July 30, 1979

PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP,

SALAZAR, FELICIANO, HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR,
FLORENTINO P. FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R. CASTILLO.
ALBERTO P. SAN JUAN, JUAN C. REYES. JR., ANDRES G. GATMAITAN, JUSTINO H.
CACANINDIN, NOEL A. LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO C.
IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG, ANCHETA K. TAN, and
ALICE V. PESIGAN, petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE
FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA & REYES." RICARDO J.
ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE MA, REYES, JESUS
S. J. SAYOC, EDUARDO DE LOS ANGELES, and JOSE F. BUENAVENTURA, petitioners.
RESOLUTION
MELENCIO-HERRERA, J.:+.wph!1
Two separate Petitions were filed before this Court 1) by the surviving partners of Atty.
Alexander Sycip, who died on May 5, 1975, and 2) by the surviving partners of Atty.
Herminio Ozaeta, who died on February 14, 1976, praying that they be allowed to continue
using, in the names of their firms, the names of partners who had passed away. In the
Court's Resolution of September 2, 1976, both Petitions were ordered consolidated.
Petitioners base their petitions on the following arguments:
1. Under the law, a partnership is not prohibited from continuing its business under a firm
name which includes the name of a deceased partner; in fact, Article 1840 of the Civil
Code explicitly sanctions the practice when it provides in the last paragraph that: t.
hqw
The use by the person or partnership continuing the business of the partnership name,
or the name of a deceased partner as part thereof, shall not of itself make the individual
property of the deceased partner liable for any debts contracted by such person or
partnership. 1
2. In regulating other professions, such as accountancy and engineering, the legislature
has authorized the adoption of firm names without any restriction as to the use, in such
firm name, of the name of a deceased partner; 2 the legislative authorization given to
those engaged in the practice of accountancy a profession requiring the same degree of
trust and confidence in respect of clients as that implicit in the relationship of attorney and
client to acquire and use a trade name, strongly indicates that there is no fundamental
policy that is offended by the continued use by a firm of professionals of a firm name which
includes the name of a deceased partner, at least where such firm name has acquired the
characteristics of a "trade name." 3
3. The Canons of Professional Ethics are not transgressed by the continued use of the
name of a deceased partner in the firm name of a law partnership because Canon 33 of

the Canons of Professional Ethics adopted by the American Bar Association declares
that: t.hqw
... The continued use of the name of a deceased or former partner when permissible by
local custom, is not unethical but care should be taken that no imposition or deception is
practiced through this use. ... 4
4. There is no possibility of imposition or deception because the deaths of their respective
deceased partners were well-publicized in all newspapers of general circulation for several
days; the stationeries now being used by them carry new letterheads indicating the years
when their respective deceased partners were connected with the firm; petitioners will
notify all leading national and international law directories of the fact of their respective
deceased partners' deaths. 5
5. No local custom prohibits the continued use of a deceased partner's name in a
professional firm's name; 6 there is no custom or usage in the Philippines, or at least in the
Greater Manila Area, which recognizes that the name of a law firm necessarily Identifies
the individual members of the firm. 7
6. The continued use of a deceased partner's name in the firm name of law partnerships
has been consistently allowed by U.S. Courts and is an accepted practice in the legal
profession of most countries in the world. 8
The question involved in these Petitions first came under consideration by this Court in
1953 when a law firm in Cebu (the Deen case) continued its practice of including in its firm
name that of a deceased partner, C.D. Johnston. The matter was resolved with this Court
advising the firm to desist from including in their firm designation the name of C. D.
Johnston, who has long been dead."
The same issue was raised before this Court in 1958 as an incident in G. R. No. L-11964,
entitled Register of Deeds of Manila vs. China Banking Corporation. The law firm of Perkins
& Ponce Enrile moved to intervene asamicus curiae. Before acting thereon, the Court, in a
Resolution of April 15, 1957, stated that it "would like to be informed why the name of
Perkins is still being used although Atty. E. A. Perkins is already dead." In a Manifestation
dated May 21, 1957, the law firm of Perkins and Ponce Enrile, raising substantially the
same arguments as those now being raised by petitioners, prayed that the continued use
of the firm name "Perkins & Ponce Enrile" be held proper.
On June 16, 1958, this Court resolved: t.hqw
After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile and
Associates for their continued use of the name of the deceased E. G. Perkins, the Court
found no reason to depart from the policy it adopted in June 1953 when it required
Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City to desist from including in their
firm designation, the name of C. D. Johnston, deceased. The Court believes that, in view of
the personal and confidential nature of the relations between attorney and client, and the
high standards demanded in the canons of professional ethics, no practice should be
allowed which even in a remote degree could give rise to the possibility of deception. Said
attorneys are accordingly advised to drop the name "PERKINS" from their firm name.

Petitioners herein now seek a re-examination of the policy thus far enunciated by the
Court.

that a saleable goodwill can exist only in a commercial partnership and cannot arise in a
professional partnership consisting of lawyers. 9t.hqw

The Court finds no sufficient reason to depart from the rulings thus laid down.

As a general rule, upon the dissolution of a commercial partnership the succeeding

partners or parties have the right to carry on the business under the old name, in the
absence of a stipulation forbidding it, (s)ince the name of a commercial partnership is a
partnership asset inseparable from the good will of the firm. ... (60 Am Jur 2d, s 204, p.
115) (Emphasis supplied)

A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo,
De Leon, Mabanta and Reyes" are partnerships, the use in their partnership names of the
names of deceased partners will run counter to Article 1815 of the Civil Code which
provides: t.hqw
Art. 1815. Every partnership shall operate under a firm name, which may or may not
include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name,
shall be subject to the liability, of a partner.
It is clearly tacit in the above provision that names in a firm name of a partnership must
either be those of living partners and. in the case of non-partners, should be living persons
who can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third
person from including his name in the firm name under pain of assuming the liability of a
partner. The heirs of a deceased partner in a law firm cannot be held liable as the old
members to the creditors of a firm particularly where they are non-lawyers. Thus, Canon
34 of the Canons of Professional Ethics "prohibits an agreement for the payment to the
widow and heirs of a deceased lawyer of a percentage, either gross or net, of the fees
received from the future business of the deceased lawyer's clients, both because the
recipients of such division are not lawyers and because such payments will not represent
service or responsibility on the part of the recipient. " Accordingly, neither the widow nor
the heirs can be held liable for transactions entered into after the death of their lawyerpredecessor. There being no benefits accruing, there ran be no corresponding liability.
Prescinding the law, there could be practical objections to allowing the use by law firms of
the names of deceased partners. The public relations value of the use of an old firm name
can tend to create undue advantages and disadvantages in the practice of the profession.
An able lawyer without connections will have to make a name for himself starting from
scratch. Another able lawyer, who can join an old firm, can initially ride on that old firm's
reputation established by deceased partners.
B. In regards to the last paragraph of Article 1840 of the Civil Code cited by
petitioners, supra, the first factor to consider is that it is within Chapter 3 of Title IX of the
Code entitled "Dissolution and Winding Up." The Article primarily deals with the exemption
from liability in cases of a dissolved partnership, of the individual property of the deceased
partner for debts contracted by the person or partnership which continues
the business using the partnership name or the name of the deceased partner as part
thereof. What the law contemplates therein is a hold-over situation preparatory to formal
reorganization.
Secondly, Article 1840 treats more of a commercial partnership with a good will to protect
rather than of aprofessional partnership, with no saleable good will but whose reputation
depends on the personal qualifications of its individual members. Thus, it has been held

On the other hand, t.hqw

... a professional partnership the reputation of which depends or; the individual skill of the
members, such as partnerships of attorneys or physicians, has no good win to be
distributed as a firm asset on its dissolution, however intrinsically valuable such skill and
reputation may be, especially where there is no provision in the partnership agreement
relating to good will as an asset. ... (ibid, s 203, p. 115) (Emphasis supplied)
C. A partnership for the practice of law cannot be likened to partnerships formed by other
professionals or for business. For one thing, the law on accountancy specifically allows the
use of a trade name in connection with the practice of accountancy. 10 t.hqw
A partnership for the practice of law is not a legal entity. It is a mere relationship or
association for a particular purpose. ... It is not a partnership formed for the purpose of
carrying on trade or business or of holding property." 11 Thus, it has been stated that "the
use of a nom de plume, assumed or trade name in law practice is improper. 12
The usual reason given for different standards of conduct being applicable to the practice
of law from those pertaining to business is that the law is a profession.
Dean Pound, in his recently published contribution to the Survey of the Legal Profession,
(The Lawyer from Antiquity to Modern Times, p. 5) defines a profession as "a group of men
pursuing a learned art as a common calling in the spirit of public service, no less a
public service because it may incidentally be a means of livelihood."
xxx xxx xxx
Primary characteristics which distinguish the legal profession from business are:
1. A duty of public service, of which the emolument is a byproduct, and in which one may
attain the highest eminence without making much money.
2. A relation as an "officer of court" to the administration of justice involving thorough
sincerity, integrity, and reliability.
3. A relation to clients in the highest degree fiduciary.
4. A relation to colleagues at the bar characterized by candor, fairness, and unwillingness
to resort to current business methods of advertising and encroachment on their practice,
or dealing directly with their clients. 13

"The right to practice law is not a natural or constitutional right but is in the nature of a
privilege or franchise. 14 It is limited to persons of good moral character with special
qualifications duly ascertained and certified. 15 The right does not only presuppose in its
possessor integrity, legal standing and attainment, but also the exercise of a special
privilege, highly personal and partaking of the nature of a public trust." 16
D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American Bar
Association" in support of their petitions.
It is true that Canon 33 does not consider as unethical the continued use of the name of a
deceased or former partner in the firm name of a law partnership when such a practice
is permissible by local custom but the Canon warns that care should be taken that no
imposition or deception is practiced through this use.
It must be conceded that in the Philippines, no local custom permits or allows the
continued use of a deceased or former partner's name in the firm names of law
partnerships. Firm names, under our custom, Identify the more active and/or more senior
members or partners of the law firm. A glimpse at the history of the firms of petitioners
and of other law firms in this country would show how their firm names have evolved and
changed from time to time as the composition of the partnership changed. t.hqw
The continued use of a firm name after the death of one or more of the partners
designated by it is proper only where sustained by local custom and not where by custom
this purports to Identify the active members. ...
There would seem to be a question, under the working of the Canon, as to the propriety of
adding the name of a new partner and at the same time retaining that of a deceased
partner who was never a partner with the new one. (H.S. Drinker, op. cit., supra, at pp.
207208) (Emphasis supplied).
The possibility of deception upon the public, real or consequential, where the name of a
deceased partner continues to be used cannot be ruled out. A person in search of legal
counsel might be guided by the familiar ring of a distinguished name appearing in a firm
title.
E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a
deceased partner's name in the firm name of law partnerships. But that is so because it is
sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733) which
petitioners Salazar, et al. quoted in their memorandum, the New York Supreme Court
sustained the use of the firm name Alexander & Green even if none of the present ten
partners of the firm bears either name because the practice was sanctioned by custom and
did not offend any statutory provision or legislative policy and was adopted by agreement
of the parties. The Court stated therein: t.hqw
The practice sought to be proscribed has the sanction of custom and offends no statutory
provision or legislative policy. Canon 33 of the Canons of Professional Ethics of both the
American Bar Association and the New York State Bar Association provides in part as
follows: "The continued use of the name of a deceased or former partner, when permissible

by local custom is not unethical, but care should be taken that no imposition or deception
is practiced through this use." There is no question as to local custom. Many firms in the
city use the names of deceased members with the approval of other attorneys, bar
associations and the courts. The Appellate Division of the First Department has considered
the matter and reached The conclusion that such practice should not be prohibited.
(Emphasis supplied)
xxx xxx xxx
Neither the Partnership Law nor the Penal Law prohibits the practice in question. The use of
the firm name herein is also sustainable by reason of agreement between the partners. 18
Not so in this jurisdiction where there is no local custom that sanctions the practice.
Custom has been defined as a rule of conduct formed by repetition of acts, uniformly
observed (practiced) as a social rule, legally binding and obligatory. 19 Courts take no
judicial notice of custom. A custom must be proved as a fact, according to the rules of
evidence. 20 A local custom as a source of right cannot be considered by a court of justice
unless such custom is properly established by competent evidence like any other
fact. 21 We find such proof of the existence of a local custom, and of the elements requisite
to constitute the same, wanting herein. Merely because something is done as a matter of
practice does not mean that Courts can rely on the same for purposes of adjudication as a
juridical custom. Juridical custom must be differentiated from social custom. The former
can supplement statutory law or be applied in the absence of such statute. Not so with the
latter.
Moreover, judicial decisions applying or interpreting the laws form part of the legal
system. 22 When the Supreme Court in the Deen and Perkins cases issued its Resolutions
directing lawyers to desist from including the names of deceased partners in their firm
designation, it laid down a legal rule against which no custom or practice to the contrary,
even if proven, can prevail. This is not to speak of our civil law which clearly ordains that a
partnership is dissolved by the death of any partner. 23 Custom which are contrary to law,
public order or public policy shall not be countenanced. 24
The practice of law is intimately and peculiarly related to the administration of justice and
should not be considered like an ordinary "money-making trade." t.hqw
... It is of the essence of a profession that it is practiced in a spirit of public service. A
trade ... aims primarily at personal gain; a profession at the exercise of powers beneficial
to mankind. If, as in the era of wide free opportunity, we think of free competitive self
assertion as the highest good, lawyer and grocer and farmer may seem to be freely
competing with their fellows in their calling in order each to acquire as much of the world's
good as he may within the allowed him by law. But the member of a profession does not
regard himself as in competition with his professional brethren. He is not bartering his
services as is the artisan nor exchanging the products of his skill and learning as the
farmer sells wheat or corn. There should be no such thing as a lawyers' or physicians'
strike. The best service of the professional man is often rendered for no equivalent or for a
trifling equivalent and it is his pride to do what he does in a way worthy of his profession
even if done with no expectation of reward, This spirit of public service in which the
profession of law is and ought to be exercised is a prerequisite of sound administration of

justice according to law. The other two elements of a profession, namely, organization and
pursuit of a learned art have their justification in that they secure and maintain that
spirit. 25
In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public
must bow to legal and ethical impediment.
ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop the
names "SYCIP" and "OZAETA" from their respective firm names. Those names may,
however, be included in the listing of individuals who have been partners in their firms
indicating the years during which they served as such.
SO ORDERED.

G.R. No. 19892

September 6, 1923

TECK SEING AND CO., LTD., petitioner-appellee.

SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.
Del Rosario & Del Rosario and Block, Johnston and Greenbaum for appellants.
F. V. Arias for appellants Jo Ibec and Go Tayco.
No appearance for petitioner and appellee.
Jose A. Espiritu and Felipe Ysmael as amici curiae.
MALCOLM, J.:
Following the presentation of an application to be adjudged an insolvent by the "Sociedad
Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial Company, Piol &
Company, Riu Hermanos, and W. H. Anderson & Company, filed a motion in which the
Court was prayed to enter an order: "(A) Declaring the individual partners as described in
paragraph 5 parties to this proceeding; (B) to require each of said partners to file an
inventory of his property in the manner required by section 51 of Act No. 1956; and (C)
that each of said partners be adjudicated insolvent debtors in this proceeding." The trial
judge first granted the motion, but, subsequently, on opposition being renewed, denied it.
It is from this last order that an appeal was taken in accordance with section 82 of the
Insolvency Law.
There has been laid before us for consideration and decision a question of some
importance and of some intricacy. The issue in the case relates to a determination of the
nature of the mercantile establishment which operated under the name of Teck Seing &
co., Ltd., and this issue requires us to look into, and analyze, the document constituting
Teck Seing & Co., Ltd. It reads:

por ser las mismas personas que otorgaron el preinserto documento, ratificando ant emi su
contenido y Proceeding by process of elimination, it is self-evident that Teck Seing & Co.,
Ltd., is not a corporation. Neither is it contended by any one that Teck Seing & Co., Ltd., is
accidental partnership denominated cuenta en participacion(joint account association).
Counsel for the petitioner and appellee described his client in once place in his opposition
to the motion of the creditors as "una verdadera sociedad anonima" (a true sociedad
anonima). The provisions of the Code of Commerce relating to sociedades anonimas were,
however, repealed by section 191 of the Corporation Law (Act No. 1459), with the
exceptions the sociedades anonimas lawfully organized at the time of the passage of the
Corporation Law were recognized, which is not our case.
The document providing for the partnership contract purported to form "una sociedad
mercantil limitada," and counsel for the petitioner's first contention was that Teck Seing &
Co., Ltd., was not "una sociedad regular colectiva, ni siquiera comanditaria, sino una
sociedad mercantil limitada." Let us see if the partnership contract created a "sociedad en

comandita," or, as it is known in English, and will hereafter be spoken of, "a limited
partnership."
To establish a limited partnership there must be, at least, one general partner and the
name of the least one of the general partners must appear in the firm name. (Code of
Commerce, arts. 122 [2], 146, 148.) But neither of these requirements have been fulfilled.
The general rule is, that those who seek to avail themselves of the protection of laws
permitting the creation of limited partnerships must show a substantially full compliance
with such laws. A limited partnership that has not complied with the law of its creation is
not considered a limited partnership at all, but a general partnership in which all the
members are liable. (Mechem, Elements of Partnership, p. 412; Gilmore, Partnership, pp.
499, 595; 20 R C. L. 1064.)
The contention of the creditors and appellants is that the partnership contract established
a general partnership.
Article 125 of the Code of Commerce provides that the articles of general copartnership
must estate the names, surnames, and domiciles of the partners; the firm name; the
names, and surnames of the partners to whom the management of the firm and the use of
its signature is instrusted; the capital which each partner contributes in cash, credits, or
property, stating the value given the latter or the basis on which their appraisement is to
be made; the duration of the copartnership; and the amounts which, in a proper case, are
to be given to each managing partner annually for his private expenses, while the
succeeding article of the Code provides that the general copartnership must transact
business under the name of all its members, of several of them, or of one only. Turning to
the document before us, it will be noted that all of the requirements of the Code have been
met, with the sole exception of that relating to the composition of the firm name. We leave
consideration of this phase of the case for later discussion.
The remaining possibility is the revised contention of counsel for the petitioners to the
effect that Teck Seing & Co., Ltd., is "una sociedad mercantil "de facto" solamente" (only
a de facto commercial association), and that the decision of the Supreme court in the case
of Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil., 498), is controlling. It was this
argument which convinced the trial judge, who gave effect to his understanding of the
case last cited and which here must be given serious attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the firm KiengChiong-Seng was not organized by means of any public document; that the partnership
had not been recorded in the mercantile registry; and that Kieng-Chiong-Seng was not
proven to be the firm name, but rather the designation of the partnership. The conclusion
then was, that the partnership in question was merely de facto and that, therefore, giving
effect to the provisions of article 120 of the Code of Commerce, the right of action was
against the persons in charge of the management of the association.
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side by side
with the facts before us, a marked difference is at once disclosed. In the cited case, the
organization of the partnership was not evidenced by any public document; here, it is by a
public document. In the cited case, the partnership naturally could not present a public
instrument for record in the mercantile registry; here, the contract of partnership has been

duly registered. But the two cases are similar in that the firm name failed to include the
name of any of the partners.

name of each of the partners, with their residences and post-office addresses, and making
a violation thereof a misdemeanor. The supreme Court of Michigan said:

We come then to the ultimate question, which is, whether we should follow the decision in
Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we should differentiate the two
cases, holding Teck Seing & Co., Ltd., a general copartnership, notwithstanding the failure
of the firm name to include the name of one of the partners. Let us now notice this decisive
point in the case.

The one object of the act is manifestly to protect the public against imposition and fraud,
prohibiting persons from concealing their identity by doing business under an assumed
name, making it unlawful to use other than their real names in transacting business
without a public record of who they are, available for use in courts, and to punish those
who violate the prohibition. The object of this act is not limited to facilitating the collection
of debts, or the protection of those giving credit to persons doing business under an
assumed name. It is not unilateral in its application. It applies to debtor and creditor,
contractor and contractee, alike. Parties doing business with those acting under an
assumed name, whether they buy or sell, have a right, under the law, to know who they
are, and who to hold responsible, in case the question of damages for failure to perform or
breach of warranty should arise.

Article 119 of the Code of Commerce requires every commercial association before
beginning its business to state its article, agreements, and conditions in a public
instrument, which shall be presented for record in the mercantile registry. Article 120, next
following, provides that the persons in charge of the management of the association who
violate the provisions of the foregoing article shall be responsible in solidum to the persons
not members of the association with whom they may have transacted business in the
name of the association. Applied to the facts before us, it would seem that Teck Seing &
Co., Ltd. has fulfilled the provisions of article 119. Moreover, to permit the creditors only to
look to the person in charge of the management of the association, the partner Lim
Yogsing, would not prove very helpful to them.
What is said in article 126 of the Code of Commerce relating to the general copartnership
transacting business under the name of all its members or of several of them or of one
only, is wisely included in our commercial law. It would appear, however, that this provision
was inserted more for the protection of the creditors than of the partners themselves. A
distinction could well be drawn between the right of the alleged partnership to institute
action when failing to live up to the provisions of the law, or even the rights of the partners
as among themselves, and the right of a third person to hold responsible a general
copartnership which merely lacks a legal firm name in order to make it a partnership de
jure.
The civil law and the common law alike seem to point to a difference between the rights of
the partners who have failed to comply with the law and the rights of third persons who
have dealt with the partnership.
The supreme court of Spain has repeatedly held that notwithstanding the obligation of the
members to register the articles of association in the commercial registry, agreements
containing all the essential requisites are valid as between the contracting parties,
whatever the form adopted, and that, while the failure to register in the commercial
registry necessarily precludes the members from enforcing rights acquired by them against
third persons, such failure cannot prejudice the rights of third persons. (See decisions of
December 6, 1887, January 25, 1888, November 10, 1890, and January 26, 1900.) The
same reasoning would be applicable to the less formal requisite pertaining to the firm
name.
The common law is to the same effect. The State of Michigan had a statute prohibiting the
transaction of business under an assumed name or any other than the real name of the
individual conducting the same, unless such person shall file with the county clerk a
certificate setting forth the name under which the business is to be conducted and the real

The general rule is well settled that, where statutes enacted to protect the public against
fraud or imposition, or to safeguard the public health or morals, contain a prohibition and
impose a penalty, all contracts in violation thereof are void. . . .
As this act involves purely business transactions, and affects only money interests, we
think it should be construed as rendering contracts made in violation of it unlawful and
unforceable at the instance of the offending party only, but not as designed to take away
the rights of innocent parties who may have dealt with the offenders in ignorance of their
having violated the statute. (Cashin vs. Pliter [1912], 168 Mich., 386; Ann. Cas. [1913-C,
697.)
The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs.
Hernandez [1903], 1 Phil., 705), contains the following pertinent observations:
Another case may be supposed. A partnership is organized for commercial purposes. It
fails to comply with the requirements of article 119. A creditor sues the partnership for a
debt contracted by it, claiming to hold the partners severally. They answer that their
failure to comply with the Code of Commerce makes them a civil partnership and that they
are in accordance with article 1698 of the Civil Code only liable jointly. To allow such liberty
of action would be to permit the parties by a violation of the Code to escape a liability
which the law has seen fit to impose upon persons who organized commercial partnership;
"Because it would be contrary to all legal principles that the nonperformance of a duty
should redound to the benefit of the person in default either intentional or unintentional."
(Mercantile Law, Eixala, fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916], 33
Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following comment
after articles 121 and 126 of the Code:
From the decisions cited in this and in the previous comments, the following is deduced:
1st. Defects in the organization cannot affect relations with third persons. 2d. Members
who contract with other persons before the association is lawfully organized are liable to
these persons. 3d. The intention to form an association is necessary, so that if the
intention of mutual participation in the profits and losses in a particular business is proved,

and there are no articles of association, there is no association. 4th. An association, the
articles of which have not been registered, is valid in favor of third persons. 5th. The
private pact or agreement to form a commercial association is governed not by the
commercial law but by the civil law. 6th. Secret stipulationsexpressed in a public
instrument, but not inserted in the articles of association, do not affect third persons, but
are binding on the parties themselves. 7th. An agreement made in a public instrument,
other than the articles of association, by means of which one of the partners guarantees to
another certain profits or secures him from losses, is valid between them, without affecting
the association. 8th. Contracts entered into by commercial associations defectively
organized are valid when they are voluntarily executed by the parties, if the only
controversy relates to whether or not they complied with the agreement.
xxx

xxx

xxx

The name of the collective merchant is called firm name. By this name, the new being is
distinguished from others, its sphere of action fixed, and the juridical personality better
determined, without constituting an exclusive character of the general partnership to such
an extent as to serve the purpose of giving a definition of said kind of a mercantile
partnership, as is the case in our Code.
Having in mind that these partnerships are prevailingly of a personal character, article 126
says that they must transact business under the name of all its members, of some of them,
or of one only, the words "and company" to be added in the latter two cases.
It is rendered impossible for the general partnership to adopt a firm name appropriate to
its commercial object; the law wants to link, and does link, the solidary and unlimited
responsibility of the members of this partnership with the formation of its name, and
imposes a limitation upon personal liberty in its selection, not only by prescribing the
requisites, but also by prohibiting persons not members of the company from including
their names in its firm name under penalty of civil solidary responsibility.
Of course, the form required by the Code for the adoption of the firm name does not
prevent the addition thereto of any other title connected with the commercial purpose of
the association. The reader may see our commentaries on the mercantile registry about
the business names and firm names of associations, but it is proper to establish here that,
while the business name may be alienated by any of the means admitted by the law, it
seems impossible to separate the firm names of general partnerships from the juridical
entity for the creation of which it was formed. (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does not
contain the name of all or any of the partners as prescribed by the Code of Commerce
prevents the creation of a general partnership, Professor Jose A. Espiritu, as amicus curi,
states:
My opinion is that such a fact alone cannot and will not be a sufficient cause of preventing
the formation of a general partnership, especially if the other requisites are present and
the requisite regarding registration of the articles of association in the Commercial Registry
has been complied with, as in the present case. I do not believe that the adoption of a
wrong name is a material fact to be taken into consideration in this case; first, because the

mere fact that a person uses a name not his own does not prevent him from being bound
in a contract or an obligation he voluntarily entered into; second, because such a
requirement of the law is merely a formal and not necessarily an essential one to the
existence of the partnership, and as long as the name adopted sufficiently identity the firm
or partnership intended to use it, the acts and contracts done and entered into under such
a name bind the firm to third persons; and third, because the failure of the partners herein
to adopt the correct name prescribed by law cannot shield them from their personal
liabilities, as neither law nor equity will permit them to utilize their own mistake in order to
put the blame on third persons, and much less, on the firm creditors in order to avoid their
personal possibility.
The legal intention deducible from the acts of the parties controls in determining the
existence of a partnership. If they intend to do a thing which in law constitutes a
partnership, they are partners, although their purpose was to avoid the creation of such
relation. Here, the intention of the persons making up Teck Seing & co., Ltd. was to
establish a partnership which they erroneously denominated a limited partnership. If this
was their purpose, all subterfuges resorted to in order to evade liability for possible losses,
while assuming their enjoyment of the advantages to be derived from the relation, must be
disregarded. The partners who have disguised their identity under a designation distinct
from that of any of the members of the firm should be penalized, and not the creditors who
presumably have dealt with the partnership in good faith.
Articles 127 and 237 of the Code of Commerce make all the members of the general
copartnership liable personally and in solidum with all their property for the results of the
transactions made in the name and for the account of the partnership. Section 51 of the
Insolvency Law, likewise, makes all the property of the partnership and also all the
separate property of each of the partners liable. In other words, if a firm be insolvent, but
one or more partners thereof are solvent, the creditors may proceed both against the firm
and against the solvent partner or partners, first exhausting the assets of the firm before
seizing the property of the partners. (Brandenburg of Bankcruptcy, sec. 108; De los
Reyes vs. Lukban and Borja [1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda
& Co. vs. Pacific Commercial Co. [1922], 44 Phil., 916).
We reach the conclusion that the contract of partnership found in the document
hereinbefore quoted established a general partnership or, to be more exact, a partnership
as this word is used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be returned to the
court of origin for further proceedings pursuant to the motion presented by the creditors, in
conformity with the provisions of the Insolvency Law. Without special findings as to the
costs in this instance, it is ordered.

G.R. No. L-26937

October 5, 1927

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
SEVERO EUGENIO LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.
Jose Lopez Vito for appellants.
Roman Lacson for appellee.

VILLAMOR, J.:
On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling, together with
J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a commercial
partnership under the name of "Tai Sing and Co.," with a capital of P40,000 contributed by
said partners. In the articles of copartnership, Exhibit A, it appears that the partnership
was to last for five years from after the date of its organization, and that its purpose was to
do business in the City of Iloilo, Province of Iloilo, or in any other part of the Philippine
Islands the partners might desire, under the name of "Tai Sing & Co.," for the purchase and
sale of merchandise, goods, and native, as well as Chinese and Japanese, products, and to
carry on such business and speculations as they might consider profitable. One of the
partners, J. A. Say Lian Ping was appointed general manager of the partnership, with the
appointed general manager of the partnership, with the powers specified in said articles of
copartnership.
On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney (Exhibit
C-1) in favor of A. Y. Kelam, authorizing him to act in his stead as manager and
administrator of "Tai Sing & Co.," on July 26, 1918, for, and obtained a loan of P8,000 in
current account from the plaintiff bank. (Exhibit C). As security for said loan, he mortgaged
certain personal property of "Tai Sing & Co., (Exhibit C.)
This credit was renew several times and on March 25, 1919, A. Y. Kelam, as attorney-in-fact
of "Tai Sing & Co., executed a chattel mortgage in favor of plaintiff bank as security for a
loan of P20,000 with interest (Exhibit D). This mortgage was again renewed on April 16,
1920 and A. Y. Kelam, as attorney-in-fact of "Tai Sing & Co., executed another chattel
mortgage for the said sum of P20,000 in favor of plaintiff bank. (Exhibit E.) According to
this mortgage contract, the P20,000 loan was to earn 9 per cent interest per annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the latter
represented by M. Pineda Tayenko, executed a power of attorney in favor of Sy Tit by virtue
of which Sy Tit, representing "Tai Sing & Co., obtained a credit of P20,000 from plaintiff
bank on January 7, 1921, executing a chattel mortgage on certain personal property
belonging to "Tai Sing & Co.
Defendants had been using this commercial credit in a current account with the plaintiff
bank, from the year 1918, to May 22, 1921, and the debit balance of this account, with
interest to December 31, 1924, is as follows:

TAI SING & CO.

To your outstanding account (C. O. D.) with us
on June 30, 1922

P16,518.
74

Interest on same from June 30, 1922 to

December 31,1924, at 9 per cent per annum

3,720.86

Total

20,
239.00
=====
====

This total is the sum claimed in the complaint, together with interest on the P16,518.74
debt, at 9 per cent per annum from January 1, 1925 until fully paid, with the costs of the
trial.
Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was not a general
partnership, and that the commercial credit in current account which "Tai Sing & Co.
obtained from the plaintiff bank had not been authorized by the board of directors of the
company, nor was the person who subscribed said contract authorized to make the same,
under the article of copartnership. The other defendants, Yap Sing and Ng Khey Ling,
answered the complaint denying each and every one of the allegations contained therein.
After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng Peng indebted to
plaintiff Philippine National Bank in sum of P22,595.26 to July 29, 1926, with a daily
interest of P4.14 on the balance on account of the partnership "Tai Sing & Co. for the sum
of P16,518.74 until September 9, 1922;
(2) Said defendants are ordered jointly and severally to pay the Philippine National Bank
the sum of P22,727.74 up to August 31, 1926, and from the date, P4.14 daily interest on
the principal; and
(3) The defendants are furthermore ordered to pay the costs of the action.1awph!l.net
Defendants appealed, making the following assignments of error:
I. The trial court erred in finding that article 126 of the Code of Commerce at present in
force is not mandatory.
II. The trial court erred in finding that the partnership agreement of "Tai Sing & Co., (Exhibit
A), is in accordance with the requirements of article 125 of the Code of Commerce for the
organization of a regular partnership.

