d. Property Rights of a Partner (Arts. 1810 to G.R. No.
G.R. No. 84197) was dismissed but in all other
1814)  respects the trial court's decision was affirmed.
1CATALAN VS. GATCHALIAN
G.R. NO. L-11648 APRIL 22, 1959
FACTS: Catalan and Gatchalian are partners. They
mortgaged two lots to Dr. Marave together with the
improvements thereon to secure a credit from the
latter. The partnership failed to pay the obligation.
The properties were sold to Dr. Marave at a public
auction. Catalan redeemed the property and he
contends that title should be cancelled and a new
one must be issued in his name.
ISSUE: Did Catalan’s redemption of the properties
make him the absolute owner of the lands?
RULING: No. Under Article 1807 of the NCC every
partner becomes a trustee for his copartner with
regard to any benefits or profits derived from his act
as a partner. Consequently, when Catalan
redeemed the properties in question, he became a
trustee and held the same in trust for his copartner
Gatchalian, subject to his right to demand from the
latter his contribution to the amount of redemption.
Art. 1830. The marriage of the general partner to a
limited partner did not result in the dissolution of the
partnership.
2PIONEER INSURANCE & SURETY
CORPORATION V. COURT OF APPEALS
G.R. NO. 84197, 28 JULY 1989
GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is
the decision of the Court of Appeals in CA-G.R. CV
No. 66195 which modified the decision of the then
Court of First Instance of Manila in Civil Case No.
66135. The plaintiffs complaint (petitioner in G.R.
No. 84197) against all defendants (respondents in
No moral or exemplary damages is awarded against
The dispositive portion of the trial court's decision
reads as follows:
WHEREFORE, judgment is rendered against
defendant Jacob S. Lim requiring Lim to pay plaintiff
the amount of P311,056.02, with interest at the rate
of 12% per annum compounded monthly; plus 15%
of the amount awarded to plaintiff as attorney's fees
from July 2,1966, until full payment is made; plus
P70,000.00 moral and exemplary damages.
It is found in the records that the cross party
plaintiffs incurred additional miscellaneous
expenses aside from P151,000.00, making a total of
P184,878.74. Defendant Jacob S. Lim is further
required to pay cross party plaintiff, Bormaheco, the
Cervanteses one-half and Maglana the other half,
the amount of Pl84,878.74 with interest from the
filing of the cross-complaints until the amount is fully
paid; plus moral and exemplary damages in the
amount of P184,878.84 with interest from the filing
of the cross-complaints until the amount is fully paid;
plus moral and exemplary damages in the amount
of P50,000.00 for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to
Bormaheco and the Cervanteses, and another
P20,000.00 to Constancio B. Maglana as attorney's
fees.
WHEREFORE, in view of all above, the complaint of
plaintiff Pioneer against defendants Bormaheco, the
Cervanteses and Constancio B. Maglana, is
dismissed. Instead, plaintiff is required to indemnify
the defendants Bormaheco and the Cervanteses the
amount of P20,000.00 as attorney's fees and the
amount of P4,379.21, per year from 1966 with legal
rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay
Constancio B. Maglana the amount of P20,000.00
as attorney's fees and costs.
plaintiff for this action was filed in good faith. The
fact that the properties of the Bormaheco and the
Cervanteses were attached and that they were
required to file a counterbond in order to dissolve
the attachment, is not an act of bad faith. When a
man tries to protect his rights, he should not be
saddled with moral or exemplary damages.
Furthermore, the rights exercised were provided for
in the Rules of Court, and it was the court that
ordered it, in the exercise of its discretion.
No damage is decided against Malayan Insurance
Company, Inc., the third-party defendant, for it only
secured the attachment prayed for by the plaintiff
Pioneer. If an insurance company would be liable for
damages in performing an act which is clearly within
its power and which is the reason for its being, then
nobody would engage in the insurance business. No
further claim or counter-claim for or against anybody
is declared by this Court. (Rollo - G.R. No. 24197,
pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157)
was engaged in the airline business as owner-
operator of Southern Air Lines (SAL) a single
proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic
Airlines (JDA) and Lim entered into and executed a
sales contract (Exhibit A) for the sale and purchase
of two (2) DC-3A Type aircrafts and one (1) set of
necessary spare parts for the total agreed price of
US $109,000.00 to be paid in installments. One DC-
3 Aircraft with Registry No. PIC-718, arrived in
Manila on June 7,1965 while the other aircraft,
arrived in Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety
Corporation (Pioneer, petitioner in G.R. No. 84197)
as surety executed and issued its Surety Bond No.
6639 (Exhibit C) in favor of JDA, in behalf of its
principal, Lim, for the balance price of the aircrafts
and spare parts.
It appears that Border Machinery and Heavy
Equipment Company, Inc. (Bormaheco), Francisco
and Modesto Cervantes (Cervanteses) and
Constancio Maglana (respondents in both petitions)
contributed some funds used in the purchase of the
above aircrafts and spare parts. The funds were
supposed to be their contributions to a new
corporation proposed by Lim to expand his airline
business. They executed two (2) separate indemnity
agreements (Exhibits D-1 and D-2) in favor of
Pioneer, one signed by Maglana and the other
jointly signed by Lim for SAL, Bormaheco and the
Cervanteses. The indemnity agreements stipulated
that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and
hold and save harmless Pioneer from and against
any/all damages, losses, costs, damages, taxes,
penalties, charges and expenses of whatever kind
and nature which Pioneer may incur in consequence
of having become surety upon the bond/note and to
pay, reimburse and make good to Pioneer, its
successors and assigns, all sums and amounts of
money which it or its representatives should or may
pay or cause to be paid or become liable to pay on
them of whatever kind and nature.
On June 10, 1965, Lim doing business under the
name and style of SAL executed in favor of Pioneer
as deed of chattel mortgage as security for the
latter's suretyship in favor of the former. It was
stipulated therein that Lim transfer and convey to
the surety the two aircrafts. The deed (Exhibit D)
was duly registered with the Office of the Register of
Deeds of the City of Manila and with the Civil
Aeronautics Administration pursuant to the Chattel
Mortgage Law and the Civil Aeronautics Law
(Republic Act No. 776), respectively.
Lim defaulted on his subsequent installment
payments prompting JDA to request payments from
the surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial
foreclosure of the said chattel mortgage before the
Sheriff of Davao City. The Cervanteses and
Maglana, however, filed a third party claim alleging
that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial
foreclosure with an application for a writ of
preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco and
Maglana.
In their Answers, Maglana, Bormaheco and the
Cervanteses filed cross-claims against Lim alleging
that they were not privies to the contracts signed by
Lim and, by way of counterclaim, sought for
damages for being exposed to litigation and for
recovery of the sums of money they advanced to
Lim for the purchase of the aircrafts in question.
After trial on the merits, a decision was rendered
holding Lim liable to pay Pioneer but dismissed
Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the
trial court's decision in that the plaintiffs complaint
against all the defendants was dismissed. In all
other respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation
avers that:
RESPONDENT COURT OF APPEALS
GRIEVOUSLY ERRED WHEN IT DISMISSED THE
APPEAL OF PETITIONER ON THE SOLE
GROUND THAT PETITIONER HAD ALREADY
COLLECTED THE PROCEEDS OF THE
REINSURANCE ON ITS BOND IN FAVOR OF THE
JDA AND THAT IT CANNOT REPRESENT A
REINSURER TO RECOVER THE AMOUNT FROM
HEREIN PRIVATE RESPONDENTS AS
DEFENDANTS IN THE TRIAL COURT. (Rollo - G.
R. No. 84197, p. 10)
The petitioner questions the following findings of the
appellate court:
We find no merit in plaintiffs appeal. It is undisputed
that plaintiff Pioneer had reinsured its risk of liability
under the surety bond in favor of JDA and
subsequently collected the proceeds of such
reinsurance in the sum of P295,000.00. Defendants'
alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiffs instant action for the
recovery of the amount of P298,666.28 from
defendants will no longer prosper. Plaintiff Pioneer
is not the real party in interest to institute the instant
action as it does not stand to be benefited or injured
by the judgment.
Plaintiff Pioneer's contention that it is representing
the reinsurer to recover the amount from
defendants, hence, it instituted the action is utterly
devoid of merit. Plaintiff did not even present any
evidence that it is the attorney-in-fact of the
reinsurance company, authorized to institute an
action for and in behalf of the latter. To qualify a
person to be a real party in interest in whose name
an action must be prosecuted, he must appear to be
the present real owner of the right sought to be
enforced (Moran, Vol. I, Comments on the Rules of
Court, 1979 ed., p. 155). It has been held that the
real party in interest is the party who would be
benefited or injured by the judgment or the party
entitled to the avails of the suit (Salonga v. Warner
Barnes & Co., Ltd., 88 Phil. 125, 131). By real party
in interest is meant a present substantial interest as
distinguished from a mere expectancy or a future,
contingent, subordinate or consequential interest
(Garcia v. David, 67 Phil. 27; Oglleaby v. Springfield
Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers
v. Germans, 1 NW 2d 424; Weber v. City of Cheye,
97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer
cannot be considered as the real party in interest as
it has already been paid by the reinsurer the sum of
P295,000.00 — the bulk of defendants' alleged
obligation to Pioneer.
In addition to the said proceeds of the reinsurance
received by plaintiff Pioneer from its reinsurer, the
former was able to foreclose extra-judicially one of
the subject airplanes and its spare engine, realizing
the total amount of P37,050.00 from the sale of the
mortgaged chattels. Adding the sum of P37,050.00,
to the proceeds of the reinsurance amounting to
P295,000.00, it is patent that plaintiff has been
overpaid in the amount of P33,383.72 considering
that the total amount it had paid to JDA totals to only
P298,666.28. To allow plaintiff Pioneer to recover
from defendants the amount in excess of
P298,666.28 would be tantamount to unjust
enrichment as it has already been paid by the
reinsurance company of the amount plaintiff has
paid to JDA as surety of defendant Lim vis-a-vis
defendant Lim's liability to JDA. Well settled is the
rule that no person should unjustly enrich himself at
the expense of another (Article 22, New Civil Code).
(Rollo-84197, pp. 24-25).
The petitioner contends that (1) it is at a loss where
respondent court based its finding that petitioner
was paid by its reinsurer in the aforesaid amount, as
this matter has never been raised by any of the
parties herein both in their answers in the court
below and in their respective briefs with respondent
court; (Rollo, p. 11) (2) even assuming
hypothetically that it was paid by its reinsurer, still
none of the respondents had any interest in the
matter since the reinsurance is strictly between the
petitioner and the re-insurer pursuant to section 91
of the Insurance Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to recover from
respondents Bormaheco and Maglana; and (4) the
principle of unjust enrichment is not applicable
considering that whatever amount he would recover
from the co-indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the
issue on the reinsurance money was never raised
by the parties.
A cursory reading of the trial court's lengthy decision
shows that two of the issues threshed out were:
1. Has Pioneer a cause of action against defendants
with respect to so much of its obligations to JDA as
has been paid with reinsurance money?
2. If the answer to the preceding question is in the
negative, has Pioneer still any claim against
defendants, considering the amount it has realized
from the sale of the mortgaged properties? (Record
on Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the
following findings:
It appearing that Pioneer reinsured its risk of liability
under the surety bond it had executed in favor of
JDA, collected the proceeds of such reinsurance in
the sum of P295,000, and paid with the said amount
the bulk of its alleged liability to JDA under the said
surety bond, it is plain that on this score it no longer
has any right to collect to the extent of the said
amount.
On the question of why it is Pioneer, instead of the
reinsurance (sic), that is suing defendants for the
amount paid to it by the reinsurers, notwithstanding
that the cause of action pertains to the latter,
Pioneer says: The reinsurers opted instead that the
Pioneer Insurance & Surety Corporation shall
pursue alone the case.. . . . Pioneer Insurance &
Surety Corporation is representing the reinsurers to
recover the amount.' In other words, insofar as the
amount paid to it by the reinsurers Pioneer is suing
defendants as their attorney-in-fact.
But in the first place, there is not the slightest
indication in the complaint that Pioneer is suing as
attorney-in- fact of the reinsurers for any amount.
Lastly, and most important of all, Pioneer has no
right to institute and maintain in its own name an
action for the benefit of the reinsurers. It is well-
settled that an action brought by an attorney-in-fact
in his own name instead of that of the principal will
not prosper, and this is so even where the name of
the principal is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court
provides that 'Every action must be prosecuted in
the name of the real party in interest.' This provision
is mandatory. The real party in interest is the party
who would be benefitted or injured by the judgment
or is the party entitled to the avails of the suit.
This Court has held in various cases that an
attorney-in-fact is not a real party in interest, that
there is no law permitting an action to be brought by
an attorney-in-fact. Arroyo v. Granada and Gentero,
18 Phil. Rep. 484; Luchauco v. Limjuco and
Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial
Corporation v. San Diego G.R. No. L- 22347,1968,
23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is
P299,666.29. Since Pioneer has collected
P295,000.00 from the reinsurers, the uninsured
portion of what it paid to JDA is the difference
between the two amounts, or P3,666.28. This is the
amount for which Pioneer may sue defendants,
assuming that the indemnity agreement is still valid
and effective. But since the amount realized from
the sale of the mortgaged chattels are P35,000.00
for one of the airplanes and P2,050.00 for a spare
engine, or a total of P37,050.00, Pioneer is still
overpaid by P33,383.72. Therefore, Pioneer has no
more claim against defendants. (Record on Appeal,
pp. 360-363).
The payment to the petitioner made by the
reinsurers was not disputed in the appellate court.
Considering this admitted payment, the only issue
that cropped up was the effect of payment made by
the reinsurers to the petitioner. Therefore, the
petitioner's argument that the respondents had no
interest in the reinsurance contract as this is strictly
between the petitioner as insured and the reinsuring
company pursuant to Section 91 (should be Section
98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss
acquires the same rights by subrogation as are
acquired in similar cases where the original insurer
pays a loss (Universal Ins. Co. v. Old Time
Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance
policies are in general applicable to actions or
contracts of reinsurance. (Delaware, Ins. Co. v.
Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA.
380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new
Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured,
and he has received indemnity from the insurance
company for the injury or loss arising out of the
wrong or breach of contract complained of, the
insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount
paid by the insurance company does not fully cover
the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person
causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the
case of Phil. Air Lines, Inc. v. Heald Lumber Co.
(101 Phil. 1031 [1957]) which we subsequently
applied in Manila Mahogany Manufacturing
Corporation v. Court of Appeals (154 SCRA 650
[1987]):
Note that if a property is insured and the owner
receives the indemnity from the insurer, it is
provided in said article that the insurer is deemed
subrogated to the rights of the insured against the
wrongdoer and if the amount paid by the insurer
does not fully cover the loss, then the aggrieved
party is the one entitled to recover the deficiency.
Evidently, under this legal provision, the real party in
interest with regard to the portion of the indemnity
paid is the insurer and not the insured.
It is clear from the records that Pioneer sued in its
own name and not as an attorney-in-fact of the
reinsurer.
Accordingly, the appellate court did not commit a
reversible error in dismissing the petitioner's
complaint as against the respondents for the reason
that the petitioner was not the real party in interest in
the complaint and, therefore, has no cause of action
against the respondents.
Nevertheless, the petitioner argues that the appeal
as regards the counter indemnitors should not have
been dismissed on the premise that the evidence on
record shows that it is entitled to recover from the
counter indemnitors. It does not, however, cite any
grounds except its allegation that respondent
"Maglanas defense and evidence are certainly
incredible" (p. 12, Rollo) to back up its contention.
On the other hand, we find the trial court's findings
on the matter replete with evidence to substantiate
its finding that the counter-indemnitors are not liable
to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity
agreement ceased to be valid and effective after the
execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and
Modesto Cervantes.
Pioneer Insurance, knowing the value of the
aircrafts and the spare parts involved, agreed to
issue the bond provided that the same would be
mortgaged to it, but this was not possible because
the planes were still in Japan and could not be
mortgaged here in the Philippines. As soon as the
aircrafts were brought to the Philippines, they would
be mortgaged to Pioneer Insurance to cover the
bond, and this indemnity agreement would be
cancelled.
The following is averred under oath by Pioneer in
the original complaint:
The various conflicting claims over the mortgaged
properties have impaired and rendered insufficient
the security under the chattel mortgage and there is
thus no other sufficient security for the claim sought
to be enforced by this action.
This is judicial admission and aside from the chattel
mortgage there is no other security for the claim
sought to be enforced by this action, which
necessarily means that the indemnity agreement
had ceased to have any force and effect at the time
this action was instituted. Sec 2, Rule 129, Revised
Rules of Court.
Prescinding from the foregoing, Pioneer, having
foreclosed the chattel mortgage on the planes and
spare parts, no longer has any further action against
the defendants as indemnitors to recover any
unpaid balance of the price. The indemnity
agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. These
defendants, as indemnitors, would be entitled to be
subrogated to the right of Pioneer should they make
payments to the latter. Articles 2067 and 2080 of the
New Civil Code of the Philippines.
Independently of the preceding proposition
Pioneer's election of the remedy of foreclosure
precludes any further action to recover any unpaid
balance of the price.
SAL or Lim, having failed to pay the second to the
eight and last installments to JDA and Pioneer as
surety having made of the payments to JDA, the
alternative remedies open to Pioneer were as
provided in Article 1484 of the New Civil Code,
known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the
chattel mortgage both by extrajudicial foreclosure
and the instant suit. Such being the case, as
provided by the aforementioned provisions, Pioneer
shall have no further action against the purchaser to
recover any unpaid balance and any agreement to
the contrary is void.' Cruz, et al. v. Filipinas
Investment & Finance Corp. No. L- 24772, May
27,1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be
escaped from through the contention that Pioneer is
not the vendor but JDA. The reason is that Pioneer
is actually exercising the rights of JDA as vendor,
having subrogated it in such rights. Nor may the
application of the provision be validly opposed on
the ground that these defendants and defendant
Maglana are not the vendee but indemnitors.
Pascual, et al. v. Universal Motors Corporation, G.R.
No. L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim,
thru the change of their maturity dates discharged
these defendants from any liability as alleged
indemnitors. The change of the maturity dates of the
obligations of Lim, or SAL extinguish the original
obligations thru novations thus discharging the
indemnitors.
The principal hereof shall be paid in eight equal
successive three months interval installments, the
first of which shall be due and payable 25 August
1965, the remainder of which ... shall be due and
payable on the 26th day x x x of each succeeding
three months and the last of which shall be due and
payable 26th May 1967.
However, at the trial of this case, Pioneer produced
a memorandum executed by SAL or Lim and JDA,
modifying the maturity dates of the obligations, as
follows:
The principal hereof shall be paid in eight equal
successive three month interval installments the first
of which shall be due and payable 4 September
1965, the remainder of which ... shall be due and
payable on the 4th day ... of each succeeding
months and the last of which shall be due and
payable 4th June 1967.
Not only that, Pioneer also produced eight purported
promissory notes bearing maturity dates different
from that fixed in the aforesaid memorandum; the
due date of the first installment appears as October
15, 1965, and those of the rest of the installments,
the 15th of each succeeding three months, that of
the last installment being July 15, 1967.
These restructuring of the obligations with regard to
their maturity dates, effected twice, were done
without the knowledge, much less, would have it
believed that these defendants Maglana (sic).
Pioneer's official Numeriano Carbonel would have it
believed that these defendants and defendant
Maglana knew of and consented to the modification
of the obligations. But if that were so, there would
have been the corresponding documents in the form
of a written notice to as well as written conformity of
these defendants, and there are no such document.
The consequence of this was the extinguishment of
the obligations and of the surety bond secured by
the indemnity agreement which was thereby also
extinguished. Applicable by analogy are the rulings
of the Supreme Court in the case of Kabankalan
Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the
case of Asiatic Petroleum Co. v. Hizon David, 45
Phil. 532, 538.
Art. 2079. An extension granted to the debtor by the
creditor without the consent of the guarantor
extinguishes the guaranty The mere failure on the
part of the creditor to demand payment after the
debt has become due does not of itself constitute
any extension time referred to herein, (New Civil
Code).'
Pioneer's liability as surety to JDA had already
prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action
to recover from these defendants, as supposed
indemnitors, what it has paid to JDA. By virtue of an
express stipulation in the surety bond, the failure of
JDA to present its claim to Pioneer within ten days
from default of Lim or SAL on every installment,
released Pioneer from liability from the claim.
Therefore, Pioneer is not entitled to exact
reimbursement from these defendants thru the
indemnity.
Art. 1318. Payment by a solidary debtor shall not
entitle him to reimbursement from his co-debtors if
such payment is made after the obligation has
prescribed or became illegal.
These defendants are entitled to recover damages
and attorney's fees from Pioneer and its surety by
reason of the filing of the instant case against them
and the attachment and garnishment of their
properties. The instant action is clearly unfounded
insofar as plaintiff drags these defendants and
defendant Maglana.
We find no cogent reason to reverse or modify these
findings.
Hence, it is our conclusion that the petition in G.R.
No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among
co-investors whose agreement was to do business
through the corporate vehicle but who failed to
incorporate the entity in which they had chosen to
invest? How are the losses to be treated in
situations where their contributions to the intended
'corporation' were invested not through the
corporate form? This Petition presents these
fundamental questions which we believe were
resolved erroneously by the Court of Appeals ('CA').
(Rollo, p. 6).
These questions are premised on the petitioner's
theory that as a result of the failure of respondents
Bormaheco, Spouses Cervantes, Constancio
Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that
as a consequence of such relationship all must
share in the losses and/or gains of the venture in
proportion to their contribution. The petitioner,
therefore, questions the appellate court's findings
ordering him to reimburse certain amounts given by
the respondents to the petitioner as their
contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay
his co-defendants' cross-claims in the total amount
of P184,878.74 as correctly found by the trial court,
with interest from the filing of the cross-complaints
until the amount is fully paid. Defendant Lim should
pay one-half of the said amount to Bormaheco and
the Cervanteses and the other one-half to defendant
Maglana. It is established in the records that
defendant Lim had duly received the amount of
Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the
ownership of the subject airplanes and spare parts
(Exhibit 58). In addition, the cross-party plaintiffs
incurred additional expenses, hence, the total sum
of P 184,878.74.
We first state the principles.
While it has been held that as between themselves
the rights of the stockholders in a defectively
incorporated association should be governed by the
supposed charter and the laws of the state relating
thereto and not by the rules governing partners
(Cannon v. Brush Electric Co., 54 A. 121, 96 Md.
446, 94 Am. S.R. 584), it is ordinarily held that
persons who attempt, but fail, to form a corporation
and who carry on business under the corporate
name occupy the position of partners inter se (Lynch
v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas.
1913A 1065). Thus, where persons associate
themselves together under articles to purchase
property to carry on a business, and their
organization is so defective as to come short of
creating a corporation within the statute, they
become in legal effect partners inter se, and their
rights as members of the company to the property
acquired by the company will be recognized (Smith
v. Schoodoc Pond Packing Co., 84 A. 268,109 Me.
555; Whipple v. Parker, 29 Mich. 369). So, where
certain persons associated themselves as a
corporation for the development of land for irrigation
purposes, and each conveyed land to the
corporation, and two of them contracted to pay a
third the difference in the proportionate value of the
land conveyed by him, and no stock was ever
issued in the corporation, it was treated as a trustee
for the associates in an action between them for an
accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds
distributed among them in proportion to the value of
the property contributed by each (Shorb v. Beaudry,
56 Cal. 446). However, such a relation does not
necessarily exist, for ordinarily persons cannot be
made to assume the relation of partners, as
between themselves, when their purpose is that no
partnership shall exist (London Assur. Corp. v.
Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29
L.Ed. 688), and it should be implied only when
necessary to do justice between the parties; thus,
one who takes no part except to subscribe for stock
in a proposed corporation which is never legally
formed does not become a partner with other
subscribers who engage in business under the
name of the pretended corporation, so as to be
liable as such in an action for settlement of the
alleged partnership and contribution (Ward v.
Brigham, 127 Mass. 24). A partnership relation
between certain stockholders and other
stockholders, who were also directors, will not be
implied in the absence of an agreement, so as to
make the former liable to contribute for payment of
debts illegally contracted by the latter (Heald v.
Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris
Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the
petitioner was declared non-suited for his failure to
