhesion, the terms of an insurance contract are to be construed
strictly against the party which prepared the contract – the insurer. By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture. This is equally applicable to Health Care Agreements.
GAISANO v. DISC
Jaime T. Gaisano Vs. Development Insurance and Surety Corporation
G.R. No. 190702
February 27, 2017

Facts:

Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate number GTJ-777
(vehicle), while respondent is a domestic corporation engaged in the insurance business. On
September 27, 1996, respondent issued a comprehensive commercial vehicle policy to
petitioner in the amount of Pl,500,000.00 over the vehicle for a period of one year commencing
on September 27, 1996 up to September 27, 1997. Respondent also issued two other
commercial vehicle policies to petitioner covering two other motor vehicles for the same period.
To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific
Underwriters Agency (Trans-Pacific), issued a statement of account to petitioner's company,
Noah's Ark

Merchandising (Noah's Ark). Noah's Ark immediately processed the payments and issued a Far
East Bank check dated September 27, 1996 payable to Trans-Pacific on the same day. The
check bearing the amount of Pl40,893.50 represents payment for the three insurance policies,
with P55,620.60 for the premium and other charges over the vehicle. However, nobody from
Trans-Pacific picked up the check that day (September 27) because its president and general
manager, Rolando Herradura, was celebrating his birthday. Trans-Pacific informed Noah's Ark
that its messenger would get the check the next day, September 28. In the evening of September
27, 1996, while under the official custody of Noah's Ark marketing manager Achilles Pacquing
(Pacquing) as a service company vehicle, the vehicle was stolen in the vicinity of SM Megamall
at Ortigas, Mandaluyong City. Pacquing reported the loss to the Philippine National Police
Traffic Management Command at Camp Crame in Quezon City. Despite search and retrieval
efforts, the vehicle was not recovered. Oblivious of the incident, Trans-Pacific picked up the
check the next day, September 28. It issued an official receipt numbered 124713 dated
September 28, 1996, acknowledging the receipt of P55,620.60 for the premium and other
charges over the vehicle. The check issued to Trans Pacific for Pl40,893.50 was deposited with
Metrobank for encashment on October 1, 1996.

Issue:

Whether there is a binding insurance contract between petitioner and respondent.

Ruling:

The court deny the petition. Insurance is a contract whereby one undertakes for a consideration
to indemnify another against loss, damage or liability arising from an unknown or contingent
event. Just like any other contract, it requires a cause or consideration. The consideration is the
premium, which must be paid at the time and in the way and manner specified in the policy. If
not so paid, the policy will lapse and be forfeited by its own terms. The law, however, limits the
parties' autonomy as to when payment of premium may be made for the contract to take effect.
The general rule in insurance laws is that unless the premium is paid, the insurance policy is not
valid and binding.

Section 77 of the Insurance Code, applicable at the time of the issuance of the policy, provides:
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy
or contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.
G.R. No. 156167             May 16, 2005

GULF RESORTS, INC., petitioner,

vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent

FACTS:
 Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance
Company which includes loss or damage to shock to any of the property insured by
this Policy occasioned by or through or in consequence of earthquake 
 July 16, 1990: an earthquake struck Central Luzon and Northern Luzon so the
properties and 2 swimming pools in its Agoo Playa Resort were damaged
 August 23, 1990: Gulf's claim was denied on the ground that its insurance policy
only afforded earthquake shock coverage to the two swimming pools of the resort
 Petitioner contends that pursuant to this rider, no qualifications were placed
on the scope of the earthquake shock coverage.  Thus, the policy extended
earthquake shock coverage to all of the insured properties.
 RTC: Favored American Home - endorsement rider means that only the two
swimming pools were insured against earthquake shock 
 CA: affirmed RTC
ISSUE: W/N Gulf can claim for its properties aside from the 2 swimming pools

HELD: YES. Affirmed.

 It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other.
 All its parts are reflective of the true intent of the parties.
Insurance Code
Section 2(1)
contract of insurance as an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event
 An insurance premium is the consideration paid an insurer for undertaking to
indemnify the insured against a specified peril.
 In the subject policy, no premium payments were made with regard to
earthquake shock coverage, except on the two swimming pools
G.R. No. 137172            April 4, 2001

UCPB GENERAL INSURANCE CO., INC., petitioner,

vs.
MASAGANA TELAMART, INC., respondent.

Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of the Court of Appeals,
which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of
P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Respondent’s properties;
(b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c)
ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-
replacement policies.  The modification consisted in the (1) deletion of the trial court’s declaration that three of the
policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorney’s fees from 25%
to 10% of the total amount due the Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s properties were razed by
fire.  On July 13, 1992, plaintiff tendered five checks for P225,753.45 as renewal premium payments. A receipt was
issued.  On July 14, 1992, Masagana made its formal demand for indemnification for the burned insured properties.
UCPB then rejected Masagana’s claims under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPB’s argument that Masagana’s  tender of payment of the premiums on 13 July
1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided
under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period mails or
delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to condition its
renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the policy upon
payment of the premium due on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which had procured
insurance coverage from UCPB for a number of years, had been granted a 60 to 90-day credit term for the renewal of the
policies.  Such a practice had existed up to the time the claims were filed.  Most of the premiums have been paid for more
than 60 days after the issuance. Also, no timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance policies issued by
petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or renewed by an
implied credit arrangement though actual payment of premium was tendered on a later date and after the occurrence of the
risk insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-renewal of the policies in
question, as there is no proof at all that the notice sent by ordinary mail was received by Masagana. Also, the premiums
were paid within the grace period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s advantage despite its
practice of granting a 60- to 90-day credit term for the payment of premiums.