III. The trial court erred in not admitting J. A. Sai Lian Ping's death in China in November,
1917, as a proven fact.
IV. The trial court erred in finding that the death of J. A. Say Lian Ping cannot extinguish the
defendants' obligation to the plaintiff bank, because the last debt incurred by the
commercial partnership "Tai Sing & Co., was that evidence by Exhibit F, signed by Sy Tit as
attorney-in-fact of the members of "Tai Sing & Co., by virtue of Exhibit G.
V. The trial court erred in not finding that plaintiff bank was not able to collect its credit
from the goods of "Tai Sing & Co., given as security therefor through its own fault and
negligence; and that the action brought by plaintiff is a manifest violation of article 237 of
the present Code of Commerce.
VI. The trial court erred in finding that the current account of "Tai Sing & Co. with plaintiff
bank shows a debit balance of P16,518.74, which in addition to interest at 9 per cent per
annum from July 29, 1926, amount to P16,595.26, with a daily interest of P4.14 on the sum
of P16,518.74.
VII. The trial court erred in ordering the defendants appellants to pay jointly and severally
to the Philippine National Bank the sum of P22,727.74 up to August 31, 1926, and interest
on P16,518.74 from that date until fully paid, with the costs of the action.
VIII. The trial court erred in denying the motion for a new trial filed by defendantsappellants.
Appellants admit, and it appears from the context of Exhibit A, that the defendant
association formed by the defendants is a general partnership, as defined in article 126 of
the Code Commerce. This partnership was registered in the mercantile register of the
Province of Iloilo. The only anomaly noted in its organization is that instead of adopting for
their firm name the names of all of the partners, of several of them, or only one of them, to
be followed in the last two cases, by the words "and to be followed in the last two cases, by
the words "and company" the partners agreed upon "Tai Sing & Co." as the firm name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-Chiong-Seng,
cited by appellants, this court held that, as the company formed by defendants had existed
in fact, though not in law due to the fact that it was not recorded in the register, and
having operated and contracted debts in favor of the plaintiff, the same must be paid by
someone. This applies more strongly to the obligations contracted by the defendants, for
they formed a partnership which was registered in the mercantile register, and carried on
business contracting debts with the plaintiff bank. The anomalous adoption of the firm
name above noted does not affect the liability of the general partners to third parties
under article 127 of the Code of Commerce. And the Supreme Court so held in the case
of Jo Chung Cang vs. Pacific Commercial Co., (45 Phil., 142), in which it said that the object
of article 126 of the Code of Commerce in requiring a general partnership to transact
business under the name of all its members, of several of them, or of one only, is to
protect the public from imposition and fraud; and that the provision of said article 126 is
for the protection of the creditors rather than of the partners themselves. And
consequently the doctrine was enunciated that the law must be unlawful and
unenforceable only as between the partners and at the instance of the violating party, but

not in the sense of depriving innocent parties of their rights who may have dealt with the
offenders in ignorance of the latter having violated the law; and that contracts entered into
by commercial associations defectively organized are valid when voluntarily executed by
the parties, and the only question is whether or not they complied with the agreement.
Therefore, the defendants cannot invoke in their defense the anomaly in the firm name
which they themselves adopted.
As to the alleged death of the manager of the company, Say Lian Ping, before the attorneyin-fact Ou Yong Kelam executed Exhibits C, D and E, the trial court did not find this fact
proven at the hearing. But even supposing that the court had erred, such an error would
not justify the reversal of the judgment, for two reasons at least: (1) Because Ou Yong
Kelam was a partner who contracted in the name of the partnership, without any objection
of the other partners; and (2) because it appears in the record that the appellant-partners
Severo Eugenio Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit as manager, and he
obtained from the plaintiff bank the credit in current account, the debit balance of which is
sought to be recovered in this action.
Appellants allege that such of their property as is not included in the partnership assets
cannot-be seized for the payment of the debts contracted by the partnership until after the
partnership property has been exhausted. The court found that the partnership property
described in the mortgage Exhibit F no loner existed at the time of the filing of the herein
complaint nor has its existence been proven, nor was it offered to the plaintiff for sale. We
find no just reason to reverse this conclusion of the trial court, and this being so, it follows
that article 237 of the Code of Commerce, invoked by the appellant, can in no way have
any application here.
Appellants also assign error to the action of the trial court in ordering them to pay plaintiff,
jointly and severally, the sums claimed with 9 per cent interest on P16,518.74, owing from
them.
The judgment against the appellants is in accordance with article 127 of the Code of
Commerce which provides that all the members of a general partnership, be they
managing partners thereof or not, shall be personally and solidarily liable with all their
property, for the results of the transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person authorized to use it.
As to the amount of the interest suffice it to remember that the credit in current account
sued on in this case as been renewed by the parties in such a way that while it appears in
the mortgage Exhibit D executed on March 25, 1919 by the attorney-in-fact Ou Yong Kelam
that the P20,000 credit would earn 8 per cent interest annually, yet from that executed on
April 16, 1920, Exhibit E, it appears that the P20,000 would earn 9 per cent interest per
annum. The credit was renewed in January, 1921, and in the deed of pledge, Exhibit F,
executed by "Tai Sing & Co., represented by the attorney-in-fact Sy Tit, it appears that this
security is for the payment of the sums received by the partnership, not to exceed P20,000
with interest and collection fees. There can be no doubt that the parties agreed upon the
rate of interest fixed in the document Exhibit E, namely 9 per cent per annum.
The judgment appealed from is in accordance with the law, and must therefore be, as it is
hereby, affirmed with costs against the appellants. So ordered.

G.R. No. L-3146

September 14, 1907

NICOLAS CO-PITCO, plaintiff-appellee,

vs.
PEDRO YULO, defendant-appellant.
Salvador Laguda, for appellant.
Rothrock and Ney, for appellee.
WILLIARD, J.:
The appellee makes the point in his brief in this court that although the defendant
excepted to the order of the court below denying his motion for a new trial on the ground
of the insufficiency of the evidence, yet we can not review such evidence because it is not
properly certified. We think that this point is well taken. The testimony of one witness is
certified to by the stenographer, who says that it is all the evidence which took during the
trial. The testimony of this witness is unimportant. There follow in the record several pages
of what purports to be evidence of different witnesses taken in narrative form, but neither
the judge, nor the clerk, nor the stenographer certify in any way what these pages are or
that they contain evidence taken during the trial of this case. For the purpose of this
review, therefore, we can only consider the facts admitted by the pleadings and those
stated in the decision of the court below. In that decision the court makes the following
finding of fact, among others:
Before February, 1903, Florencio Yulo and Jaime Palacios were partners in the operation of
a sugar estate in Victorias, Island of Negros, and had commercial dealings with a Chinaman
named Dy-Sianco, who furnished them with money and goods, and used to buy their crop
of sugar. In February, 1903, the defendant, Pedro Yulo, father of the said Florencio, took
charge of the latter's interest in the above-mentioned partnership, and he became a
general partner with the said Jaime Palacios in the same business, and he continued as
such partner until about the end of 1904, dealing with Dy-Sianco in the same manner as
the old partnership had dealt with the latter.
He then finds that the balance due from the firm Pedro Yulo and Jaime Palacios was
1,638.40 pesos, Philippine currency, and orders judgment against the defendant, Pedro
Yulo, for the entire amount, with interest.
The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in
Negros. It was, therefore a civil partnership, as distinguished from a mercantile
partnership. Being a civil partnership, by the express provisions of articles 1698 and 1137
of the Civil Code, the partners are not liable each for the whole debt of the partnership.
The liability is pro rata and in this case Pedro Yulo is responsible to plaintiff for only onehalf of the debt. The fact that the other partner, Jaime Palacios, had left the country can
not increase the liability of Pedro Yulo.
The judgment of the court below is reversed and judgment is ordered in favor of the
plaintiff and against the defendant, Pedro Yulo, for the sum of P819.20 pesos, Philippine
Currency, with interest thereon at the rate of 6 per cent per annum from the 12th day of
January, 1905, and the costs of the Court of First Instance. No costs will be allowed to
either party in this court. So ordered.

G.R. No. L-22493 July 31, 1975

ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants.
BENJAMIN C. DACO,defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.

CONCEPCION JR., J.:

This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the
Court of First Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive
portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer General Construction
Company to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum
until it is fully paid, plus attorney's fees which the Court fixes in the sum of Eight Hundred
Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are
sentenced to pay the plaintiff in this case with the understanding that the judgment
against these individual defendants shall be enforced only if the defendant company has
no more leviable properties with which to satisfy the judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general partnership duly registered under the
laws of the Philippines, purchased from the plaintiff a motor vehicle on the installment
basis and for this purpose executed a promissory note for P9,440.00, payable in twelve
(12) equal monthly installments of P786.63, the first installment payable on or before May
22, 1961 and the subsequent installments on the 22nd day of every month thereafter, until
fully paid, with the condition that failure to pay any of said installments as they fall due
would render the whole unpaid balance immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the
defendant company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco,
Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as
co-defendants in their capacity as general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was consequently declared in default. 1

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the
defendant Romulo B. Lumauig is concerned. 2
When the case was called for hearing, the defendants and their counsels failed to appear
notwithstanding the notices sent to them. Consequently, the trial court authorized the
plaintiff to present its evidence ex-parte 3 , after which the trial court rendered the decision
appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision
claiming that since there are five (5) general partners, the joint and subsidiary liability of
each partner should not exceed one-fifth ( 1/ 5 ) of the obligations of the defendant
company. But the trial court denied the said motion notwithstanding the conformity of the
plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the
obligations of the defendant company. 4Hence, this appeal.
The only issue for resolution is whether or not the dismissal of the complaint to favor one
of the general partners of a partnership increases the joint and subsidiary liability of each
of the remaining partners for the obligations of the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts which
may be entered into in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership. However, any partner may
enter into a separate obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in
Negros. It was, therefore, a civil partnership as distinguished from a mercantile
partnership. Being a civil partnership, by the express provisions of articles l698 and 1137
of the Civil Code, the partners are not liable each for the whole debt of the partnership.
The liability is pro rata and in this case Pedro Yulo is responsible to plaintiff for only onehalf of the debt. The fact that the other partner, Jaime Palacios, had left the country cannot
increase the liability of Pedro Yulo.
In the instant case, there were five (5) general partners when the promissory note in
question was executed for and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to only
one-fifth ( 1/ 5 ) of the obligations of the defendant company. The fact that the complaint
against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff,
does not unmake the said Lumauig as a general partner in the defendant company. In so
moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual
liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without
pronouncement as to costs.
SO ORDERED.

G.R. No. L-39780 November 11, 1985

ELMO MUASQUE, petitioner,
vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and
RAMON PONS,respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.
Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the decision of the
Court of Appeals affirming the existence of a partnership between petitioner and one of the
respondents, Celestino Galan and holding both of them liable to the two intervenors which
extended credit to their partnership. The petitioner wants to be excluded from the
liabilities of the partnership.
Petitioner Elmo Muasque filed a complaint for payment of sum of money and damages
against respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon
Pons, alleging that the petitioner entered into a contract with respondent Tropical through
its Cebu Branch Manager Pons for remodelling a portion of its building without exchanging
or expecting any consideration from Galan although the latter was casually named as
partner in the contract; that by virtue of his having introduced the petitioner to the
employing company (Tropical). Galan would receive some kind of compensation in the form
of some percentages or commission; that Tropical, under the terms of the contract, agreed
to give petitioner the amount of P7,000.00 soon after the construction began and
thereafter, the amount of P6,000.00 every fifteen (15) days during the construction to
make a total sum of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a

check for P7,000.00 not to the plaintiff but to a stranger to the contract, Galan, who
succeeded in getting petitioner's indorsement on the same check persuading the latter
that the same be deposited in a joint account; that on January 26, 1967 when the second
check for P6,000.00 was due, petitioner refused to indorse said cheek presented to him by
Galan but through later manipulations, respondent Pons succeeded in changing the
payee's name from Elmo Muasque to Galan and Associates, thus enabling Galan to cash
the same at the Cebu Branch of the Philippine Commercial and Industrial Bank (PCIB)
placing the petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay' for construction materials, the payment of
which should have been made from the P13,000.00 received by Galan; that petitioner
undertook the construction at his own expense completing it prior to the March 16, 1967
deadline;that because of the unauthorized disbursement by respondents Tropical and Pons
of the sum of P13,000.00 to Galan petitioner demanded that said amount be paid to him
by respondents under the terms of the written contract between the petitioner and
respondent company.
The respondents answered the complaint by denying some and admitting some of the
material averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed that the issues to
be resolved are:
(1) Whether or not there existed a partners between Celestino Galan and Elmo Muasque;
and
(2) Whether or not there existed a justifiable cause on the part of respondent Tropical to
disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace
were allowed to intervene, both having legal interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive portion of which states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the
intervenors Cebu and Southern Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company and Ramon Pons from any
liability,
No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed
motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its judgment to make
it read as follows:
IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace the amount
of P6,229.34 and P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware
Company and Tan Siu jointly and severally interest at 12% per annum of the sum of
P6,229.34 until the amount is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00 representing attorney's fees
jointly and severally to Intervenor Cebu Southern Hardware Company:
(4) absolving the defendants Tropical Commercial Company and Ramon Pons from any
liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole
modification that the liability imposed in the dispositive part of the decision on the credit of
Cebu Southern Hardware and Blue Diamond Glass Palace was changed from "jointly and
severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf of the partnership of
"Galan and Muasque" as Contractor entered into a written contract with respondent
Tropical for remodelling the respondent's Cebu branch building. A total amount of
P25,000.00 was to be paid under the contract for the entire services of the Contractor. The
terms of payment were as follows: thirty percent (30%) of the whole amount upon the
signing of the contract and the balance thereof divided into three equal installments at the
lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.
The first payment made by respondent Tropical was in the form of a check for P7,000.00 in
the name of the petitioner.Petitioner, however, indorsed the check in favor of respondent
Galan to enable the latter to deposit it in the bank and pay for the materials and labor
used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so
that when the second check in the amount of P6,000.00 came and Galan asked the
petitioner to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan informed the Cebu branch of
Tropical that there was a"misunderstanding" between him and petitioner, respondent
Tropical changed the name of the payee in the second check from Muasque to "Galan and
Associates" which was the duly registered name of the partnership between Galan and
petitioner and under which name a permit to do construction business was issued by the
mayor of Cebu City. This enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued through his sole
efforts. He stated that he borrowed some P12,000.00 from his friend, Mr. Espina and
although the expenses had reached the amount of P29,000.00 because of the failure of
Galan to pay what was partly due the laborers and partly due for the materials, the

construction work was finished ahead of schedule with the total expenditure reaching
P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were subsequently given to
the petitioner alone with the last check being given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of money and
damages against the respondents,seeking to recover the following: the amounts covered
by the first and second checks which fell into the hands of respondent Galan, the
additional expenses that the petitioner incurred in the construction, moral and exemplary
damages, and attorney's fees.

were true partners. If they were not partners as petitioner claims, then he has only himself
to blame for making the relationship appear otherwise, not only to Tropical but to their
other creditors as well. The payments made to the partnership were, therefore, valid
payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita G. Saldajeno had acted in good faith, the
appellees also acted in good faith in extending credit to the partnership. Where one of two
innocent persons must suffer, that person who gave occasion for the damages to be
caused must bear the consequences.

Both the trial and appellate courts not only absolved respondents Tropical and its Cebu
Manager, Pons, from any liability but they also held the petitioner together with respondent
Galan, hable to the intervenors Cebu Southern Hardware Company and Blue Diamond
Glass Palace for the credit which the intervenors extended to the partnership of petitioner
and Galan

No error was committed by the appellate court in holding that the payment made by
Tropical to Galan was a good payment which binds both Galan and the petitioner. Since the
two were partners when the debts were incurred, they, are also both liable to third persons
who extended credit to their partnership. In the case of George Litton v. Hill and Ceron, et
al, (67 Phil. 513, 514), we ruled:

In this petition the legal questions raised by the petitioner are as follows: (1) Whether or
not the appellate court erred in holding that a partnership existed between petitioner and
respondent Galan. (2) Assuming that there was such a partnership, whether or not the
court erred in not finding Galan guilty of malversing the P13,000.00 covered by the first
and second checks and therefore, accountable to the petitioner for the said amount; and
(3) Whether or not the court committed grave abuse of discretion in holding that the
payment made by Tropical through its manager Pons to Galan was "good payment, "

There is a general presumption that each individual partner is an authorized agent for the
firm and that he has authority to bind the firm in carrying on the partnership transactions.
(Mills vs. Riggle,112 Pan, 617).