appear during the pretrial despite notification. In his
answer, the petitioner denied having received any
amount from respondents Bormaheco, the
Cervanteses and Maglana. The trial court and the
appellate court, however, found through Exhibit 58,
that the petitioner received the amount of
P151,000.00 representing the participation of
Bormaheco and Atty. Constancio B. Maglana in the
ownership of the subject airplanes and spare parts.
The record shows that defendant Maglana gave
P75,000.00 to petitioner Jacob Lim thru the
Cervanteses.
It is therefore clear that the petitioner never had the
intention to form a corporation with the respondents
despite his representations to them. This gives
credence to the cross-claims of the respondents to
the effect that they were induced and lured by the
petitioner to make contributions to a proposed
corporation which was never formed because the
petitioner reneged on their agreement. Maglana
alleged in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed
to Francisco Cervantes and Maglana to expand his
airline business. Lim was to procure two DC-3's
from Japan and secure the necessary certificates of
public convenience and necessity as well as the
required permits for the operation thereof. Maglana
sometime in May 1965, gave Cervantes his share of
P75,000.00 for delivery to Lim which Cervantes did
and Lim acknowledged receipt thereof. Cervantes,
likewise, delivered his share of the undertaking. Lim
in an undertaking sometime on or about August
9,1965, promised to incorporate his airline in
accordance with their agreement and proceeded to
acquire the planes on his own account. Since then
up to the filing of this answer, Lim has refused,
failed and still refuses to set up the corporation or
return the money of Maglana. (Record on Appeal,
pp. 337-338).
while respondents Bormaheco and the Cervanteses
alleged in their answer, counterclaim, cross-claim
and third party complaint:
Sometime in April 1965, defendant Lim lured and
induced the answering defendants to purchase two
airplanes and spare parts from Japan which the
latter considered as their lawful contribution and
participation in the proposed corporation to be
known as SAL. Arrangements and negotiations
were undertaken by defendant Lim. Down payments
were advanced by defendants Bormaheco and the
Cervanteses and Constancio Maglana (Exh. E- 1).
Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff,
signed and executed the alleged chattel mortgage
and surety bond agreement in his personal capacity
as the alleged proprietor of the SAL. The answering
defendants learned for the first time of this trickery
and misrepresentation of the other, Jacob Lim,
when the herein plaintiff chattel mortgage (sic)
allegedly executed by defendant Lim, thereby
forcing them to file an adverse claim in the form of
third party claim. Notwithstanding repeated oral
demands made by defendants Bormaheco and
Cervanteses, to defendant Lim, to surrender the
possession of the two planes and their accessories
and or return the amount advanced by the former
amounting to an aggregate sum of P 178,997.14 as
evidenced by a statement of accounts, the latter
ignored, omitted and refused to comply with them.
(Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited
to the facts of the case, necessarily, no de facto
partnership was created among the parties which
would entitle the petitioner to a reimbursement of
the supposed losses of the proposed corporation.
The record shows that the petitioner was acting on
his own and not in behalf of his other would-be
incorporators in transacting the sale of the airplanes
and spare parts.
WHEREFORE, the instant petitions are
DISMISSED. The questioned decision of the Court
of Appeals is AFFIRMED.
SO ORDERED.
3SONCUYA VS DE LUNA
GR NO L-45464 APRIL 28, 1938
VILLA-REAL, J.:
On September 11, 1936, plaintiff Josue Soncuya
filed with the Court of First Instance of Manila and
amended complaint against Carmen de Luna in her
own name and as co-administratrix of the intestate
estate, of Librada Avelino, in which, upon the facts
therein alleged, he prayed that defendant be
sentenced to pay him the sum of P700,432 as
damages and costs.
To the aforesaid amended complaint defendant
Carmen de Luna interposed a demurrer based on
the following grounds: (1) That the complaint does
not contain facts sufficient to constitute a cause of
action; and (2) that the complaint is ambiguous,
unintelligible and vague.
Trial on the demurrer having been held and the
parties heard, the court found the same well-
founded and sustained it, ordering the plaintiff to
amend his complaint within a period of ten days
from receipt of notice of the order.
Plaintiff having manifested that he would prefer not
to amend his amended complaint, the attorney for
the defendant, Carmen de Luna, filed a motion
praying that the amended complaint be dismissed
with costs against the plaintiff. Said motion was
granted by The Court of First Instance of Manila
which ordered the dismissal of the aforesaid
amended complaint, with costs against the plaintiff.
From this order of dismissal, the appellant took an
appeal, assigning twenty alleged errors committed
by the lower court in its order referred to.
The demurrer interposed by defendant to the
amended complaint filed by plaintiff having been
sustained on the grounds that the facts alleged in
said complaint are not sufficient to constitute a
cause of action and that the complaint is
ambiguous, unintelligible and vague, the only
questions which may be raised and considered in
the present appeal are those which refer to said
grounds.
In the amended complaint it is prayed that
defendant Carmen de Luna be sentenced to pay
plaintiff damages in the sum of P700,432 as a result
of the administration, said to be fraudulent, of he
partnership, "Centro Escolar de Señoritas", of which
plaintiff, defendant and the deceased Librada
Avelino were members. For the purpose of
adjudicating to plaintiff damages which he alleges to
have suffered as a partner by reason of the
supposed fraudulent management of he partnership
referred to, it is first necessary that a liquidation of
the business thereof be made to the end that the
profits and losses may be known and the causes of
the latter and the responsibility of the defendant as
well as the damages which each partner may have
suffered, may be determined. It is not alleged in the
complaint that such a liquidation has been effected
nor is it prayed that it be made. Consequently, there
is no reason or cause for plaintiff to institute the
action for damages which he claims from the
managing partner Carmen de Luna (Po Yeng Cheo
vs. Lim Ka Yam, 44 Phil., 172).
Having reached the conclusion that the facts alleged
in the complaint are not sufficient to constitute a
cause of action on the part of plaintiff as member of
the partnership "Centro Escolar de Señoritas" to
collect damages from defendant as managing
partner thereof, without a previous liquidation, we do
not deem it necessary to discuss the remaining
question of whether or not the complaint is
ambiguous, unintelligible and vague.
In view of the foregoing considerations, we are of
the opinion and so hold that for a partner to be able
to claim from another partner who manages the
general copartnership, damages allegedly suffered
by him by reason of the fraudulent administration of
the latter, a previous liquidation of said partnership
is necessary.
Wherefore, finding no error in the order appealed
from the same is affirmed in all its parts, with costs
against the appellant. So ordered.
 4AGUSTIN VS INOCENCIO
GR NO. L-3745, OCTOBER 26, 1907
TRACEY, J.:
The parties to this controversy, who had been
conducting a partnership as industrial partners
without capital, contributed from its profits the sum
of P807.28 as a fund toward the construction of a
casco for use in their business, to which they added
P3,500, borrowed from Maria del Rosario, the wife
of the defendant, Bartolome Inocencio, he being the
managing partner. It is admitted that this total, a little
over P4,300, was the estimated cost of the casco,
but in the progress of the work the defendant found
that it called for additional funds, which he advanced
to the amount of P2,024.49. It is satisfactorily
appears from the evidence that this amount is
necessary in order to complete the work
undertaken. Although it would seem that he failed to
notify his partners of the various items from time to
time going to make up this sum, it is shown that the
books were at all times open to their inspection, and
that, being asked to examine them, they omitted to
do so, and that the plaintiff Juan Agustin,
representing all the partners, was also present at
the construction of the casco, in charge of the
practical work and cognizant of its needs and its
progress.
The work done in the casco having been within the
scope of the association and necessary to carry out
its express object, the borrowing of the money
required to carry it on, with the acquiescence if not
with the affirmative consent of his associates, was
not outside the powers of the managing partner and
constitutes a debt for which all the associates are
liable.
The note passed into the hands of the defendant by
reason of the successive deaths of his wife and of
their only child, each without debts, and for the
amount thereof he became a creditor, subject,
however, to the deduction therefrom of his
proportionate part of the indebtedness.
The trial court treated his claim on this note, as well
as the sum of P2,024.49 furnished by him, as an
addition to his capital in the firm, rather than as a
loan, and this constitutes one of the grounds of error
stated by the appellant. We do not deem it
necessary to pass upon this objection, for the
reason that, considered as a loan, this sum would
place the defendant as a creditor in a stronger
position as against his associates than if regarded
as a mere contribution to capital. The error, if it be
an error, is not, therefore, prejudicial to the plaintiff,
but is rather beneficial to him. The respondent did
not except to it. lawphil.net
Various small sums have been paid out of the profits
to some of the partners and these were properly
allowed him in the judgment.
On the theory on which the action was disposed of,
the trial court committed no error in the computation
of the various shares.
Of the four parties plaintiff, but one, Victor del
Rosario, is interested in this appeal, which has been
dismissed as to the others, and as to him the
judgment of the trial court must be affirmed, with
costs of this instance. So ordered.
5CLEMENTE VS. GALVAN
GR NO. L-45662, APRIL 26, 1939
DIAZ, J.:
The intervenor Jose Echevarria having lost in the
Court of First Instance of manila which rendered
judgment against him, the pertinent portion of which
reads: "and with respect to the complaint of the
intervenor, the mortgage executed in his favor by
plaintiff is declared null and void, and said complaint
in intervention, as well as the counterclaim filed by
the defendant against the intervenor, is dismissed,
without pronouncement as to costs," he appealed to
this court on the ground that, according to him, the
lower court committed the errors assigned in his
brief as follows:
I. The court a quo erred in finding in the appealed
decision that plaintiff was unable to take possession
of the machines subject of the deed of mortgage
Exhibit B either before or after the execution thereof.
II. The court a quo likewise erred in deciding the
present case against the intervenor-appellant, on
the ground, among others, that "plaintiff has not
adduced any evidence nor has he testified to show
that the machines mortgaged by him to the
intervenor have ever belonged to him,
notwithstanding that said intervenor is his close
relative.".
III. The lower court also erred in declaring null and
void the mortgage executed by plaintiff in favor of
the intervenor and, thereby, dismissing the
complaint in intervention.
IV. The lower court lastly erred in ordering the
receiver J. D. Mencarini to deliver to the defendant
the aforesaid machines upon petition of the plaintiff.
In order to have a clear idea of the question, it is
proper to state the facts bearing on the case as they
appear in the decision and judgment of the lower
court and in the documents which constitute all the
evidence adduced by the parties during the trial.
On June 6, 1931, plaintiff and defendant organized
a civil partnership which they named "Galvan y
Compañia" to engage in the manufacture and sale
of paper and other stationery. they agreed to invest
therein a capital of P100,000, but as a matter of fact
they did not cover more than one-fifth thereof, each
contributing P10,000.
Hardly a year after such organization, the plaintiff
commenced the present case in the above-
mentioned court to ask for the dissolution of the
partnership and to compel defendant to whom the
management thereof was entrusted to submit an
accounting of his administration and to deliver to
him his share as such partner.
In his answer defendant expressed his conformity to
the dissolution of the partnership and the liquidation
of its affairs; but by way of counterclaim he asked
that, having covered a deficit incurred by the
partnership amounting to P4,000 with his own
money, plaintiff reimburse him of one-half of said
sum.
On petition of the plaintiff a receiver and liquidator to
take charge of the properties and business for the
partnership while the same was not yet definitely
dissolved, was appointed, the person chosen being
Juan D. Mencarini. The latter was already
discharging the duties of his office when the court,
by virtue of a petition ex parte of the plaintiff, issued
the order of May 24, 1933, requiring said receiver to
deliver to him (plaintiff) certain machines which were
then at Nos. 705-707 Ylaya Street, Manila but
authorizing him to charge their value of P4,500
against the portion which may eventually be due to
said plaintiff.
To comply with said order, the receiver delivered to
plaintiff the keys to the place where the machines
were found, which was the same place where
defendant had his home; but before he could take
actual possession of said machines, upon the strong
opposition of defendant, the court, on motion of the
latter, suspended the effects of its order of May 24,
1933.
In the meantime the judgments rendered in cases
Nos. 42794 and 43070 entitled "Philippine
Education Co., Inc. vs. Enrique Clemente" for the
recovery of a sum of money, and "Jose Echevarria
vs. Enrique Clemente", also for the recovery of a
sum of money, respectively, were made executory;
and in order to avoid the attachment and
subsequent sale of the machines by the sheriff for
the satisfaction from the proceeds thereof of the
judgments rendered in the two cases aforecited,
plaintiff agreed with the intervenor, who is his
nephew, to execute, as he in fact executed in favor
of the latter, a deed of mortgage Exhibit B
encumbering the machines described in said deed
in which it is stated that "they are situated on
Singalong Street No. 1163", which is a place entirely
different from the house Nos. 705 and 707 on Ylaya
Street hereinbefore mentioned.
The one year agreed upon in the deed of mortgage
for the fulfillment by the plaintiff of the obligation he
had contracted with the intervenor, having expired,
the latter commenced case No. 49629 to collect his
mortgage credit.
The intervenor, as plaintiff in the said case, obtained
judgment in his favor because the defendant did not
interpose any defense or objection, and, moreover,
admitted being really indebted to the intervenor in
the amount set forth in the deed of mortgage Exhibit
B.
The machines which the intervenor said were
mortgaged to him were then in fact in custodia legis,
as they were under the control of the receiver and
liquidator Juan D. Mencarini. It was, therefore,
useless for the intervenor to attach the same in view
of the receiver's opposition; and the question having
been brought to court, it decided that nothing could
be done because the receiver was not a party to the
case which the intervenor instituted to collect his
aforesaid credit. (Civil case No. 49629.)
The question ended thus because the intervenor did
not take any other step until he thought of joining in
this case as intervenor.
1. From the foregoing facts, it is clear that plaintiff
could not obtain possession of the machines in
question. The constructive possession deducible
from the fact that he had the keys to the place
where the machines were found (Ylaya Street Nos.
705-707), as they had been delivered to him by the
receiver, does not help him any because the lower
court suspended the effects of the other whereby
the keys were delivered to him a few days after its
issuance; and thereafter revoked it entirely in the
appealed decision. Furthermore, when he attempted
to take actual possession of the machines, the
defendant did not allow him to do so.
Consequently, if he did not have actual possession
of the machines, he could not in any manner
mortgage them, for while it is true that the oft-
mentioned deed of mortgage Exhibit B was
annotated in the registry of property, it is no less
true the machines to which it refers are not the
same as those in question because the latter are on
Ylaya Street Nos. 705-707 and the former are on
Singalong Street No. 1163.
It cannot be said that Exhibit B-1, allegedly a
supplementary contract between the plaintiff and the
intervenor, shows that the machines referred to in
the deed of mortgage are the same as those in
dispute and which are found on Ylaya Street
because said exhibit being merely a private
document, the same cannot vary or alter the terms
of a public document which is Exhibit B or the deed
of mortgage.
2. The second error attributed to the lower court is
baseless. The evidence of record shows that the
machines in contention originally belonged to the
defendant and from him were transferred to the
partnership Galvan y Compania. This being the
case, said machines belong to the partnership and
not to him, and shall belong to it until partition is
effected according to the result thereof after the
liquidation.
3. The last two errors attributed by the appellant to
the lower court have already been disposed of by
the considerations above set forth. they are as
baseless as the previous ones.
In view of all the foregoing, the judgment appealed
from is affirmed, with costs against the appellant. So
ordered.
 6LEYTE-SAMAR SALES AND RAYMOND
TOMASSI VS. SULPICIO CEA AND OLEGARIO
LASTRILLA
93 PHIL 100
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 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. 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. 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.
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.
c. Obligations of Partners to one Another (Arts.
1784 to 1809)
1SANCHO V. LIZARRAGA
55 PHIL 601
ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a
partnership contract between himself and the
defendant, entered into on October 15, 1920, the
reimbursement by the latter of his 50,000 peso
investment therein, with interest at 12 per cent per
annum form October 15, 1920, with costs, and any
other just and equitable remedy against said
defendant.
The defendant denies generally and specifically all
the allegations of the complaint which are
incompatible with his special defenses, cross-
complaint and counterclaim, setting up the latter and
asking for the dissolution of the partnership, and the
payment to him as its manager and administrator of
P500 monthly from October 15, 1920, until the final
dissolution, with interest, one-half of said amount to
be charged to the plaintiff. He also prays for any
other just and equitable remedy.
The Court of First Instance of Manila, having heard
the cause, and finding it duly proved that the
defendant had not contributed all the capital he had
bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the
partnership, declared it dissolved on account of the
expiration of the period for which it was constituted,
and ordered the defendant, as managing partner, to
proceed without delay to liquidate it, submitting to
the court the result of the liquidation together with
the accounts and vouchers within the period of thirty
days from receipt of notice of said judgment, without
costs.
The plaintiff appealed from said decision making the
following assignments of error:
1. In holding that the plaintiff and appellant is not
entitled to the rescission of the partnership contract,
Exhibit A, and that article 1124 of the Civil Code is
not applicable to the present case.
2. In failing to order the defendant to return the sum
of P50,000 to the plaintiff with interest from October
15, 1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a
preliminary question is raised purporting to show
that this appeal is premature and therefore will not
lie. The point is based on the contention that
inasmuch as the liquidation ordered by the trial
court, and the consequent accounts, have not been
made and submitted, the case cannot be deemed
terminated in said court and its ruling is not yet
appealable. In support of this contention counsel
cites section 123 of the Code of Civil Procedure,
and the decision of this court in the case of
Natividad vs. Villarica (31 Phil., 172).
This contention is well founded. Until the accounts
have been rendered as ordered by the trial court,
and until they have been either approved or
disapproved, the litigation involved in this action
cannot be considered as completely decided; and,
as it was held in said case of Natividad vs .Villarica,
also with reference to an appeal taken from a
decision ordering the rendition of accounts following
the dissolution of partnership, the appeal in the
instant case must be deemed premature.
But even going into the merits of the case, the
affirmation of the judgment appealed from is
inevitable. In view of the lower court's findings
referred to above, which we cannot revise because
the parol evidence has not been forwarded to this
court, articles 1681 and 1682 of the Civil Code have
been properly applied. Owing to the defendant's
failure to pay to the partnership the whole amount
which he bound himself to pay, he became indebted
to it for the remainder, with interest and any
damages occasioned thereby, but the plaintiff did
not thereby acquire the right to demand rescission
of the partnership contract according to article 1124
of the Code. This article cannot be applied to the
case in question, because it refers to the resolution
of obligations in general, whereas article 1681 and
1682 specifically refer to the contract of partnership
in particular. And it is a well-known principle that
special provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby
dismissed, leaving the decision appealed from in full
force, without special pronouncement of costs. So
ordered.
2UY VS PUZON
79 SCRA 598
CONCEPCION JR., J.:
Appeal from the decision of the Court of First
Instanre of Manila, dissolving the "U.P. Construction
Company" and ordering the defendant Bartolome
Puzon to pay the plaintiff the amounts of: (1)
P115,102.13, with legal interest thereon from the
date of the filing of the complaint until fully paid; (2)
P200,000.00, as plaintiffs share in the unrealized
profits of the "U.P. Construction Company" and (3)
P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon
had a contract with the Republic of the Philippines
for the construction of the Ganyangan Bato Section
of the Pagadian Zamboanga City Road, province of
Zamboanga del Sur and of five (5) bridges in the
Malangas-Ganyangan Road. Finding difficulty in
accomplishing both projects, Bartolome Puzon
sought the financial assistance of the plaintiff,
William Uy. As an inducement, Puzon proposed the
creation of a partnership between them which would
be the sub-contractor of the projects and the profits
to be divided equally between them. William Uy
inspected the projects in question and, expecting to
derive considerable profits therefrom, agreed to the
proposition, thus resulting in the formation of the
"U.P. Construction Company" which was
subsequently engaged as subcontractor of the
construction projects.
The partners agreed that the capital of the
partnership would be P100,000.00 of which each
partner shall contribute the amount of P50,000.00 in
cash. But, as heretofore stated, Puzon was short of
cash and he promised to contribute his share in the
partnership capital as soon as his application for a
loan with the Philippine National Bank in the amount
of P150,000.00 shall have been approved.
However, before his loan application could be acted
upon, he had to clear his collaterals of its
incumbrances first. For this purpose, on October 24,
1956, Wilham Uy gave Bartolome Puzon the
amount of P10,000.00 as advance contribution of
his share in the partnership to be organized
between them under the firm name U.P.
CONSTRUCTION COMPANY which amount
mentioned above will be used by Puzon to pay his
obligations with the Philippine National Bank to
effect the release of his mortgages with the said
Bank.
On October 29, 1956, William Uy again gave Puzon
the amount of P30,000.00 as his partial contribution
to the proposed partnership and which the said
Puzon was to use in payment of his obligation to the
Rehabilitation Finance Corporation. Puzon promised
William Uy that the amount of P150,000.00 would
be given to the partnership to be applied thusly:
P40,000.00, as reimbursement of the capital
contribution of William Uy which the said Uy had
advanced to clear the title of Puzon's property;
P50,000.00, as Puzon's contribution to the
partnership; and the balance of P60,000.00 as
Puzon's personal loan to the partnership.
Although the partnership agreement was signed by
the parties on January 18, 1957, work on the
projects was started by the partnership on October
1, 1956 in view of the insistence of the Bureau of
Public Highways to complete the project right away.
Since Puzon was busy with his other projects,
William Uy was entrusted with the management of
the projects and whatever expense the latter might
incur, would be considered as part of his
contribution. At the end of December, 1957, William
Uy had contributed to the partnership the amount of
P115,453.39, including his capital.
The loan of Puzon was approved by the Philippine
National Bank in November, 1956 and he gave to
William Uy the amount of P60,000.00. Of this
amount, P40,000.00 was for the reimbursement of
Uy's contribution to the partnership which was used
to clear the title to Puzon's property, and the
P20,000.00 as Puzon's contribution to the
partnership capital.
To guarantee the repayment of the above-
mentioned loan, Bartolome Puzon, without the
knowledge and consent of William Uy, assigned to
the Philippine National Bank all the payments to be
received on account of the contracts with the
Bureau of Public Highways for the construction of
the afore-mentioned projects.
By virtue of said assignment, the Bureau of Public
Highways paid the money due on the partial
accomplishments on the government projects in
question to the Philippine National Bank which, in
turn, applied portions of it in payment of Puzon's
loan. Of the amount of P1,047,181.07, released by
the Bureau of Public Highways in payment of the
partial work completed by the partnership on the
projects, the amount of P332,539.60 was applied in
payment of Puzon's loan and only the amount of
P27,820.80 was deposited in the partnership funds,
which, for all practical purposes, was also under
Puzon's account since Puzon was the custodian of
the common funds.
As time passed and the financial demands of the
projects increased, William Uy, who supervised the
said projects, found difficulty in obtaining the
necessary funds with which to pursue the
construction projects. William Uy correspondingly
called on Bartolome Puzon to comply with his
obligations under the terms of their partnership
agreement and to place, at lest, his capital
contribution at the disposal of the partnership.
Despite several promises, Puzon, however, failed to
do so. Realizing that his verbal demands were to no
avail, William Uy consequently wrote Bartolome
Puzon pormal letters of demand, 18 to which Puzon
replied that he is unable to put in additional capital
to continue with the projects. 19
Failing to reach an agreement with William Uy,
Bartolome Puzon, as prime contractor of the
construction projects, wrote the subcontractor, U.P.
Construction Company, on November 20, 1957,
advising the partnership, of which he is also a
partner, that unless they presented an immediate
solution and capacity to prosecute the work
effectively, he would be constrained to consider the
sub-contract terminated and, thereafter, to assume
all responsibilities in the construction of the projects
in accordance with his original contract with the
Bureau of Public Highways. 20 On November 27,
1957, Bartolome Puzon again wrote the U.P.
Construction Company finally terminating their
subcontract agreement as of December 1, 1957.
Thereafter, William Uy was not allowed to hold office
in the U.P. Construction Company and his authority
to deal with the Bureau of Public Highways in behalf
of the partnership was revoked by Bartolome Puzon
who continued with the construction projects alone.
On May 20, 1958, William Uy, claiming that
Bartolome Puzon had violated the terms of their
partnership agreement, instituted an action in court,
seeking, inter alia, the dissolution of the partnership
and payment of damages.
Answering, Bartolome Puzon denied that he violated
the terms of their agreement claiming that it was the
plaintiff, William Uy, who violated the terms thereof.
He, likewise, prayed for the dissolution of the
partnership and for the payment by the plaintiff of
his, share in the losses suffered by the partnership.