Held: No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides:  No policy or contract of insurance issued by an insurance company is valid
and binding unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides:  Any acknowledgment in a policy or contract of insurance of
the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until premium is actually paid.
Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the payment in installments of
the premium and partial payment has been made at the time of loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy binding despite the fact that
premium is actually unpaid.  Section 77 does not expressly prohibit an agreement granting credit extension. At the very
least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer may grant credit extension for the
payment of the premium.  If the insurer has granted the insured a credit term for the payment of the premium and loss
occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after
the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term
within which to pay the premiums.  That agreement is not against the law, morals, good customs, public order or public
policy.  The agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against Petitioner, which had consistently granted a
60- to 90-day credit term for the payment of premiums.  Estoppel bars it from taking refuge since Masagana relied in good
faith on such practice.  Estoppel then is the fifth exception.
PARTNERSHIP
LITTON V. HILL & CERONG.R. No. 45624April 25, 1939
FACTS:
On February 14, 1934, George Litton, the plaintiff, soldand delivered to Carlos
Ceron, one of the managing partnersof Hill & Ceron, a certain number of mining
claims. Then,defendant Carlos Ceron delivered to Litton a
documentevidencing the fact that Ceron of Hill & Ceron companyreceived from
Litton 17,000 shares of Big Wedge MiningCompany, sold at P0.11 per share or
total of P1,870.Ceron paid to Litton P1,150, leaving an unpaid balanceof P720.
Unable to collect this sum from both Hill & Ceron andits surety, Visayan Surety &
Insurance Corporation, Litton fileda complaint in the Court of First Instance of
Manila against thesaid defendants for the recovery of the said balance. The court
ordered Ceron personally to pay the amountand absolved the partnership Hill &
Ceron, Robert Hill and theVisayan Surety & Insurance Corporation. CA affirmed
RTC,ruling that Ceron did not intend to represent and did not actfor the firm Hill &
Ceron in the transaction involved in thislitigation.
ISSUE:
W/N Ceron represented the firm Hill & Ceron in buyingsome mining claims from
Litton.
HELD:
YES. The Court ruled that the transaction made byCeron with Litton should be
understood as effected by Hill &Ceron and binding upon it. Primarily, Robert Hill
admitted when he testified at thetrial the following: a) that he and Ceron,
during thepartnership, had the same power to buy and sell; b) that insaid
partnership Hill as well as Ceron made the transaction aspartners in equal parts; c)
that on the date of the transaction,the partnership between Hill and Ceron was in
existenceIn its decision, the CA said that the 6th paragraph of thearticles of
copartnership of Hill & Ceron provides that themanagement of the business affairs
of the copartnership shallbe entrusted to both copartners, who shall jointly
administerthe business affairs of the copartnership. A written contract ofthe firm
can only be signed by one of the partners if the otherpartner consented. Now,
assuming that Ceron attempted torepresent the firm in this contract with the Litton,
the latterhas failed to prove that Hill had consented to such contract.It follows from
the sixth paragraph of the articles ofpartnership of Hill & Ceron that the
management of thebusiness of the partnership has been entrusted to
bothpartners thereof, but the Supreme Court dissented fromthe view of the CA that
for one of the partners to bindthe partnership the consent of the other is
necessary.Third persons, like the plaintiff, are not bound inentering into a
contract with any of the two partners,to ascertain whether or not this partner with
whom thetransaction is made has the consent of the otherpartner. The
public need not make inquires as to theagreements had between the
partners. Its knowledge isenough that it is contracting with the partnership,which is
represented by one of the managing partners.There is a general presumption that
each individualpartner is an authorized agent for the firm and that hehas authority
to bind the firm in carrying on thepartnership transactions.Furthermore,
2nd paragraph of the articles ofpartnership of Hill & Ceron provides that the
purpose or objectof the copartnership is to engage in the business of brokeragein
general. With that, none of the two partners, under article130 of the Code of
Commerce, may legally engage in thebusiness of brokerage in general as stock
brokers, securitybrokers and other activities pertaining to the business of
thepartnership. Ceron, therefore, could not have enteredinto the contract of sale of
shares with Litton as aprivate individual, but only as a managing partner ofHill &
Ceron.
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.
Evangelista & Co. v. Abad Santos
Facts:
A co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of Co-
partnership were amended so as to include herein respondent, Estrella Abad Santos, as industrial partner, with
herein petitioners Domingo C. Evangelista, Jr., Leonarda Atienza Abad Santos and Conchita P. Navarro, the
original capitalist partners, remaining in that capacity, with a contribution of P17,500 each. "The contribution of
Estrella Abad Santos consists of her industry being an industrial partner;" and that the profits and losses "shall
be divided and distributed among the partners... in the proportion of 70% for the first three partners, Domingo
C. Evangelista, Jr., Conchita P. Navarro and Leonarda Atienza Abad Santos to be divided among them equally;
and 30% for the fourth partner, Estrella Abad Santos."

Respondent filed suit against the three other partners in the CFI of Manila, alleging that the partnership, which
was also made a party-defendant, had been paying dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused and continued to refuse to let her examine the
partnership books or to give her information regarding the partnership affairs or to pay her any share in the
dividends declared by the partnership. The denied ever having declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the partnership
books; and by way of affirmative defense alleged that the amended Articles of Co-partnership did not express
the true agreement of the parties, which was that the plaintiff was not an industrial partner; that she did not in
fact contribute industry to the partnership; and that her share of 30% was to be based on the profits which might
be realized by the partnership only until full payment of the loan which it had obtained in December, 1955 from
the Rehabilitation Finance Corporation in the sum of P30,000, for which the plaintiff had signed a promissory
note as co-maker and mortgaged her property as security.

Issue:
Whether or not the CA erred in finding that the respondent is an industrial partner of Evangelista & Co.,
notwithstanding the admitted fact that since 1954 and until after the promulgation of the decision of the CA the
said respondent was one of the judges of the City Court of Manila, and despite its finding that respondent has
been paid for services allegedly contributed by her to the partnership.