Petitioner contends that the appellate court erred in holding that he and respondent Galan
were partners, the truth being that Galan was a sham and a perfidious partner who
misappropriated the amount of P13,000.00 due to the petitioner.Petitioner also contends
that the appellate court committed grave abuse of discretion in holding that the payment
made by Tropical to Galan was "good" payment when the same gave occasion for the latter
to misappropriate the proceeds of such payment.

Petitioner also maintains that the appellate court committed grave abuse of discretion in
not holding Galan liable for the amounts which he "malversed" to the prejudice of the
petitioner. He adds that although this was not one of the issues agreed upon by the parties
during the pretrial, he, nevertheless, alleged the same in his amended complaint which
was, duly admitted by the court.

The presumption is sufficient to permit third persons to hold the firm liable on transactions
entered into by one of members of the firm acting apparently in its behalf and within the
scope of his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)

The records will show that the petitioner entered into a con-tract with Tropical for the
renovation of the latter's building on behalf of the partnership of "Galan and Muasque."
This is readily seen in the first paragraph of the contract where it states:

When the petitioner amended his complaint, it was only for the purpose of impleading
Ramon Pons in his personal capacity. Although the petitioner made allegations as to the
alleged malversations of Galan, these were the same allegations in his original complaint.
The malversation by one partner was not an issue actually raised in the amended
complaint but the alleged connivance of Pons with Galan as a means to serve the latter's
personal purposes.

This agreement made this 20th day of December in the year 1966 by Galan and Muasque
hereinafter called the Contractor, and Tropical Commercial Co., Inc., hereinafter called the
owner do hereby for and in consideration agree on the following: ... .

The petitioner, therefore, should be bound by the delimitation of the issues during the pretrial because he himself agreed to the same. In Permanent Concrete Products, Inc. v.
Teodoro, (26 SCRA 336), we ruled:

There is nothing in the records to indicate that the partner-ship organized by the two men
was not a genuine one. If there was a falling out or misunderstanding between the
partners, such does not convert the partnership into a sham organization.

xxx xxx xxx

The contentions are without merit.

Likewise, when Muasque received the first payment of Tropical in the amount of
P7,000.00 with a check made out in his name, he indorsed the check in favor of Galan.
Respondent Tropical therefore, had every right to presume that the petitioner and Galan

... The appellant is bound by the delimitation of the issues contained in the trial court's
order issued on the very day the pre-trial conference was held. Such an order controls the
subsequent course of the action, unless modified before trial to prevent manifest
injustice.In the case at bar, modification of the pre-trial order was never sought at the
instance of any party.

Petitioner could have asked at least for a modification of the issues if he really wanted to
include the determination of Galan's personal liability to their partnership but he chose not
to do so, as he vehemently denied the existence of the partnership. At any rate, the issue
raised in this petition is the contention of Muasque that the amounts payable to the
intervenors should be shouldered exclusively by Galan. We note that the petitioner is not
solely burdened by the obligations of their illstarred partnership. The records show that
there is an existing judgment against respondent Galan, holding him liable for the total
amount of P7,000.00 in favor of Eden Hardware which extended credit to the partnership
aside from the P2, 000. 00 he already paid to Universal Lumber.

In the case at bar the respondent Tropical had every reason to believe that a partnership
existed between the petitioner and Galan and no fault or error can be imputed against it
for making payments to "Galan and Associates" and delivering the same to Galan because
as far as it was concerned, Galan was a true partner with real authority to transact on
behalf of the partnership with which it was dealing. This is even more true in the cases of
Cebu Southern Hardware and Blue Diamond Glass Palace who supplied materials on credit
to the partnership. Thus, it is but fair that the consequences of any wrongful act committed
by any of the partners therein should be answered solidarily by all the partners and the
partnership as a whole

We, however, take exception to the ruling of the appellate court that the trial court's
ordering petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern
Hardware"jointly and severally" is plain error since the liability of partners under the law to
third persons for contracts executed inconnection with partnership business is only pro
rata under Art. 1816, of the Civil Code.

However. as between the partners Muasque and Galan,justice also dictates that
Muasque be reimbursed by Galan for the payments made by the former representing the
liability of their partnership to herein intervenors, as it was satisfactorily established that
Galan acted in bad faith in his dealings with Muasque as a partner.

While it is true that under Article 1816 of the Civil Code,"All partners, including industrial
ones, shall be liable prorate with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into the name and fm the account
cd the partnership, under its signature and by a person authorized to act for the partnership. ...". this provision should be construed together with Article 1824 which provides that:
"All partners are liable solidarily with the partnership for everything chargeable to the
partnership under Articles 1822 and 1823." In short, while the liability of the partners are
merely joint in transactions entered into by the partnership, a third person who transacted
with said partnership can hold the partners solidarily liable for the whole obligation if the
case of the third person falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary
course of the business of the partner-ship or with the authority of his co-partners, loss or
injury is caused to any person, not being a partner in the partnership or any penalty is
incurred, the partnership is liable therefor to the same extent as the partner so acting or
omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent authority receives money or
property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or property of a
third person and t he money or property so received is misapplied by any partner while it is
in the custody of the partnership.
The obligation is solidary, because the law protects him, who in good faith relied upon the
authority of a partner, whether such authority is real or apparent. That is why under Article
1824 of the Civil Code all partners, whether innocent or guilty, as well as the legal entity
which is the partnership, are solidarily liable.

WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that
the liability of petitioner and respondent Galan to intervenors Blue Diamond Glass and
Cebu Southern Hardware is declared to be joint and solidary. Petitioner may recover from
respondent Galan any amount that he pays, in his capacity as a partner, to the above
intervenors,
SO ORDERED.

TIOSEJO VS ANG DECISION

PEREZ, J.:

Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for
review at bench seeks the reversal of the Resolutions dated 23 May 2006 and 9 August
2006 issued by the Third Division of the Court of Appeals (CA) in CA-G.R. SP No. 93841
which, respectively, dismissed the petition for review of petitioner J. Tiosejo Investment
Corp. (JTIC) for having been filed out of time[1] and denied the motion for reconsideration of
said dismissal.[2]

The Facts

On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with
Primetown Property Group, Inc. (PPGI) for the development of a residential condominium
project to be known as The Meditel on the formers 9,502 square meter property
along Samat St., Highway Hills, Mandaluyong City.[3] With petitioner contributing the same
property to the joint venture and PPGI undertaking to develop the condominium, the JVA
provided, among other terms and conditions, that the developed units shall be shared by
the former and the latter at a ratio of 17%-83%, respectively. [4] While both parties were
allowed, at their own individual responsibility, to pre-sell the units pertaining to them,
[5]
PPGI further undertook to use all proceeds from the pre-selling of its saleable units for
the completion of the Condominium Project. [6]

On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued
License to Sell No. 96-06-2854 in favor of petitioner and PPGI as project owners. [7] By
virtue of said license, PPGI executed Contract to Sell No. 0212 with Spouses Benjamin and
Eleanor Ang on 5 February 1997, over the 35.45-square meter condominium unit
denominated as Unit A-1006, for the agreed contract price of P52,597.88 per square
meter or a total P2,077,334.25.[8] On the same date PPGI and respondents also
executedContract to Sell No. 0214 over the 12.50 square meter parking space identified as
Parking Slot No. 0405, for the stipulated consideration of P26,400.00 square meters or a
total ofP313,500.00.[9]

On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the
rescission of the aforesaid Contracts to Sell docketed before the HLURB as HLURB Case No.
REM 072199-10567. Contending that they were assured by petitioner and PPGI that the
subject condominium unit and parking space would be available for turn-over and
occupancy in December 1998, respondents averred, among other matters, that in view of

the non-completion of the project according to said representation, respondents instructed

petitioner and PPGI to stop depositing the post-dated checks they issued and to cancel said
Contracts to Sell; and, that despite several demands, petitioner and PPGI have failed and
refused to refund the P611,519.52 they already paid under the circumstances. Together
with the refund of said amount and interests thereon at the rate of 12% per annum,
respondents prayed for the grant of their claims for moral and exemplary damages as well
as attorneys fees and the costs.[10]

Specifically denying the material allegations of the foregoing complaint, PPGI filed its
7 September 1999 answer alleging that the delay in the completion of the project was
attributable to the economic crisis which affected the country at the time; that the
unexpected and unforeseen inflation as well as increase in interest rates and cost of
building materials constitute force majeure and were beyond its control; that aware of its
responsibilities, it offered several alternatives to its buyers like respondents for a transfer
of their investment to its other feasible projects and for the amounts they already paid to
be considered as partial payment for the replacement unit/s; and, that the complaint was
prematurely filed in view of the on-going negotiations it is undertaking with its buyers and
prospective joint venture partners. Aside from the dismissal of the complaint, PPGI sought
the readjustment of the contract price and the grant of its counterclaims for attorneys fees
and litigation expenses.[11]

Petitioner also specifically denied the material allegations of the complaint in

separate answer dated 5 February 2002[12] which it amended on 20 May 2002. Calling
attention to the fact that its prestation under the JVA consisted in contributing the property
on which The Meditel was to be constructed, petitioner asseverated that, by the terms of
the JVA, each party was individually responsible for the marketing and sale of the units
pertaining to its share; that not being privy to the Contracts to Sell executed by PPGI and
respondents, it did not receive any portion of the payments made by the latter; and, that
without any contributory fault and negligence on its part, PPGI breached its undertakings
under the JVA by failing to complete the condominium project. In addition to the dismissal
of the complaint and the grant of its counterclaims for exemplary damages, attorneys
fees, litigation expenses and the costs, petitioner interposed a cross-claim against PPGI for
full reimbursement of any sum it may be adjudged liable to pay respondents. [13]

Acting on the position papers and draft decisions subsequently submitted by the
parties,[14] Housing and Land Use (HLU) Arbiter Dunstan T. San Vicente went on to render
the 30 July 2003 decision declaring the subject Contracts to Sell cancelled and rescinded
on account of the non-completion of the condominium project. On the ground that the JVA
created a partnership liability on their part, petitioner and PPGI, as co-owners of the
condominium project, were ordered to pay: (a) respondents claim for refund of
the P611,519.52 they paid, with interest at the rate of 12% per annum from 5 February
1997; (b) damages in the sum of P75,000.00; (c) attorneys fees in the sum of P30,000.00;
(d) the costs; and, (e) an administrative fine in the sum of P10,000.00 for violation of Sec.

20 in relation to Sec. 38 of Presidential Decree No. 957. [15] Elevated to the HLURB Board of
Commissioners via the petition for review filed by petitioner, [16] the foregoing decision was
modified to grant the latters cross-claim in the 14 September 2004 decision rendered by
said administrative bodys Second Division in HLURB Case No. REM-A-031007-0240, [17] to
wit:

Wherefore, the petition for review of the respondent Corporation is

dismissed. However, the decision of the Office below dated July 30, 2003 is modified,
hence, its dispositive portion shall read:

1. Declaring the contracts to sell, both dated February 5, 1997, as cancelled and
rescinded, and ordering the respondents to immediately pay the complainants the
following:

a.
The amount of P611,519.52, with interest at the legal rate reckoned from February 5,
1997 until fully paid;
b.

Damages of P75,000.00;

c.

Attorneys fees equivalent to P30,000.00; and

d.

The Cost of suit;

2. Ordering respondents to pay this Office administrative fine of P10,000.00 for violation
of Section 20 in relation to Section 38 of P.D. 957; and

3.
Ordering respondent Primetown to reimburse the entire amount which the respondent
Corporation will be constrained to pay the complainants.

March 2005 within which to file its appeal memorandum. [22] In view of petitioners filing of
a second motion for extension dated 15 March 2005,[23] the OP issued the 18 March 2005
order granting the former an additional 10 days from 15 March 2005 or until 25 March
2005 within which to file its appeal memorandum, provided no further extension shall be
allowed.[24] Claiming to have received the aforesaid 3 March 2005 order only on 16 March
2005, however, petitioner filed its 31 March 2005 motion seeking yet another extension of
10 days or until 10 April 2005 within which to file its appeal memorandum. [25]

On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for
extension of petitioner[26] which eventually filed its appeal memorandum by registered mail
on 11 April 2005 in view of the fact that 10 April 2005 fell on a Sunday. [27] On 25 October
2005, the OP rendered a decision dismissing petitioners appeal on the ground that the
latters appeal memorandum was filed out of time and that the HLURB Board committed no
grave abuse of discretion in rendering the appealed decision. [28] Aggrieved by the denial of
its motion for reconsideration of the foregoing decision in the 3 March 2006 order issued by
the OP,[29] petitioner filed before the CA its 29 March 2006 motion for an extension of 15
days from 31 March 2006 or until 15 April 2006 within which to file its petition for review.
[30]
Accordingly, a non-extendible period of 15 days to file its petition for review was
granted petitioner in the 31 March 2006 resolution issued by the CA Third Division in CAG.R, SP No. 93841.[31]

Maintaining that 15 April 2006 fell on a Saturday and that pressures of work prevented its
counsel from finalizing its petition for review, petitioner filed a motion on 17 April 2006,
seeking for an additional time of 10 days or until 27 April 2006 within which to file said
pleading.[32] Although petitioner filed by registered mail a motion to admit its attached
petition for review on 19 April 2006,[33] the CA issued the herein assailed 23 May 2006
resolution,[34] disposing of the formers pending motion for extension as well as the petition
itself in the following wise:

We resolve to DENY the second extension motion and rule to DISMISS the petition for being
filed late.

So ordered.[18]

With the denial of its motion for reconsideration of the foregoing decision,
petitioner filed a Notice of Appeal dated 28 February 2005 which was docketed before
the Office of the President (OP) as O.P. Case No. 05-B-072. [20] On 3 March 2005, the OP
issued an order directing petitioner to submit its appeal memorandum within 15 days from
receipt thereof.[21] Acting on the motion therefor filed, the OP also issued another order on
the same date, granting petitioner a period of 15 days from 28 February 2005 or until 15
[19]

Settled is that heavy workload is by no means excusable (Land Bank of the Philippines vs.
Natividad, 458 SCRA 441 [2005]). If the failure of the petitioners counsel to cope up with
heavy workload should be considered a valid justification to sidestep the reglementary
period, there would be no end to litigations so long as counsel had not been sufficiently
diligent or experienced (LTS Philippine Corporation vs. Maliwat, 448 SCRA 254, 259-260
[2005], citing Sublay vs. National Labor Relations Commission, 324 SCRA 188 [2000]).

Moreover, lawyers should not assume that their motion for extension or postponement will
be granted the length of time they pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).

appeal in the prescribed manner has the effect of rendering the judgment final and
executory.[44]

SO ORDERED.[35]

Fealty to the foregoing principles impels us to discount the error petitioner imputes
against the CA for denying its second motion for extension of time for lack of merit and
dismissing its petition for review for having been filed out of time. Acting on the 29 March
2006 motion filed for the purpose, after all, the CA had already granted petitioner an
inextendible period of 15 days from 31 March 2006 or until 15 April 2006 within which to
file its petition for review. Sec. 4, Rule 43 of the 1997 Rules of Civil Procedureprovides as
follows:

Petitioners motion for reconsideration of the foregoing resolution [36] was denied for lack of
merit in the CAs second assailed 9 August 2006 resolution, [37] hence, this petition.
The Issues

Petitioner seeks the reversal of the assailed resolutions on the following grounds, to wit:

I.
THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON MERE
TECHNICALITY;

II.
THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE PETITION ON
THE MERITS THEREBY AFFIRMING THE OFFICE OF THE PRESIDENTS DECISION (A)
DISMISSING JTICS APPEAL ON A MERE TECHNICALITY; (B) AFFIRMING THE HLURB
BOARDS DECISION INSOFAR AS IT FOUND JTIC SOLIDARILY LIABLE WITH
PRIMETOWN TO PAY SPOUSES ANG DAMAGES, ATTORNEYS FEES AND THE COST
OF THE SUIT; AND (C) AFFIRMING THE HLURB BOARDS DECISION INSOFAR AS IT
FAILED TO AWARD JITC ITS COUNTERCLAIMS AGAINST SPOUSES ANG.[38]

The Courts Ruling

We find the petition bereft of merit.