After appropriate proceedings, the trial court found
that the defendant, contrary to the terms of their
partnership agreement, failed to contribute his share
in the capital of the partnership applied partnership
funds to his personal use; ousted the plaintiff from
the management of the firm, and caused the failure
of the partnership to realize the expected profits of
at least P400,000.00. As a consequence, the trial
court dismissed the defendant's counterclaim and
ordered the dissolution of the partnership. The trial
court further ordered the defendant to pay the
plaintiff the sum of P320,103.13.
Hence, the instant appeal by the defendant
Bartolome Puzon during the pendency of the appeal
before this Court, the said Bartolome Puzon died,
and was substituted by Franco Puzon.
The appellant makes in his brief nineteen (19)
assignment of errors, involving questions of fact,
which relates to the following points:
(1) That the appellant is not guilty of breach of
contract; and
(2) That the amounts of money the appellant has
been order to pay the appellee is not supported by
the evidence and the law.
After going over the record, we find no reason for
rejecting the findings of fact below, justifying the
reversal of the decision appealed from.
The findings of the trial court that the appellant failed
to contribute his share in the capital of the
partnership is clear incontrovertible. The record
shows that after the appellant's loan the amount of
P150,000.00 was approved by the Philippin National
Bank in November, 1956, he gave the amount
P60,000.00 to the appellee who was then managing
the construction projects. Of this amount,
P40,000.00 was to be applied a reimbursement of
the appellee's contribution to the partnership which
was used to clear the title to the appellant's
property, and the balance of P20,000.00, as Puzon's
contribution to the partnership. 23 Thereafter, the
appellant failed to make any further contributions the
partnership funds as shown in his letters to the
appellee wherein he confessed his inability to put in
additional capital to continue with the projects.
Parenthetically, the claim of the appellant that the
appellee is equally guilty of not contributing his
share in the partnership capital inasmuch as the
amount of P40,000.00, allegedly given to him in
October, 1956 as partial contribution of the appellee
is merely a personal loan of the appellant which he
had paid to the appellee, is plainly untenable. The
terms of the receipts signed by the appellant are
clear and unequivocal that the sums of money given
by the appellee are appellee's partial contributions
to the partnership capital. Thus, in the receipt for
P10,000.00 dated October 24, 1956, 25 the
appellant stated:
Received from Mr. William Uy the sum of TEN
THOUSAND PESOS (P10,000.00) in Check No. SC
423285 Equitable Banking Corporation, dated
October 24, 1956, as advance contribution of the
share of said William Uy in the partnership to be
organized between us under the firm name U.P.
CONSTRUCTION COMPANY which amount
mentioned above will be used by the undersigned to
pay his obligations with the Philippine National Bank
to effect the release of his mortgages with the said
bank. (Emphasis supplied)
In the receipt for the amount of P30,000.00 dated
October 29, 1956, 26 the appellant also said:
Received from William Uy the sum of THIRTY
THOUSAND PESOS (P30,000.00) in Check No.
SC423287, of the Equitable Banking Corporation, as
partial contribution of the share of the said William
Uy to the U.P. CONSTRUCTION COMPANY for
which the undersigned will use the said amount in
payment of his obligation to the Rehabilitation
Finance Corporation.
The findings of the trial court that the appellant
misapplied partnership funds is, likewise, sustained
by competent evidence. It is of record that the
appellant assigned to the Philippine National Bank
all the payments to be received on account of the
contracts with the Bureau of Public Highways for the
construction of the aforementioned projects to
guarantee the repayment of the bank. By virtue of
the said appellant's personal loan with the said bank
assignment, the Bureau of Public Highways paid the
money due on the partial accomplishments on the
construction projects in question to the Philippine
National Bank who, in turn, applied portions of it in
payment of the appellant's loan.
The appellant claims, however, that the said
assignment was made with the consent of the
appellee and that the assignment not prejudice the
partnership as it was reimbursed by the appellant.
But, the appellee categorically stated that the
assignment to the Philippine National Bank was
made without his prior knowledge and consent and
that when he learned of said assignment, he call the
attention of the appellant who assured him that the
assignment was only temporary as he would
transfer the loan to the Rehabilitation Finance
Corporation within three (3) months time.
The question of whom to believe being a matter
large dependent on the trier's discretion, the findings
of the trial court who had the better opportunity to
examine and appraise the fact issue, certainly
deserve respect.
That the assignment to the Philippine National Bank
prejudicial to the partnership cannot be denied. The
record show that during the period from March,
1957 to September, 1959, the appellant Bartolome
Puzon received from the Bureau of Public highways,
in payment of the work accomplished on the
construction projects, the amount of P1,047,181.01,
which amount rightfully and legally belongs to the
partnership by virtue of the subcontract agreements
between the appellant and the U.P. Construction
Company. In view of the assignment made by
Puzon to the Philippine National Bank, the latter
withheld and applied the amount of P332,539,60 in
payment of the appellant's personal loan with the
said bank. The balance was deposited in Puzon's
current account and only the amount of P27,820.80
was deposited in the current account of the
partnership. For sure, if the appellant gave to the
partnership all that were earned and due it under the
subcontract agreements, the money would have
been used as a safe reserve for the discharge of all
obligations of the firm and the partnership would
have been able to successfully and profitably
prosecute the projects it subcontracted.
When did the appellant make the reimbursement
claimed by him?
For the same period, the appellant actually
disbursed for the partnership, in connection with the
construction projects, the amount of P952,839.77.
31 Since the appellant received from the Bureau of
Public Highways the sum of P1,047,181.01, the
appellant has a deficit balance of P94,342.24. The
appellant, therefore, did not make complete
restitution.
The findings of the trial court that the appellee has
been ousted from the management of the
partnership is also based upon persuasive
evidence. The appellee testified that after he had
demanded from the appellant payment of the latter's
contribution to the partnership capital, the said
appellant did not allow him to hold office in the U.P.
Construction Company and his authority to deal with
the Bureau of Public Highways was revoked by the
appellant.
As the record stands, We cannot say, therefore, that
the decision of the trial court is not sustained by the
evidence of record as warrant its review.
Since the defendant appellant was at fault, the trial
court properly ordered him to reimburse the plaintiff-
appellee whatever amount latter had invested in or
spent for the partnership on account of construction
projects.
How much did the appellee spend in the
construction projects question?
It appears that although the partnership agreement
stated the capital of the partnership is P100,000.00
of which each part shall contribute to the partnership
the amount of P50,000.00 cash 33 the partners of
the U.P. Construction Company did contribute their
agreed share in the capitalization of the enterprise in
lump sums of P50,000.00 each.
Aside from the initial amount P40,000.00 put up by
the appellee in October, 1956, 34 the partners'
investments took, the form of cash advances
coveting expenses of the construction projects as
they were incurred.
Since the determination of the amount of the
disbursements which each of them had made for the
construction projects require an examination of the
books of account, the trial court appointed two
commissioners, designated by the parties, "to
examine the books of account of the defendant
regarding the U.P. Construction Company and his
personal account with particular reference to the
Public Works contract for the construction of the
Ganyangan-Bato Section, Pagadian-Zamboanga
City Road and five (5) Bridges in Malangas-
Ganyangan Road, including the payments received
by defendant from the Bureau of Public Highways
by virtue of the two projects above mentioned, the
disbursements or disposition made by defendant of
the portion thereof released to him by the Philippine
National Bank and in whose account these funds
are deposited.
In due time, the loners so appointed, submitted their
report they indicated the items wherein they are in
agreement, as well as their points of disagreement.
In the commissioners' report, the appellant's
advances are listed under Credits; the money
received from the firm, under Debits; and the
resulting monthly investment standings of the
partners, under Balances. The commissioners are
agreed that at the end of December, 1957, the
appellee had a balance of P8,242.39. 38 It is in their
respective adjustments of the capital account of the
appellee that the commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want
to charge the appellee with the sum of P24,239.48,
representing the checks issued by the appellant,
and encashed by the appellee or his brother, Uy
Han so that the appellee would owe the partnership
the amount of P15,997.09.
Mr. Tayag, designated by the appellee, upon the
other hand, would credit the appellee the following
additional amounts:
(1) P7,497.80 — items omitted from the books of
partnership but recognized and charged to
Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 — payrolls paid by the appellee in
the amount P128,103.77 less payroll remittances
from the appellant in amount of P63,000.00; and
(3) P26,027.04 other expenses incurred by the
appellee at construction site.
With respect to the amount of P24,239.48, claimed
by appellant, we are hereunder adopting the
findings of the trial which we find to be in accord
with the evidence:
To enhance defendant's theory that he should be
credited P24,239.48, he presented checks allegedly
given to plaintiff and the latter's brother, Uy Han,
marked as Exhibits 2 to 11. However, defendant
admitted that said cheeks were not entered nor
record their books of account, as expenses for and
in behalf of partnership or its affairs. On the other
hand, Uy Han testified that of the cheeks he
received were exchange for cash, while other used
in the purchase of spare parts requisitioned by
defendant. This testimony was not refuted to the
satisfaction of the Court, considering that Han's
explanation thereof is the more plausible because if
they were employed in the prosecution of the
partners projects, the corresponding disbursements
would have certainly been recorded in its books,
which is not the case. Taking into account defendant
is the custodian of the books of account, his failure
to so enter therein the alleged disbursements,
accentuates the falsity of his claim on this point. 40
Besides, as further noted by the trial court, the
report Commissioner Ablaza is unreliable in view of
his proclivity to favor the appellant and because of
the inaccurate accounting procedure adopted by
him in auditing the books of account of the
partnership unlike Mr. Tayag's report which inspires
faith and credence.
As explained by Mr. Tayag, the amount of
P7,497.80 represen expenses paid by the appellee
out of his personal funds which not been entered in
the books of the partnership but which been
recognized and conceded to by the auditor
designated by the appellant who included the said
amount under Expenses.
The explanation of Mr. Tayag on the inclusion of the
amount of P65,103.77 is likewise clear and
convincing. 43
As for the sum of of P26,027.04, the same
represents the expenses which the appellee paid in
connection with the projects and not entered in the
books of the partnership since all vouchers and
receipts were sent to the Manila office which were
under the control of the appellant. However, officer
which were under the control of the appellant.
However, a list of these expenses is incorporated in
Exhibits ZZ, ZZ-1 to ZZ-4.
In resume', the appellee’s credit balance would be
as follows:
Xxxxx
At the trial, the appellee presented a claim for the
amounts of P3,917.39 and P4,665.00 which he also
advanced for the construction projects but which
were not included in the Commissioner's Report.
Appellee's total investments in the partnership
would, therefore, be:
Xxxx
Regarding the award of P200,000.00 as his share in
the unrealized profits of the partnership, the
appellant contends that the findings of the trial court
that the amount of P400,000.00 as reasonable
profits of the partnership venture is without any
basis and is not supported by the evidence. The
appellant maintains that the lower court, in making
its determination, did not take into consideration the
great risks involved in business operations involving
as it does the completion of the projects within a
definite period of time, in the face of adverse and
often unpredictable circumstances, as well as the
fact that the appellee, who was in charge of the
projects in the field, contributed in a large measure
to the failure of the partnership to realize such
profits by his field management.
This argument must be overruled in the light of the
law and evidence on the matter. Under Article 2200
of the Civil Code, indemnification for damages shall
comprehend not only the value of the loss suffered,
but also that of the profits which the obligee failed to
obtain. In other words lucrum cessans is also a
basis for indemnification.
Has the appellee failed to make profits because of
appellant's breach of contract?
There is no doubt that the contracting business is a
profitable one and that the U.P. Construction
Company derived some profits from' co io oa ects its
sub contracts in the construction of the road and
bridges projects its deficient working capital and the
juggling of its funds by the appellant.
Contrary to the appellant's claim, the partnership
showed some profits during the period from July 2,
1956 to December 31, 1957. If the Profit and Loss
Statement 45 showed a net loss of P134,019.43,
this was primarily due to the confusing accounting
method employed by the auditor who intermixed h
and accthe casrua method of accounting and the
erroneous inclusion of certain items, like personal
expenses of the appellant and alleged extraordinary
losses due to an accidental plane crash, in the
operating expenses of the partnership, Corrected,
the Profit and Loss Statement would indicate a net
profit of P41,611.28.
For the period from January 1, 1958 to September
30, 1959, the partnership admittedly made a net
profit of P52,943.89. 46
Besides, as We have heretofore pointed out, the
appellant received from the Bureau of Public
Highways, in payment of the construction projects in
question, the amount of P1,047,181.01 47 and
disbursed the amount of P952,839.77, 48 leaving an
unaccounted balance of P94,342.24. Obviously, this
amount is also part of the profits of the partnership.
During the trial of this case, it was discovered that
the appellant had money and credits receivable from
the projects in question, in the custody of the
Bureau of Public Highways, in the amount of
P128,669.75, representing the 10% retention of said
projects.49 After the trial of this case, it was shown
that the total retentions deducted from the appellant
amounted to P145,358.00. 50 Surely, these retained
amounts also form part of the profits of the
partnership.
Had the appellant not been remiss in his obligations
as partner and as prime contractor of the
construction projects in question as he was bound to
perform pursuant to the partnership and subcontract
agreements, and considering the fact that the total
contract amount of these two projects is
P2,327,335.76, it is reasonable to expect that the
partnership would have earned much more than the
P334,255.61 We have hereinabove indicated. The
award, therefore, made by the trial court of the
amount of P200,000.00, as compensatory damages,
is not speculative, but based on reasonable
estimate.
WHEREFORE, finding no error in the decision
appealed from, the said decision is hereby affirmed
with costs against the appellant, it being understood
that the liability mentioned herein shall be home by
the estate of the deceased Bartolome Puzon,
represented in this instance by the administrator
thereof, Franco Puzon.
SO ORDERED.
3MORAN, JR. VS. CA
133 SCRA 88
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the
decision of the respondent Court of Appeals which
ordered petitioner Isabelo Moran, Jr. to pay
damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the
undisputed facts indicate that:
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered
into an agreement whereby both would contribute
P15,000 each for the purpose of printing 95,000
posters (featuring the delegates to the 1971
Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a
commission of P l,000 a month starting on April 15,
1971 up to December 15, 1971; that on December
15, 1971, a liquidation of the accounts in the
distribution and printing of the 95,000 posters would
be made, that Pecson gave Moran P10,000 for
which the latter issued a receipt; that only a few
posters were printed; that on or about May 28, 1971,
Moran executed in favor of Pecson a promissory
note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15,
1971 and P10,000 payable on or before June 30,
1971), the whole sum becoming due upon default in
the payment of the first installment on the date due,
complete with the costs of collection.
Private respondent Pecson filed with the Court of
First Instance of Manila an action for the recovery of
a sum of money and alleged in his complaint three
(3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution
of P10,000.00, payment of his share in the profits
that the partnership would have earned, and,
payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00;
and, (3) moral and exemplary damages and
attorney's fees.
After the trial, the Court of First Instance held that:
From the evidence presented it is clear in the mind
of the court that by virtue of the partnership
agreement entered into by the parties-plaintiff and
defendant the plaintiff did contribute P10,000.00,
and another sum of P7,000.00 for the Voice of the
Veteran or Delegate Magazine. Of the expected
95,000 copies of the posters, the defendant was
able to print 2,000 copies only authorized of which,
however, were sold at P5.00 each. Nothing more
was done after this and it can be said that the
venture did not really get off the ground. On the
other hand, the plaintiff failed to give his full
contribution of P15,000.00. Thus, each party is
entitled to rescind the contract which right is implied
in reciprocal obligations under Article 1385 of the
Civil Code whereunder 'rescission creates the
obligation to return the things which were the object
of the contract ...
WHEREFORE, the court hereby renders judgment
ordering defendant Isabelo C. Moran, Jr. to return to
plaintiff Mariano E. Pecson the sum of P17,000.00,
with interest at the legal rate from the filing of the
complaint on June 19, 1972, and the costs of the
suit.
For insufficiency of evidence, the counterclaim is
hereby dismissed.
From this decision, both parties appealed to the
respondent Court of Appeals. The latter likewise
rendered a decision against the petitioner. The
dispositive portion of the decision reads:
PREMISES CONSIDERED, the decision appealed
from is hereby SET ASIDE, and a new one is
hereby rendered, ordering defendant-appellant
Isabelo C. Moran, Jr. to pay plaintiff- appellant
Mariano E. Pecson:
(a) Forty-seven thousand five hundred (P47,500)
(the amount that could have accrued to Pecson
under their agreement);
(b) Eight thousand (P8,000), (the commission for
eight months);
(c) Seven thousand (P7,000) (as a return of
Pecson's investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date
the complaint was filed (up to the time payment is
made)
The petitioner contends that the respondent Court of
Appeals decided questions of substance in a way
not in accord with law and with Supreme Court
decisions when it committed the following errors:
I
THE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE
SUM OF P47,500 AS THE SUPPOSED
EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE
SUM OF P8,000, AS SUPPOSED COMMISSION IN
THE PARTNERSHIP ARISING OUT OF PECSON'S
INVESTMENT.
III
THE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE
SUM OF P7,000 AS A SUPPOSED RETURN OF
INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT
PETITIONER IS AT ALL LIABLE FOR ANY
AMOUNT, THE HONORABLE COURT OF
APPEALS DID NOT EVEN OFFSET PAYMENTS
ADMITTEDLY RECEIVED BY PECSON FROM
MORAN.
V Article 1797 of the Civil Code provides:
THE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN NOT GRANTING THE
PETITIONER'S COMPULSORY COUNTERCLAIM
FOR DAMAGES.
The first question raised in this petition refers to the
award of P47,500.00 as the private respondent's
share in the unrealized profits of the partnership.
The petitioner contends that the award is highly
speculative. The petitioner maintains that the
respondent court did not take into account the great
risks involved in the business undertaking.
We agree with the petitioner that the award of
speculative damages has no basis in fact and law.
There is no dispute over the nature of the
agreement between the petitioner and the private
respondent. It is a contract of partnership. The latter
in his complaint alleged that he was induced by the
petitioner to enter into a partnership with him under
the following terms and conditions:
1. That the partnership will print colored posters of
the delegates to the Constitutional Convention;
2. That they will invest the amount of Fifteen
Thousand Pesos (P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000)
copies of the said posters;
4. That plaintiff will receive a commission of One
Thousand Pesos (P1,000.00) a month starting April
15, 1971 up to December 15, 1971;
5. That upon the termination of the partnership on
December 15, 1971, a liquidation of the account
pertaining to the distribution and printing of the said
95,000 posters shall be made.
The petitioner on the other hand admitted in his
answer the existence of the partnership.
The rule is, when a partner who has undertaken to
contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he
may have promised to contribute (Art. 1786, Civil
Code) and for interests and damages from the time
he should have complied with his obligation (Art.
1788, Civil Code). Thus in Uy v. Puzon (79 SCRA
598), which interpreted Art. 2200 of the Civil Code of
the Philippines, we allowed a total of P200,000.00
compensatory damages in favor of the appellee
because the appellant therein was remiss in his
obligations as a partner and as prime contractor of
the construction projects in question. This case was
decided on a particular set of facts. We awarded
compensatory damages in the Uy case because
there was a finding that the constructing business is
a profitable one and that the UP construction
company derived some profits from its contractors in
the construction of roads and bridges despite its
deficient capital." Besides, there was evidence to
show that the partnership made some profits during
the periods from July 2, 1956 to December 31, 1957
and from January 1, 1958 up to September 30,
1959. The profits on two government contracts
worth P2,327,335.76 were not speculative. In the
instant case, there is no evidence whatsoever that
the partnership between the petitioner and the
private respondent would have been a profitable
venture. In fact, it was a failure doomed from the
start. There is therefore no basis for the award of
speculative damages in favor of the private
respondent.
Furthermore, in the Uy case, only Puzon failed to
give his full contribution while Uy contributed much
more than what was expected of him. In this case,
however, there was mutual breach. Private
respondent failed to give his entire contribution in
the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give
any of the amount expected of him. He further failed
to comply with the agreement to print 95,000 copies
of the posters. Instead, he printed only 2,000 copies.
The losses and profits shall be distributed in
conformity with the agreement. If only the share of
each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same
proportion.
Being a contract of partnership, each partner must
share in the profits and losses of the venture. That is
the essence of a partnership. And even with an
assurance made by one of the partners that they
would earn a huge amount of profits, in the absence
of fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare
business venture guaranteed to give 100% profits.
In this case, on an investment of P15,000.00, the
respondent was supposed to earn a guaranteed
P1,000.00 a month for eight months and around
P142,500.00 on 95,000 posters costing P2.00 each
but 2,000 of which were sold at P5.00 each. The
fantastic nature of expected profits is obvious. We
have to take various factors into account. The failure
of the Commission on Elections to proclaim all the
320 candidates of the Constitutional Convention on
time was a major factor. The petitioner undesirable
his best business judgment and felt that it would be
a losing venture to go on with the printing of the
agreed 95,000 copies of the posters. Hidden risks in
any business venture have to be considered.
It does not follow however that the private
respondent is not entitled to recover any amount
from the petitioner. The records show that the
private respondent gave P10,000.00 to the
petitioner. The latter used this amount for the
printing of 2,000 posters at a cost of P2.00 per
poster or a total printing cost of P4,000.00. The
records further show that the 2,000 copies were sold
at P5.00 each. The gross income therefore was
P10,000.00. Deducting the printing costs of
P4,000.00 from the gross income of P10,000.00 and
with no evidence on the cost of distribution, the net
profits amount to only P6,000.00. This net profit of
P6,000.00 should be divided between the petitioner
and the private respondent. And since only
P4,000.00 was undesirable by the petitioner in
printing the 2,000 copies, the remaining P6,000.00
should therefore be returned to the private
respondent.
Relative to the second alleged error, the petitioner
submits that the award of P8,000.00 as Pecson's
supposed commission has no justifiable basis in
law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the
petitioner would give the private respondent a
monthly commission of Pl,000.00 from April 15,
1971 to December 15, 1971 for a total of eight (8)
monthly commissions. The agreement does not
state the basis of the commission. The payment of
the commission could only have been predicated on
relatively extravagant profits. The parties could not
have intended the giving of a commission inspite of
loss or failure of the venture. Since the venture was
a failure, the private respondent is not entitled to the
P8,000.00 commission.
Anent the third assigned error, the petitioner
maintains that the respondent Court of Appeals
erred in holding him liable to the private respondent
in the sum of P7,000.00 as a supposed return of
investment in a magazine venture.
In awarding P7,000.00 to the private respondent as
his supposed return of investment in the "Voice of
the Veterans" magazine venture, the respondent
court ruled that:
xxx xxx xxx
... Moran admittedly signed the promissory note of
P20,000 in favor of Pecson. Moran does not
question the due execution of said note. Must Moran
therefore pay the amount of P20,000? The evidence
indicates that the P20,000 was assigned by Moran
to cover the following:
(a) P 7,000 — the amount of the PNB check given
by Pecson to Moran representing Pecson's
investment in Moran's other project (the publication
and printing of the 'Voice of the Veterans');
(b) P10,000 — to cover the return of Pecson's
contribution in the project of the Posters;
(c) P3,000 — representing Pecson's commission for
three months (April, May, June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a
return of Pecson's investment for the Veterans'
project, for this project never left the ground) ...
As a rule, the findings of facts of the Court of
Appeals are final and conclusive and cannot be
reviewed on appeal to this Court (Amigo v. Teves,
96 Phil. 252), provided they are borne out by the
record or are based on substantial evidence (Alsua-
Betts v. Court of Appeals, 92 SCRA 332). However,
this rule admits of certain exceptions. Thus, in
Carolina Industries Inc. v. CMS Stock Brokerage,
Inc., et al., (97 SCRA 734), we held that this Court
retains the power to review and rectify the findings
of fact of the Court of Appeals when (1) the
conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the
inference made is manifestly mistaken absurd and
impossible; (3) where there is grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in
making its findings, went beyond the issues of the
case and the same are contrary to the admissions of
both the appellant and the appellee.
In this case, there is misapprehension of facts. The
evidence of the private respondent himself shows
that his investment in the "Voice of Veterans" project
amounted to only P3,000.00. The remaining
P4,000.00 was the amount of profit that the private
respondent expected to receive.
The records show the following exhibits-
E — Xerox copy of PNB Manager's Check No.
234265 dated March 22, 1971 in favor of defendant.
Defendant admitted the authenticity of this check
and of his receipt of the proceeds thereof (t.s.n., pp.
3-4, Nov. 29, 1972). This exhibit is being offered for
the purpose of showing plaintiff's capital investment
in the printing of the "Voice of the Veterans" for
which he was promised a fixed profit of P8,000. This
investment of P6,000.00 and the promised profit of
P8,000 are covered by defendant's promissory note
for P14,000 dated March 31, 1971 marked by
defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29,
1972), and by plaintiff as Exhibit P. Later, defendant
returned P3,000.00 of the P6,000.00 investment
thereby proportionately reducing the promised profit
to P4,000. With the balance of P3,000 (capital) and
P4,000 (promised profit), defendant signed and
executed the promissory note for P7,000 marked
Exhibit 3 for the defendant and Exhibit M for plaintiff.
Of this P7,000, defendant paid P4,000 representing
full return of the capital investment and P1,000
partial payment of the promised profit. The P3,000
balance of the promised profit was made part
consideration of the P20,000 promissory note (t.s.n.,
pp. 22-24, Nov. 29, 1972). It is, therefore, being
presented to show the consideration for the P20,000
promissory note.
F — Xerox copy of PNB Manager's check dated
May 29, 1971 for P7,000 in favor of defendant. The
authenticity of the check and his receipt of the
proceeds thereof were admitted by the defendant
(t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part
consideration, and in cash, of the P20,000
promissory note (t.s.n., p. 25, Nov. 29, 1972), and it
is being presented to show the consideration for the
P20,000 note and the existence and validity of the
obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is
being offered for the purpose of showing the subject
matter of the other partnership agreement and in
which plaintiff invested the P6,000 (Exhibit E) which,
together with the promised profit of P8,000 made up
for the consideration of the P14,000 promissory note
(Exhibit 2; Exhibit P). As explained in connection
with Exhibit E. the P3,000 balance of the promised
profit was later made part consideration of the
P20,000 promissory note.
M-Promissory note for P7,000 dated March 30,
1971. This is also defendant's Exhibit E. This
document is being offered for the purpose of further
showing the transaction as explained in connection
with Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for the
return of his P3,000 out of his capital investment of
P6,000 (Exh. E) in the P14,000 promissory note
(Exh. 2; P). This is also defendant's Exhibit 4. This
document is being offered in support of plaintiff's
explanation in connection with Exhibits E, L, and M
to show the transaction mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also
defendant's Exhibit 2. It is being offered for the
purpose of showing the transaction as explained in
connection with Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent
Pecson testified that:
Q During the pre-trial of this case, Mr. Pecson, the
defendant presented a promissory note in the
amount of P14,000.00 which has been marked as
Exhibit 2. Do you know this promissory note?
A Yes, sir.
Q What is this promissory note, in connection with
your transaction with the defendant?
A This promissory note is for the printing of the
"Voice of the Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
A It is a book.
(T.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00
indicated in the promissory note, Exhibit 2,
represent?
A It represents the P6,000.00 cash which I gave to
Mr. Moran, as evidenced by the Philippine National
Bank Manager's check and the P8,000.00 profit
assured me by Mr. Moran which I will derive from
the printing of this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is
covered by, a Manager's check. I show you Exhibit