Held:
CA did not hold that the Articles of Co-partnership, identified in the record as Exhibit "A", was conclusive
evidence that the respondent was an industrial partner of the said company, but considered it together with other
factors, consisting of both testimonial and documentary evidences, in arriving at the factual conclusion
expressed in the decision.

“At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding fact which
proves that the parties to the Amended Articles of Partnership, Exhibit 'A', did not contemplate to make the
appellee Estrella Abad Santos, an industrial partner of Evangelista & Co. It is an admitted fact that since before
the execution of the amended articles of partnership, Exhibit 'A', the appellee Estrella Abad Santos has been,
and up to the present time still is, one of the judges of the City Court of Manila, devoting all her time to the
performance of the duties of her public office. This fact proves beyond peradventure that it was never
contemplated between the parties, for she could not lawfully contribute her full time and industry which is the
obligation of an industrial partner pursuant to Art. 1789 of the Civil Code.

“It is not disputed that the prohibition against an industrial partner engaging in business for himself seeks to
prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful
compliance by said partner with his prestation. There is no pretense, however, even on the part of appellants
that appellee is engaged in any business antagonistic to that of appellant company, since being a Judge of one of
the branches of the City Court of Manila can hardly be characterized as a business. That appellee has faithfully
complied with her prestation with respect to appellants is clearly shown by the fact that it was only after the
filing of the complaint in this case and the answer thereto that appellants exercised their right of exclusion under
the codal article just mentioned by alleging in their Supplemental Answer dated July 29, 1964 — or after
around nine (9) years from June 7, 1955 — 'That subsequent to the filing of defendants' answer to the
complaint, the defendants reached an agreement whereby the herein plaintiff has been excluded from, and
deprived of, her alleged share, interest or participation, as an alleged industrial partner, in the defendant
partnership and/or in its net profits or income, on the ground that plaintiff has never contributed her industry to
the partnership, and instead she has been and still is a judge of the City Court (formerly Municipal Court) of the
City of Manila, devoting her time to the performance of her duties as such judge and enjoying the privileges and
emoluments appertaining to the said office, aside from teaching in law school in Manila, without the express
consent of the herein defendants' (Record On Appeal, pp. 24-25).”
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

G.R. No. 153788               November 27, 2009

ROGER V. NAVARRO, Petitioner,
vs.
HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch 37, Cagayan de Oro City, and KAREN T. GO, doing
business under the name KARGO ENTERPRISES, Respondents.

FACTS: Respondent Karen T. Go filed two complaints before the RTC for replevin and/or sum of money with
damages against Navarro. In these complaints, Karen Go prayed that the RTC issue writs of replevin for the
seizure of two (2) motor vehicles in Navarro’s possession. In his Answers, Navarro alleged as a special
affirmative defense that the two complaints stated no cause of action, since Karen Go was not a party to the
Lease Agreements with Option to Purchase (collectively, the lease agreements) — the actionable documents on
which the complaints were based. RTC dismissed the case but set aside the dismissal on the presumption that
Glenn Go’s (husband) leasing business is a conjugal property and thus ordered Karen Go to file a motion for the
inclusion of Glenn Go as co-plaintiff as per Rule 4, Section 3 of the Rules of Court. Navarro filed a petition for
certiorari with the CA. According to Navarro, a complaint which failed to state a cause of action could not be
converted into one with a cause of action by mere amendment or supplemental pleading. CA denied petition.

ISSUE: Whether or not Karen Go is a real party in interest.

HELD: YES. Karen Go is the registered owner of the business name Kargo Enterprises, as the registered owner
of Kargo Enterprises, Karen Go is the party who will directly benefit from or be injured by a judgment in this
case. Thus, contrary to Navarro’s contention, Karen Go is the real party-in-interest, and it is legally incorrect to
say that her Complaint does not state a cause of action because her name did not appear in the Lease Agreement
that her husband signed in behalf of Kargo Enterprises.

Glenn and Karen Go are effectively co-owners of Kargo Enterprises and the properties registered under this
name; hence, both have an equal right to seek possession of these properties. Therefore, only one of the co-
owners, namely the co-owner who filed the suit for the recovery of the co-owned property, is an indispensable
party thereto. The other co-owners are not indispensable parties. They are not even necessary parties, for a
complete relief can be accorded in the suit even without their participation, since the suit is presumed to have
been filed for the benefit of all co-owners.

We hold that since Glenn Go is not strictly an indispensable party in the action to recover possession of the
leased vehicles, he only needs to be impleaded as a pro-forma party to the suit, based on Section 4, Rule 4 of the
Rules, which states:

Section 4.Spouses as parties. — Husband and wife shall sue or be sued jointly, except as provided by law.

Even assuming that Glenn Go is an indispensable party to the action, misjoinder or non-joinder of indispensable
parties in a complaint is not a ground for dismissal of action as per Rule 3, Section 11 of the Rules of Court.
JOSEFINA P. REALUBIT vs. PROSENCIO D. JASO and EDENG JASO
G.R. No. 178782           September 21, 2011

FACTS
Petitioner Josefina Realubit entered into a Joint Venture Agreement with Francis Eric Amaury Biondo, a French national, for
the operation of an ice manufacturing business. With Josefina as the industrial partner and Biondo as the capitalist partner, the parties
agreed that they would each receive 40% of the net profit, with the remaining 20% to be used for the payment of the ice making
machine which was purchased for the business. For and in consideration of the sum of P500,000.00, however, Biondo subsequently
executed a Deed of Assignment transferring all his rights and interests in the business in favor of respondent Eden Jaso, the wife of
respondent Prosencio Jaso. With Biondo’s eventual departure from the country, the Spouses Jaso caused their lawyer to send Josefina
a letter apprising her of their acquisition of said Frenchmans share in the business and formally demanding an accounting and
inventory thereof as well as the remittance of their portion of its profits.

Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso commenced the instant suit for specific
performance, accounting, examination, audit and inventory of assets and properties, dissolution of the joint venture, appointment of a
receiver and damages. The said complaint alleged that the Spouses Realubit had no gainful occupation or business prior to their joint
venture with Biondo and that aside from appropriating for themselves the income of the business, they have fraudulently concealed the
funds and assets thereof thru their relatives, associates or dummies. The Spouses Realubit claimed that they have been engaged in the
tube ice trading business under a single proprietorship even before their dealings with Biondo.

The RTC rendered its Decision discounting the existence of sufficient evidence from which the income, assets and the
supposed dissolution of the joint venture can be adequately reckoned. Upon the finding, however, that the Spouses Jaso had been
nevertheless subrogated to Biondos rights in the business in view of their valid acquisition of the latters share as capitalist partner. On
appeal before the CA, the foregoing decision was set aside
upon the following findings that the Spouses Jaso validly acquired Biondos share in the business which had been transferred to and
continued its operations and not dissolved as claimed by the Spouses Realubit.

ISSUES
1.       Whether there was a valid assignment or rights to the joint venture
2.       Whether the joint venture is a contract of partnership
3.       Whether Jaso acquired the title of being a partner based on the Deed of Assignment

RULING
1.       Yes. As a public document, the Deed of Assignment Biondo executed in favor of Eden not only enjoys a presumption of
regularity but is also considered prima facie evidence of the facts therein stated.  A party assailing the authenticity and due execution
of a notarized document is, consequently, required to present evidence that is clear, convincing and more than merely preponderant. In
view of the Spouses Realubits failure to discharge this onus, we find that both the RTC and the CA correctly upheld the authenticity
and validity of said Deed of Assignment upon the combined strength of the above-discussed disputable presumptions and the
testimonies elicited from Eden and Notary Public Rolando Diaz.

2.       Yes. Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a particular
partnership or one which has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation. The rule is settled that joint ventures are governed by the law on partnerships which are, in turn, based on
mutual agency or delectus personae.

3.       No. It is evident that the transfer by a partner of his partnership interest does not make the assignee of such interest a partner of
the firm, nor entitle the assignee to interfere in the management of the partnership business or to receive anything except the assignees
profits. The assignment does not purport to transfer an interest in the partnership, but only a future contingent right to a portion of the
ultimate residue as the assignor may become entitled to receive by virtue of his proportionate interest in the capital. Since a partner’s
interest in the partnership includes his share in the profits, we find that the CA committed no reversible error in ruling that the Spouses
Jaso are entitled to Biondos share in the profits, despite Juanitas lack of consent to the assignment of said Frenchmans interest in the
joint venture. Although Eden did not, moreover, become a partner as a consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA correctly granted her prayer for dissolution of the joint venture conformably
with the right granted to the purchaser of a partner’s interest under Article 1831 of the Civil Code.
G.R. No. L-5963             May 20, 1953

THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI, petitioners,

vs.
SULPICIO V. CEA, in his capacity as Judge of the Court of First Instance of Leyte and OLEGARIO
LASTRILLA, respondents.

Filomeno Montejo for petitioners.

Sulpicio V. Cea in his own behalf.
Olegario Lastrilla in his own behalf.

BENGZON, J.:

Labaled "Certiorari and Prohibition with preliminary Injunction" this petition prays for the additional writ
of mandamus to compel the respondent judge to give due course to petitioners' appeal from his order taxing costs.
However, inasmuch as according to the answer, petitioners through their attorney withdrew their cash appeal bond
of P60 after the record on appeal bond of P60 after the record on appeal had been rejected, the matter
of mandamus may be summarily be dropped without further comment.

From the pleadings it appears that,

In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for damages by the Leyte-Samar Sales
Co. (hereinafter called LESSCO) and Raymond Tomassi against the Far Eastern Lumber & Commercial Co.
(unregistered commercial partnership hereinafter called FELCO), Arnold Hall, Fred Brown and Jean Roxas,
judgment against defendants jointly and severally for the amount of P31,589.14 plus costs was rendered on October
29, 1948. The Court of Appeals confirmed the award in November 1950, minus P2,000 representing attorney's fees
mistakenly included. The decision having become final, the sheriff sold at auction on June 9, 1951 to Robert Dorfe
and Pepito Asturias "all the rights, interests, titles and participation" of the defendants in certain buildings and
properties described in the certificate, for a total price of eight thousand and one hundred pesos. But on June 4,
1951 Olegario Lastrilla filed in the case a motion, wherein he claimed to be the owner by purchase on September
29, 1949, of all the "shares and interests" of defendant Fred Brown in the FELCO, and requested "under the law of
preference of credits" that the sheriff be required to retain in his possession so much of the deeds of the auction
sale as may be necessary "to pay his right". Over the plaintiffs' objection the judge in his order of June 13, 1951,
granted Lastrilla's motion by requiring the sheriff to retain 17 per cent of the money "for delivery to the assignee,
administrator or receiver" of the FELCO. And on motion of Lastrilla, the court on August 14, 1951, modified its order
of delivery and merely declared that Lastrilla was entitled to 17 per cent of the properties sold, saying in part:

. . . el Juzgado ha encontrado que no se han respetado los derechos del Sr. Lastrilla en lo que se refiere a
su adquiscicion de las acciones de C. Arnold Hall (Fred Brown) en la Far Eastern Lumber & Lumber
Commercial C. porque la mismas han sido incluidas en la subasta.

Es vedad que las acciones adquiridas por el Sr. Lastilla representan el 17 por ciento del capital de la
sociedad "Far Eastern Lumber & Commercial Co., Inc., et al." pero esto no quiere decir que su vlor no esta
sujeto a las fluctuaciones del negocio donde las invirtio.

Se vendieron propiedades de la corporacion "Far Eastern Lumber & Co. Inc.," y de la venta solamente se
obtuvo la cantidad de P8,100.