While the dismissal of an appeal on purely technical grounds is concededly

frowned upon,[39] it bears emphasizing that the procedural requirements of the rules on
appeal are not harmless and trivial technicalities that litigants can just discard and
disregard at will.[40] Neither being a natural right nor a part of due process, the rule is
settled that the right to appeal is merely a statutory privilege which may be exercised only
in the manner and in accordance with the provisions of the law. [41] The perfection of an
appeal in the manner and within the period prescribed by law is, in fact, not only
mandatory but jurisdictional.[42] Considering that they are requirements which cannot be
trifled with as mere technicality to suit the interest of a party, [43] failure to perfect an

Sec. 4. Period of appeal. The appeal shall be taken within fifteen (15) days from
notice of the award, judgment, final order or resolution, or from the date of its last
publication, if publication is required by law for its effectivity, or of the denial of petitioners
motion for new trial or reconsideration duly filed in accordance with the governing law of
the court or agency a quo. Only one (1) motion for reconsideration shall be allowed. Upon
proper motion and payment of the full amount of the docket fee before the expiration of
the reglementary period, the Court of Appeals may grant an additional period of fifteen
(15) days only within which to file the petition for review. No further extension shall be
granted except for the most compelling reason and in no case to exceed fifteen (15) days.
(Underscoring supplied)

The record shows that, having been granted the 15-day extension sought in its first
motion, petitioner filed a second motion for extension praying for an additional 10 days
from 17 April 2006 within which to file its petition for review, on the ground that pressures
of work and the demands posed by equally important cases prevented its counsel from
finalizing the same. As correctly ruled by the CA, however, heavy workload cannot be
considered as a valid justification to sidestep the reglementary period [45] since to do so
would only serve to encourage needless delays and interminable litigations. Indeed, rules
prescribing the time for doing specific acts or for taking certain proceedings are considered
absolutely indispensable to prevent needless delays and to orderly and promptly discharge
judicial business.[46] Corollary to the principle that the allowance or denial of a motion for
extension of time is addressed to the sound discretion of the court, [47] moreover, lawyers
cannot expect that their motions for extension or postponement will be granted [48] as a
matter of course.

Although technical rules of procedure are not ends in themselves, they are
necessary for an effective and expeditious administration of justice and cannot, for said
reason, be discarded with the mere expediency of claiming substantial merit. [49] This holds
particularly true in the case at bench where, prior to the filing of its petition for review

before the CA, petitioners appeal before the OP was likewise dismissed in view of its
failure to file its appeal memorandum within the extensions of time it had been granted by
said office. After being granted an initial extension of 15 days to do the same, the records
disclose that petitioner was granted by the OP a second extension of 10 days from 15
March 2005 or until 25 March 2005 within which to file its appeal memorandum, on the
condition that no further extensions shall be allowed. Aside from not heeding said proviso,
petitioner had, consequently, no more time to extend when it filed its 31 March 2005
motion seeking yet another extension of 10 days or until 10 April 2005 within which to file
its appeal memorandum.

With the foregoing procedural antecedents, the initial 15-day extension granted by
the CA and the injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil Procedureagainst
further extensions except for the most compelling reason, it was clearly inexcusable for
petitioner to expediently plead its counsels heavy workload as ground for seeking an
additional extension of 10 days within which to file its petition for review. To our mind,
petitioner would do well to remember that, rather than the low gate to which parties are
unreasonably required to stoop, procedural rules are designed for the orderly conduct of
proceedings and expeditious settlement of cases in the courts of law. Like all rules, they
are required to be followed[50] and utter disregard of the same cannot be expediently
rationalized by harping on the policy of liberal construction [51] which was never intended as
an unfettered license to disregard the letter of the law or, for that matter, a convenient
excuse to substitute substantial compliance for regular adherence thereto. When it comes
to compliance with time rules, the Court cannot afford inexcusable delay. [52]

Even prescinding from the foregoing procedural considerations, we also find that the
HLURB Arbiter and Board correctly held petitioner liable alongside PPGI for respondents
claims and the P10,000.00 administrative fine imposed pursuant to Section 20 in relation
to Section 38 of P.D. 957. By the express terms of the JVA, it appears that petitioner not
only retained ownership of the property pending completion of the condominium
project[53] but had also bound itself to answer liabilities proceeding from contracts entered
into by PPGI with third parties. Article VIII, Section 1 of the JVA distinctly provides as
follows:

Sec. 1. Rescission and damages. Non-performance by either party of its

obligations under this Agreement shall be excused when the same is due to Force
Majeure. In such cases, the defaulting party must exercise due diligence to minimize the
breach and to remedy the same at the soonest possible time. In the event that either
party defaults or breaches any of the provisions of this Agreement other than by reason of
Force Majeure, the other party shall have the right to terminate this Agreement by giving
notice to the defaulting party, without prejudice to the filing of a civil case for damages
arising from the breach of the defaulting party.

In the event that the Developer shall be rendered unable to complete the
Condominium Project, and such failure is directly and solely attributable to the Developer,
the Owner shall send written notice to the Developer to cause the completion of the
Condominium Project. If the developer fails to comply within One Hundred Eighty (180)
days from such notice or, within such time, indicates its incapacity to complete the Project,
the Owner shall have the right to take over the construction and cause the completion
thereof. If the Owner exercises its right to complete the Condominium Project under these
circumstances, this Agreement shall be automatically rescinded upon written notice to the
Developer and the latter shall hold the former free and harmless from any and all liabilities
to third persons arising from such rescission. In any case, the Owner shall respect and
strictly comply with any covenant entered into by the Developer and third parties with
respect to any of its units in the Condominium Project. To enable the owner to comply with
this contingent liability, the Developer shall furnish the Owner with a copy of its contracts
with the said buyers on a month-to-month basis. Finally, in case the Owner would be
constrained to assume the obligations of the Developer to its own buyers, the Developer
shall lose its right to ask for indemnity for whatever it may have spent in the Development
of the Project.

Nevertheless, with respect to the buyers of the Developer for the First Phase, the
area intended for the Second Phase shall not be bound and/or subjected to the said
covenants and/or any other liability incurred by the Developer in connection with the
development of the first phase. (Underscoring supplied)

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid
liability by claiming that it was not in any way privy to the Contracts to Sell executed by
PPGI and respondents. As correctly argued by the latter, moreover, a joint venture is
considered in this jurisdiction as a form of partnership and is, accordingly, governed by the
law of partnerships.[54] Under Article 1824 of the Civil Code of the Philippines, all partners
are solidarily liable with the partnership for everything chargeable to the partnership,
including loss or injury caused to a third person or penalties incurred due to any wrongful
act or omission of any partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners.[55] Whether innocent or guilty, all the
partners are solidarily liable with the partnership itself. [56]

WHEREFORE, premises considered, the petition for review is DENIED for lack of
merit.

G.R. No. 110782 September 25, 1998

CHECK NO. DATE AMOUNT

IRMA IDOS, petitioner,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

1) 103110295 8-15-86 P135,828.87

2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87

QUISUMBING, J.:

4) 103115491 10-30-86 P126,656.01

Before this Court is the petition for review of the Decision of respondent Court of
Appeals 1 dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her
conviction as well as the sentence imposed on her by the Regional Trial Court of Malolos,
Bulacan, in Criminal Case No. 1395-M-88 2 as follows:

The complainant was able to encash the first, second, and fourth checks, but the third
check (Exh. A) which is the subject of this case, was dishonored on October 14, 1986 for
insufficiency of funds. The complainant demanded payment from the accused-appellant
but the latter failed to pay. Accordingly, on December 18, 1986, through counsel, he made
a formal demand for payment. (Exh. B) In a letter dated January 2, 1987, the accusedappellant denied liability. She claimed that the check had been given upon demand of
complainant in May 1986 only as "assurance" of his share in the assets of the partnership
and that it was not supposed to be deposited until the stocks had been sold.

WHEREFORE . . . the (c)ourt finds the accused Irma Idos guilty beyond reasonable doubt
and is hereby sentenced to suffer the penalty of imprisonment of six (6) months and to pay
a fine of P135,000.00 and to pay private complainant Eddie Alarilla the amount of the
check in question of P135,000.00 at 12% interest from the time of the filing of the
(i)nformation (August 10, 1988) until said amount has been fully paid.
Elevated from the Third Division 3 of this Court, the case was accepted for resolution en
banc on the initial impression that here, a constitutional question might be involved. 4 It
was opined that petitioner's sentence, particularly six months' imprisonment, might be in
violation of the constitutional guarantee against imprisonment for non-payment of a debt. 5
A careful consideration of the issues presented in the petition as well as the comments
thereon and the findings of fact by the courts below in the light of applicable laws and
precedents convinces us, however, that the constitutional dimension need not be reached
in order to resolve those issues adequately. For, as herein discussed, the merits of the
petition could be determined without delving into aspects of the cited constitutional
guarantee vis-a-vis provisions of the Bouncing Checks Law (Batas Pambansa Blg. 22).
There being no necessity therefor, we lay aside discussions of the constitutional challenge
to said law in deciding this petition.
The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her
accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the
complainant below, Eddie Alarilla.
As narrated by the Court of Appeals, the background of this case is as follows:
The complainant Eddie Alarilla supplied chemicals and rawhide to the accused-appellant
Irma L. Idos for use in the latter's business of manufacturing leather. In 1985, he joined the
accused-appellant's business and formed with her a partnership under the style
"Tagumpay Manufacturing," with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties agreed to terminate
their partnership. Upon liquidation of the business the partnership had as of May 1986
receivables and stocks worth P1,800,000.00. The complainant's share of the assets was
P900,000.00 to pay for which the accused-appellant issued the following postdated checks,
all drawn against Metrobank Branch in Mandaue, Cebu:

Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan which
on August 22, 1988 filed an information for violation of BP Blg. 22 against accusedappellant.
Complainant danied that the checks issued to him by accused-appellant were subject to
the disposition of the stocks and the collection of receivables of the business. But the
accused-appellant insisted that the complainant had known that the checks were to be
funded from the proceeds of the sale of the stocks and the collection of receivables. She
claimed that the complainant himself asked for the checks because he did not want to
continue in the tannery business and had no use for a share of the stocks. (TSN, p. 7, April
14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20, Feb. 14, 1990; id, p. 14, June 4,
1990).
On February 15, 1992, the trial court rendered judgment finding the accused-appellant
guilty of the crime charged. The accused-appellant's motion for annulment of the decision
and for reconsideration was denied by the trial court in its order dated April 12, 1991. 6
Herein respondent court thereafter affirmed on appeal the decision of the trial court.
Petitioner timely moved for a reconsideration, but this was subsequently denied by
respondent court in its Resolution 7 dated June 11, 1993. Petitioner has now appealed to us
by way of a petition for certiorari under Rule 45 of the Rules of Court.
During the pendency of this petition, this Court by a resolutions 8 dated August 30, 1993,
took note of the compromise agreement executed between the parties, regarding the civil
aspect of the case, as manifested by petitioner in a Motion to Render Judgment based on
Compromise Agreement 9 filed on August 5, 1993. After submission of the Comment 10 by
the Solicitor General, and the Reply 11 by petitioner, this case was deemed submitted for
decision.
Contending that the Court of Appeals erred in its affirmance of the trial court's decision,
petitioner cites the following reasons to justify the review of her case:

1. The Honorable Court of Appeals has decided against the innocence of the accused
based on mere probabilities which, on the contrary, should have warranted her acquittal on
reasonable doubt. Even then, the conclusion of the trial court is contrary to the evidence
on record, including private complainant's judicial admission that there was no
consideration for the check.
2 The Honorable Court of Appeals has confused and merged into one the legal concepts of
dissolution, liquidation and termination of a partnership and on the basis of such
misconception of the law, disregarded the fact of absence of consideration of the check
and convicted the accused.
3 While this appeal was pending, the parties submitted for the approval of the Honorable
Court a compromise agreement on the civil liability. The accused humbly submits that this
supervening event, which by its terms puts to rest any doubt the Court of Appeals had
entertained against the defense of lack of consideration, should have a legal effect
favorable to the accused, considering that the dishonored check constitutes a private
transaction between partners which does not involve the public interest, and considering
further that the offense is not one involving moral turpitude.
4 The Honorable Court of Appeals failed to appreciate the fact that the accused had
warned private complainant that the check was not sufficiently funded, which should have
exonerated the accused pursuant to the ruling in the recent case of Magno vs. Court of
Appeals, 210 SCRA 471, which calls for a more flexible and less rigid application of the
Bouncing Checks law. 12
For a thorough consideration of the merits of petitioner's appeal, we find pertinent and
decisive the following issues:
1. Whether respondent court erred in holding that the subject check was issued by
petitioner to apply on account or for value, that is, as part of the consideration of a "buyout" of said complainant's interest in the partnership, and not merely as a commitment on
petitioner's part to return the investment share of complainant, along with any profit
pertaining to said share, in the partnership.
2. Whether the respondent court erred in concluding that petitioner issued the subject
check knowing at the time of issue that she did not have sufficient funds in or credit with
the drawee bank and without communicating this fact of insufficiency of funds to the
complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming
the trial court's judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly construed against the state and liberally in
favor of the accused, it bears stressing that for an act to be punishable under the B.P. 22, it
"must come clearly within both the spirit and the letter of the statue. 13 Otherwise, the act
has to be declared outside the law's ambit and a plea of innocence by the accused must be
sustained.
The relevant provisions of B.P. 22 state that:

Sec. 1. Checks without sufficient funds. Any person who makes or draws and issues any
check to apply on account or for value, knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full
upon its presentment, which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the same reason had not
the drawer, without any valid reason, ordered the bank to stop payment, shall be punished
by imprisonment of not less than thirty days but not more than one (1) year or by a fine of
not less than but not more than double the amount of the check which fine shall in no case
exceed Two hundred thousand pesos, or both such fine and imprisonment at the discretion
of the court.
The same penalty shall be imposed upon any person who having sufficient funds in or
credit with the drawee bank when he makes or draws and issues a check, shall fail to keep
sufficient funds or to maintain a credit or to cover the full amount of the check if presented
within a period of ninety (90) days from the date appearing thereon, for which reason it is
dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons who
actually signed the check in behalf of such drawer shall be liable under this Act.
Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing and issuance
of a check payment of which is refused by the drawee because of insufficient funds in or
credit with such bank, when presented within ninety (90) days from the date of the check,
shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless
such maker or drawer pays the holder thereof the amount due thereon or makes
arrangements for payment in full by the drawee of such check within five (5) banking days
after receiving notice that such check has not been paid by the drawee. (Emphasis
supplied)
As decided by this Court, the elements of the offense penalized under B.P. 22, are as
follows: "(1) the making, drawing and issuance of any check to apply to account or for
value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does
not have sufficient funds in or credit with the drawee bank for the payment of such check
in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank
for insufficiency of funds or credit or dishonor for the same reason had not the drawer,
without any valid cause, ordered the bank to stop payment. 14
In the present case, with regard to the first issue, evidence on record would show that the
subject check was to be funded from receivables to be collected and goods to be sold by
the partnership, and only when such collection and sale were realized. 15 Thus, there is
sufficient basis for the assertion that the petitioner issued the subject check (Metrobank
Check No. 103115490 dated October 30, 1986, in the amount of P135,828.87) to evidence
only complainant's share or interest in the partnership, or at best, to show her
commitment that when receivables are collected and goods are sold, she would give to
private complainant the net amount due him representing his interest in the partnership. It
did not involve a debt of or any account due and payable by the petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by complainant;
only one (the third) was not. But eventually even this one was redeemed by petitioner.

Secondly, even private complainant admitted that there was no consideration whatsoever
for the issuance of the check, whose funding was dependent on future sales of goods and
receipts of payment of account receivables.

he would receive in time his due share therein. The alternative view that the check was in
consideration of a "buy out" is but a theory, favorable to the complainant, but lacking
support in the record; and must necessarily be discarded.