E, is this the Manager's check that mentioned?
A Yes, sir.
Q What happened to this promissory note of
P14,000.00 which you said represented P6,000.00
of your investment and P8,000.00 promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which
represented one-half (1/2) of the P6,000.00 capital I
gave to him.
Q As a consequence of the return by Mr. Moran of
one-half (1/2) of the P6,000.00 capital you gave to
him, what happened to the promised profit of
P8,000.00?
A It was reduced to one-half (1/2) which is
P4,000.00.
Q Was there any document executed by Mr. Moran
in connection with the Balance of P3,000.00 of your
capital investment and the P4,000.00 promised
profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of
P7,000.00 dated March 30, 1971 which for purposes
of Identification I request the same to be marked as
Exhibit M. . .
Court Mark it as Exhibit M.
Q (continuing) is this the promissory note which you
said was executed by Mr. Moran in connection with
your transaction regarding the printing of the "Voice
of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed
by Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the
P7,000.00 as shown by the promissory note.
Q Was there a receipt issued by you covering this
payment of P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of
P4,000.00 on account of the P7,000.00 covered by
the promissory note, Exhibit M. What does this
P4,000.00 covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which
he has returned of my P6,000.00 capital investment
and the P1,000.00 represents partial payment of the
P4,000.00 profit that was promised to me by Mr.
Moran.
Q And what happened to the balance of P3,000.00
under the promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit
was applied as part of the consideration of the
promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that
the project never left the ground because the project
did take place. Only it failed. It was the private
respondent himself who presented a copy of the
book entitled "Voice of the Veterans" in the lower
court as Exhibit "L". Therefore, it would be error to
state that the project never took place and on this
basis decree the return of the private respondent's
investment.
As already mentioned, there are risks in any
business venture and the failure of the undertaking
cannot entirely be blamed on the managing partner
alone, specially if the latter exercised his best
business judgment, which seems to be true in this
case. In view of the foregoing, there is no reason to
pass upon the fourth and fifth assignments of errors
raised by the petitioner. We likewise find no valid
basis for the grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The
decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE
and a new one is rendered ordering the petitioner
Isabelo Moran, Jr., to pay private respondent
Mariano Pecson SIX THOUSAND (P6,000.00)
PESOS representing the amount of the private
respondent's contribution to the partnership but
which remained unused; and THREE THOUSAND
(P3,000.00) PESOS representing one half (1/2) of
the net profits gained by the partnership in the sale
of the two thousand (2,000) copies of the posters,
with interests at the legal rate on both amounts from
the date the complaint was filed until full payment is
made. SO ORDERED.
4LOZANA VS. DEPAKAKIBO
107 PHIL 728
LABRADOR, J.:
This is an appeal from a judgment of the Court of
First Instance of Iloilo, certified to us by the Court of
Appeals, for the reason that only questions of law
are involved in said appeal.
The record discloses that on November 16, 1954
plaintiff Mauro Lozana entered into a contract with
defendant Serafin Depakakibo wherein they
established a partnership capitalized at the sum of
P30,000, plaintiff furnishing 60% thereof and the
defendant, 40%, for the purpose of maintaining,
operating and distributing electric light and power in
the Municipality of Dumangas, Province of Iloilo,
under a franchise issued to Mrs. Piadosa Buenaflor.
However, the franchise or certificate of public
necessity and convenience in favor of the said Mrs.
Piadosa Buenaflor was cancelled and revoked by
the Public Service Commission on May 15, 1955.
But the decision of the Public Service Commission
was appealed to Us on October 21, 1955. A
temporary certificate of public convenience was
issued in the name of Olimpia D. Decolongon on
December 22, 1955 (Exh. "B"). Evidently because of
the cancellation of the franchise in the name of Mrs.
Piadosa Buenaflor, plaintiff herein Mauro Lozana
sold a generator, Buda (diesel), 75 hp. 30 KVA
capacity, Serial No. 479, to the new grantee Olimpia
D. Decolongon, by a deed dated October 30, 1955
(Exhibit "C"). Defendant Serafin Depakakibo, on the
other hand, sold one Crossly Diesel Engine, 25 h.
p., Serial No. 141758, to the spouses Felix Jimenea
and Felina Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana
brought an action against the defendant, alleging
that he is the owner of the Generator Buda (Diesel),
valued at P8,000 and 70 wooden posts with the
wires connecting the generator to the different
houses supplied by electric current in the
Municipality of Dumangas, and that he is entitled to
the possession thereof, but that the defendant has
wrongfully detained them as a consequence of
which plaintiff suffered damages. Plaintiff prayed
that said properties be delivered back to him. Three
days after the filing of the complaint, that is on
November 18, 1955, Judge Pantaleon A. Pelayo
issued an order in said case authorizing the sheriff
to take possession of the generator and 70 wooden
posts, upon plaintiff's filing of a bond in the amount
of P16,000 in favor of the defendant (for subsequent
delivery to the plaintiff). On December 5, 1955,
defendant filed an answer, denying that the
generator and the equipment mentioned in the
complaint belong to the plaintiff and alleging that the
same had been contributed by the plaintiff to the
partnership entered into between them in the same
manner that defendant had contributed equipment
also, and therefore that he is not unlawfully
detaining them. By way of counterclaim, defendant
alleged that under the partnership agreement the
parties were to contribute equipments, plaintiff
contributing the generator and the defendant, the
wires for the purpose of installing the main and
delivery lines; that the plaintiff sold his contribution
to the partnership, in violation of the terms of their
agreement. He, therefore, prayed that the complaint
against him be dismissed; that plaintiff be adjudged
guilty of violating the partnership contract and be
ordered to pay the defendant the sum of P3,000, as
actual damages, P600.00 as attorney's fees and
P2,600 annually as actual damages; that the court
order dissolution of the partnership, after the
accounting and liquidation of the same.
On September 27, 1956, the defendant filed a
motion to declare plaintiff in default on his
counterclaim, but this was denied by the court.
Hearings on the case were conducted on October
25, 1956 and November 5, 1956, and on the latter
date the judge entered a decision declaring plaintiff
owner of the equipment and entitled to the
possession thereof, with costs against defendant. It
is against this judgment that the defendant has
appealed.
The above judgment of the court was rendered on a
stipulation of facts, which is as follows:
1. That on November 16, 1954, in the City of Iloilo,
the aforementioned plaintiff, and the defendant
entered into a contract of Partnership, a copy of
which is attached as Annex "A" of defendant's
answer and counterclaim, for the purpose set forth
therein and under the national franchise granted to
Mrs. Piadosa Buenaflor;
2. That according to the aforementioned Partnership
Contract, the plaintiff Mr. Mauro Lozana, contributed
the amount of Eighteen Thousand Pesos
(P18,000.00); said contributions of both parties
being the appraised values of their respective
properties brought into the partnership;
3. That the said Certificate of Public Convenience
and Necessity was revoked and cancelled by order
of the Public Service Commission dated March 15,
1955, promulgated in case No. 58188, entitled,
"Piadosa Buenaflor, applicant", which order has
been appealed to the Supreme Court by Mrs.
Buenaflor;
4. That on October 30, 1955, the plaintiff sold
properties brought into by him to the said
partnership in favor of Olimpia Decolongon in the
amount of P10,000.00 as per Deed of Sale dated
October 30, 1955 executed and ratified before
Notary Public, Delfin Demaisip, in and for the
Municipality of Dumangas, Iloilo and entered in his
Notarial Registry as Doc. No. 832; Page No. 6; Book
No. XIII; and Series of 1955, a copy thereof is made
as Annex "B" of defendant's answer and
counterclaim;
5. That there was no liquidation of partnership and
that at the time of said Sale on October 30, 1955,
defendant was the manager thereof;
6. That by virtue of the Order of this Honorable
Court dated November 18, 1955, those properties
sold were taken by the Provincial Sheriff on
November 20, 1955 and delivered to the plaintiff on
November 25, 1955 upon the latter posting the
required bond executed by himself and the Luzon
Surety Co., dated November 17, 1955 and ratified
before the Notary Public, Eleuterio del Rosario in
and for the province of Iloilo known as Doc. No. 200;
Page 90; Book No. VII; and Series of 1955; of said
Notary Public;
7. That the said properties sold are now in the
possession of Olimpia Decolongon, the purchaser,
who is presently operating an electric light plant in
Dumangas, Iloilo;
8. That the defendant sold certain properties in favor
of the spouses, Felix Jimenea and Felisa Harder
contributed by him to the partnership for P3,500.00
as per Deed of Sale executed and ratified before the
Notary Public Rodrigo J. Harder in and for the
Province of Iloilo, known as Doc. No. 76; Page 94;
Book No. V; and Series of 1955, a certified copy of
which is hereto attached marked as Annex "A", and
made an integral part hereof; (pp, 27-29 ROA).
As it appears from the above stipulation of facts that
the plaintiff and the defendant entered into the
contract of partnership, plaintiff contributing the
amount of P18,000, and as it is not stated therein
that there bas been a liquidation of the partnership
assets at the time plaintiff sold the Buda Diesel
Engine on October 15, 1955, and since the court
below had found that the plaintiff had actually
contributed one engine and 70 posts to the
partnership, it necessarily follows that the Buda
diesel engine contributed by the plaintiff had
become the property of the partnership. As
properties of the partnership, the same could not be
disposed of by the party contributing the same
without the consent or approval of the partnership or
of the other partner. (Clemente vs. Galvan, 67 Phil.,
565).
The lower court declared that the contract of
partnership was null and void, because by the
contract of partnership, the parties thereto have
become dummies of the owner of the franchise. The
reason for this holding was the admission by
defendant when being cross-examined by the court
that he and the plaintiff are dummies. We find that
this admission by the defendant is an error of law,
not a statement of a fact. The Anti-Dummy law has
not been violated as parties plaintiff and defendant
are not aliens but Filipinos. The Anti-Dummy law
refers to aliens only (Commonwealth Act 108 as
amended).
Upon examining the contract of partnership,
especially the provision thereon wherein the parties
agreed to maintain, operate and distribute electric
light and power under the franchise belonging to
Mrs. Buenaflor, we do not find the agreement to be
illegal, or contrary to law and public policy such as
to make the contract of partnership, null and void ab
initio. The agreement could have been submitted to
the Public Service Commission if the rules of the
latter require them to be so presented. But the fact
of furnishing the current to the holder of the
franchise alone, without the previous approval of the
Public Service Commission, does not per se make
the contract of partnership null and void from the
beginning and render the partnership entered into
by the parties for the purpose also void and non-
existent. Under the circumstances, therefore, the
court erred in declaring that the contract was illegal
from the beginning and that parties to the
partnership are not bound therefor, such that the
contribution of the plaintiff to the partnership did not
pass to it as its property. It also follows that the
claim of the defendant in his counterclaim that the
partnership be dissolved and its assets liquidated is
the proper remedy, not for each contributing partner
to claim back what he had contributed.
For the foregoing considerations, the judgment
appealed from as well as the order of the court for
the taking of the property into custody by the sheriff
must be, as they hereby are set aside and the case
remanded to the court below for further proceedings
in accordance with law.
PANG LIM VS. LO SENG
GR NO. L-16318, OCTOBER 21, 1921
STREET, J.:
For several years prior to June 1, 1916, two of the
litigating parties herein, namely, Lo Seng and Pang
Lim, Chinese residents of the City of Manila, were
partners, under the firm name of Lo Seng and Co.,
in the business of running a distillery, known as "El
Progreso," in the Municipality of Paombong, in the
Province of Bulacan. The land on which said
distillery is located as well as the buildings and
improvements originally used in the business were,
at the time to which reference is now made, the
property of another Chinaman, who resides in
Hongkong, named Lo Yao, who, in September,
1911, leased the same to the firm of Lo Seng and
Co. for the term of three years.
Upon the expiration of this lease a new written
contract, in the making of which Lo Yao was
represented by one Lo Shui as attorney in fact,
became effective whereby the lease was extended
for fifteen years. The reason why the contract was
made for so long a period of time appears to have
been that the Bureau of Internal Revenue had
required sundry expensive improvements to be
made in the distillery, and it was agreed that these
improvements should be effected at the expense of
the lessees. In conformity with this understanding
many thousands of pesos were expended by Lo
Seng and Co., and later by Lo Seng alone, in
enlarging and improving the plant.
Among the provisions contained in said lease we
note the following:
Know all men by these presents:
1. That I, Lo Shui, as attorney in fact in charge of the
properties of Mr. Lo Yao of Hongkong, cede by way
of lease for fifteen years more said distillery "El
Progreso" to Messrs. Pang Lim and Lo Seng (doing
business under the firm name of Lo Seng and Co.),
after the termination of the previous contract,
because of the fact that they are required, by the
Bureau of Internal Revenue, to rearrange, alter and
clean up the distillery.
2. That all the improvements and betterments which
they may introduce, such as machinery, apparatus,
tanks, pumps, boilers and buildings which the
business may require, shall be, after the termination
of the fifteen years of lease, for the benefit of Mr. Lo
Yao, my principal, the buildings being considered as
improvements.
3. That the monthly rent of said distillery is P200, as
agreed upon in the previous contract of September
11, 1911, acknowledged before the notary public D.
Vicente Santos; and all modifications and repairs
which may be needed shall be paid for by Messrs.
Pang Lim and Lo Seng.
We, Pang Lim and Lo Seng, as partners in said
distillery "El Progreso," which we are at present
conducting, hereby accept this contract in each and
all its parts, said contract to be effective upon the
termination of the contract of September 11, 1911.
Neither the original contract of lease nor the
agreement extending the same was inscribed in the
property registry, for the reason that the estate
which is the subject of the lease has never at any
time been so inscribed.
On June 1, 1916, Pang Lim sold all his interest in
the distillery to his partner Lo Seng, thus placing the
latter in the position of sole owner; and on June 28,
1918, Lo Shui, again acting as attorney in fact of Lo
Yao, executed and acknowledged before a notary
public a deed purporting to convey to Pang Lim and
another Chinaman named Benito Galvez, the entire
distillery plant including the land used in connection
therewith. As in case of the lease this document
also was never recorded in the registry of property.
Thereafter Pang Lim and Benito Galvez demanded
possession from Lo Seng, but the latter refused to
yield; and the present action of unlawful detainer
was thereupon initiated by Pang Lim and Benito
Galvez in the court of the justice of the peace of
Paombong to recover possession of the premises.
From the decision of the justice of the peace the
case was appealed to the Court of First Instance,
where judgment was rendered for the plaintiffs; and
the defendant thereupon appealed to the Supreme
Court.
The case for the plaintiffs is rested exclusively on
the provisions of article 1571 of the Civil Code,
which reads in part as follows:
ART. 1571. The purchaser of a leased estate shall
be entitled to terminate any lease in force at the time
of making the sale, unless the contrary is stipulated,
and subject to the provisions of the Mortgage Law.
In considering this provision it may be premised that
a contract of lease is personally binding on all who
participate in it regardless of whether it is recorded
or not, though of course the unrecorded lease
creates no real charge upon the land to which it
relates. The Mortgage Law was devised for the
protection of third parties, or those who have not
participated in the contracts which are by that law
required to be registered; and none of its provisions
with reference to leases interpose any obstacle
whatever to the giving of full effect to the personal
obligations incident to such contracts, so far as
concerns the immediate parties thereto. This is
rudimentary, and the law appears to be so
understood by all commentators, there being, so far
as we are aware, no authority suggesting the
contrary. Thus, in the commentaries of the authors
Galindo and Escosura, on the Mortgage Law, we
find the following pertinent observation: "The
Mortgage Law is enacted in aid of and in respect to
third persons only; it does not affect the relations
between the contracting parties, nor their capacity to
contract. Any question affecting the former will be
determined by the dispositions of the special law
[i.e., the Mortgage Law], while any question
affecting the latter will be determined by the general
law." (Galindo y Escosura, Comentarios a la
Legislacion Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage
Law, as regards the personal obligations expressed
therein, the lease in question was from the
beginning, and has remained, binding upon all the
parties thereto — among whom is to be numbered
Pang Lim, then a member of the firm of Lo Seng
and Co. — this does not really solve the problem
now before us, which is, whether the plaintiffs
herein, as purchasers of the estate, are at liberty to
terminate the lease, assuming that it was originally
binding upon all parties participating in it.
Upon this point the plaintiffs are undoubtedly
supported, prima facie, by the letter of article 1571
of the Civil Code; and the position of the defendant
derives no assistance from the mere circumstance
that the lease was admittedly binding as between
the parties thereto.
The words "subject to the provisions of the
Mortgage Law," contained in article 1571, express a
qualification which evidently has reference to the
familiar proposition that recorded instruments are
effective against third persons from the date of
registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210);
from whence it follows that a recorded lease must
be respected by any purchaser of the estate
whomsoever. But there is nothing in the Mortgage
Law which, so far as we now see, would prevent a
purchaser from exercising the precise power
conferred in article 1571 of the Civil Code, namely,
of terminating any lease which is unrecorded;
nothing in that law that can be considered as
arresting the force of article 1571 as applied to the
lease now before us.
Article 1549 of the Civil Code has also been cited by
the attorneys for the appellant as supplying authority
for the proposition that the lease in question cannot
be terminated by one who, like Pang Lim, has taken
part in the contract. That provision is practically
identical in terms with the first paragraph of article
23 of the Mortgage Law, being to the effect that
unrecorded leases shall be of no effect as against
third persons; and the same observation will suffice
to dispose of it that was made by us above in
discussing the Mortgage Law, namely, that while it
recognizes the fact that an unrecorded lease is
binding on all persons who participate therein, this
does not determine the question whether, admitting
the lease to be so binding, it can be terminated by
the plaintiffs under article 1571.
Having thus disposed of the considerations which
arise in relation with the Mortgage Law, as well as
article 1549 of the Civil Coded — all of which, as we
have seen, are undecisive — we are brought to
consider the aspect of the case which seems to us
conclusive. This is found in the circumstance that
the plaintiff Pang Lim has occupied a double role in
the transactions which gave rise to this litigation,
namely, first, as one of the lessees; and secondly,
as one of the purchasers now seeking to terminate
the lease. These two positions are essentially
antagonistic and incompatible. Every competent
person is by law bond to maintain in all good faith
the integrity of his own obligations; and no less
certainly is he bound to respect the rights of any
person whom he has placed in his own shoes as
regards any contract previously entered into by
himself.
While yet a partner in the firm of Lo Seng and Co.,
Pang Lim participated in the creation of this lease,
and when he sold out his interest in that firm to Lo
Seng this operated as a transfer to Lo Seng of Pang
Lim's interest in the firm assets, including the lease;
and Pang Lim cannot now be permitted, in the guise
of a purchaser of the estate, to destroy an interest
derived from himself, and for which he has received
full value.
The bad faith of the plaintiffs in seeking to deprive
the defendant of this lease is strikingly revealed in
the circumstance that prior to the acquisition of this
property Pang Lim had been partner with Lo Seng
and Benito Galvez an employee. Both therefore had
been in relations of confidence with Lo Seng and in
that position had acquired knowledge of the
possibilities of the property and possibly an
experience which would have enabled them, in case
they had acquired possession, to exploit the
distillery with profit. On account of his status as
partner in the firm of Lo Seng and Co., Pang Lim
knew that the original lease had been extended for
fifteen years; and he knew the extent of valuable
improvements that had been made thereon.
Certainly, as observed in the appellant's brief, it
would be shocking to the moral sense if the
condition of the law were found to be such that Pang
Lim, after profiting by the sale of his interest in a
business, worthless without the lease, could
intervene as purchaser of the property and
confiscate for his own benefit the property which he
had sold for a valuable consideration to Lo Seng.
The sense of justice recoils before the mere
possibility of such eventuality.
Above all other persons in business relations,
partners are required to exhibit towards each other
the highest degree of good faith. In fact the relation
between partners is essentially fiduciary, each being
considered in law, as he is in fact, the confidential
agent of the other. It is therefore accepted as
fundamental in equity jurisprudence that one partner
cannot, to the detriment of another, apply
exclusively to his own benefit the results of the
knowledge and information gained in the character
of partner. Thus, it has been held that if one partner
obtains in his own name and for his own benefit the
renewal of a lease on property used by the firm, to
commence at a date subsequent to the expiration of
the firm's lease, the partner obtaining the renewal is
held to be a constructive trustee of the firm as to
such lease. (20 R. C. L., 878-882.) And this rule has
even been applied to a renewal taken in the name of
one partner after the dissolution of the firm and
pending its liquidation. (16 R. C. L., 906; Knapp vs.
Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell
vs. Reed 61 N. Y., 123; 19 Am. Rep., 252.)
An additional consideration showing that the
position of the plaintiff Pang Lim in this case is
untenable is deducible from articles 1461 and 1474
of the Civil Code, which declare that every person
who sells anything is bound to deliver and warrant
the subject-matter of the sale and is responsible to
the vendee for the legal and lawful possession of
the thing sold. The pertinence of these provisions to
the case now under consideration is undeniable, for
among the assets of the partnership which Pang
Lim transferred to Lo Seng, upon selling out his
interest in the firm to the latter, was this very lease;
and while it cannot be supposed that the obligation
to warrant recognized in the articles cited would
nullify article 1571, if the latter article had actually
conferred on the plaintiffs the right to terminate this
lease, nevertheless said articles (1461, 1474), in
relation with other considerations, reveal the basis
of an estoppel which in our opinion precludes Pang
Lim from setting up his interest as purchaser of the
estate to the detriment of Lo Seng.
It will not escape observation that the doctrine thus
applied is analogous to the doctrine recognized in
courts of common law under the head of estoppel by
deed, in accordance with which it is held that if a
person, having no title to land, conveys the same to
another by some one or another of the recognized
modes of conveyance at common law, any title
afterwards acquired by the vendor will pass to the
purchaser; and the vendor is estopped as against
such purchaser from asserting such after-acquired
title. The indenture of lease, it may be further noted,
was recognized as one of the modes of conveyance
at common law which created this estoppel. (8 R. C.
L., 1058, 1059.)
From what has been said it is clear that Pang Lim,
having been a participant in the contract of lease
now in question, is not in a position to terminate it:
and this is a fatal obstacle to the maintenance of the
action of unlawful detainer by him. Moreover, it is
fatal to the maintenance of the action brought jointly
by Pang Lim and Benito Galvez. The reason is that
in the action of unlawful detainer, under section 80
of the Code of Civil Procedure, the only question
that can be adjudicated is the right to possession;
and in order to maintain the action, in the form in
which it is here presented, the proof must show that
occupant's possession is unlawful, i. e., that he is
unlawfully withholding possession after the
determination of the right to hold possession. In the
case before us quite the contrary appears; for, even
admitting that Pang Lim and Benito Galvez have
purchased the estate from Lo Yao, the original
landlord, they are, as between themselves, in the
position of tenants in common or owners pro
indiviso, according to the proportion of their
respective contribution to the purchase price. But it
is well recognized that one tenant in common
cannot maintain a possessory action against his
cotenant, since one is as much entitled to have
possession as the other. The remedy is ordinarily by
an action for partition. (Cornista vs. Ticson, 27 Phil.,
80.) It follows that as Lo Seng is vested with the
possessory right as against Pang Lim, he cannot be
ousted either by Pang Lim or Benito Galvez. Having
lawful possession as against one cotenant, he is
entitled to retain it against both. Furthermore, it is
obvious that partition proceedings could not be
maintained at the instance of Benito Galvez as
against Lo Seng, since partition can only be effected
where the partitioners are cotenants, that is, have
an interest of an identical character as among
themselves. (30 Cyc., 178-180.) The practical result
is that both Pang Lim and Benito Galvez are bound
to respect Lo Seng's lease, at least in so far as the
present action is concerned.
We have assumed in the course of the preceding
discussion that the deed of sale under which the
plaintiffs acquired the right of Lo Yao, the owner of
the fee, is competent proof in behalf of the plaintiffs.
It is, however, earnestly insisted by the attorney for
Lo Seng that this document, having never been
recorded in the property registry, cannot under
article 389 of the Mortgage Law, be used in court
against him because as to said instrument he is a
third party. The important question thus raised is not
absolutely necessary to the decision of this case,
and we are inclined to pass it without decision, not
only because the question does not seem to have
been ventilated in the Court of First Instance but for
the further reason that we have not had the benefit
of any written brief in this case in behalf of the
appellees.
The judgment appealed from will be reversed, and
the defendant will be absolved from the complaint. It
is so ordered, without express adjudication as to
costs.
6EVANGELISTA & CO. VS. ABAD SANTOS
GR NO. L-31684
MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed
under the name of "Evangelista & Co." On June 7,
1955 the Articles of Co-partnership was amended
as to include herein respondent, Estrella Abad
Santos, as industrial partner, with herein petitioners
Domingo C. Evangelista, Jr., Leonardo Atienza
Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a
contribution of P17,500 each. The amended Articles
provided, inter alia, that "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 Leonardo Atienza Abad Santos to be
divided among them equally; and 30% for the fourth
partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit
against the three other partners in the Court of First
Instance 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 and let her
examine the partnership books or to give her
information regarding the partnership affairs to pay
her any share in the dividends declared by the
partnership. She therefore prayed that the
defendants be ordered to render accounting to her
of the partnership business and to pay her
corresponding share in the partnership profits after
such accounting, plus attorney's fees and costs.
The defendants, in their answer, 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 byway 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.
The parties are in agreement that the main issue in
this case is "whether the plaintiff-appellee
(respondent here) is an industrial partner as claimed
by her or merely a profit sharer entitled to 30% of
the net profits that may be realized by the
partnership from June 7, 1955 until the mortgage
loan from the Rehabilitation Finance Corporation
shall be fully paid, as claimed by appellants (herein
petitioners)." On that issue the Court of First
Instance found for the plaintiff and rendered
judgement "declaring her an industrial partner of
Evangelista & Co.; ordering the defendants to
render an accounting of the business operations of
the (said) partnership ... from June 7, 1955; to pay
the plaintiff such amounts as may be due as her
share in the partnership profits and/or dividends
after such an accounting has been properly made;
to pay plaintiff attorney's fees in the sum of
P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals,
which thereafter affirmed judgments of the court a
quo.
In the petition before Us the petitioners have
assigned the following errors:
I. The Court of Appeals erred in the finding that the
respondent is an industrial partner of Evangelista &
Co., notwithstanding the admitted fact that since
1954 and until after promulgation of the decision of
the appellate court the said respondent was one of
the judges of the City Court of Manila, and despite
its findings that respondent had been paid for
services allegedly contributed by her to the
partnership. In this connection the Court of Appeals
erred:
(A) In finding that the "amended Articles of Co-
partnership," Exhibit "A" is conclusive evidence that
respondent was in fact made an industrial partner of
Evangelista & Co.
(B) In not finding that a portion of respondent's
testimony quoted in the decision proves that said
respondent did not bind herself to contribute her
industry, and she could not, and in fact did not,
because she was one of the judges of the City Court
of Manila since 1954.
(C) In finding that respondent did not in fact
contribute her industry, despite the appellate court's
own finding that she has been paid for the services
allegedly rendered by her, as well as for the loans of
money made by her to the partnership.
II. The lower court erred in not finding that in any
event the respondent was lawfully excluded from,
and deprived of, her alleged share, interests and
participation, as an alleged industrial partner, in the
partnership Evangelista & Co., and its profits or net
income.
III. The Court of Appeals erred in affirming in toto
the decision of the trial court whereby respondent
was declared an industrial partner of the petitioner,
and petitioners were ordered to render an
accounting of the business operation of the
partnership from June 7, 1955, and to pay the
respondent her alleged share in the net profits of the
partnership plus the sum of P2,000.00 as attorney's
fees and the costs of the suit, instead of dismissing
respondent's complaint, with costs, against the
respondent.
It is quite obvious that the questions raised in the
first assigned errors refer to the facts as found by