"En su virtud, se declara que el 17 por ciento de las propiedades vendidas en publica subasta pretenece al
Sr. O Lastrilla y este tiene derecho a dicha porcion pero con la obligacion de pagar el 17 por ciento de los
gastos for la conservacion de dichas propriedades por parte del Sheriff; . . . . (Annex K)

It is from this declaration and the subsequent orders to enforce it1 that the petitioners seek relief by certiorari, their
position being the such orders were null and void for lack of jurisdiction. At their request a writ of preliminary
injunction was issued here.
The record is not very clear, but there are indications, and we shall assume for the moment, that Fred Brown (like
Arnold Hall and Jean Roxas) was a partner of the FELCO, was defendant in Civil Case No. 193 as such
partner, and that the properties sold at auction actually belonged to the FELCO partnership and the partners. We
shall also assume that the sale made to Lastrilla on September 29, 1949, of all the shares of Fred Brown in the
FELCO was valid. (Remember that judgment in this case was entered in the court of first instance a year before.)

The result then, is that on June 9, 1951 when the sale was effected of the properties of FELCO to Roberto Dorfe
and Pepito Asturias, Lastilla was already a partner of FELCO.

Now, does Lastrilla have any proper claim to the proceeds of the sale? If he was a creditor of the FELCO, perhaps
or maybe. But he was no. The partner of a partnership is not a creditor of such partnership for the amount of his
shares. That is too elementary to need elaboration.

Lastrilla's theory, and the lower court's seems to be: inasmuch as Lastrilla had acquired the shares of Brown is
September, 1949, i.e., before the auction sale and he was not a party to the litigation, such shares could not have
been transferred to Dorfe and Austrilla.

Granting arguendo that the auction sale and not included the interest or portion of the FELCO properties
corresponding to the shares of Lastrilla in the same partnership (17%), the resulting situation would be — at most —
that the purchasers Dorfe and Austrias will have to recognized dominion of Lastrillas over 17 per cent of the
properties awarded to them.2 So Lastrilla acquired no right to demand any part of the money paid by Dorfe and
Austrias to he sheriff any part of the money paid by Dorfe and Austrias to the sheriff for the benefit of FELCO and
Tomassi, the plaintiffs in that case, for the reason that, as he says, his shares (acquired from Brown) could not have
been and were not auctioned off to Dorfe and Austrias.

Supposing however that Lastrillas shares have been actually (but unlawfully) sold by the sheriff (at the instance of
plaintiffs) to Dorfe and Austrias, what is his remedy? Section 15, Rule 39 furnishes the answer.

Precisely, respondents argue, Lastrilla vindicated his claim by proper action, i.e., motion in the case. We ruled once
that "action" in this section means action as defined in section 1, Rule 2.3 Anyway his remedy is to claim "the
property", not the proceeds of the sale, which the sheriff is directed by section 14, Rule 39 to deliver unto the
judgment creditors.

In other words, the owner of property wrongfully sold may not voluntarily come to court, and insist, "I approve the
sale, therefore give me the proceeds because I am the owner". The reason is that the sale was made for the
judgment creditor (who paid for the fees and notices), and not for anybody else.

On this score the respondent judge's action on Lastrilla's motion should be declared as in excess of jurisdiction,
which even amounted to want of jurisdiction, which even amounted to want of jurisdiction, considering specially that
Dorfe and Austrias, and the defendants themselves, had undoubtedly the right to be heard—but they were not
notified.4

Why was it necessary to hear them on the merits of Lastrilla's motion?

Because Dorfe and Austrillas might be unwilling to recognized the validity of Lastrilla's purchase, or, if valid, they
may want him not to forsake the partnership that might have some obligations in connection with the partnership
properties. And what is more important, if the motion is granted, when the time for redemptioner seventeen per cent
(178%) less than amount they had paid for the same properties.

The defendants Arnold Hall and Jean Roxas, eyeing Lastrilla's financial assets, might also oppose the substitution
by Lastrilla of Fred Brown, the judgment against them being joint and several. They might entertain misgivings
about Brown's slipping out of their common predicament through the disposal of his shares.

Lastly, all the defendants would have reasonable motives to object to the delivery of 17 per cent of the proceeds to
Lustrial, because it is so much money deducted, and for which the plaintiffs might as another levy on their other
holdings or resources. Supposing of course, there was no fraudulent collusion among them.
Now, these varied interest of necessity make Dorfe, Asturias and the defendants indispensable parties to the motion
of Lastrilla — granting it was step allowable under our regulations on execution. Yet these parties were not notified,
and obviously took no part in the proceedings on the motion.

A valid judgment cannot be rendered where there is a want of necessary parties, and a court cannot
properly adjudicate matters involved in a suit when necessary and indispensable parties to the proceedings
are not before it. (49 C.J.S., 67.)

Indispensable parties are those without whom the action cannot be finally determined. In a case for recovery
of real property, the defendant alleged in his answer that he was occupying the property as a tenant of a
third person. This third person is an indispensable party, for, without him, any judgment which the plaintiff
might obtain against the tenant would have no effectiveness, for it would not be binding upon, and cannot be
executed against, the defendant's landlord, against whom the plaintiff has to file another action if he desires
to recover the property effectively. In an action for partition of property, each co-owner is an indispensable
party. (Moran, Comments, 1952 ed. Vol. I, p. 56.) (Emphasis supplied.)

Wherefore, the orders of the court recognizing Lastrilla's right and ordering payment to him of a part of the proceeds
were patently erroneous, because promulgated in excess or outside of its jurisdiction. For this reason the
respondents' argument resting on plaintiffs' failure to appeal from the orders on time, although ordinarily decisive,
carries no persuasive force in this instance.