Now, it could not be denied that though the parties petitioner and complainant had
agreed to dissolve the partnership, such ageement did not automatically put an end to the
partnership, since they still had to sell the goods on hand and collect the receivables from
debtors. In short, they were still in the process of "winding up" the affairs of the
partnership, when the check in question was issued.

For there is nothing on record which even slightly suggest that petitioner ever became
interested in acquiring, much less keeping, the shares of the complainant. What is very
clear therefrom is that the petitioner exerted her best efforts to sell the remaining goods
and to collect the receivables of the partnership, in order to come up with the amount
necessary to satisfy the value of complainant's interest in the partnership at the
dissolution thereof. To go by accepted custom of the trade, we are more inclined to the
view that the subject check was issued merely to evidence complainant's interest in the
partnership. Thus, we are persuaded that the check was not intended to apply on account
or for value; rather it should be deemed as having been drawn without consideration at the
time of issue.

Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) windingup; and (3) termination. These stages are distinguished, to wit:
(1) Dissolution Defined
Dissolution is the change in the relation of the partners caused by any partner ceasing to
be associated in the carrying on of the business (Art. 1828). It is that point of time the time
the partners cease to carry on the business tonether. (Citation omitted).
(2) Winding Up Defined
Winding up is the process of settling business affairs of dissolution.
(NOTE: Examples of winding up: the paying of previous obligations; the collecting of assets
previously demandable; even new business if needed to wind up, as the contracting with a
demolition company for the demolition of the garage used in a "used car" partnership.)
(3) Termination Defined
Termination is the point in time after all the partnership affairs have been wound
up. 16 [Citation omitted] (Emphasis supplied).
These final stages in the life of a partnership are recognized under the Civil Code that
explicitly declares that upon dissolution, the partnership is not terminated, to wit:
Art 1828. The dissolution of a partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on as distinguished from
the winding up of the business.
Art. 1829. On dissolution the partnership is not terminated, but continues until the winding
up of partnership affairs is completed. (Emphasis supplied.)
The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected receivables,
which were presented to the trial court. Since the partnership has not been terminated, the
petitioner and private complainant remained as co-partners. The check was thus issued by
the petitioner to complainant, as would a partner to another, and not as payment from a
debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was issued merely to
evidence the complainant's share in the partnership property, or to assure the latter that

Absent the first element of the offense penalized under B.P. 22, which is "the making,
drawing and issuance of any check to apply on account or for value", petitioner's issuance
of the subject check was not an act contemplated in nor made punishable by said statute.
As to the second issue, the Solicitor General contends that under the Bouncing Checks
Law, the elements of deceit and damage are not essential or required to constitute a
violation thereof. In his view, the only essential element is the knowledge on the part of the
maker or drawer of the check of the insufficiency of his/her funds at the time of the
issuance of said check.
The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a
special offense punishable by law. "Malice or intent in issuing the worthless check is
immaterial, the offense being malum
prohibitum," 17 so goes the argument for the public respondents.
But of course this could not be an absolute proposition without descending to absurdity. For
if a check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd to
hold the drawer liable under B.P. 22, if the check is dishonored and unpaid. That would go
against public policy and common sense.
Public respondents further contend that "since petitioner issued the check in favor of
complainant. Alarilla and when notified that it was returned for insufficiency of funds, failed
to make good the check, then petitioner is liable for violation of B.P. 22. 18 Again, this
matter could not be all that simple. For while "the maker's knowledge of the insufficiency
of funds is legally presumed from the dishonor of his checks for insufficiency of
funds, 19 this presumption is rebuttable.
In the instant case, there is only a prima facie presumption which did not preclude the
presentation of contrary evidence. 20 In fact, such contrary evidence on two points could be
gleaned from the record concerning (1) lack of actual knowledge of insufficiency of funds;
and (2) lack of adequate notice of dishonor.
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee
bank for the payment of a check upon its presentment is an essential element of the
offense. 21 It must be proved, particularly where the prima facie presumption of the

existence of this element has been rebutted. The prima facie presumption arising from the
fact of drawing, issuing or making a check, the payment of which was subsequently
refused for insufficiency of funds is, moreover, not sufficient proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals, 22 it was held that the subsequent dishonor of the
subject check issued by accused merely engendered the prima facie presumption that she
knew of the insufficiency of funds, but did not render the accused automatically guilty
under B.P. 22. 23

of prima facie knowledge of such insufficiency in this case was actually rebutted by
petitioner's evidence.
Further, we find that the prosecution also failed to prove adequate notice of dishonor of the
subject check on petitioner's part, thus precluding any finding of prima facie evidence of
knowledge of insufficiency of funds. There is no proof that notice of dishonor was actually
sent by the complainant or by the drawee bank to the petitioner. On this point, the record
is bereft of evidence to the contrary.

The prosecution has a duty to prove all the elements of the crime, including the acts that
give rise to the prima facie presumption; petitioner, on the other hand, has a right to rebut
the prima faciepresumption. Therefore, if such knowledge of insufficiency of funds is
proven to be actually absent or non-existent, the accused should not be held liable for the
offense defined under the first paragraph of Section 1 of B.P. 22. Although the offense
charged is a malum prohibitum, the prosecution is not thereby excused from its
responsibility of proving beyond reasonable doubt all the elements of the offense, one of
which is knowledge of the insufficiency of funds.

But in fact, while the subject check initially bounced, it was later made good by petitioner.
In addition, the terms of the parties' compromise agreement, entered into during the
pendency of this case, effectively invalidates the allegation of failure to pay or to make
arrangement for the payment of the check in full. Verily, said compromise agreement
constitutes an arrangement for the payment in full of the subject check.

Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the
check, be shown that he knows at the time of issue, that he does not have sufficient funds
in or credit with the drawee bank for the payment of such check in full upon its
presentment.

Because no notice of dishonor was actually sent to and received by the petitioner,
the prima faciepresumption that she knew about the insufficiency of funds cannot apply.
Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of
drawing, making and issuing a bum check; there must also be a showing that, within five
banking days from receipt of the notice of dishonor, such maker or drawer failed to pay the
holder of the check the amount due thereon or to make arrangement for its payment in full
by the drawee of such check. 25 [Emphasis supplied.]

In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the
proportionate share of complainant in the partnership assets upon its dissolution. Payment
of that share in the partnership was conditioned on the subsequent realization of profits
from the unsold goods and collection of the receivables of the firm. This condition must be
satisfied or complied with before the complainant can actually "encash" the check. The
reason for the condition is that petitioner has no independent means to satisfy or
discharge the complainant's share, other than by the future sale and collection of the
partnership assets. Thus, prior to the selling of the goods and collecting of the receivables,
the complainant could not, as of yet, demand his proportionate share in the business. This
situation would hold true until after the winding up, and subsequent termination of the
partnership. For only then, when the goods were already sold and receivables paid that
cash money could be availed of by the erstwhile partners.
Complainant did not present any evidence that petitioner signed and issued four checks
actually knowing that funds therefor would be insufficient at the time complainant would
present them to the drawee bank. For it was uncertain at the time of issuance of the
checks whether the unsold goods would have been sold, or whether the receivables would
have been collected by the time the checks would be encashed. As it turned out, three
were fully funded when presented to the bank; the remaining one was settled only later on.
Since petitioner issued these four checks without actual knowledge of the insufficiency of
funds, she could not be held liable under B.P. 22 when one was not honored right away. For
it is basic doctrine that penal statutes such as B.P. 22 "must be construed with such
strictness as to carefully safeguard the rights of the defendant . . ." 24 The element of
knowledge of insufficiency of funds has to be proved by the prosecution; absent said proof,
petitioner could not be held criminally liable under that law. Moreover, the presumption

The absence of notice of dishonor is crucial in the present case. As held by this Court in
prior cases:

The absence of a notice of dishonor necessarily deprives an accused an opportunity to

preclude a criminal prosecution. Accordingly, procedural due process clearly enjoins that a
notice of dishonor be actually served on petitioner. Petitioner has a right to demand and
the basic postulates of fairness require that the notice of dishonor be actually sent to
and received by her to afford her the opportunity to avert prosecution under
B.P. 26
Further, what militates strongly against public respondents' stand is the fact that petitioner
repeatedly notified the complainant of the insufficiency of funds. Instructive is the
following pronouncement of this Court in Magno v. Court of Appeals:
Furthermore, the element of "knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the drawee bank for insufficiency
of funds or credit or would have been dishonored for the same reason . . ." is inversely
applied in this case. From the very beginning. petitioner never hid the fact that he did not
have the funds with which to put up the warranty deposit and as a matter of fact, he
openly intimated this to the vital conduit of the transaction, Joey Gomez, to whom
petitioner was introduced by Mrs. Teng. It would have been different if this predicament
was not communicated to all the parties he dealt with regarding the lease agreement the
financing or which was covered by L.S. Finance Management. " 27

In the instant case, petitioner intimated to private complainant the possibility that funds
might be insufficient to cover the subject check, due to the fact that the partnership's
goods were yet to be sold and receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to safeguard the interest of the banking
system and the legitimate public checking account user. It did not intend to shelter or favor
nor encourage users of the system to enrich themselves through manipulations and
circumvention of the noble purpose and objective of the law. Least should it be used also
as a means of jeopardizing honest-to-goodness transactions with some color of "get-rich"
scheme to the prejudice of well-meaning businessmen who are the pillars of society.
xxx xxx xxx
Thus, it behooves upon a court of law that in applying the punishment imposed upon the
accused, the objective of retribution of a wronged society, should be directed against the
"actual and potential wrongdoers". In the instant case, there is no doubt that petitioner's
four (4) checks were used to collateralize an accommodation, and not to cover the receipt
of an actual "account or credit for value" as this was absent, and therefore petitioner
should not be punished for mere issuance of the checks in question. Following the
aforecited theory, in petitioner's stead the "potential wrongdoer," whose operation could
be a menace to society, should not be glorified by convicting the petitioner. 28
Under the circumstances obtaining in this case, we find the petitioner to have issued the
check in good faith, with every intention of abiding by her commitment to return, as soon
as able, the investments of complainant in the partnership. Evidently, petitioner issued the
check with benign considerations in mind, and not for the purpose of committing fraud,
deceit, or violating public policy.
To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable
for violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn
and issued by petitioner in exchange for value received as to qualify it as a check on
account or for value; (2) there is no sufficient basis to conclude that petitioner, at the time
of issue of the check, had actual knowledge of the insufficiency of funds; and (3) there was
no notice of dishonor of said check actually served on petitioner, thereby depriving her of
the opportunity to pay or make arrangements for the payment of the check, to avoid
criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition meritorious, we no
longer need to pass upon the validity and legality or necessity of the purported
compromise agreement on civil liability between the petitioner and the complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED.
The Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby
REVERSED and the Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is
hereby SET ASIDE.
G.R. No. L-34581

March 31, 1932

ESTATE OF THE DECEASED LAZARO MOTA, ET AL., plaintiffs-appellants,

vs.
VENANCIO CONCEPCION, ET AL., defendants.
SALVADOR SERRA, intervenor-appellee.
Agustin, De Joya, Zaragoza & Araneta and Hilado & Hilado for appellee.
VILLAMOR, J.:
In the amended complaint in the present case, the plaintiffs seek to recover of the
defendants Venancio Concepcion and P.C. Whitaker the amount of P283,786.59 with
interest from October, 1927, being the unpaid balance of the selling price of a railway for
transporting sugar cane from certain plantations situated in the municipalities of Ylog and
Kabankalan in the Province of Occidental Negros, and in default of the payment thereof, to
foreclose the mortgage upon said railway, and also to collect the sum of P808,375.02 by
way of damages arising from the alleged negligence of the defendants in maintaining said
railway in a proper condition for the transportation service for which it was intended.
With permission of the court, Salvador Serra intervened as a third-party claimant against
the plaintiffs and the defendants, praying: (1) That his conveyance of a half interest in said
railway to the defendants be rescinded, and that the railway or his interest therein be
returned to him, or damages paid him in lieu thereof; and (2) that plaintiffs and defendants
be required to render an accounting of one-half of the returns from the management of the
railway line after May 15, 1920.
The principal defendants did not appear to defend themselves and the court rendered
judgment against them and for the plaintiffs in the sum of P245,804.65 with legal interest
from October 31, 1925, at the same time declaring that the mortgage upon the railway in
favor of the plaintiffs is null and void, and that the claim of damages against the
defendants had not been proved.
As to the complaint of the intervenor, the court held that the conveyance of a half interest
in the railroad made by Serra to Concepcion and Whitaker was rescind, and rendered
judgment in favor of Serra against the plaintiffs for the sum of P150,000 instead of the
railway, but denied his petition for an accounting, with costs in favor of said intervenor.
From this judgment the plaintiffs appealed.
At the beginning of the year 1919, Lazaro Mota, now deceased, and Salvador Serra entered
into a partnership to construct several kilometers of railroad in the municipalities of Ylog
and Kabankalan, Occidental Negros, in order to facilitate the transportation of sugar cane
to two sugar centrals named San Isidro and Palma of which they were the respective
owners. In January 1920 Serra transferred his half interest to the defendants Concepcion
and Whitaker in connection with the sale of the Palma central. In December 1920, Mota
also sold his half interest in the railroad to the same purchasers, Concepcion and Whitaker.
At this last sale, only part of the price was paid down, and in order to secure the payment
of the remainder, Concepcion and Whitaker mortgage to Mota the entire railroad. The
present action was brought by the plaintiffs to recover the unpaid balance and to foreclose
the mortgage. As the mortgage included not only the railroad, which is real property, but
also the rolling stock, which is movable, and therefore personal property, Mota had the

contract recorded in the registry, not only as a mortgage upon registered reap property,
according to Act No. 3344, but also as a mortgage of personal property. However, we are
here concerned only with the contract as a mortgage upon unregistered real property.
The trial court erred in holding that the mortgage was null and void. It is true that the
contract does not contain some of the data mentioned in section 194 of the Administrative
Code, but the mortgage was actually recorded in the registry of deeds by the registrar, and
we are of the opinion that it is valid between the contracting parties, as it would be even if
it had not been recorded. From among the decisions of this court cases may be cited
wherein it is held that a mortgage upon unregistered real property is void under the
Spanish Mortgage Law, but the rule upon this point has been modified by section 194 of
the Administrative Code, as amended, which clearly recognizes the validity of such a
contract between the contracting parties. (Standard Oil Co. vs. Castro, 54 Phil., 716.)
On the other hand, we agree with the trial court that the plaintiffs are not entitled to
recover damages of the defendants, as claimed in the second cause of action. Such
damages, in addition to being speculative in nature, have not been proved.
Taking up once more the matter of the intervention, we hold that the court below did not
err in permitting it. Supposing that Serra's contention were well-founded upon its merits,
his interest in the litigated property would be a sufficient justification for the court to grant
him permission to intervene and litigate with plaintiffs and defendants upon said interest.
But the intervenor's contention is, we find, wholly untenable upon the merits. His right to
rescission, which he could once have exercised against Concepcion and Whitaker, has
lapsed. With regard to this, it is to be noticed that the transfer of Serra's one-half interest
in the railway to Concepcion and Whitaker is evidenced by a document whereby he sold to
them the Palma central. It is clear that this conveyance of Serra's half interest in the
railroad to them was an actual sale, and not a mere assignment, as Serra now pretends. In
the case of Estate of Mota vs. Serra (47 Phil., 464), which refers to another aspect of the
controversy between the parties here litigant, this court held that all of the railway
together with the Palma plantation was the property of Whitaker and Concepcion in
consequence of the contract here in question. We see no reason for arriving at a different
conclusion now. In paragraph VI of said contract the railway is mentioned, and Concepcion
and Whitaker are said to be subrogated to all the rights and obligations arising from said
contract, binding themselves likewise to comply with all the contracts entered into
between the vendor and the partners, tenants on shares, and employees. The words "were
subrogated" used in said contract evidently mean "succeeded", and one who succeeds to
the rights and obligations created by a contract becomes, to all intents and purposes, the
owner of the property which is the subject of such rights and obligations.
Now then, when the Palma plantation was sold with Serra's half interest in the railroad, as
stated above, Serra was given a mortgage upon said plantation, though not upon the
railway, to secure the payment of some hundred thousand pesos, having received only the
sum of P945,861.90 cash. The balance of the price was never paid, with the result that
Serra foreclosed the mortgage upon the Palma plantation, and upon execution, he bought
it with the improvements made thereon by the vendees, for the sum of P500,000. It is
evident that having foreclosed the mortgage given him to secure the unpaid portion of the
selling price of plantation and railway, Serra cannot now maintain another action to rescind
the sale of his half interest in the railway. Having demanded the fulfillment of the contract