the Court of Appeals. The evidence presented by
the parties as the trial in support of their respective
positions on the issue of whether or not the
respondent was an industrial partner was thoroughly
analyzed by the Court of Appeals on its decision, to
the extent of reproducing verbatim therein the
lengthy testimony of the witnesses.
It is not the function of the Supreme Court to
analyze or weigh such evidence all over again, its
jurisdiction being limited to reviewing errors of law
that might have been committed by the lower court.
It should be observed, in this regard, that the Court
of Appeals 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.
The findings of the Court of Appeals on the various
points raised in the first assignment of error are
hereunder reproduced if only to demonstrate that
the same were made after a through analysis of
then evidence, and hence are beyond this Court's
power of review.
The aforequoted findings of the lower Court are
assailed under Appellants' first assigned error,
wherein it is pointed out that "Appellee's
documentary evidence does not conclusively prove
that appellee was in fact admitted by appellants as
industrial partner of Evangelista & Co." and that
"The grounds relied upon by the lower Court are
untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N
and S, appellants' complaint being that "In finding
that the appellee is an industrial partner of appellant
Evangelista & Co., herein referred to as the
partnership — the lower court relied mainly on the
appellee's documentary evidence, entirely
disregarding facts and circumstances established by
appellants" evidence which contradict the said
finding' (Page 21, Appellants' Brief). The lower court
could not have done otherwise but rely on the
exhibits just mentioned, first, because appellants
have admitted their genuineness and due execution,
hence they were admitted without objection by the
lower court when appellee rested her case and,
secondly the said exhibits indubitably show the
appellee is an industrial partner of appellant
company. Appellants are virtually estopped from
attempting to detract from the probative force of the
said exhibits because they all bear the imprint of
their knowledge and consent, and there is no
credible showing that they ever protested against or
opposed their contents prior of the filing of their
answer to appellee's complaint. As a matter of fact,
all the appellant Evangelista, Jr., would have us
believe — as against the cumulative force of
appellee's aforesaid documentary evidence — is the
appellee's Exhibit "A", as confirmed and
corroborated by the other exhibits already
mentioned, does not express the true intent and
agreement of the parties thereto, the real
understanding between them being the appellee
would be merely a profit sharer entitled to 30% of
the net profits that may be realized between the
partners from June 7, 1955, until the mortgage loan
of P30,000.00 to be obtained from the RFC shall
have been fully paid. This version, however, is
discredited not only by the aforesaid documentary
evidence brought forward by the appellee, but also
by the fact that from June 7, 1955 up to the filing of
their answer to the complaint on February 8, 1964
— or a period of over eight (8) years — appellants
did nothing to correct the alleged false agreement of
the parties contained in Exhibit "A". It is thus
reasonable to suppose that, had appellee not filed
the present action, appellants would not have
advanced this obvious afterthought that Exhibit "A"
does not express the true intent and agreement of
the parties thereto.
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.
The Court of Appeals then proceeded to consider
appellee's testimony on this point, quoting it in the
decision, and then concluded as follows:
One cannot read appellee's testimony just quoted
without gaining the very definite impression that,
even as she was and still is a Judge of the City
Court of Manila, she has rendered services for
appellants without which they would not have had
the wherewithal to operate the business for which
appellant company was organized. Article 1767 of
the New Civil Code which provides that "By contract
of partnership two or more persons bind
themselves, to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves, 'does not
specify the kind of industry that a partner may thus
contribute, hence the said services may legitimately
be considered as appellee's contribution to the
common fund. Another article of the same Code
relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in
business for himself, unless the partnership
expressly permits him to do so; and if he should do
so, the capitalist partners may either exclude him
from the firm or avail themselves of the benefits
which he may have obtained in violation of this
provision, with a right to damages in either case.'
It is not disputed that the provision against the
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 this
prestation. There is no pretense, however, even on
the part of the 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 filing of the
complaint in this case and the answer thereto
appellants exercised their right of exclusion under
the codal art just mentioned by alleging in their
Supplemental Answer dated June 29, 1964 — or
after around nine (9) years from June 7, 1955 —
subsequent to the filing of defendants' answer to the
complaint, defendants reached an agreement
whereby the herein plaintiff been excluded from, and
deprived of, her alleged share, interests or
participation, as an alleged industrial partner, in the
defendant partnership and/or in its net profits or
income, on the ground plaintiff has never
contributed her industry to the partnership, 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 performance of her duties as
such judge and enjoying the privilege 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). Having always knows as an
appellee as a City judge even before she joined
appellant company on June 7, 1955 as an industrial
partner, why did it take appellants many years
before excluding her from said company as
aforequoted allegations? And how can they
reconcile such exclusive with their main theory that
appellee has never been such a partner because
"The real agreement evidenced by Exhibit "A" was
to grant the appellee a share of 30% of the net
profits which the appellant partnership may realize
from June 7, 1955, until the mortgage of P30,000.00
obtained from the Rehabilitation Finance Corporal
shall have been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the
lower Court that appellee is an industrial partner of
appellant company, with the right to demand for a
formal accounting and to receive her share in the
net profit that may result from such an accounting,
which right appellants take exception under their
second assigned error. Our said holding is based on
the following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a
formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-
partners;
(2) If the right exists under the terms of any
agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and
reasonable.
We find no reason in this case to depart from the
rule which limits this Court's appellate jurisdiction to
reviewing only errors of law, accepting as conclusive
the factual findings of the lower court upon its own
assessment of the evidence.
The judgment appealed from is affirmed, with costs.
7RAMNANI VS CA
196 SCRA 731
GANCAYCO, J.:
This case involves the bitter quarrel of two brothers
over two (2) parcels of land and its improvements
now worth a fortune. The bone of contention is the
apparently conflicting factual findings of the trial
court and the appellate court, the resolution of which
will materially affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed
Jethmal Ramnani, are brothers of the full blood.
Ishwar and his spouse Sonya had their main
business based in New York. Realizing the difficulty
of managing their investments in the Philippines
they executed a general power of attorney on
January 24, 1966 appointing Navalrai and
Choithram as attorneys-in-fact, empowering them to
manage and conduct their business concern in the
Philippines.1
On February 1, 1966 and on May 16, 1966,
Choithram, in his capacity as aforesaid attorney-in-
fact of Ishwar, entered into two agreements for the
purchase of two parcels of land located in Barrio
Ugong, Pasig, Rizal, from Ortigas & Company, Ltd.
Partnership (Ortigas for short) with a total area of
approximately 10,048 square meters.2 Per
agreement, Choithram paid the down payment and
installments on the lot with his personal checks. A
building was constructed thereon by Choithram in
1966 and this was occupied and rented by Jethmal
Industries and a wardrobe shop called Eppie's
Creation. Three other buildings were built thereon
by Choithram through a loan of P100,000.00
obtained from the Merchants Bank as well as the
income derived from the first building. The buildings
were leased out by Choithram as attorney-in-fact of
Ishwar. Two of these buildings were later burned.
Sometime in 1970 Ishwar asked Choithram to
account for the income and expenses relative to
these properties during the period 1967 to 1970.
Choithram failed and refused to render such
accounting. As a consequence, on February 4,
1971, Ishwar revoked the general power of attorney.
Choithram and Ortigas were duly notified of such
revocation on April 1, 1971 and May 24, 1971,
respectively.3 Said notice was also registered with
the Securities and Exchange Commission on March
29, 19714 and was published in the April 2, 1971
issue of The Manila Times for the information of the
general public.
Nevertheless, Choithram as such attorney-in-fact of
Ishwar, transferred all rights and interests of Ishwar
and Sonya in favor of his daughter-in-law, Nirmla
Ramnani, on February 19, 1973. Her husband is
Moti, son of Choithram. Upon complete payment of
the lots, Ortigas executed the corresponding deeds
of sale in favor of Nirmla.6 Transfer Certificates of
Title Nos. 403150 and 403152 of the Register of
Deeds of Rizal were issued in her favor.
Thus, on October 6, 1982, Ishwar and Sonya
(spouses Ishwar for short) filed a complaint in the
Court of First Instance of Rizal against Choithram
and/or spouses Nirmla and Moti (Choithram et al. for
brevity) and Ortigas for reconveyance of said
properties or payment of its value and damages. An
amended complaint for damages was thereafter
filed by said spouses.
After the issues were joined and the trial on the
merits, a decision was rendered by the trial court on
December 3, 1985 dismissing the complaint and
counterclaim. A motion for reconsideration thereof
filed by spouses Ishwar was denied on March 3,
1986.
An appeal therefrom was interposed by spouses
Ishwar to the Court of Appeals wherein in due
course a decision was promulgated on March 14,
1988, the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered
reversing and setting aside the appealed decision of
the lower court dated December 3, 1985 and the
Order dated March 3, 1986 which denied plaintiffs-
appellants' Motion for Reconsideration from
aforesaid decision. A new decision is hereby
rendered sentencing defendants- appellees
Choithram Jethmal Ramnani, Nirmla V. Ramnani,
Moti C. Ramnani, and Ortigas and Company Limited
Partnership to pay, jointly and severally, plaintiffs-
appellants the following:
1. Actual or compensatory damages to the extent of
the fair market value of the properties in question
and all improvements thereon covered by Transfer
Certificate of Title No. 403150 and Transfer
Certificate of Title No. 403152 of the Registry of
Deeds of Rizal, prevailing at the time of the
satisfaction of the judgment but in no case shall
such damages be less than the value of said
properties as appraised by Asian Appraisal, Inc. in
its Appraisal Report dated August 1985 (Exhibits T
to T-14, inclusive).
2. All rental incomes paid or ought to be paid for the
use and occupancy of the properties in question and
all improvements thereon consisting of buildings,
and to be computed as follows:
a) On Building C occupied by Eppie's Creation and
Jethmal Industries from 1967 to 1973, inclusive,
based on the 1967 to 1973 monthly rentals paid by
Eppie's Creation;
b) Also on Building C above, occupied by Jethmal
Industries and Lavine from 1974 to 1978, the rental
incomes based on then rates prevailing as shown
under Exhibit "P"; and from 1979 to 1981, based on
then prevailing rates as indicated under Exhibit "Q";
c) On Building A occupied by Transworld Knitting
Mills from 1972 to 1978, the rental incomes based
upon then prevailing rates shown under Exhibit "P",
and from 1979 to 1981, based on prevailing rates
per Exhibit "Q";
d) On the two Bays Buildings occupied by Sigma-
Mariwasa from 1972 to 1978, the rentals based on
the Lease Contract, Exhibit "P", and from 1979 to
1980, the rentals based on the Lease Contract,
Exhibit "Q",
and thereafter commencing 1982, to account for and
turn over the rental incomes paid or ought to be paid
for the use and occupancy of the properties and all
improvements totalling 10,048 sq. m based on the
rate per square meter prevailing in 1981 as
indicated annually cumulative up to 1984. Then,
commencing 1985 and up to the satisfaction of the
judgment, rentals shall be computed at ten percent
(10%) annually of the fair market values of the
properties as appraised by the Asian Appraisal, Inc.
in August 1985 (Exhibits T to T-14, inclusive.)
3. Moral damages in the sum of P200,000.00;
4. Exemplary damages in the sum of P100,000.00;
5. Attorney's fees equivalent to 10% of the award
herein made;
6. Legal interest on the total amount awarded
computed from first demand in 1967 and until the
full amount is paid and satisfied; and
7. The cost of suit.
Acting on a motion for reconsideration filed by
Choithram, et al. and Ortigas, the appellate court
promulgated an amended decision on October 17,
1988 granting the motion for reconsideration of
Ortigas by affirming the dismissal of the case by the
lower court as against Ortigas but denying the
motion for reconsideration of Choithram, et al.
Choithram, et al. thereafter filed a petition for review
of said judgment of the appellate court alleging the
following grounds:
1. The Court of Appeals gravely abused its
discretion in making a factual finding not supported
by and contrary, to the evidence presented at the
Trial Court.
2. The Court of Appeals acted in excess of
jurisdiction in awarding damages based on the value
of the real properties in question where the cause of
action of private respondents is recovery of a sum of
money.
ARGUMENTS
I
THE COURT OF APPEALS ACTED IN GRAVE
ABUSE OF ITS DISCRETION IN MAKING A
FACTUAL FINDING THAT PRIVATE
RESPONDENT ISHWAR REMITTED THE
AMOUNT OF US $150,000.00 TO PETITIONER
CHOITHRAM IN THE ABSENCE OF PROOF OF
SUCH REMITTANCE.
II
THE COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION AND MANIFEST
PARTIALITY IN DISREGARDING THE TRIAL
COURTS FINDINGS BASED ON THE DIRECT
DOCUMENTARY AND TESTIMONIAL EVIDENCE
PRESENTED BY CHOITHRAM IN THE TRIAL
COURT ESTABLISHING THAT THE PROPERTIES
WERE PURCHASED WITH PERSONAL FUNDS
OF PETITIONER CHOITHRAM AND NOT WITH
MONEY ALLEGEDLY REMITTED BY
RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN EXCESS
OF JURISDICTION IN AWARDING DAMAGES
BASED ON THE VALUE OF THE PROPERTIES
AND THE FRUITS OF THE IMPROVEMENTS
THEREON.9
Similarly, spouses Ishwar filed a petition for review
of said amended decision of the appellate court
exculpating Ortigas of liability based on the following
assigned errors
I NOTIFIED OF THE NOTICE OF REVOCATION OF
THE RESPONDENT HONORABLE COURT OF
APPEALS COMMITTED GRAVE ERROR AND
HAS DECIDED A QUESTION OF SUBSTANCE
NOT IN ACCORD WITH LAW AND/OR WITH
APPLICABLE DECISIONS OF THIS HONORABLE
COURT—
A) IN PROMULGATING THE QUESTIONED
AMENDED DECISION (ANNEX "A") RELIEVING
RESPONDENT ORTIGAS FROM LIABILITY AND
DISMISSING PETITIONERS' AMENDED
COMPLAINT IN CIVIL CASE NO. 534-P, AS
AGAINST SAID RESPONDENT ORTIGAS;
B) IN HOLDING IN SAID AMENDED DECISION
THAT AT ANY RATE NO ONE EVER TESTIFIED
THAT ORTIGAS WAS A SUBSCRIBER TO THE
MANILA TIMES PUBLICATION OR THAT ANY OF
ITS OFFICERS READ THE NOTICE AS
PUBLISHED IN THE MANILA TIMES, THEREBY
ERRONEOUSLY CONCLUDING THAT FOR
RESPONDENT ORTIGAS TO BE
CONSTRUCTIVELY BOUND BY THE PUBLISHED
NOTICE OF REVOCATION, ORTIGAS AND/OR
ANY OF ITS OFFICERS MUST BE A
SUBSCRIBER AND/OR THAT ANY OF ITS
OFFICERS SHOULD READ THE NOTICE AS
ACTUALLY PUBLISHED;
C) IN HOLDING IN SAID AMENDED DECISION
THAT ORTIGAS COULD NOT BE HELD LIABLE
JOINTLY AND SEVERALLY WITH THE
DEFENDANTS-APPELLEES CHOITHRAM, MOTI
AND NIRMLA RAMNANI, AS ORTIGAS RELIED
ON THE WORD OF CHOITHRAM THAT ALL
ALONG HE WAS ACTING FOR AND IN BEHALF
OF HIS BROTHER ISHWAR WHEN IT
TRANSFERRED THE RIGHTS OF THE LATTER
TO NIRMLA V. RAMNANI;
D) IN IGNORING THE EVIDENCE DULY
PRESENTED AND ADMITTED DURING THE
TRIAL THAT ORTIGAS WAS PROPERLY
THE GENERAL POWER OF ATTORNEY GIVEN
TO CHOITHRAM, EVIDENCED BY THE
PUBLICATION IN THE MANILA TIMES ISSUE OF
APRIL 2, 1971 (EXH. F) WHICH CONSTITUTES
NOTICE TO THE WHOLE WORLD; THE RECEIPT
OF THE NOTICE OF SUCH REVOCATION WHICH
WAS SENT TO ORTIGAS ON MAY 22, 1971 BY
ATTY. MARIANO P. MARCOS AND RECEIVED BY
ORTIGAS ON MAY 24, 1971 (EXH. G) AND THE
FILING OF THE NOTICE WITH THE SECURITIES
AND EXCHANGE COMMISSION ON MARCH
29,1971 (EXH. H);
E) IN DISCARDING ITS FINDINGS CONTAINED IN
ITS DECISION OF 14 MARCH 1988 (ANNEX B)
THAT ORTIGAS WAS DULY NOTIFIED OF THE
REVOCATION OF THE POWER OF ATTORNEY
OF CHOITHRAM, HENCE ORTIGAS ACTED IN
BAD FAITH IN EXECUTING THE DEED OF SALE
TO THE PROPERTIES IN QUESTION IN FAVOR
OF NIRMLA V. RAMNANI;
F) IN SUSTAINING RESPONDENT ORTIGAS
VACUOUS REHASHED ARGUMENTS IN ITS
MOTION FOR RECONSIDERATION THAT IT
WOULD NOT GAIN ONE CENTAVO MORE FROM
CHOITHRAM FOR THE SALE OF SAID LOTS AND
THE SUBSEQUENT TRANSFER OF THE SAME
TO THE MATTER'S DAUGHTER-IN-LAW, AND
THAT IT WAS IN GOOD FAITH WHEN IT
TRANSFERRED ISHWAR'S RIGHTS TO THE
LOTS IN QUESTION.
II
THE RESPONDENT HONORABLE COURT OF
APPEALS HAS SO FAR DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE
QUESTIONED AMENDED DECISION OF 17
NOVEMBER 1988 (ANNEX A) THAT
RESPONDENT ORTIGAS & CO., LTD., IS NOT
JOINTLY AND SEVERALLY LIABLE WITH
DEFENDANTS-APPELLEES CHOITHRAM, MOTI
AND NIRMLA RAMNANI IN SPITE OF ITS
ORIGINAL DECISION OF 14 MARCH 1988 THAT
ORTIGAS WAS DULY NOTIFIED OF THE
REVOCATION OF THE POWER OF ATTORNEY
OF CHOITHRAM RAMNANI.10
The center of controversy is the testimony of Ishwar
that during the latter part of 1965, he sent the
amount of US $150,000.00 to Choithram in two
bank drafts of US$65,000.00 and US$85,000.00 for
the purpose of investing the same in real estate in
the Philippines. The trial court considered this lone
testimony unworthy of faith and credit. On the other
hand, the appellate court found that the trial court
misapprehended the facts in complete disregard of
the evidence, documentary and testimonial.
Another crucial issue is the claim of Choithram that
because he was then a British citizen, as a
temporary arrangement, he arranged the purchase
of the properties in the name of Ishwar who was an
American citizen and who was then qualified to
purchase property in the Philippines under the then
Parity Amendment. The trial court believed this
account but it was debunked by the appellate court.
As to the issue of whether or not spouses Ishwar
actually sent US$150,000.00 to Choithram precisely
to be used in the real estate business, the trial court
made the following disquisition —
After a careful, considered and conscientious
examination of the evidence adduced in the case at
bar, plaintiff Ishwar Jethmal Ramanani's main
evidence, which centers on the alleged payment by
sending through registered mail from New York two
(2) US$ drafts of $85,000.00 and $65,000.00 in the
latter part of 1965 (TSN 28 Feb. 1984, p. 10-11).
The sending of these moneys were before the
execution of that General Power of Attorney, which
was dated in New York, on January 24, 1966.
Because of these alleged remittances of US
$150,000.00 and the subsequent acquisition of the
properties in question, plaintiffs averred that they
constituted a trust in favor of defendant Choithram
Jethmal Ramnani. This Court can be in full
agreement if the plaintiffs were only able to prove
preponderantly these remittances. The entire record
of this case is bereft of even a shred of proof to that
effect. It is completely barren. His uncorroborated
testimony that he remitted these amounts in the
"later part of 1965" does not engender enough faith
and credence. Inadequacy of details of such
remittance on the two (2) US dollar drafts in such
big amounts is completely not positive, credible,
probable and entirely not in accord with human
experience. This is a classic situation, plaintiffs not
exhibiting any commercial document or any
document and/or paper as regard to these alleged
remittances. Plaintiff Ishwar Ramnani is not an
ordinary businessman in the strict sense of the
word. Remember his main business is based in New
York, and he should know better how to send these
alleged remittances. Worst, plaintiffs did not present
even a scum of proof, that defendant Choithram
Ramnani received the alleged two US dollar drafts.
Significantly, he does not know even the bank
where these two (2) US dollar drafts were
purchased. Indeed, plaintiff Ishwar Ramnani's lone
testimony is unworthy of faith and credit and,
therefore, deserves scant consideration, and since
the plaintiffs' theory is built or based on such
testimony, their cause of action collapses or falls
with it.
Further, the rate of exchange that time in 1966 was
P4.00 to $1.00. The alleged two US dollar drafts
amounted to $150,000.00 or about P600,000.00.
Assuming the cash price of the two (2) lots was only
P530,000.00 (ALTHOUGH he said: "Based on my
knowledge I have no evidence," when asked if he
even knows the cash price of the two lots). If he
were really the true and bonafide investor and
purchaser for profit as he asserted, he could have
paid the price in full in cash directly and obtained the
title in his name and not thru "Contracts To Sell" in
installments paying interest and thru an attorney-in
fact (TSN of May 2, 1984, pp. 10-11) and, again,
plaintiff Ishwar Ramnani told this Court that he does
not know whether or not his late father-in-law
borrowed the two US dollar drafts from the Swiss
Bank or whether or not his late father-in-law had any
debit memo from the Swiss Bank (TSN of May 2,
1984, pp. 9-10).
On the other hand, the appellate court, in giving
credence to the version of Ishwar, had this to say
While it is true, that generally the findings of fact of
the trial court are binding upon the appellate courts,
said rule admits of exceptions such as when (1) the
conclusion is a finding grounded entirely on
speculations, surmises and conjectures; (2) when
the inferences made is manifestly mistaken, absurd
and impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts and when the court, in
making its findings, went beyond the issues of the
case and the same are contrary to the admissions of
both appellant and appellee (Ramos vs. Court of
Appeals, 63 SCRA 33; Philippine American Life
Assurance Co. vs. Santamaria, 31 SCRA 798;
Aldaba vs. Court of Appeals, 24 SCRA 189).
The evidence on record shows that the t court acted
under a misapprehension of facts and the
inferences made on the evidence palpably a
mistake.
The trial court's observation that "the entire records
of the case is bereft of even a shred of proof" that
plaintiff-appellants have remitted to defendant-
appellee Choithram Ramnani the amount of US $
150,000.00 for investment in real estate in the
Philippines, is not borne by the evidence on record
and shows the trial court's misapprehension of the
facts if not a complete disregard of the evidence,
both documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani testifying
in his own behalf, declared that during the latter part
of 1965, he sent the amount of US $150,000.00 to
his brother Choithram in two bank drafts of US
$65,000.00 and US $85,000.00 for the purpose of
investing the same in real estate in the Philippines.
His testimony is as follows:
ATTY. MARAPAO:
Mr. Witness, you said that your attorney-in-fact paid
in your behalf. Can you tell this Honorable Court
where your attorney-in-fact got the money to pay
this property?
ATTY. CRUZ:
Wait. It is now clear it becomes incompetent or
hearsay.
COURT:
Witness can answer.
A I paid through my attorney-in-fact. I am the one
who gave him the money.
ATTY. MARAPAO: A Yes, the first building was immediately put up after
the purchase of the two parcels of land that was in
Q You gave him the money? 1966 and the finds were used for the construction of
the building from the US $150,000.00 (TSN, 7
A That's right. March 1984, page 14; Emphasis supplied.)
Q How much money did you give him? xxx xxx xxx
A US $ 150,000.00. Q These two bank drafts which you mentioned and
the use for it you sent them by registered mail, did
Q How was it given then? you send them from New Your?
A Through Bank drafts. US $65,000.00 and US A That is right.
$85,000.00 bank drafts. The total amount which is $
150,000.00 (TSN, 28 February 1984, p. 10; Q And the two bank drafts which were put in the
Emphasis supplied.) registered mail, the registered mail was addressed
to whom?
xxx xxx xxx
A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-
ATTY. CRUZ: 15).
Q The two bank drafts which you sent I assume you On cross-examination, the witness reiterated the
bought that from some banks in New York? remittance of the money to his brother Choithram,
which was sent to him by his father-in-law,
A No, sir. Rochiram L. Mulchandoni from Switzerland, a man
of immense wealth, which even defendants-
Q But there is no question those two bank drafts appellees' witness Navalrai Ramnani admits to be
were for the purpose of paying down payment and so (tsn., p. 16, S. Oct. 13, 1985). Thus, on cross-
installment of the two parcels of land? examination, Ishwar testified as follows:
A Down payment, installment and to put up the Q How did you receive these two bank drafts from
building. the bank the name of which you cannot remember?
Q I thought you said that the buildings were A I got it from my father-in-law.
constructed . . . subject to our continuing objection
from rentals of first building? Q From where did your father- in-law sent these two
bank drafts?
ATTY. MARAPAO:
A From Switzerland.
Your Honor, that is misleading.
Q He was in Switzerland.
COURT;
Witness (may) answer. A Probably, they sent out these two drafts from
Switzerland.
(TSN, 7 March 1984, pp. 16-17; Emphasis
supplied.)
This positive and affirmative testimony of plaintiff-
appellant that he sent the two (2) bank drafts
totalling US $ 150,000.00 to his brother, is proof of
said remittance. Such positive testimony has greater
probative force than defendant-appellee's denial of
receipt of said bank drafts, for a witness who
testifies affirmatively that something did happen
should be believed for it is unlikely that a witness will
remember what never happened (Underhill's Cr.
Guidance, 5th Ed., Vol. 1, pp. 10-11).
That is not all. Shortly thereafter, plaintiff-appellant
Ishwar Ramnani executed a General Power of
Attorney (Exhibit "A") dated January 24, 1966
appointing his brothers, defendants-appellees
Navalrai and Choithram as attorney-in-fact
empowering the latter to conduct and manage
plaintiffs-appellants' business affairs in the
Philippines and specifically—
No. 14. To acquire, purchase for us, real estates
and improvements for the purpose of real estate
business anywhere in the Philippines and to
develop, subdivide, improve and to resell to buying
public (individual, firm or corporation); to enter in
any contract of sale in oar behalf and to enter
mortgages between the vendees and the herein
grantors that may be needed to finance the real
estate business being undertaken.
Pursuant thereto, on February 1, 1966 and May 16,
1966, Choithram Jethmal Ramnani entered into
Agreements (Exhibits "B' and "C") with the other
defendant. Ortigas and Company, Ltd., for the
purchase of two (2) parcels of land situated at Barrio
Ugong, Pasig, Rizal, with said defendant-appellee
signing the Agreements in his capacity as Attorney-
in-fact of Ishwar Jethmal Ramnani.
Again, on January 5, 1972, almost seven (7) years
after Ishwar sent the US $ 150,000.00 in 1965,
Choithram Ramnani, as attorney-in fact of Ishwar
entered into a Contract of Lease with Sigma-
Mariwasa (Exhibit "P") thereby re-affirming the
ownership of Ishwar over the disputed property and
the trust relationship between the latter as principal
and Choithram as attorney-in-fact of Ishwar.
All of these facts indicate that if plaintiff-appellant
Ishwar had not earlier sent the US $ 150,000.00 to
his brother, Choithram, there would be no purpose
for him to execute a power of attorney appointing his
brothers as s attorney-in-fact in buying real estate in
the Philippines.
As against Choithram's denial that he did not
receive the US $150,000.00 remitted by Ishwar and
that the Power of Attorney, as well as the
Agreements entered into with Ortigas & Co., were
only temporary arrangements, Ishwar's testimony
that he did send the bank drafts to Choithram and
was received by the latter, is the more credible
version since it is natural, reasonable and probable.
It is in accord with the common experience,
knowledge and observation of ordinary men
(Gardner vs. Wentors 18 Iowa 533). And in
determining where the superior weight of the
evidence on the issues involved lies, the court may
consider the probability or improbability of the
testimony of the witness (Sec. 1, Rule 133, Rules of
Court).
Contrary, therefore, to the trial court's sweeping
observation that 'the entire records of the case is
bereft of even a shred of proof that Choithram
received the alleged bank drafts amounting to US $
150,000.00, we have not only testimonial evidence
but also documentary and circumstantial evidence
proving said remittance of the money and the
fiduciary relationship between the former and
Ishwar.
The Court agrees. The environmental
circumstances of this case buttress the claim of
Ishwar that he did entrust the amount of US $
150,000.00 to his brother, Choithram, which the
latter invested in the real property business subject
of this litigation in his capacity as attorney-in-fact of
Ishwar.
True it is that there is no receipt whatever in the
possession of Ishwar to evidence the same, but it is
not unusual among brothers and close family
members to entrust money and valuables to each
other without any formalities or receipt due to the
special relationship of trust between them.
And another proof thereof is the fact that Ishwar, out
of frustration when Choithram failed to account for
the realty business despite his demands, revoked
the general power of attorney he extended to
Choithram and Navalrai. Thereafter, Choithram
wrote a letter to Ishwar pleading that the power of
attorney be renewed or another authority to the
same effect be extended, which reads as follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty. immediately, because the
case has been postponed for two weeks. The same
way as it has been send before in favor of both
names. Send it immediately otherwise everything
will be lost unnecessarily, and then it will take us in
litigation. Now that we have gone ahead with a case
and would like to end it immediately otherwise
squatters will take the entire land. Therefore, send it
immediately.
(2) Ortigas also has sued us because we are
holding the installments, because they have refused
to give a rebate of P5.00 per meter which they have
to give us as per contract. They have filed the law
suit that since we have not paid the installment they
should get back the land. The hearing of this case is
in the month of July. Therefore, please send the
power immediately. In one case DADA (Elder
Brother) will represent and in another one, I shall.
(3) In case if you do not want to give power then
make one letter in favor of Dada and the other one
in my favor showing that in any litigation we can
represent you and your wife, and whatever the court
decide it will be acceptable by me. You can ask any
lawyer, he will be able to prepare these letters. After
that you can have these letters ratify before P.I.
Consulate. It should be dated April 15, 1971.
(4) Try to send the power because it will be more
useful. Make it in any manner whatever way you
have confident in it. But please send it immediately.
You have cancelled the power. Therefore, you have
lost your reputation everywhere. What can I further
write you about it. I have told everybody that due to
certain reasons I have written you to do this that is
why you have done this. This way your reputation
have been kept intact. Otherwise if I want to do
something about it, I can show you that inspite of
the power you have cancelled you can not do
anything. You can keep this letter because my
conscience is clear. I do not have anything in my
mind.
I should not be writing you this, but because my
conscience is clear do you know that if I had
predated papers what could you have done? Or do
you know that I have many paper signed by you and
if had done anything or do then what can you do
about it? It is not necessary to write further about
this. It does not matter if you have cancelled the
power. At that time if I had predated and done
something about it what could you have done? You
do not know me. I am not after money. I can earn
money anytime. It has been ten months since I have
not received a single penny for expenses from Dada
(elder brother). Why there are no expenses? We
can not draw a single penny from knitting (factory).
Well I am not going to write you further, nor there is
any need for it. This much I am writing you because
of the way you have conducted yourself. But
remember, whenever I hale the money I will not
keep it myself Right now I have not got anything at
all.