For as the former Chief Justice Dr. Moran has summarized in his Comments, 1952 ed. Vol. II, p. 168 —

. . . And in those instances wherein the lower court has acted without jurisdiction over the subject-matter, or
where the order or judgment complained of is a patent nullity, courts have gone even as far as to disregard
completely the questions of petitioner's fault, the reason being, undoubtedly, that acts performed with
absolute want of jurisdiction over the subject-matter are void ab initio and cannot be validated by consent,
express or implied, of the parties. Thus, the Supreme Court granted a petition for certiorari and set aside an
order reopening a cadastral case five years after the judgment rendered therein had become final. In
another case, the Court set aside an order amending a judgment acquired a definitive character. And still in
another case, an order granting a review of a decree of registration issued more than a year ago had been
declared null void. In all these case the existence of the right to appeal has been recitals was rendered
without any trial or hearing, and the Supreme Court, in granting certiorari, said that the judgment was by its
own recitals a patent nullity, which should be set aside though an appeal was available but was not availed
of. . . .

Invoking our ruling in Melocotones vs. Court of First Instance, (57 Phil., 144), wherein we applied the theory of
laches to petitioners' 3-years delay in requesting certiorari, respondents point out that whereas the orders
complained of herein were issued in June 13, 1951 and August 14, 1951 this special civil action was not filed until
August 1952. It should be observed that the order of June 13 was superseded by that of August 14, 1951. The last
order merely declared "que el 17 por ciento de la propiedades vendidas en publica subasta pertenece at Sr. Lastrilla
y este tiene derecho a dicha porcion." This does not necessarily mean that 17 per cent of the money had to be
delivered to him. It could mean, as hereinbefore indicated, that the purchasers of the property (Dorfe and Asturias)
had to recognize Lastrilla's ownership. It was only on April 16, 1952 (Annex N) that the court issued an order
directing the sheriff "to tun over" to Lastrilla "17 per cent of the total proceeds of the auction sale". There is the order
that actually prejudiced the petitioners herein, and they fought it until the last order of July 10,. 1952 (Annex Q).
Surely a month's delay may not be regarded as laches.

In view of the foregoing, it is our opinion, and we so hold, that all orders of the respondents judge requiring delivery
of 17 per cent of the proceeds of the auction sale to respondent Olegario Lastrilla are null and void; and the costs of
this suit shall be taxed against the latter. The preliminary injunction heretofore issued is made permanent. So
ordered.
Island Sales, Inc.v.United Pioneers General Construction Company, Et. AlG.R. No.
L-22493,July 31, 1975

FACTS:

United Pioneers General Construction Company is a general partnership formed by Benjamin Daco,
Daniel Guizona, Noel Sim, Augusto Palisoc and Romulo Lumauig. In 1961, United Pioneers purchased by
installment a motor vehicle from Island Sales, Inc. United Pioneers defaulted in its payment hence it was sued
and the 5 partners were impleaded as co-defendants.Upon motion of Island Sales, Lumauig was removed as a
defendant.United Pioneers lost the civil case and the trial court rendered judgment ordering United Pioneers to
pay the outstanding balance plus interest and costs. It further decreed that the remaining 4 co-
defendants shall pay Island Sales in case United Pioneers’ property will not be enough to satisfy its
indebtedness to Island Sales.

ISSUE:

What is the extent of the liability of the partners considering that one partner was removed as a co-defendant on
motion of Island Sales?

HELD:

Their liability is pro-rata pursuant to Article 1816 of the Civil Code. But is should be noted that since there were
5 partners when the purchase was made in behalf of the partnership, the liability of each partner should be
1/5th(of the company’s obligation) each. The fact that the complaint against Lumauig was dismissed, upon
motion of the Island Sales, does not unmake Lumauig as a general partner in the company. In so
moving to dismiss the complaint, Island Sales merely condoned Lumauig’s individual liability to them.
 Pahud vs Court of Appeals
November 20, 2020   by Vala   No Comments

G.R. No. 160346               August 25, 2009

FACTS:

The (8) children : respondents Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita
and Virgilio, were left a 246-square meter parcel of land.

Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of Undivided
shares in favor of Pahuds for their respective shares from the lot they inherited from their
deceased parents. Eufemia also signed the deed on behalf of her four (4) other co-heirs, namely:
Isabelita on the basis of a special power of attorney  and also for Milagros, Minerva, and Zenaida
but without their apparent written authority. The deed of sale was also not notarized.

In 1993, Virgilio filed for judicial partition of the subject property. A Compromise Agreement was
signed with seven (7) of the co-heirs agreeing to sell their undivided shares to Virgilio for
₱700,000.00. The agreement was not approved by the trial court

Because of the previous sale made to the Pahuds. Eufemia acknowledged having received
₱700,000.00 from Virgilio.  Virgilio then sold the entire property to spouses Belarminos, in which
immediately constructed a building on the subject property.

Aggrieved, the Pahuds filed a complaint.

The CA ordered the return of the total amount received to Pahuds and that the sale to
Belarminos as valid and binding;

ISSUE:

Whether or not the sale with respect to the 3/8 portion of the land should have been deemed
ratified when the three co-heirs, namely: Milagros, Minerva, and Zenaida, executed their
respective special power of attorneys authorizing Eufemia to represent them in the sale of their
shares in the subject property.

HELD:
Yes. While the sale with respect to the 3/8 portion is void by express provision of law and not
susceptible to ratification, we nevertheless uphold its validity on the basis of the common law
principle of estoppel.

Under Article 1874 of the Civil Code, When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.
Also, under Article 1878, a special power of attorney is necessary for an agent to enter into a
contract by which the ownership of an immovable property is transmitted or acquired, either
gratuitously or for a valuable consideration.

Interestingly, in no instance did the three (3) heirs concerned assail the validity of the transaction
made by Eufemia to the Pahuds on the basis of want of written authority to sell. They could have
easily filed a case for annulment of the sale of their respective shares against Eufemia and the
Pahuds. Instead, they opted to remain silent and left the task of raising the validity of the sale as
an issue to their co-heir, Virgilio, who is not privy to the said transaction. They cannot be allowed
to rely on Eufemia, their attorney-in-fact, to impugn the validity of the first transaction because
to allow them to do so would be tantamount to giving premium to their sister’s dishonest and
fraudulent deed. Undeniably, therefore, the silence and passivity of the three co-heirs on the
issue bar them from making a contrary claim.