in another action for the foreclosure of the mortgage, his right to rescission has been
extinguished. Furthermore, even supposing that Serra could have exercised the right of
rescission against his vendees, he could not do so against the Estate of Mota, because the
latter was a third party in the contract between Serra and the vendees, and is, moreover,
an innocent creditor for value.
In view of the conclusion that Serra's alleged right to rescind that contract does not exist,
his claim for damages, instead of the return of the railway, becomes of necessity
unfounded, and the judgment of the court granting Serra the sum of P150,000 erroneous.
For the foregoing considerations, the judgment appealed from must be affirmed so far as it
holds that defendants Concepcion and Whitaker are indebted to the plaintiffs in the
amount of P245,804.69 with legal interest from October 31, 1925 until fully paid, and
reversed with regard to the rest of it; wherefore, plaintiffs and defendants are absolved
from Serra's cross-complaint, and let the cause be remanded to the court of origin with
instructions that unless the debt of Concepcion and Whitaker is paid within ninety days
from notice hereof, the railway shall be sold for the payment of said debt and the
incidental expenses in the foreclosure of the mortgage. Without special award of costs. So
ordered.
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and
NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No.
41616,[1] affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil
Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend Company,
a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as
capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and
sales force while Tocao hired and fired employees, determined commissions and/or salaries
of the employees, and assigned them to different branches. The parties agreed that Belos
name should not appear in any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anays name in securing distributorship of cookware
from that company. The parties agreed further that Anay would be entitled to: (1) ten
percent (10%) of the annual net profits of the business; (2) overriding commission of six
percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she
would make; and (4) two percent (2%) for her demonstration services. The agreement was

not reduced to writing on the strength of Belos assurances that he was sincere,
dependable and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware
business took off successfully. They operated under the name of Geminesse Enterprise, a
sole proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building,
Ayala Avenue, Makati City.Belo made good his monetary commitments to Anay. Thereafter,
Roger Muencheberg of West Bend Company invited Anay to the distributor/dealer meeting
in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the southwestern regional
convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the
invitation with the consent of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in
Manila on July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for
twenty (20) years now, acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of our
company, will attend in response to the invitation. (Italics supplied.) [3]
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of
saving the business on account of the unsatisfactory sales record in the Makati and Cubao
offices. On August 31, 1987, she received a plaque of appreciation from the administrative
and sales people through Marjorie Tocao[4] for her excellent job performance. On October 7,
1987, in the presence of Anay, Belo signed a memo[5] entitling her to a thirty-seven percent
(37%) commission for her personal sales "up Dec 31/87. Belo explained to her that said
commission was apart from her ten percent (10%) share in the profits. On October 9, 1987,
Anay learned that Marjorie Tocao had signed a letter[6] addressed to the Cubao sales office
to the effect that she was no longer the vice-president of Geminesse Enterprise. The
following day, October 10, she received a note from Lina T. Cruz, marketing manager, that
Marjorie Tocao had barred her from holding office and conducting demonstrations in both
Makati and Cubao offices.[7] Anay attempted to contact Belo. She wrote him twice to
demand her overriding commission for the period of January 8, 1988 to February 5, 1988
and the audit of the company to determine her share in the net profits. When her letters
were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that
letter was not answered.
Anay still received her five percent (5%) overriding commission up to December 1987. The
following year, 1988, she did not receive the same commission although the company
netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money
with damages[8] against Marjorie D. Tocao and William Belo before the Regional Trial Court
of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally,
the following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to
February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary
damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise

from the inception of its business operation until she was illegally dismissed to determine
her ten percent (10%) share in the net profits. She further prayed that she be paid the five
percent (5%) overriding commission on the remaining 150 West Bend cookware sets
before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with Anay
that was neither reduced in writing, nor ratified, was either unenforceable or void or
inexistent. As far as Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely
acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration,
and her complaint referred to either her compensation or dismissal, such complaint should
have been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account of
ill-will and resentment because Marjorie Tocao did not allow her to lord it over in the
Geminesse Enterprise. Anay had acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the ones who suffered actual damages
including unreturned and unaccounted stocks of Geminesse Enterprise, and serious
anxiety, besmirched reputation in the business world, and various damages not less than
P500,000.00. They also alleged that, to vindicate their names, they had to hire counsel
for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was
an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are
entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the profit of the
business. He, however, admitted that the two had agreed that Anay would receive a three
to four percent (3-4%) share in the gross sales of the cookware. He denied contributing
capital to the business or receiving a share in its profits as he merely served as a guarantor
of Marjorie Tocao, who was new in the business. He attended and/or presided over
business meetings of the venture in his capacity as a guarantor but he never participated
in decision-making. He claimed that he wrote the memo granting the plaintiff thirty-seven
percent (37%) commission upon her dismissal from the business venture at the request of
Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement with
Anay. However, she admitted that Anay was an expert in the cookware business and
hence, they agreed to grant her the following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that
they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that
she got the capital for the business out of the sale of the sewing machines used in her
garments business and from Peter Lo, a Singaporean friend-financier who loaned her the
funds with interest. Because she treated Anay as her co-equal, Marjorie received the
same amounts of commissions as her. However, Anay failed to account for stocks valued at
P200,000.00.

On April 22, 1993, the trial court rendered a decision the dispositive part of which is as
follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the partnership
affairs for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to
determine the ten percent (10%) share of plaintiff in the net profits of the cookware
business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition when plaintiff was
wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which
for the period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as
exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of
suit.
SO ORDERED.
The trial court held that there was indeed an oral partnership agreement between the
plaintiff and the defendants, based on the following: (a) there was an intention to create a
partnership; (b) a common fund was established through contributions consisting of money
and industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth
Bantilan, Anays cousin and the administrative officer of Geminesse Enterprise from August
21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg of West Bend
Company stating that he awarded the distributorship to Anay and Marjorie Tocao because
he was convinced that with Marjories financial contribution and Anays experience, the
combination of the two would be invaluable to the partnership, also supported that
conclusion. Belos claim that he was merely a guarantor has no basis since there was no
written evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a
memo giving Anay 37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the
existence of the partnership inasmuch as such practice is often resorted to in business
circles as an impetus to bigger sales volume. It did not matter that the agreement was not
in writing because Article 1771 of the Civil Code provides that a partnership may be
constituted in any form. The fact that Geminesse Enterprise was registered in Marjorie
Tocaos name is not determinative of whether or not the business was managed and
operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.

The trial court finally held that a partner who is excluded wrongfully from a partnership is
an innocent partner. Hence, the guilty partner must give him his due upon the dissolution
of the partnership as well as damages or share in the profits realized from the
appropriation of the partnership business and goodwill. An innocent partner thus
possesses pecuniary interest in every existing contract that was incomplete and in the
trade name of the co-partnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the amount of damages
awarded by the trial court were reduced to P50,000.00 for moral damages and P50,000.00
as exemplary damages. Their Motion for Reconsideration was denied by the Court of
Appeals for lack of merit.[12] Petitioners Belo and Marjorie Tocao are now before this Court
on a petition for review on certiorari, asserting that there was no business partnership
between them and herein private respondent Nenita A. Anay who is, therefore, not entitled
to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise came into being exactly a year before the alleged partnership was formed,
and that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00
with petitioner Tocao contributing nothing, without any memorandum whatsoever
regarding the alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within the
exclusive domain of both the trial and appellate courts. This Court cannot set aside factual
findings of such courts absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.[14] In this case, both the trial court and the Court of
Appeals are one in ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two
or more persons bind themselves to contribute money, property or industry to a common
fund; and (2) intention on the part of the partners to divide the profits among themselves.
[15]
It may be constituted in any form; a public instrument is necessary only where
immovable property or real rights are contributed thereto.[16] This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what matters is that
the parties have complied with the requisites of a partnership. The fact that there appears
to be no record in the Securities and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article 1772 of the Civil Code [17] did not
cause the nullification of the partnership. The pertinent provision of the Civil Code on the
matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of
each of the partners, even in case of failure to comply with the requirements of article
1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It was

through her reputation with the West Bend Company that the partnership was able to open
the business of distributorship of that companys cookware products; it was through the
same efforts that the business was propelled to financial success. Petitioner Tocao herself
admitted private respondents indispensable role in putting up the business when, upon
being asked if private respondent held the positions of marketing manager and vicepresident for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there were no one to sell
yet, its only me there then her and then two (2) people, so about four (4). Now, after that
when she recruited already Oscar Abella and Lina Torda-Cruz these two (2) people were
given the designation of marketing managers of which definitely Nita as superior to them
would be the Vice President.[18]
By the set-up of the business, third persons were made to believe that a partnership had
indeed been forged between petitioners and private respondents. Thus, the
communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger
Muencheberg of the same company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the
operations. Marge does not have cookware experience. Nita Anay has started to gather
former managers, Lina Torda and Dory Vista. She has also gathered former demonstrators,
Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key people
and build up the organization. All they need is the finance and the products to sell. [19]
On the other hand, petitioner Belos denial that he financed the partnership rings hollow in
the face of the established fact that he presided over meetings regarding matters affecting
the operation of the business. Moreover, his having authorized in writing on October 7,
1987, on a stationery of his own business firm, Wilcon Builders Supply, that private
respondent should receive thirty-seven (37%) of the proceeds of her personal sales, could
not be interpreted otherwise than that he had a proprietary interest in the business. His
claim that he was merely a guarantor is belied by that personal act of proprietorship in the
business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under
Article 2053 of the Civil Code,[20] he should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that guaranty must be express,
Article 1403, the Statute of Frauds, requires that a special promise to answer for the debt,
default or miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the partnership. She
claimed that she herself financed the business. Her and petitioner Belos roles as both
capitalists to the partnership with private respondent are buttressed by petitioner Tocaos
admissions that petitioner Belo was her boyfriend and that the partnership was not their
only business venture together. They also established a firm that they called Wiji, the
combination of petitioner Belos first name, William, and her nickname, Jiji. [23] The special
relationship between them dovetails with petitioner Belos claim that he was acting in
behalf of petitioner Tocao. Significantly, in the early stage of the business operation,
petitioners requested West Bend Company to allow them to utilize their banking and
trading facilities in Singapore in the matter of importation and payment of the cookware
products.[24] The inevitable conclusion, therefore, was that petitioners merged their

respective capital and infused the amount into the partnership of distributing cookware
with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an employeremployee relationship between petitioners and private respondent. While it is true that the
receipt of a percentage of net profits constitutes only prima facie evidence that the
recipient is a partner in the business,[25] the evidence in the case at bar controverts an
employer-employee relationship between the parties. In the first place, private respondent
had a voice in the management of the affairs of the cookware distributorship, [26] including
selection of people who would constitute the administrative staff and the sales force.
Secondly, petitioner Tocaos admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse Enterprise, [27] private
respondent received only commissions and transportation and representation
allowances[28] and not a fixed salary.[29] Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X
and Y. Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending
August 21, 1987, will you please go over this and tell the Honorable Court whether you
ever came across this document and know of your own knowledge the amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a
certain percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which
I quote: Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this
amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing
commission, representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50,
what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there
being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you
know in a sense because of her expertise in the business she is vital to my business. So, as
part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten
from the company P21,140.50 is your way of indicating that you were treating her as an
equal?
A: As an equal.

Q: As an equal, I see. You were treating her as an equal?

A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the
amount there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication
that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the
same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult to believe that
they shall receive the same income in the business. In a partnership, each partner must
share in the profits and losses of the venture, except that the industrial partner shall not be
liable for the losses.[31] As an industrial partner, private respondent had the right to
demand for a formal accounting of the business and to receive her share in the net profit.

else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this
Court said:
The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected receivables,
which were presented to the trial court. Since the partnership has not been terminated, the
petitioner and private complainant remained as co-partners. x x x. [37]
It is not surprising then that, even after private respondent had been unceremoniously
booted out of the partnership in October 1987, she still received her overriding commission
until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the
partnership to reap for herself and/or for petitioner Belo financial gains resulting from
private respondents efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert herself to the extent
that she would even shout at private respondent in front of other people. [38] Her instruction
to Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in
both the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation, [39] and resulted in a falling
out between the two. However, a mere falling out or misunderstanding between partners
does not convert the partnership into a sham organization. [40] The partnership exists until
dissolved under the law. Since the partnership created by petitioners and private
respondent has no fixed term and is therefore a partnership at will predicated on their
mutual desire and consent, it may be dissolved by the will of a partner. Thus:
x x x. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn, dependent
on the constancy of that mutual resolve, along with each partners capability to give it, and
the absence of cause for dissolution provided by the law itself. Verily, any one of the
partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith can prevent the dissolution
of the partnership but that it can result in a liability for damages. [41]

[32]

The fact that the cookware distributorship was operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of
Domestic Trade on August 19, 1987 was merely the name of that enterprise. [33] While it is
true that in her undated application for renewal of registration of that firm name, petitioner
Tocao indicated that it would be engaged in retail of kitchenwares, cookwares, utensils,
skillet,[34] she also admitted that the enterprise was only 60% to 70% for the cookware
business, while 20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier.[35] Indubitably then, the business name Geminesse Enterprise was used
only for practical reasons - it was utilized as the common name for petitioner Tocaos
various business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the unaccounted
and unremitted stocks of Geminesse Enterprise amounting to P208,250.00. [36] Obviously a
ploy to offset the damages awarded to private respondent, that claim, more than anything

An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personae allows
the partners to have the power, although not necessarily the right to dissolve the
partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse
Enterprise.[43] By that memo, petitioner Tocao effected her own withdrawal from the
partnership and considered herself as having ceased to be associated with the partnership
in the carrying on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business. [44]

The winding up of partnership affairs has not yet been undertaken by the partnership. This
is manifest in petitioners claim for stocks that had been entrusted to private respondent in
the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual findings upon
which it is based is primarily the task of the trial court. [45] The Court of Appeals may modify
that amount only when its factual findings are diametrically opposed to that of the lower
court,[46] or the award is palpably or scandalously and unreasonably excessive. [47] However,
exemplary damages that are awarded by way of example or correction for the public
good,[48] should be reduced to P50,000.00, the amount correctly awarded by the Court of
Appeals. Concomitantly, the award of moral damages of P100,000.00 was excessive and
should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be granted
on account of the award of exemplary damages and petitioners evident bad faith in
refusing to satisfy private respondents plainly valid, just and demandable claims,
[49]
appear to have been excessively granted by the trial court and should therefore be
reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership
among petitioners and private respondent is ordered dissolved, and the parties are ordered
to effect the winding up and liquidation of the partnership pursuant to the pertinent
provisions of the Civil Code. This case is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed decisions of the Regional Trial Court
and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows --1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the
partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code,
in order to determine private respondents ten percent (10%) share in the net profits of the
partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent
(5%) overriding commission for the one hundred and fifty (150) cookware sets available for
disposition since the time private respondent was wrongfully excluded from the
partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding
commission on the total production which, for the period covering January 8, 1988 to
February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages
in the amount of P50,000.00, exemplary damages in the amount of P50,000.00 and
attorneys fees in the amount of P25,000.00.
SO ORDERED.

G.R. No. L-11840

December 10, 1963

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

vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

(b) That partnership was expressly organized: "to engage in real estate business, either
by buying and selling real estate". The Articles of co-partnership, in fact, expressly
provided that:
IV. The object and purpose of the copartnership are as follows:

Norberto J. Quisumbing and Sycip, Salazar and Associates for defendants-appellees.

Jose C. Calayco for plaintiffs-appellants..