I am not going to write any further.
Keep your business clean with Naru. Otherwise he
will discontinue because he likes to keep his
business very clean.
The said letter was in Sindhi language. It was
translated to English by the First Secretary of the
Embassy of Pakistan, which translation was verified
correct by the Chairman, Department of Sindhi,
University of Karachi.
From the foregoing letter what could be gleaned is
that—
1. Choithram asked for the issuance of another
power of attorney in their favor so they can continue
to represent Ishwar as Ortigas has sued them for
unpaid installments. It also appears therefrom that
Ortigas learned of the revocation of the power of
attorney so the request to issue another.
2. Choithram reassured Ishwar to have confidence
in him as he was not after money, and that he was
not interested in Ishwar's money.
3. To demonstrate that he can be relied upon, he
said that he could have ante-dated the sales
agreement of the Ortigas lots before the issuance of
the powers of attorney and acquired the same in his
name, if he wanted to, but he did not do so.
4. He said he had not received a single penny for
expenses from Dada (their elder brother Navalrai).
Thus, confirming that if he was not given money by
Ishwar to buy the Ortigas lots, he could not have
consummated the sale.
5. It is important to note that in said letter Choithram
never claimed ownership of the property in question.
He affirmed the fact that he bought the same as
mere agent and in behalf of Ishwar. Neither did he
mention the alleged temporary arrangement
whereby Ishwar, being an American citizen, shall
appear to be the buyer of the said property, but that
after Choithram acquires Philippine citizenship, its
ownership shall be transferred to Choithram.
This brings us to this temporary arrangement theory
of Choithram.
The appellate court disposed of this matter in this
wise
Choithram's claim that he purchased the two parcels
of land for himself in 1966 but placed it in the name
of his younger brother, Ishwar, who is an American
citizen, as a temporary arrangement,' because as a
British subject he is disqualified under the 1935
Constitution to acquire real property in the
Philippines, which is not so with respect to American
citizens in view of the Ordinance Appended to the
Constitution granting them parity rights, there is
nothing in the records showing that Ishwar ever
agreed to such a temporary arrangement.
During the entire period from 1965, when the US $
150,000. 00 was transmitted to Choithram, and until
Ishwar filed a complaint against him in 1982, or over
16 years, Choithram never mentioned of a
temporary arrangement nor can he present any
memorandum or writing evidencing such temporary
arrangement, prompting plaintiff-appellant to
observe:
The properties in question which are located in a
prime industrial site in Ugong, Pasig, Metro Manila
have a present fair market value of no less than
P22,364,000.00 (Exhibits T to T-14, inclusive), and
yet for such valuable pieces of property, Choithram
who now belatedly that he purchased the same for
himself did not document in writing or in a
memorandum the alleged temporary arrangement
with Ishwar' (pp. 4-41, Appellant's Brief).
Such verbal allegation of a temporary arrangement
is simply improbable and inconsistent. It has
repeatedly been held that important contracts made
without evidence are highly improbable.
The improbability of such temporary arrangement is
brought to fore when we consider that Choithram
has a son (Haresh Jethmal Ramnani) who is an
American citizen under whose name the properties
in question could be registered, both during the time
the contracts to sell were executed and at the time
absolute title over the same was to be delivered. At
the time the Agreements were entered into with
defendant Ortigas & Co. in 1966, Haresh, was
already 18 years old and consequently, Choithram
could have executed the deeds in trust for his minor
son. But, he did not do this. Three (3) years,
thereafter, or in 1968 after Haresh had attained the
age of 21, Choithram should have terminated the
temporary arrangement with Ishwar, which
according to him would be effective only pending the
acquisition of citizenship papers. Again, he did not
do anything.
Evidence to be believed, said Vice Chancellor Van
Fleet of New Jersey, must not only proceed from the
mouth of a credible witness, but it must be credible
in itself—such as the common experience and
observation of mankind can approve as probable
under the circumstances. We have no test of the
truth of human testimony, except its conformity to
our knowledge, observation and experience.
Whatever is repugnant to these belongs to the
miraculous and is outside of judicial cognizance.
(Daggers vs. Van Dyek 37 M.J. Eq. 130, 132).
Another factor that can be counted against the
temporary arrangement excuse is that upon the
revocation on February 4, 1971 of the Power of
attorney dated January 24, 1966 in favor of Navalrai
and Choithram by Ishwar, Choithram wrote (tsn, p.
21, S. July 19, 1985) a letter dated June 25, 1971
(Exhibits R, R-1, R-2 and R-3) imploring Ishwar to
execute a new power of attorney in their favor. That
if he did not want to give power, then Ishwar could
make a letter in favor of Dada and another in his
favor so that in any litigation involving the properties
in question, both of them could represent Ishwar
and his wife. Choithram tried to convince Ishwar to
issue the power of attorney in whatever manner he
may want. In said letter no mention was made at all
of any temporary arrangement.
On the contrary, said letter recognize(s) the
existence of principal and attorney-in-fact
relationship between Ishwar and himself. Choithram
wrote: . . . do you know that if I had predated papers
what could you have done? Or do you know that I
have many papers signed by you and if I had done
anything or do then what can you do about it?'
Choithram was saying that he could have
repudiated the trust and ran away with the
properties of Ishwar by predating documents and
Ishwar would be entirely helpless. He was bitter as a
result of Ishwar's revocation of the power of attorney
but no mention was made of any temporary
arrangement or a claim of ownership over the
properties in question nor was he able to present
any memorandum or document to prove the
existence of such temporary arrangement.
Choithram is also estopped in pais or by deed from
claiming an interest over the properties in question
adverse to that of Ishwar. Section 3(a) of Rule 131
of the Rules of Court states that whenever a party
has, by his own declaration, act, or omission
intentionally and deliberately led another to believe
a particular thing true and act upon such belief, he
cannot in any litigation arising out of such
declaration, act or omission be permitted to falsify it.'
While estoppel by deed is a bar which precludes a
party to a deed and his privies from asserting as
against the other and his privies any right of title in
derogation of the deed, or from denying the truth of
any material fact asserted in it (31 C.J.S. 195; 19
Am. Jur. 603).
Thus, defendants-appellees are not permitted to
repudiate their admissions and representations or to
assert any right or title in derogation of the deeds or
from denying the truth of any material fact asserted
in the (1) power of attorney dated January 24, 1966
(Exhibit A); (2) the Agreements of February 1, 1966
and May 16, 1966 (Exhibits B and C); and (3) the
Contract of Lease dated January 5, 1972 (Exhibit
P).
. . . The doctrine of estoppel is based upon the
grounds of public policy, fair dealing, good faith and
justice, and its purpose is to forbid one to speak
against his own act, representations, or
commitments to the injury of one to whom they were
directed and who reasonably relied thereon. The
doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed
to aid the law in the administration of justice where
without its aid injustice might result. It has been
applied by court wherever and whenever special
circumstances of a case so demands' (Philippine
National Bank vs. Court of Appeals, 94 SCRA 357,
368 [1979]).
It was only after the services of counsel has been
obtained that Choithram alleged for the first time in
his Answer that the General Power of attorney
(Annex A) with the Contracts to Sell (Annexes B and
C) were made only for the sole purpose of assuring
defendants' acquisition and ownership of the lots
described thereon in due time under the law; that
said instruments do not reflect the true intention of
the parties (par. 2, Answer dated May 30, 1983),
seventeen (17) long years from the time he received
the money transmitted to him by his brother, Ishwar.
Moreover, Choithram's 'temporary arrangement,' by
which he claimed purchasing the two (2) parcels in
question in 1966 and placing them in the name of
Ishwar who is an American citizen, to circumvent the
disqualification provision of aliens acquiring real
properties in the Philippines under the 1935
Philippine Constitution, as Choithram was then a
British subject, show a palpable disregard of the law
of the land and to sustain the supposed "temporary
arrangement" with Ishwar would be sanctioning the
perpetration of an illegal act and culpable violation
of the Constitution.
Defendants-appellees likewise violated the Anti-
Dummy Law (Commonwealth Act 108, as
amended), which provides in Section 1 thereof that:
In all cases in which any constitutional or legal
provision requires Philippine or any other specific
citizenship as a requisite for the exercise or
enjoyment of a right, franchise or privilege, . . . any
alien or foreigner profiting thereby, shall be
punished . . . by imprisonment . . . and of a fine of
not less than the value of the right, franchise or
privileges, which is enjoyed or acquired in violation
of the provisions hereof . . .
Having come to court with unclean hands,
Choithram must not be permitted foist his 'temporary
arrangement' scheme as a defense before this
court. Being in delicto, he does not have any right
whatsoever being shielded from his own wrong-
doing, which is not so with respect to Ishwar, who
was not a party to such an arrangement.
The falsity of Choithram's defense is further
aggravated by the material inconsistencies and
contradictions in his testimony. While on January
23, 1985 he testified that he purchased the land in
question on his own behalf (tsn, p. 4, S. Jan. 23,
1985), in the July 18, 1985 hearing, forgetting
probably what he stated before, Choithram testified
that he was only an attorney-in-fact of Ishwar (tsn, p.
5, S. July 18, 1985). Also in the hearing of January
23, 1985, Choithram declared that nobody rented
the building that was constructed on the parcels of
land in question (tsn, pp. 5 and 6), only to admit in
the hearing of October 30, 1985, that he was in fact
renting the building for P12,000. 00 per annum (tsn,
p. 3). Again, in the hearing of July 19, 1985,
Choithram testified that he had no knowledge of the
revocation of the Power of Attorney (tsn, pp. 20- 21),
only to backtrack when confronted with the letter of
June 25, 1971 (Exhibits R to R-3), which he
admitted to be in "his own writing," indicating
knowledge of the revocation of the Power of
Attorney.
These inconsistencies are not minor but go into the
entire credibility of the testimony of Choithram and
the rule is that contradictions on a very crucial point
by a witness, renders s testimony incredible People
vs. Rafallo, 80 Phil. 22). Not only this the doctrine of
falsus in uno, falsus in omnibus is fully applicable as
far as the testimony of Choithram is concerned. The
cardinal rule, which has served in all ages, and has
been applied to all conditions of men, is that a
witness willfully falsifying the truth in one particular,
when upon oath, ought never to be believed upon
the strength of his own testimony, whatever he may
assert (U.S. vs. Osgood 27 Feb. Case No. 15971-a,
p. 364); Gonzales vs. Mauricio, 52 Phil, 728), for
what ground of judicial relief can there be left when
the party has shown such gross insensibility to the
difference between right and wrong, between truth
and falsehood? (The Santisima Trinidad, 7 Wheat,
283, 5 U.S. [L. ed.] 454).
True, that Choithram's testimony finds corroboration
from the testimony of his brother, Navalrai, but the
same would not be of much help to Choithram. Not
only is Navalrai an interested and biased witness,
having admitted his close relationship with
Choithram and that whenever he or Choithram had
problems, they ran to each other (tsn, pp. 17-18, S.
Sept. 20, 1985), Navalrai has a pecuniary interest in
the success of Choithram in the case in question.
Both he and Choithram are business partners in
Jethmal and Sons and/or Jethmal Industries,
wherein he owns 60% of the company and
Choithram, 40% (p. 62, Appellant's Brief). Since the
acquisition of the properties in question in 1966,
Navalrai was occupying 1,200 square meters
thereof as a factory site plus the fact that his son
(Navalrais) was occupying the apartment on top of
the factory with his family rent free except the
amount of P l,000.00 a month to pay for taxes on
said properties (tsn, p. 17, S. Oct. 3, 1985).
Inherent contradictions also marked Navalrai
testimony. "While the latter was very meticulous in
keeping a receipt for the P 10,000.00 that he paid
Ishwar as settlement in Jethmal Industries, yet in the
alleged payment of P 100,000.00 to Ishwar, no
receipt or voucher was ever issued by him (tsn, p.
17, S. Oct. 3, 1983).15
We concur.
The foregoing findings of facts of the Court of
Appeals which are supported by the evidence is
conclusive on this Court. The Court finds that Ishwar
entrusted US$150,000.00 to Choithram in 1965 for
investment in the realty business. Soon thereafter, a
general power of attorney was executed by Ishwar
in favor of both Navalrai and Choithram. If it is true
that the purpose only is to enable Choithram to
purchase realty temporarily in the name of Ishwar,
why the inclusion of their elder brother Navalrai as
an attorney-in-fact?
Then, acting as attorney-in-fact of Ishwar,
Choithram purchased two parcels of land located in
Barrio Ugong Pasig, Rizal, from Ortigas in 1966.
With the balance of the money of Ishwar, Choithram
erected a building on said lot. Subsequently, with a
loan obtained from a bank and the income of the
said property, Choithram constructed three other
buildings thereon. He managed the business and
collected the rentals. Due to their relationship of
confidence it was only in 1970 when Ishwar
demanded for an accounting from Choithram. And
even as Ishwar revoked the general power of
attorney on February 4, 1971, of which Choithram
was duly notified, Choithram wrote to Ishwar on
June 25, 1971 requesting that he execute a new
power of attorney in their favor.16 When Ishwar did
not respond thereto, Choithram nevertheless
proceeded as such attorney-in-fact to assign all the
rights and interest of Ishwar to his daughter-in-law
Nirmla in 1973 without the knowledge and consent
of Ishwar. Ortigas in turn executed the
corresponding deeds of sale in favor of Nirmla after
full payment of the purchase accomplice of the lots.
In the prefatory statement of their petition,
Choithram pictured Ishwar to be so motivated by
greed and ungratefulness, who squandered the
family business in New York, who had to turn to his
wife for support, accustomed to living in ostentation
and who resorted to blackmail in filing several
criminal and civil suits against them. These
statements find no support and should be stricken
from the records. Indeed, they are irrelevant to the
proceeding.
Moreover, assuming Ishwar is of such a low
character as Choithram proposes to make this Court
to believe, why is it that of all persons, under his
temporary arrangement theory, Choithram opted to
entrust the purchase of valuable real estate and built
four buildings thereon all in the name of Ishwar? Is it
not an unconscious emergence of the truth that this
otherwise wayward brother of theirs was on the
contrary able to raise enough capital through the
generosity of his father-in-law for the purchase of
the very properties in question? As the appellate
court aptly observed if truly this temporary
arrangement story is the only motivation, why
Ishwar of all people? Why not the own son of
Choithram, Haresh who is also an American citizen
and who was already 18 years old at the time of
purchase in 1966? The Court agrees with the
observation that this theory is an afterthought which
surfaced only when Choithram, Nirmla and Moti filed
their answer.
When Ishwar asked for an accounting in 1970 and
revoked the general power of attorney in 1971,
Choithram had a total change of heart. He decided
to claim the property as his. He caused the transfer
of the rights and interest of Ishwar to Nirmla. On his
representation, Ortigas executed the deeds of sale
of the properties in favor of Nirmla. Choithram
obviously surmised Ishwar cannot stake a valid
claim over the property by so doing.
Clearly, this transfer to Nirmla is fictitious and, as
admitted by Choithram, was intended only to place
the property in her name until Choithram acquires
Philippine citizenship.17 What appears certain is
that it appears to be a scheme of Choithram to place
the property beyond the reach of Ishwar should he
successfully claim the same. Thus, it must be struck
down.