It is a basic rule in the law of agency that a principal is subject to liability for loss caused to
another by the latter’s reliance upon a deceitful representation by an agent in the course of his
employment (1) if the representation is authorized; (2) if it is within the implied authority of the
agent to make for the principal; or (3) if it is apparently authorized, regardless of whether the
agent was authorized by him or not to make the representation.

By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to believe
that they have indeed clothed Eufemia with the authority to transact on their behalf. Clearly, the
three co-heirs are now estopped from impugning the validity of the sale from assailing the
authority of Eufemia to enter into such transaction.
E.B. Villarosa & Partner Co. Ltd. V. Judge Benito, G.R. 136426, 06 August 1999.

FACTS:

Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal office address at Davao City
and with branch offices in Parañaque, Metro Manila and Cagayan de Oro City. Private respondent, as plaintiff,
filed a Complaint for Breach of Contract and Damages against petitioner, as defendant, before the Regional
Trial Court of Makati allegedly for failure of the latter to comply with its contractual obligation in that, other
than a few unfinished low cost houses, there were no substantial developments therein. Summons, together with
the complaint, were served upon the defendant, through its Branch Manager, but the Sheriff’s Return of Service
stated that the summons was duly served “upon defendant E.B. Villarosa & Partner Co., Ltd. thru its Branch
Manager Engr. WENDELL SALBULBERO. Defendant filed a Special Appearance with Motion to Dismiss
alleging that summons intended for defendant” was served upon Engr. Wendell Sabulbero, an employee of
defendant at its branch office at Cagayan de Oro City. Defendant prayed for the dismissal of the complaint on
the ground of improper service of summons and for lack of jurisdiction over the person of the defendant.
Defendant contends that the trial court did not acquire jurisdiction over its person since the summons was
improperly served upon its employee in its branch office at Cagayan de Oro City who is not one of those
persons named in Section 11, Rule 14 of the 1997 Rules of Civil Procedure upon whom service of summons
may be made. Defendant’s argument was not sustained.

ISSUE:

Did the trial court acquire jurisdiction over the person of petitioner upon service of summons on its Branch
Manager?

HELD: NO.

[T]he service of summons upon the branch manager of petitioner at its branch office at Cagayan de Oro,
instead of upon the general manager at its principal office at Davao City is improper. Consequently, the trial
court did not acquire jurisdiction over the person of the petitioner.

The fact that defendant filed a belated motion to dismiss did not operate to confer jurisdiction upon its person.
There is no question that the defendant’s voluntary appearance in the action is equivalent to service of
summons. Before, the rule was that a party may challenge the jurisdiction of the court over his person by
making a special appearance through a motion to dismiss and if in the same motion, the movant raised other
grounds or invoked affirmative relief which necessarily involves the exercise of the jurisdiction of the court.
This doctrine has been abandoned in the case of La Naval Drug Corporation vs. Court of Appeals, et al., which
became the basis of the adoption of a new provision in the former Section 23, which is now Section 20 of Rule
14 of the 1997 Rules. Section 20 now provides that “the inclusion in a motion to dismiss of other grounds aside
from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance.” The
emplacement of this rule clearly underscores the purpose to enforce strict enforcement of the rules on summons.
Accordingly, the filing of a motion to dismiss, whether or not belatedly filed by the defendant, his authorized
agent or attorney, precisely objecting to the jurisdiction of the court over the person of the defendant can by no
means be deemed a submission to the jurisdiction of the court. There being no proper service of summons, the
trial court cannot take cognizance of a case for lack of jurisdiction over the person of the defendant. Any
proceeding undertaken by the trial court will consequently be null and void.
G.R. No. L-39780 November 11, 1985
ELMO MUÑASQUE, petitioner,
vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL
COMPANY and RAMON PONS, respondents.
GUTTIERREZ, JR., J.:

Facts:
Munasque (petitioner) entered into a partnership with Galan under the registered name\“Galan and Associates” as
Contractor. They entered into a written contract with respondent Tropical for remodeling the latter’s Cebu branch building.
Under the contract, the project totaled 25,000 to be paid in installments; 7, 000 upon signing and 6, 000 every 15 working
days.

Tropical made the first payment by check in the name of Munasque. Munasque indorsed the check in favor of Galan to
enable Galan to deposit it in the bank and pay for the materials and labor used in the project. However, Galan allegedly
spent P6, 183.37 for his personal use. When the second check came, Munasque refused to indorse it again to
Galan.

Galan informed Tropical of the misunderstanding between him and Munasque as partners. Hence upon second payment,
Tropical changed the name of the payee on the second check from Munasque to “Galan and Associates” which enabled
Galan to encash the second check.

Meanwhile, the construction was continued through Munasque’s sole efforts by incurring debts from various suppliers.
The construction work was finished ahead of schedule with the total expenditure reaching P 34, 000 (note yung contract
nila 25k lang).

Munasque filed a complaint for payment of sum of money and damages against Galan, Tropical, and Tropical’s Cebu
branch manager Pons. Cebu Southern Hardware Company and Blue Diamond Glass Palace intervened in the case for
the credit which they extended to the partnership of Munasque and Galan for the construction project.

Both trial court and Court of Appeals absolved respondents Tropical and its Cebu manager, Pons, from any liability. TC
held Galvan and Munasque “jointly and severally” liable to its creditors which decision was modified by CA and held them
“jointly” liable.

Issues:
Whether the obligation of Munasque and Galan is joint or solidary?

Held:
Solidary. While it is true that under Article 1816 of CC, “All partners, including industrial ones, shall be liable pro rate with
all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into the
name and for account of the partnership, under its signature and by a person authorized to act for the partnership. xxx”,
this provision should be construed together with Article 1824 which provides that:

“All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and
1823.” While the liability of the partners are merely joint in transactions entered into by the partnership, a third person who
transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third
person falls under Articles 1822 and 1823.

The obligation is solidary because the law protects him, who in good faith relied upon the authority of a partner, whether
such authority is real or apparent.

Tropical had every reason to believe that a partnership existed between Munasque and Galan and no fault or error can be
imputed against it for making payments to “Galan and Associates” because as far as it was concerned, Galan was a true
partner with real authority to transact in behalf of the partnership it was dealing with (because in the first place they
entered into a duly registered partnership name and secondly, Munasque endorsed the first check payment to Galan).
This is even more true in the cases of the intervenors who supplied materials on credit to the partnership. Thus, it is but
fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by
all the partners and the partnership as a whole.

However, as between Munasque and Galan, Galan must reimburse Munasque for the payments made to the intervenors
as it was satisfactorily established that Galan acted in bad faith in his dealings with Munasque as a partner.
G.R. No. L-26937 October 5, 1927 En BancPHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. SEVERO
EUGENIO LO, ET AL., defendants.Villamor, J.:

FACTS:

In September 1916, Severo Eugenio Lo and Ling, together with Ping, Hun, Lam and Pengformed a commercial
partnership under the name of “Tai Sing and Co.,” with a capital of P40,000contributed by said partners. The
firm name was registered in the mercantile registrar in the Province ofIloilo. Ping, in the articles of partnership,
was assigned as the general manager. However, in 1917, heexecuted a special power of attorney in favor of
Lam to act in his behalf as the manager of the firm.Subsequently, Lam obtained a loan from PNB – the loan was
under the firm’s name. In the same year,Ping died in China. From 1918 to 1920, the firm, via GM Lam,
incurred other loans from PNB. Theloans were not objected by any of the partners. Later, PNB sued the firm
for non-payment. Lo, in hisdefense, argued that he cannot be liable as a partner because the partnership,
according to him, is void;that it is void because the firm’s name did not comply with the requirement of the
Code of Commerce thata firm name should contain the “names of all of the partners, of several of them, or only
one of them”. Loalso argued that the acts of Lam after the death of Ping is not binding upon the other partners
because thespecial power of attorney shall have already ceased.

ISSUE:

Whether or not Lo is correct in both arguments.

HELD:

No. The anomalous adoption of the firm name above noted does not affect the liability of thegeneral partners to
third parties under Article 127 of the Code of Commerce. The object of the Code ofCommerce in requiring a
general partnership to transact business under the name of all its members, ofseveral of them, or of one only, is
to protect the public from imposition and fraud; it is for the protectionof the creditors rather than of the partners
themselves. It is unenforceable as between the partners and atthe instance of the violating party, but not in the
sense of depriving innocent parties of their rights whomay have dealt with the offenders in ignorance of the
latter having violated the law; and that contractsentered into by a partnership firm defectively organized are
valid when voluntarily executed by theparties, and the only question is whether or not they complied with the
agreement. Therefore, Lo cannotinvoke in his defense the anomaly in the firm name which they themselves
adopted. Lo was not able toprove his second argument. But even assuming arguendo, his second contention
does not deserve meritbecause (a) Lam, in acting as a GM, is also a partner and his actions were never objected
to by thepartners, and (b) it also appeared from the evidence that Lo, Lam and the other partners authorized
someof the loans.NOTE: Under the New Civil Code, a firm name may or may not include the name of one or
more of thepartners (Article 1815).
PIONEER INSURANCE & SURETY CORPORATION,  petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M.
MAGLANA and JACOB S. LIM,  respondents.
G.R. No. 84197 July 28, 1989.

JACOB S. LIM,  petitioner,

vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT
CO., INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA,  respondents.
G.R. No. 84157. July 28, 1989.
GUTIERREZ, JR.,  J.

Rule Synopsis

An insurer who has already collected proceeds from its reinsurer can no
longer be subrogated to the rights of the insured. It is instead the reinsurer that
may be subrogated as such.

Case Summary

Lim, as owner-operator of Southern Airlines (SAL) bought aircrafts from Japan

Domestic Airlines (JDA). A surety bond was executed by Pioneer Insurance
and Surety Corp. (Pioneer) in favor of JDA, in behalf of Lim. Indemnity
agreements were also executed in favor of Pioneer, whereby the indemnitors
bound themselves to jointly and severally indemnify Pioneer against all
damages, losses, etc. that it may incur as a surety. These indemnitors also
contributed funds for the purchase of said aircrafts based on the
misrepresentation of Lim that they will form a new corporation to expand his
business. In addition to the indemnification agreements, Lim also executed a
chattel mortgage on the aircrafts purchased in favor of Pioneer as security.

Lim eventually failed to pay. Pioneer paid on his behalf. Thus, the mortgage
was foreclosed. Pioneer also applied for a writ of preliminary attachment
against Lim and the indemnitors. It appears, however, that Pioneer had
already collected the proceeds of the reinsurance on its bond in favor
of JDA. The indemnitors, on the other hand, filed cross-claims against Lim,
alleging that they were not privies to the contracts signed by Lim. They also
sought to recover the amounts advanced by them for the purchase of the
aircraft.

Issues resolved —
Were Lim and the indemnitors liable to Pioneer Insurance & Surety Co.?

HELD – NO.
As regards the issue of subrogation, the SC dismissed the case filed by
Pioneer against Lim and the indemnitors given that it was established that it
had already collected the proceeds of the reinsurance on its bond in favor
JDA. In this case, the Court held that the real-party-in-interest is Pioneer’s
reinsurer, having been subrogated to the latter’s rights upon its payment to
Pioneer; Pioneer, thus, had no cause of action against the respondents. It is
clear from the records that Pioneer sued in its own name and not as an
attorney-in-fact of the reinsurer.

Petitions dismissed. Decision affirmed.