Worse still, on September 27, 1990 spouses Ishwar
filed an urgent motion for the issuance of a writ of
preliminary attachment and to require Choithram, et
al. to submit certain documents, inviting the
attention of this Court to the following:
a) Donation by Choithram of his 2,500 shares of
stock in General Garments Corporation in favor of
his children on December 29, 1989;18
b) Sale on August 2, 1990 by Choithram of his 100
shares in Biflex (Phils.), Inc., in favor of his
children;19 and
c) Mortgage on June 20, 1989 by Nirmla through her
attorney-in-fact, Choithram, of the properties subject
of this litigation, for the amount of $3 Million in favor
of Overseas Holding, Co. Ltd., (Overseas for
brevity), a corporation which appears to be
organized and existing under and by virtue of the
laws of Cayman Islands, with a capital of only
$100.00 divided into 100 shares of $1.00 each, and
with address at P.O. Box 1790, Grand Cayman,
Cayman Islands.20
An opposition thereto was filed by Choithram, et al.
but no documents were produced. A manifestation
and reply to the opposition was filed by spouses
Ishwar.
All these acts of Choithram, et al. appear to be
fraudulent attempts to remove these properties to
the detriment of spouses Ishwar should the latter
prevail in this litigation.
On December 10, 1990 the court issued a resolution
that substantially reads as follows:
Considering the allegations of petitioners Ishwar
Jethmal Ramnani and Sonya Ramnani that
respondents Choithram Jethmal Ramnani, Nirmla
Ramnani and Moti G. Ramnani have fraudulently
executed a simulated mortgage of the properties
subject of this litigation dated June 20, 1989, in
favor of Overseas Holding Co., Ltd. which appears
to be a corporation organized in Cayman Islands, for
the amount of $ 3,000,000.00, which is much more
than the value of the properties in litigation; that said
alleged mortgagee appears to be a "shell"
corporation with a capital of only $100.00; and that
this alleged transaction appears to be intended to
defraud petitioners Ishwar and Sonya Jethmal
Ramnani of any favorable judgment that this Court
may render in this case;
Wherefore the Court Resolved to issue a writ of
preliminary injunction enjoining and prohibiting said
respondents Choithram Jethmal Ramnani, Nirmla V.
Ramnani, Moti G. Ramnani and the Overseas
Holding Co., Ltd. from encumbering, selling or
otherwise disposing of the properties and
improvements subject of this litigation until further
orders of the Court. Petitioners Ishwar and Sonya
Jethmal Ramnani are hereby required to post a
bond of P 100,000.00 to answer for any damages d
respondents may suffer by way of this injunction if
the Court finally decides the said petitioners are not
entitled thereto.
The Overseas Holding Co., Ltd. with address at
P.O. Box 1790 Grand Cayman, Cayman Islands, is
hereby IMPLEADED as a respondent in these
cases, and is hereby required to SUBMIT its
comment on the Urgent Motion for the Issuance of a
Writ of Preliminary Attachment and Motion for
Production of Documents, the Manifestation and the
Reply to the Opposition filed by said petitioners,
within Sixty (60) days after service by publication on
it in accordance with the provisions of Section 17,
Rule 14 of the Rules of Court, at the expense of
petitioners Ishwar and Sonya Jethmal Ramnani.
Let copies of this resolution be served on the
Register of Deeds of Pasig, Rizal, and the Provincial
Assessor of Pasig, Rizal, both in Metro Manila, for
its annotation on the transfer Certificates of Titles
Nos. 403150 and 403152 registered in the name of
respondent Nirmla V. Ramnani, and on the tax
declarations of the said properties and its
improvements subject of this litigation.
The required injunction bond in the amount of P
100,000.00 was filed by the spouses Ishwar which
was approved by the Court. The above resolution of
the Court was published in the Manila Bulletin issue
of December 17, 1990 at the expense of said
spouses.22 On December 19, 1990 the said
resolution and petition for review with annexes in
G.R. Nos. 85494 and 85496 were transmitted to
respondent Overseas, Grand Cayman Islands at its
address c/o Cayman Overseas Trust Co. Ltd.,
through the United Parcel Services Bill of Lading23
and it was actually delivered to said company on
January 23, 1991.
On January 22, 1991, Choithram, et al., filed a
motion to dissolve the writ of preliminary injunction
alleging that there is no basis therefor as in the
amended complaint what is sought is actual
damages and not a reconveyance of the property,
that there is no reason for its issuance, and that acts
already executed cannot be enjoined. They also
offered to file a counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses
Ishwar that there is basis for the injunction as the
alleged mortgage of the property is simulated and
the other donations of the shares of Choithram to
his children are fraudulent schemes to negate any
judgment the Court may render for petitioners.
No comment or answer was filed by Overseas
despite due notice, thus it is and must be
considered to be in default and to have lost the right
to contest the representations of spouses Ishwar to
declare the aforesaid alleged mortgage nun and
void.
This purported mortgage of the subject properties in
litigation appears to be fraudulent and simulated.
The stated amount of $3 Million for which it was
mortgaged is much more than the value of the
mortgaged properties and its improvements. The
alleged mortgagee-company (Overseas) was
organized only on June 26,1989 but the mortgage
was executed much earlier, on June 20, 1989, that
is six (6) days before Overseas was organized.
Overseas is a "shelf" company worth only
$100.00.25 In the manifestation of spouses Ishwar
dated April 1, 1991, the Court was informed that this
matter was brought to the attention of the Central
Bank (CB) for investigation, and that in a letter of
March 20, 1991, the CB informed counsel for
spouses Ishwar that said alleged foreign loan of
Choithram, et al. from Overseas has not been
previously approved/registered with the CB.26
Obviously, this is another ploy of Choithram, et al. to
place these properties beyond the reach of spouses
Ishwar should they obtain a favorable judgment in
this case. The Court finds and so declares that this
alleged mortgage should be as it is hereby declared
null and void.
All these contemporaneous and subsequent acts of
Choithram, et al., betray the weakness of their
cause so they had to take an steps, even as the
case was already pending in Court, to render
ineffective any judgment that may be rendered
against them.
The problem is compounded in that respondent
Ortigas is caught in the web of this bitter fight. It had
all the time been dealing with Choithram as
attorney-in-fact of Ishwar. However, evidence had
been adduced that notice in writing had been served
not only on Choithram, but also on Ortigas, of the
revocation of Choithram's power of attorney by
Ishwar's lawyer, on May 24, 1971.27 A publication
of said notice was made in the April 2, 1971 issue of
The Manila Times for the information of the general
public.28 Such notice of revocation in a newspaper
of general circulation is sufficient warning to third
persons including Ortigas.29 A notice of revocation
was also registered with the Securities and
Exchange Commission on March 29, 1 971.30
Indeed in the letter of Choithram to Ishwar of June
25, 1971, Choithram was pleading that Ishwar
execute another power of attorney to be shown to
Ortigas who apparently learned of the revocation of
Choithram's power of attorney.31 Despite said
notices, Ortigas nevertheless acceded to the
representation of Choithram, as alleged attorney-in-
fact of Ishwar, to assign the rights of petitioner
Ishwar to Nirmla. While the primary blame should be
laid at the doorstep of Choithram, Ortigas is not
entirely without fault. It should have required
Choithram to secure another power of attorney from
Ishwar. For recklessly believing the pretension of
Choithram that his power of attorney was still good,
it must, therefore, share in the latter's liability to
Ishwar.
In the original complaint, the spouses Ishwar asked
for a reconveyance of the properties and/or payment
of its present value and damages.32 In the
amended complaint they asked, among others, for
actual damages of not less than the present value of
the real properties in litigation, moral and exemplary
damages, attorneys fees, costs of the suit and
further prayed for "such other reliefs as may be
deemed just and equitable in the premises .33 The
amended complaint contain the following positive
allegations:
7. Defendant Choithram Ramnani, in evident bad
faith and despite due notice of the revocation of the
General Power of Attorney, Annex 'D" hereof,
caused the transfer of the rights over the said
parcels of land to his daughter-in-law, defendant
Nirmla Ramnani in connivance with defendant
Ortigas & Co., the latter having agreed to the said
transfer despite receiving a letter from plaintiffs'
lawyer informing them of the said revocation; copy
of the letter is hereto attached and made an integral
part hereof as Annex "H";
8. Defendant Nirmla Ramnani having acquired the
aforesaid property by fraud is, by force of law,
considered a trustee of an implied trust for the
benefit of plaintiff and is obliged to return the same
to the latter:
9. Several efforts were made to settle the matter
within the family but defendants (Choithram
Ramnani, Nirmla Ramnani and Moti Ramnani)
refused and up to now fail and still refuse to
cooperate and respond to the same; thus, the
present case;
10. In addition to having been deprived of their
rights over the properties (described in par. 3
hereof), plaintiffs, by reason of defendants'
fraudulent act, suffered actual damages by way of
lost rental on the property which defendants
(Choithram Ramnani, Nirmla Ramnani and Moti
Ramnani have collected for themselves;34
In said amended complaint, spouses Ishwar, among
others, pray for payment of actual damages in an
amount no less than the value of the properties in
litigation instead of a reconveyance as sought in the
original complaint. Apparently they opted not to
insist on a reconveyance as they are American
citizens as alleged in the amended complaint.
The allegations of the amended complaint above
reproduced clearly spelled out that the transfer of
the property to Nirmla was fraudulent and that it
should be considered to be held in trust by Nirmla
for spouses Ishwar. As above-discussed, this
allegation is well-taken and the transfer of the
property to Nirmla should be considered to have
created an implied trust by Nirmla as trustee of the
property for the benefit of spouses Ishwar.35
The motion to dissolve the writ of preliminary
injunction filed by Choithram, et al. should be
denied. Its issuance by this Court is proper and
warranted under the circumstances of the case.
Under Section 3(c) Rule 58 of the Rules of Court, a
writ of preliminary injunction may be granted at any
time after commencement of the action and before
judgment when it is established:
(c) that the defendant is doing, threatens, or is about
to do, or is procuring or suffering to be done, some
act probably in violation of plaintiffs's rights
respecting the subject of the action, and tending to
render the judgment ineffectual.
As above extensively discussed, Choithram, et al.
have committed and threaten to commit further acts
of disposition of the properties in litigation as well as
the other assets of Choithram, apparently designed
to render ineffective any judgment the Court may
render favorable to spouses Ishwar.
The purpose of the provisional remedy of
preliminary injunction is to preserve the status quo
of the things subject of the litigation and to protect
the rights of the spouses Ishwar respecting the
subject of the action during the pendency of the
Suit36 and not to obstruct the administration of
justice or prejudice the adverse party.37 In this case
for damages, should Choithram, et al. continue to
commit acts of disposition of the properties subject
of the litigation, an award of damages to spouses
Ishwar would thereby be rendered ineffectual and
meaningless.
Consequently, if only to protect the interest of
spouses Ishwar, the Court hereby finds and holds
that the motion for the issuance of a writ of
preliminary attachment filed by spouses Ishwar
should be granted covering the properties subject of
this litigation.
Section 1, Rule 57 of the Rules of Court provides
that at the commencement of an action or at any
time thereafter, the plaintiff or any proper party may
have the property of the adverse party attached as
security for the satisfaction of any judgment that
may be recovered, in, among others, the following
cases:
(d) In an action against a party who has been guilty
of a fraud in contracting the debt or incurring the
obligation upon which the action is brought, or in
concealing or disposing of the property for the
taking, detention or conversion of which the action is
brought;
(e) In an action against a party who has removed or
disposed of his property, or is about to do so, with
intent to defraud his creditors; . . .
Verily, the acts of Choithram, et al. of disposing the
properties subject of the litigation disclose a scheme
to defraud spouses Ishwar so they may not be able
to recover at all given a judgment in their favor, the
requiring the issuance of the writ of attachment in
this instance.
Nevertheless, under the peculiar circumstances of
this case and despite the fact that Choithram, et al.,
have committed acts which demonstrate their bad
faith and scheme to defraud spouses Ishwar and
Sonya of their rightful share in the properties in
litigation, the Court cannot ignore the fact that
Choithram must have been motivated by a strong
conviction that as the industrial partner in the
acquisition of said assets he has as much claim to
said properties as Ishwar, the capitalist partner in
the joint venture.
The scenario is clear. Spouses Ishwar supplied the
capital of $150,000.00 for the business.1âwphi1
They entrusted the money to Choithram to invest in
a profitable business venture in the Philippines. For
this purpose they appointed Choithram as their
attorney-in-fact.
Choithram in turn decided to invest in the real estate
business. He bought the two (2) parcels of land in
question from Ortigas as attorney-in-fact of Ishwar-
Instead of paying for the lots in cash, he paid in
installments and used the balance of the capital
entrusted to him, plus a loan, to build two buildings.
Although the buildings were burned later, Choithram
was able to build two other buildings on the
property. He rented them out and collected the
rentals. Through the industry and genius of
Choithram, Ishwar's property was developed and
improved into what it is now—a valuable asset worth
millions of pesos. As of the last estimate in 1985,
while the case was pending before the trial court,
the market value of the properties is no less than
P22,304,000.00.39 It should be worth much more
today.
We have a situation where two brothers engaged in
a business venture. One furnished the capital, the
other contributed his industry and talent. Justice and
equity dictate that the two share equally the fruit of
their joint investment and efforts. Perhaps this
Solomonic solution may pave the way towards their
reconciliation. Both would stand to gain. No one
would end up the loser. After all, blood is thicker
than water.
However, the Court cannot just close its eyes to the
devious machinations and schemes that Choithram
employed in attempting to dispose of, if not
dissipate, the properties to deprive spouses Ishwar
of any possible means to recover any award the
Court may grant in their favor. Since Choithram, et
al. acted with evident bad faith and malice, they
should pay moral and exemplary damages as well
as attorney's fees to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is
DENIED, while the petition in G.R. No. 85496 is
hereby given due course and GRANTED. The
judgment of the Court of Appeals dated October 18,
1988 is hereby modified as follows:
1. Dividing equally between respondents spouses
Ishwar, on the one hand, and petitioner Choithram
Ramnani, on the other, (in G.R. No. 85494) the two
parcels of land subject of this litigation, including all
the improvements thereon, presently covered by
transfer Certificates of Title Nos. 403150 and
403152 of the Registry of Deeds, as well as the
rental income of the property from 1967 to the
present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V.
Ramnani, Moti C. Ramnani and respondent Ortigas
and Company, Limited Partnership (in G.R. No.
85496) are ordered solidarily to pay in cash the
value of said one-half (1/2) share in the said land
and improvements pertaining to respondents
spouses Ishwar and Sonya at their fair market value
at the time of the satisfaction of this judgment but in
no case less than their value as appraised by the
Asian Appraisal, Inc. in its Appraisal Report dated
August 1985 (Exhibits T to T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti Ramnani
and respondent Ortigas & Co., Ltd. Partnership shall
also be jointly and severally liable to pay to said
respondents spouses Ishwar and Sonya Ramnani
one-half (1/2) of the total rental income of said
properties and improvements from 1967 up to the
date of satisfaction of the judgment to be computed
as follows:
a. On Building C occupied by Eppie's Creation and
Jethmal Industries from 1967 to 1973, inclusive,
based on the 1967 to 1973 monthly rentals paid by
Eppie's Creation;
b. Also on Building C above, occupied by Jethmal
Industries and Lavine from 1974 to 1978, the rental
incomes based on then rates prevailing as shown
under Exhibit "P"; and from 1979 to 1981, based on
then prevailing rates as indicated under Exhibit "Q";
c. On Building A occupied by Transworld Knitting
Mills from 1972 to 1978, the rental incomes based
upon then prevailing rates shown under Exhibit "P",
and from 1979 to 1981, based on prevailing rates
per Exhibit "Q";
d. On the two Bays Buildings occupied by Sigma-
Mariwasa from 1972 to 1978, the rentals based on
the Lease Contract, Exhibit "P", and from 1979 to
1980, the rentals based on the Lease Contract,
Exhibit "Q".
and thereafter commencing 1982, to account for and
turn over the rental incomes paid or ought to be paid
for the use and occupancy of the properties and all
improvements totalling 10,048 sq. m., based on the
rate per square meter prevailing in 1981 as
indicated annually cumulative up to 1984. Then,
commencing 1985 and up to the satisfaction of the
judgment, rentals shall be computed at ten percent
(10%) annually of the fair market values of the
properties as appraised by the Asian Appraisals,
Inc. in August 1985. (Exhibits T to T-14, inclusive.)
4. To determine the market value of the properties
at the time of the satisfaction of this judgment and
the total rental incomes thereof, the trial court is
hereby directed to hold a hearing with deliberate
dispatch for this purpose only and to have the
judgment immediately executed after such
determination.
5. Petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani, are also jointly and severally
liable to pay respondents Ishwar and Sonya
Ramnani the amount of P500,000.00 as moral
damages, P200,000.00 as exemplary damages and
attorney's fees equal to 10% of the total award. to
said respondents spouses.
6. The motion to dissolve the writ of preliminary
injunction dated December 10, 1990 filed by
petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani, is hereby DENIED and the said
injunction is hereby made permanent. Let a writ of
attachment be issued and levied against the
properties and improvements subject of this
litigation to secure the payment of the above awards
to spouses Ishwar and Sonya.
7. The mortgage constituted on the subject property
dated June 20, 1989 by petitioners Choithram and
Nirmla, both surnamed Ramnani in favor of
respondent Overseas Holding, Co. Ltd. (in G.R. No.
85496) for the amount of $3-M is hereby declared
null and void. The Register of Deeds of Pasig, Rizal,
is directed to cancel the annotation of d mortgage
on the titles of the properties in question.
8. Should respondent Ortigas Co., Ltd. Partnership
pay the awards to Ishwar and Sonya Ramnani
under this judgment, it shall be entitled to
reimbursement from petitioners Choithram, Nirmla
and Moti, all surnamed Ramnani.
9. The above awards shag bear legal rate of interest
of six percent (6%) per annum from the time this
judgment becomes final until they are fully paid by
petitioners Choithram Ramnani, Nirmla V. Ramnani,
Moti C. Ramnani and Ortigas, Co., Ltd. Partnership.
Said petitioners Choithram, et al. and respondent
Ortigas shall also pay the costs. SO ORDERED. 
8FEU LEUNG VS. IAC
169 SCRA 746
GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of
the then Intermediate Appellate Court in AC-G.R.
No. CV-00881 which affirmed the decision of the
then Court of First Instance of Manila, Branch II in
Civil Case No. 116725 declaring private respondent
Leung Yiu a partner of petitioner Dan Fue Leung in
the business of Sun Wah Panciteria and ordering
the petitioner to pay to the private respondent his
share in the annual profits of the said restaurant.
This case originated from a complaint filed by
respondent Leung Yiu with the then Court of First
Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the
annual profits derived from the operation of Sun
Wah Panciteria since October, 1955 from petitioner
Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at
Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was
registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner
Dan Fue Leung as the sole proprietor. Respondent
Leung Yiu adduced evidence during the trial of the
case to show that Sun Wah Panciteria was actually
a partnership and that he was one of the partners
having contributed P4,000.00 to its initial
establishment.
The private respondents evidence is summarized as
follows:
About the time the Sun Wah Panciteria started to
become operational, the private respondent gave
P4,000.00 as his contribution to the partnership.
This is evidenced by a receipt identified as Exhibit
"A" wherein the petitioner acknowledged his
acceptance of the P4,000.00 by affixing his
signature thereto. The receipt was written in
Chinese characters so that the trial court
commissioned an interpreter in the person of Ms.
Florence Yap to translate its contents into English.
Florence Yap issued a certification and testified that
the translation to the best of her knowledge and
belief was correct. The private respondent identified
the signature on the receipt as that of the petitioner
(Exhibit A-3) because it was affixed by the latter in
his (private respondents') presence. Witnesses So
Sia and Antonio Ah Heng corroborated the private
respondents testimony to the effect that they were
both present when the receipt (Exhibit "A") was
signed by the petitioner. So Sia further testified that
he himself received from the petitioner a similar
receipt (Exhibit D) evidencing delivery of his own
investment in another amount of P4,000.00 An
examination was conducted by the PC Crime
Laboratory on orders of the trial court granting the
private respondents motion for examination of
certain documentary exhibits. The signatures in
Exhibits "A" and 'D' when compared to the signature
of the petitioner appearing in the pay envelopes of
employees of the restaurant, namely Ah Heng and
Maria Wong (Exhibits H, H-1 to H-24) showed that
the signatures in the two receipts were indeed the
signatures of the petitioner.
Furthermore, the private respondent received from
the petitioner the amount of P12,000.00 covered by
the latter's Equitable Banking Corporation Check
No. 13389470-B from the profits of the operation of
the restaurant for the year 1974. Witness Teodulo
Diaz, Chief of the Savings Department of the China
Banking Corporation testified that said check
(Exhibit B) was deposited by and duly credited to
the private respondents savings account with the
bank after it was cleared by the drawee bank, the
Equitable Banking Corporation. Another witness
Elvira Rana of the Equitable Banking Corporation
testified that the check in question was in fact and in
truth drawn by the petitioner and debited against his
own account in said bank. This fact was clearly
shown and indicated in the petitioner's statement of
account after the check (Exhibit B) was duly cleared.
Rana further testified that upon clearance of the
check and pursuant to normal banking procedure,
said check was returned to the petitioner as the
maker thereof.
The petitioner denied having received from the
private respondent the amount of P4,000.00. He
contested and impugned the genuineness of the
receipt (Exhibit D). His evidence is summarized as
follows:
The petitioner did not receive any contribution at the
time he started the Sun Wah Panciteria. He used his
savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the
Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah
Panciteria. To bolster his contention that he was the
sole owner of the restaurant, the petitioner
presented various government licenses and permits
showing the Sun Wah Panciteria was and still is a
single proprietorship solely owned and operated by
himself alone. Fue Leung also flatly denied having
issued to the private respondent the receipt (Exhibit
G) and the Equitable Banking Corporation's Check
No. 13389470 B in the amount of P12,000.00
(Exhibit B).
As between the conflicting evidence of the parties,
the trial court gave credence to that of the plaintiffs.
Hence, the court ruled in favor of the private
respondent. The dispositive portion of the decision
reads:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendant,
ordering the latter to deliver and pay to the former,
the sum equivalent to 22% of the annual profit
derived from the operation of Sun Wah Panciteria
from October, 1955, until fully paid, and attorney's
fees in the amount of P5,000.00 and cost of suit. (p.
125, Rollo)
The private respondent filed a verified motion for
reconsideration in the nature of a motion for new
trial and, as supplement to the said motion, he
requested that the decision rendered should include
the net profit of the Sun Wah Panciteria which was
not specified in the decision, and allow private
respondent to adduce evidence so that the said
decision will be comprehensively adequate and thus
put an end to further litigation.
The motion was granted over the objections of the
petitioner. After hearing the trial court rendered an
amended decision, the dispositive portion of which
reads:
FOR ALL THE FOREGOING CONSIDERATIONS,
the motion for reconsideration filed by the plaintiff,
which was granted earlier by the Court, is hereby
reiterated and the decision rendered by this Court
on September 30, 1980, is hereby amended. The
dispositive portion of said decision should read now
as follows:
WHEREFORE, judgment is hereby rendered,
ordering the plaintiff (sic) and against the defendant,
ordering the latter to pay the former the sum
equivalent to 22% of the net profit of P8,000.00 per
day from the time of judicial demand, until fully paid,
plus the sum of P5,000.00 as and for attorney's fees
and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended
decision to the then Intermediate Appellate Court.
The questioned decision was further modified by the
appellate court. The dispositive portion of the
appellate court's decision reads:
WHEREFORE, the decision appealed from is
modified, the dispositive portion thereof reading as
follows:
1. Ordering the defendant to pay the plaintiff by way
of temperate damages 22% of the net profit of
P2,000.00 a day from judicial demand to May 15,
1971;
2. Similarly, the sum equivalent to 22% of the net
profit of P8,000.00 a day from May 16, 1971 to
August 30, 1975;
3. And thereafter until fully paid the sum equivalent
to 22% of the net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo
is affirmed in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified
its decision and affirmed the lower court's decision.
The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the
amended judgment of the court a quo reading as
follows:
WHEREFORE, judgment is rendered in favor of the
plaintiff and against the defendant, ordering the
latter to pay to the former the sum equivalent to 22%
of the net profit of P8,000.00 per day from the time
of judicial demand, until fully paid, plus the sum of
P5,000.00 as and for attorney's fees and costs of
suit.
is hereby retained in full and affirmed in toto it being
understood that the date of judicial demand is July
13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for
reconsideration filed by petitioner was denied.
Both the trial court and the appellate court found
that the private respondent is a partner of the
petitioner in the setting up and operations of the
panciteria. While the dispositive portions merely
ordered the payment of the respondents share,
there is no question from the factual findings that the
respondent invested in the business as a partner.
Hence, the two courts declared that the private
petitioner is entitled to a share of the annual profits
of the restaurant. The petitioner, however, claims
that this factual finding is erroneous. Thus, the
petitioner argues: "The complaint avers that private
respondent extended 'financial assistance' to herein
petitioner at the time of the establishment of the Sun
Wah Panciteria, in return of which private
respondent allegedly will receive a share in the
profits of the restaurant. The same complaint did not
claim that private respondent is a partner of the
business. It was, therefore, a serious error for the
lower court and the Hon. Intermediate Appellate
Court to grant a relief not called for by the complaint.
It was also error for the Hon. Intermediate Appellate
Court to interpret or construe 'financial assistance' to
mean the contribution of capital by a partner to a
partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September,
1955, defendant sought the financial assistance of
plaintiff in operating the defendant's eatery known
as Sun Wah Panciteria, located in the given address
of defendant; as a return for such financial
assistance. plaintiff would be entitled to twenty-two
percentum (22%) of the annual profit derived from
the operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the
defendant the sum of four thousand pesos
(P4,000.00), Philippine Currency, of which copy for
the receipt of such amount, duly acknowledged by
the defendant is attached hereto as Annex "A", and
form an integral part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that
when Sun Wah Panciteria was established, he gave
P4,000.00 to the petitioner with the understanding
that he would be entitled to twenty-two percent
(22%) of the annual profit derived from the operation
of the said panciteria. These allegations, which were
proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah
Panciteria because Article 1767 of the Civil Code
provides that "By the contract of partnership two or
more persons bind themselves to contribute money,
property or industry to a common fund, with the
intention of dividing the profits among themselves".
Therefore, the lower courts did not err in construing
the complaint as one wherein the private respondent
asserted his rights as partner of the petitioner in the
establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial
assistance therein. We agree with the appellate
court's observation to the effect that "... given its
ordinary meaning, financial assistance is the giving
out of money to another without the expectation of
any returns therefrom'. It connotes an ex gratia dole
out in favor of someone driven into a state of
destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not
obtain in this case.' (p. 99, Rollo) The complaint
explicitly stated that "as a return for such financial
assistance, plaintiff (private respondent) would be
entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said
panciteria.' (p. 107, Rollo) The well-settled doctrine
is that the '"... nature of the action filed in court is
determined by the facts alleged in the complaint as
constituting the cause of action." (De Tavera v.
Philippine Tuberculosis Society, Inc., 113 SCRA
243; Alger Electric, Inc. v. Court of Appeals, 135
SCRA 37).
The appellate court did not err in declaring that the
main issue in the instant case was whether or not
the private respondent is a partner of the petitioner
in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent
court gravely erred in giving probative value to the
PC Crime Laboratory Report (Exhibit "J") on the
ground that the alleged standards or specimens
used by the PC Crime Laboratory in arriving at the
conclusion were never testified to by any witness
nor has any witness identified the handwriting in the
standards or specimens belonging to the petitioner.
The supposed standards or specimens of
handwriting were marked as Exhibits "H" "H-1" to
"H-24" and admitted as evidence for the private
respondent over the vigorous objection of the
petitioner's counsel.
The records show that the PC Crime Laboratory
upon orders of the lower court examined the
signatures in the two receipts issued separately by
the petitioner to the private respondent and So Sia
(Exhibits "A" and "D") and compared the signatures
on them with the signatures of the petitioner on the
various pay envelopes (Exhibits "H", "H-1" to 'H-24")
of Antonio Ah Heng and Maria Wong, employees of
the restaurant. After the usual examination
conducted on the questioned documents, the PC
Crime Laboratory submitted its findings (Exhibit J)
attesting that the signatures appearing in both
receipts (Exhibits "A" and "D") were the signatures
of the petitioner.
The records also show that when the pay envelopes
(Exhibits "H", "H-1" to "H-24") were presented by the
private respondent for marking as exhibits, the
petitioner did not interpose any objection. Neither
did the petitioner file an opposition to the motion of
the private respondent to have these exhibits
together with the two receipts examined by the PC
Crime Laboratory despite due notice to him.
Likewise, no explanation has been offered for his
silence nor was any hint of objection registered for
that purpose.
Under these circumstances, we find no reason why
Exhibit "J" should be rejected or ignored. The
records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. He
argues: The Hon. Respondent Intermediate
Appellate Court gravely erred in not resolving the
issue of prescription in favor of petitioner. The
alleged receipt is dated October 1, 1955 and the
complaint was filed only on July 13, 1978 or after
the lapse of twenty-two (22) years, nine (9) months
and twelve (12) days. From October 1, 1955 to July
13, 1978, no written demands were ever made by
private respondent.
The petitioner's argument is based on Article 1144
of the Civil Code which provides:
Art. 1144. The following actions must be brought
within ten years from the time the right of action
accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted
when they are filed before the court, when there is a
written extra-judicial demand by the creditor, and
when there is any written acknowledgment of the
debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner
in Sun Wah Panciteria. The requisites of a
partnership which are — 1) two or more persons
bind themselves to contribute money, property, or
industry to a common fund; and 2) intention on the
part of the partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v. Yang
Chiao Cheng, 106 Phil. 110)-have been established.
As stated by the respondent, a partner shares not
only in profits but also in the losses of the firm. If
excellent relations exist among the partners at the
start of business and all the partners are more
interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the
profits is perfectly plausible. It would be incorrect to
state that if a partner does not assert his rights
anytime within ten years from the start of operations,
such rights are irretrievably lost. The private
respondent's cause of action is premised upon the
failure of the petitioner to give him the agreed profits
in the operation of Sun Wah Panciteria. In effect the
private respondent was asking for an accounting of
his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with
Articles 1144 and 1155 which is applicable. Article
1842 states:
The right to an account of his interest shall accrue to
any partner, or his legal representative as against
the winding up partners or the surviving partners or
the person or partnership continuing the business,
at the date of dissolution, in the absence or any
agreement to the contrary.
Regarding the prescriptive period within which the
private respondent may demand an accounting,
Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the
partnership exists. Prescription begins to run only
upon the dissolution of the partnership when the
final accounting is done.
Finally, the petitioner assails the appellate court's
monetary awards in favor of the private respondent
for being excessive and unconscionable and above
the claim of private respondent as embodied in his
complaint and testimonial evidence presented by
said private respondent to support his claim in the
complaint.
Apart from his own testimony and allegations, the
private respondent presented the cashier of Sun
Wah Panciteria, a certain Mrs. Sarah L. Licup, to
testify on the income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties
was that you were in charge of the custody of the
cashier's box, of the money, being the cashier, is
that correct?
A Yes, sir.
Q So that every time there is a customer who pays,
you were the one who accepted the money and you
gave the change, if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time
as you said, what do you do with the money?
A We balance it with the manager, Mr. Dan Fue
Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or
confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or
less, will you please tell us, how much is the gross
income of the restaurant?
A For regular days, I received around P7,000.00 a
day during my shift alone and during pay days I
receive more than P10,000.00. That is excluding the
catering outside the place.
Q What about the catering service, will you please
tell the Honorable Court how many times a week
were there catering services?
A Sometimes three times a month; sometimes two
times a month or more.
xxx xxx xxx
Q Now more or less, do you know the cost of the
catering service?
A Yes, because I am the one who receives the
payment also of the catering.
Q How much is that?
A That ranges from two thousand to six thousand
pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift
alone in a single day from 3:30 P.M. to 11:30 P.M. in
the evening the restaurant grosses an income of
P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65,
November 15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted.
Not only did the petitioner's counsel waive the cross-
examination on the matter of income but he failed to
comply with his promise to produce pertinent
records. When a subpoena duces tecum was issued
to the petitioner for the production of their records of
sale, his counsel voluntarily offered to bring them to
court. He asked for sufficient time prompting the
court to cancel all hearings for January, 1981 and
reset them to the later part of the following month.
The petitioner's counsel never produced any books,
prompting the trial court to state:
Counsel for the defendant admitted that the sales of
Sun Wah were registered or recorded in the daily
sales book. ledgers, journals and for this purpose,
employed a bookkeeper. This inspired the Court to
ask counsel for the defendant to bring said records
and counsel for the defendant promised to bring
those that were available. Seemingly, that was the
reason why this case dragged for quite sometime.
To bemuddle the issue, defendant instead of
presenting the books where the same, etc. were
recorded, presented witnesses who claimed to have
supplied chicken, meat, shrimps, egg and other
poultry products which, however, did not show the
gross sales nor does it prove that the same is the
best evidence. This Court gave warning to the
defendant's counsel that if he failed to produce the
books, the same will be considered a waiver on the
part of the defendant to produce the said books
inimitably showing decisive records on the income
of the eatery pursuant to the Rules of Court (Sec.
5(e) Rule 131). "Evidence willfully suppressed would
be adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its
way to accord due process to the petitioner.
The defendant was given all the chance to present
all conceivable witnesses, after the plaintiff has
rested his case on February 25, 1981, however,
after presenting several witnesses, counsel for
defendant promised that he will present the
defendant as his last witness. Notably there were
several postponement asked by counsel for the
defendant and the last one was on October 1, 1981
when he asked that this case be postponed for 45
days because said defendant was then in Hongkong
and he (defendant) will be back after said period.
The Court acting with great concern and
understanding reset the hearing to November 17,
1981. On said date, the counsel for the defendant
who again failed to present the defendant asked for
another postponement, this time to November 24,
1981 in order to give said defendant another judicial
magnanimity and substantial due process. It was
however a condition in the order granting the
postponement to said date that if the defendant
cannot be presented, counsel is deemed to have
waived the presentation of said witness and will
submit his case for decision.
On November 24, 1981, there being a typhoon
prevailing in Manila said date was declared a partial
non-working holiday, so much so, the hearing was
reset to December 7 and 22, 1981. On December 7,
1981, on motion of defendant's counsel, the same
was again reset to December 22, 1981 as
previously scheduled which hearing was understood
as intransferable in character. Again on December
22, 1981, the defendant's counsel asked for
postponement on the ground that the defendant was
sick. the Court, after much tolerance and judicial
magnanimity, denied said motion and ordered that
the case be submitted for resolution based on the
evidence on record and gave the parties 30 days
from December 23, 1981, within which to file their
simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino
Torres, Sta. Cruz, Manila in front of the Republic
Supermarket. It is near the corner of Claro M. Recto
Street. According to the trial court, it is in the heart
of Chinatown where people who buy and sell
jewelries, businessmen, brokers, manager, bank
employees, and people from all walks of life
converge and patronize Sun Wah.
There is more than substantial evidence to support
the factual findings of the trial court and the
appellate court. If the respondent court awarded
damages only from judicial demand in 1978 and not
from the opening of the restaurant in 1955, it is
because of the petitioner's contentions that all profits
were being plowed back into the expansion of the
business. There is no basis in the records to sustain
the petitioners contention that the damages
awarded are excessive. Even if the Court is minded
to modify the factual findings of both the trial court
and the appellate court, it cannot refer to any portion
of the records for such modification. There is no
basis in the records for this Court to change or set
aside the factual findings of the trial court and the
appellate court. The petitioner was given every
opportunity to refute or rebut the respondent's
submissions but, after promising to do so, it
deliberately failed to present its books and other
evidence.
The resolution of the Intermediate Appellate Court
ordering the payment of the petitioner's obligation
shows that the same continues until fully paid. The
question now arises as to whether or not the
payment of a share of profits shall continue into the
future with no fixed ending date.
Considering the facts of this case, the Court may
decree a dissolution of the partnership under Article
1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the
court shall decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as
tends to affect prejudicially the carrying on of the
business;
(4) A partner willfully or persistently commits a
breach of the partnership agreement, or otherwise
so conducts himself in matters relating to the
partnership business that it is not reasonably
practicable to carry on the business in partnership
with him;
xxx xxx xxx
(6) Other circumstances render a dissolution
equitable.
There shall be a liquidation and winding up of
partnership affairs, return of capital, and other
incidents of dissolution because the continuation of
the partnership has become inequitable.
WHEREFORE, the petition for review is hereby
DISMISSED for lack of merit. The decision of the
respondent court is AFFIRMED with a
MODIFICATION that as indicated above, the
partnership of the parties is ordered dissolved. SO
ORDERED.
9SISON VS. H. MC QUAID
94 PHIL 201
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
cannot 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.
10ORNUM VS. LASALA
74 PHIL 241
PARAS, J.:
The following facts are practically admitted in the
pleadings and briefs of the parties:
The respondents (plaintiffs below) are natives of
Taal, Batangas, and resided therein or in Manila.
The petitioners (defendants below) are also natives
of Taal, but resided in the barrio of Tan-agan,
municipality of Tablas, Province of Romblon.
In 1908 Pedro Lasala, father of the respondents,
and Emerenciano Ornum formed a partnership,
whereby the former, as capitalist, delivered the sum
of P1,000 to the latter who, as industrial partner,
was to conduct a business at his place of residence
in Romblon.
In 1912, when the assets of the partnership
consisted of outstanding accounts and old stock of
merchandise, Emerenciano Ornum, following the
wishes of his wife, asked for the dissolution of the
Lasala, Emerenciano Ornum looked for someone
who could take his place and he suggested the
names of the petitioners who accordingly became
the new partners.
Upon joining the business, the petitioners,
contributed P505.54 as their capital, with the result
that in the new partnership Pedro Lasala had a
capital of P1,000, appraised value of the assets of
the former partnership, plus the said P505.54
invested by the petitioners who, as industrial
partners, were to run the business in Romblon.
After the death of Pedro Lasala, his children (the
respondents) succeeded to all his rights and interest
in the partnership. The partners never knew each
other personally. No formal partnership agreement
was ever executed. The petitioners, as managing
partners, were received one-half of the net gains,
and the other half was to be divided between them
and the Lasala group in proportion to the capital put
in by each group.
During the course divided, but the partners were
given the election, as evidenced by the statements
of accounts referred to in the decision of the Court
of Appeals, to invest their respective shares in such
profits as additional capital. The petitioners
accordingly let a greater part of their profits as
additional investment in the partnership.
After twenty years the business had grown to such
an extent that is total value, including profits,
amounted to P44,618.67. Statements of accounts
were periodically prepared by the petitioners and
sent to the respondents who invariably did not make
any objection thereto. Before the last statement of
accounts was made, the respondents had received
P5,387.29 by way of profits. The last and final
statement of accounts, dated May 27, 1932, and
prepared by the petitioners after the respondents
had announced their desire to dissolve the
partnership, read as follows:
Xxxxxx
After the receipt of the foregoing statement of
accounts, Father Mariano Lasala, spokesman for
the respondents, wrote the following letter to the
petitioners on July 19, 1932:
xxxxxxxx
Pursuant to the request contained in this letter, the
petitioners remitted and paid to the respondents the
total amount corresponding to them under the
above-quoted statement of accounts which,
however, was not signed by the latter. Thereafter
the complaint in this case was filed by the
respondents, praying for an accounting and final
liquidation of the assets of the partnership.
The Court of First Instance of Manila held that the
last and final statement of accounts prepared by the
petitioners was tacitly approved and accepted by the
respondents who, by virtue of the above-quoted
letter of Father Mariano Lasala, lost their right to a
further accounting from the moment they received
and accepted their shares as itemized in said
statement.
This judgment was reversed by the Court of Appeals
principally on the ground that as the final statement
of accounts remains unsigned by the respondents,
the same stands disapproved. The decision
appealed by the petitioners thus said:
To support a plea of a stated account so as to
conclude the parties in relation to all dealings
between them, the accounting must be shown to
have been final. (1 Cyc. 366.) All the first nine
statements which the defendants sent the plaintiffs
were partial settlements, while the last, although
intended to be final, has not been signed.
We hold that the last and final statement of accounts
hereinabove quoted, had been approved by the
respondents. This approval resulted, by virtue of the
letter of Father Mariano Lasala of July 19, 1932,
quoted in part in the appealed decision from the
failure of the respondents to object to the statement
and from their promise to sign the same as soon as
they received their shares as shown in said
statement. After such shares had been paid by the
petitioners and accepted by the respondents without
any reservation, the approval of the statement of
accounts was virtually confirmed and its signing
thereby became a mere formality to be complied
with by the respondents exclusively. Their refusal to
sign, after receiving their shares, amounted to a
waiver to that formality in favor of the petitioners
who has already performed their obligation.
This approval precludes any right on the part of the
respondents to a further liquidation, unless the latter
can show that there was fraud, deceit, error or
mistake in said approval. (Pastor, vs. Nicasio, 6
Phil., 152; Aldecoa & Co., vs. Warner, Barnes &
Co., 16 Phil., 423; Gonsalez vs. Harty, 32 Phil. 328.)
The Court of Appeals did not make any findings that
there was fraud, and on the matter of error or
mistake it merely said:
The question, then is, have mistakes, been
committed in the statements sent appellants? Not
only do plaintiffs so allege, and not only does not
evidence so tend to prove, but the charge is
seconded by the defendants themselves when in
their counterclaims they said:
Xxxxxxx
In our opinion, the pronouncement that the evidence
tends to prove that there were mistakes in the
petitioners' statements of accounts, without
specifying the mistakes, merely intimates as
suspicion and is not such a positive and
unmistakable finding of fact (Cf. Concepcion vs.
People, G.R. No. 48169, promulgated December
28, 1942) as to justify a revision, especially because
the Court of Appeals has relied on the bare
allegations of the parties, Even admitting that, as
alleged by the petitioners in their counterclaim, they
overpaid the respondents in the sum of P575.12,
this error is essentially fatal to the latter's theory
what the statement of accounts shows, and is
therefore not the kind of error that calls for another
accounting which will serve the purpose of the
respondent's suit. Moreover, as the petitioners did
not appeal from the decision of the Court
abandoned such allegation in the Court of Appeals.
If the liquidation is ordered in the absence of any
particular error, found as a fact, simply because no
damage will be suffered by the petitioners in case
the latter's final statement of the accounts proves to
be correct, we shall be assuming a fundamentally
inconsistent position. If there is not mistake, the only
reason for a new accounting disappears. The
petitioners may not be prejudiced in the sense that
they will be required to pay anything to the
respondents, but they will have to go to the trouble
of itemizing accounts covering a period of twenty
years mostly from memory, its appearing that no
regular books of accounts were kept. Stated more
emphatically, they will be told to do what seems to
be hardly possible. When it is borne in mind that this
case has been pending for nearly nine years and
that, if another accounting is ordered, a costly action
or proceeding may arise which may not be disposed
of within a similar period, it is not improbable that
the intended relief may in fact be the respondents'
funeral.
We are reversing the appealed decision on the legal
ground that the petitioners' final statement of
accounts had been approved by the respondents
and no justifiable reason (fraud, deceit, error or
mistake) has been positively and unmistakably
found by the Court of Appeals so as to warrant the
liquidations sought by the respondents. In justice to
the petitioners, however, we may add that,
considering that they ran the business of the
partnership for about twenty years at a place far
from the residence of the respondents and without
the latter's intervention; that the partners did not
even know each other personally; that no formal
partnership agreement was entered into which
bound the petitioners under specific conditions; that
the petitioners could have easily and freely alleged
that the business became partial, or even a total,
loss for any plausible reason which they could have
concocted, it appearing that the partnership
engaged in such uncertain ventures as agriculture,
cattle raising and operation of rice mill, and the
petitioners did not keep any regular books of
accounts; that the petitioners were still frank enough
to disclose that the original capital of P1,505.54
amounted, as of the date of the dissolution of the
partnership, to P44,618.67; and that the
respondents had received a total of P8,105.76 out of
their capital of P1,000, without any effort on their
part, we are reluctant even to make the conjecture
that the petitioners had ever intended to, or actually
did, take undue advantage of the absence and
confidence of the respondents. Indeed, we feel
justified in stating that the petitioners have here
given a remarkable demonstration of the legendary
honesty, good faith and industry with which the
natives of Taal pursue business arrangements
similar to the partnership in question, and we would
hate, in the absence of any sufficient reason, to let
such a beautiful legend have a distateful ending.

The appealed decision is hereby reversed and the

petitioners (defendants below) absolved from the
complaints of the respondents (plaintiffs below), with
costs against the latter.

11Liwanag vs. CA, GR No. 114398 Diana 

12. US vs. Clarin, 7 Phil 504 Gonzales 

13. Martinez vs. Ong Pong Co, GR No. L-5236

Jueves 

14. Pabalan vs. Velez, GR No. L-5953, February 24,

1912 Maturan 

15. Teague vs. Martin, GR No. 30286, September

12, 1929 Misagal 

16. Litton vs. Hill & Ceron, et. al., GR No. L-45624,
April 25, 1939 Miranda 

17. Bachrach vs. La Protectora, GR No. L-11624,

January 21, 1918 Muana