1. To engage in real estate business, either by buying and selling real estates; to subdivide
real estates into lots for the purpose of leasing and selling them.;

RESOLUTION

(c) That the properties sold were not part of the contributed capital (which was in cash) but
land precisely acquired to be sold, although subject to a mortgage in favor of the original
owners, from whom the partnership had acquired them.

REYES, J.B.L., J.:

The matter now pending is the appellant's motion for reconsideration of our main decision,
wherein we have upheld the validity of the sale of the lands owned by the partnership
Goquiolay & Tan Sin An, made in 1949 by the widow of the managing partner, Tan Sin An
(Executed in her dual capacity as Administratrix of the husband's estate and as partner in
lieu of the husband), in favor of the buyers Washington Sycip and Betty Lee for the
following consideration:
Cash paid

P37,000.0
0

Debts assumed by
purchaser:

With these points firmly in mind, let us turn to the points insisted upon by appellant.
It is first averred that there is "not one iota of evidence" that Kong Chai Pin managed and
retained possession of the partnership properties. Suffice it to point out that appellant
Goquiolay himself admitted that
... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the
properties (as) she had no other means of income. Then I said, because I wanted to help
Mrs. Kong Chai Pin, she could just do it and besides I am not interested in agricultural
lands. I allowed her to take care of the properties in order to help her and because I
believe in God and wanted to help her.
Q So the answer to my question is you did not take any steps?

To Yutivo

62,415.91

To Sing Yee Cuan & Co.,

54,310.13

A I did not.
Q And this conversation which you had with Mrs. Yu Eng Lai was few months after 1945?
A In the year 1945. (Emphasis supplied).

TOTAL

P153,726.
04

Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to our holding,
Kong Chai Pin, widow of the deceased partner Tan Sin An, never became more than
a limited partner, incapacitated by law to manage the affairs of partnership; that the
testimony of her witness Young and Lim belies that she took over the administration of the
partnership property; and that, in any event, the sale should be set aside because it was
executed with the intent to defraud appellant of his share in the properties sold.
Three things must be always held in mind in the discussion of this motion to reconsider,
being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by one partner,
acting in behalf of the firm, to a stranger. There is no question between partners inter se,
and this aspect to the case was expressly reserved in the main decision of 26 July 1960;

The appellant subsequently ratified this testimony in his deposition of 30 June 1956, pages
8-9, wherein he stated:
that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of
course they are receiving quiet a lot benefit from the plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are certainly
entitled to greater weight than those of Hernando Young and Rufino Lim, having been
made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that the witness
found the properties "abandoned and undeveloped", omits to mention that said part of the
testimony started with the question:
Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong
Chai Pin there in Davao at that time?

Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership
were undeveloped, and the family of the widow (Kong Chai Pin) did not receive any income
from the partnership properties, was given in answer to the question:

Limited partners may not perform any act of administration with respect to the interests of
the copartnership, not even in the capacity of agents of the managing partners. (Emphasis
supplied).

According to Mr. Goquiolay, during the Japanese occupation Tan Sin an and his family lived
on the plantation of the partnership and derived their subsistence from that plantation.
What can you say to that? (Dep. 19 July 1956, p. 8).

By seeking authority to manage partnership property, Tan Sin An's widow showed that she
desired to be considered a general partner. By authorizing the widow to manage
partnership property (which a limited partner could not be authorized to do), Goquiolay
recognized her as such partner, and is now in estoppel to deny her position as a general
partner, with authority to administer and alienate partnership property.

And also
What can you say as to the development of these other properties of the partnership which
you saw during the occupation? (Dep. p. 13, Emphasis supplied).
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in Tigato is
about eleven (11) hectares and planted with abaca seedlings planted by Mr. Sin An. When I
went there with Hernando Youngwe saw all the abaca destroyed. The place was occupied
by the Japanese Army. They planted camotes and vegetables to feed the Japanese Army.
Of course they never paid any money to Tan Sin An or his family. (Dep., Lim, pp. 13-14.
Emphasis supplied).
Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission
that he told Mr. Yu Eng Lai that the widow "could just do it" (i.e., continue to manage the
properties). Witnesses Lim and Young referred to the period of Japanese occupation; but
Goquiolay's authority was, in fact, given to the widow in 1945,after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out
no acts of management during the Japanese occupation (1942-1944) does not mean that
she did not do so from 1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and Young; he actually
manifested his willingness that the widow should manage the partnership properties.
Whether or not she complied with this authority is a question between her and the
appellant, and is not here involved. But the authority was given, and she did have it when
she made the questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only
to manage the property, and that it did not include the power to alienate, citing Article
1713 of the Civil Code of 1889. What this argument overlooks is that the widow was not a
mere agent, because she had become a partner upon her husband's death, as expressly
provided by the articles of copartnership. Even more, granting that by succession to her
husband, Tan Sin An, the widow only became a limited partner, Goquiolay's authorization
to manage the partnership property was proof that he considered and recognized her as
general partner, at least since 1945. The reason is plain: Under the law (Article 148, last
paragraph, Code of Commerce), appellant could not empower the widow, if she were only
a limited partner, to administer the properties of the firm, even as a mere agent:

Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say
"necessarily") becomes a limited partner for his own protection, because he would
normally prefer to avoid any liability in excess of the value of the estate inherited so as not
to jeopardize his personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect to become a
collective or general partner, with all the rights and privileges of one, and answering for
the debts of the firm not only with the inheritance but also with the heir's personal fortune.
This choice pertains exclusively to the heir, and does not require the assent of the
surviving partner.
It must be remember that the articles of co-partnership here involved expressly stipulated
that:
In the event of the death of any of the partners at any time before the expiration of said
term, the co-partnership shall not be dissolved but will have to be continued and the
deceased partner shall be represented by his heirs or assigns in said co-partnership (Art.
XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be
merely limited partners; on the contrary, they expressly stipulated that in case of death of
either partner "the co-partnership ... will have to be continued" with the heirs or assigns. It
certainly could not be continued if it were to be converted from a general partnership into
a limited partnership, since the difference between the two kinds of associations is
fundamental; and specially because the conversion into a limited association would have
the heirs of the deceased partner without a share in the management. Hence, the
contractual stipulation does actually contemplate that the heirs would becomegeneral
partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should they
refuse to assume personal and unlimited responsibility for the obligations of the firm. The
heirs, in other words, can not be compelled to become general partners against their
wishes. But because they are not so compellable, it does not legitimately follow that they
may not voluntarily choose to become general partners, waiving the protective mantle of
the general laws of succession. And in the latter event, it is pointless to discuss the legality
of any conversion of a limited partner into a general one. The heir never was a limited
partner, but chose to be, and became, a general partner right at the start.

It is immaterial that the heir's name was not included in the firm name, since no
conversion of status is involved, and the articles of co-partnership expressly contemplated
the admission of the partner's heirs into the partnership.
It must never be overlooked that this case involved the rights acquired by strangers, and
does not deal with the rights existing between partners Goquiolay and the widow of Tan Sin
An. The issues between the partners inter sewere expressly reserved in our main decision.
Now, in determining what kind of partner the widow of partner Tan Sin an Had elected to
become, strangers had to be guided by her conduct and actuations and those of appellant
Goquiolay. Knowing that by law a limited partner is barred from managing the partnership
business or property, third parties (like the purchasers) who found the widow possessing
and managing the firm property with the acquiescence (or at least without apparent
opposition) of the surviving partners were perfectly justified in assuming that she had
become a general partner, and, therefore, in negotiating with her as such a partner, having
authority to act for, and in behalf of the firm. This belief, be it noted, was shared even by
the probate court that approved the sale by the widow of the real property standing in the
partnership name. That belief was fostered by the very inaction of appellant Goquiolay.
Note that for seven long years, from partner Tan Sin An's death in 1942 to the sale in 1949,
there was more than ample time for Goquiolay to take up the management of these
properties, or at least ascertain how its affairs stood. For seven years Goquiolay could have
asserted his alleged rights, and by suitable notice in the commercial registry could have
warned strangers that they must deal with him alone, as sole general partner. But he did
nothing of the sort, because he was not interested (supra), and he did not even take steps
to pay, or settle the firm debts that were overdue since before the outbreak of the last war.
He did not even take steps, after Tan Sin An died, to cancel, or modify, the provisions of the
partnership articles that he (Goquiolay) would have no intervention in the management of
the partnership. This laches certainly contributed to confirm the view that the widow of Tan
Sin An had, or was given, authority to manage and deal with the firm's properties apart
from the presumption that a general partner dealing with partnership property has to
requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513;
quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing partners may
contract and sign in the name of the partnership with the consent of the other,
undoubtedly creates on obligation between the two partners, which consists in asking the
other's consent before contracting for the partnership. This obligation of course is not
imposed upon a third person who contracts with the partnership. Neither it is necessary for
the third person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. A third person may and has a right to
presume that the partner with whom he contracts has, in the ordinary and natural course
of business, the consent of his copartner; for otherwise he would not enter into the
contract. The third person would naturally not presume that the partner with whom he
enters into the transaction is violating the articles of partnership, but on the contrary is
acting in accordance therewith. And this finds support in the legal presumption that the
ordinary course of business has been followed (No. 18, section 334, Code of Civil
Procedure), and that the law has been obeyed (No. 31, section 334). This last presumption
is equally applicable to contracts which have the force of law between the parties. (Litton
vs. Hill & Ceron, et al., 67 Phil. 409, 516). (Emphasis supplied.)

It is next urged that the widow, even as a partner, had no authority to sell the real estate
of the firm. This argument is lamentably superficial because it fails to differentiate between
real estate acquired and held as stock-in-tradeand real estate held merely as business
site (Vivante's "taller o banco social") for the partnership. Where the partnership business
is to deal in merchandise and goods, i.e., movable property, the sale of its real property
(immovables) is not within the ordinary powers of a partner, because it is not in line with
the normal business of the firm. But where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the present case), the immovables thus
acquired by the firm from part of its stock-in-trade, and the sale thereof is in pursuance of
partnership purposes, hence within the ordinary powers of the partner. This distinction is
supported by the opinion of Gay de Montella1 , in the very passage quoted in the
appellant's motion for reconsideration:
La enajenacion puede entrar en las facultades del gerante, cuando es conforme a los fines
sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales,
viene limitada a los objetos de comercio o a los productos de la fabrica para explotacion de
los cuales se ha constituido la Sociedad.Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo caso el gerente estaria facultado
para otorgar las ventas que fuere necesario. (Montella) (Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the legal right to
sell the firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has ample
power, as a general agent of the firm, to enter into an executory contract for the sale of
real estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
If the several partners engaged in the business of buying and selling real estate can not
bind the firm by purchases or sales of such property made in the regular course of
business, then they are incapable of exercising the essential rights and powers of general
partners and their association is not really a partnership at all, but a several agency.
Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage ... in buying and selling real estate" (Art. IV, No. 1 Articles of
Copartnership), it can not be maintained that the sale was made in excess of her power as
general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio
in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of that case are vastly
different from the one before us. In the McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense that its property
was insufficient to pay its debts, though it still had good credit, and was actively engaged

in the prosecution of its business. On that day, which was Saturday, the plaintiff caused to
be prepared, ready for execution, the four chattel mortgages in question, which cover all
the tangible property then belonging to the firm, including the counters, shelving, and
other furnishings and fixtures necessary for, and used in carrying on, its business, and
signed the same in this form: "In witness whereof, the said Cowen & McGrath, a firm, and
Owen McGrath, surviving partner, of said firm, and Owen McCrath, individually, have
hereunto set their hands, this 20th day of May, A.D. 1893. Cowen & Mcgrath, by Owen
McGrath. Owen McGrath, Surviving partner of Cowen & McGrath. Owen McGrath." At the
same time, the plaintiff had prepared, ready for filing, the petitionfor the dissolution of the
partnership and appointment of a receiver which he subsequently filed, as hereinafter
stated. On the day the mortgages were signed, they were placed in the hands of the
mortgagees, which was the first intimation to them that there was any intention to make
them. At the timenone of the claims secured by the mortgages were due, except, it may
be, a small part of one of them, andnone of the creditors to whom the mortgages were
made had requested security, or were pressing for the payment of their debts. ... The
mortgages appear to be without a sufficient condition of defiance, and contain a stipulation
authorizing the mortgagees to take immediate possession of the property, which they did
as soon as the mortgages were filed through the attorney who then represented them, as
well as the plaintiff; and the stores were at once closed, and possession delivered by them
to the receiver appointed upon the filing of the petition. The avowed purposes of the
plaintiff, in the course pursued by him, was to terminate the partnership, place its properly
beyond the control of the firm, and insure the preference of the mortgagees, all of which
was known to them at the time; .... (Cas cit., p. 343, Emphasis supplied).
It is natural that form these facts the Supreme Court of Ohio should draw the conclusion
that the conveyances were made with intent to terminate the partnership, and that they
were not within the powers of McGrath as a partner. But there is no similarity between
those acts and the sale by the widow of Tan Sin An. In the McGrath case, the sale included
even the fixtures used in the business; in our case, the lands sold were those acquired to
be sold. In the McGrath case, none of the creditors were pressing for payment; in our case,
the creditors had been unpaid for more than seven years, and their claims had been
approved by the probate court for payment. In the McGrath case, the partnership received
nothing beyond the discharge of its debts; in the present case, not only were its debts
assumed by the buyers, but the latter paid, in addition, P37,000.00 in cash to the widow,
to the profit of the partnership. Clearly, the McGrath ruling is not applicable.
We will now turn to the question of fraud. No direct evidence of it exists; but appellant
point out, as indicia thereof, the allegedly low price paid for the property, and the
relationship between the buyers, the creditors of the partnership, and the widow of Tan Sin
An.
First, as to the price: As already noted, this property was actually sold for a total of
P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts assumed
by the purchaser. These debts (62,415.91 to Yutivo, and P54,310.13 to Sing Ye Cuan & Co.)
are not questioned; they were approved by the court, and its approval is now final. The
claims were, in fact, for the balance on the original purchase price of the land sold (sue
first to La Urbana, later to the Banco Hipotecario) plus accrued interests and taxes,
redeemed by the two creditors-claimants. To show that the price was inadquate, appellant

relies on the testimony of the realtor Mata, who is 1955, six years after the sale in
question, asserted that the land was worth P312,000.00. Taking into account the continued
rise of real estate values since liberation, and the fact that the sale in question was
practically a forced sale because the partnership had no other means to pay its legitimate
debts, this evidence certainly does not show such "gross inadequacy" as to justify recission
of the sale. If at the time of the sale (1949) the price of P153,726.04 was really low, how is
it that appellant was not able to raise the amount, even if the creditor's representative, Yu
Khe Thai, had already warned him four years before (1945) that the creditors wanted their
money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum needed to discharge
the debts. But the lands were already mortgaged, and had been mortgaged since 1940,
first to La Urbana, and then to the Banco Hipotecario. Was it reasonable to expect that
other persons would loan money to the partnership when it was unable even to pay the
taxes on the property, and the interest on the principal since 1940? If it had been possible
to find lenders willing to take a chance on such a bad financial record, would not Goquiolay
have taken advantage of it? But the fact is clear on the record that since liberation until
1949 Goquiolay never lifted a finger to discharge the debts of the partnership. Is he
entitled now to cry fraud after the debts were discharged with no help from him.
With regard to the relationship between the parties, suffice it to say that the Supreme
Court has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking,
21 Phil. 243; also Hermandad del Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685).
There is no evidence that the original buyers, Washington Sycip and Betty Lee, were
without independent means to purchase the property. That the Yutivos should be willing to
extend credit to them, and not to appellant, is neither illegal nor immoral; at the very least,
these buyers did not have a record of inveterate defaults like the partnership "Tan Sin An &
Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy between
the Yutivo firm and their component members. But no proof is adduced. If he was such a
victim, he could have easily defeated the conspirators by raising money and paying off the
firm's debts between 1945 and 1949; but he did not; he did not even care to look for a
purchaser of the partnership assets. Were it true that the conspiracy to defraud him arose
(as he claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai asked him
to do so, it is certainly strange that the conspirators should wait 4 years, until 1949, to
have the sale effected by the widow of Tan Sin An, and that the sale should have been
routed through the probate court taking cognizance of Tan Sin An's estate, all of which
increased the risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan &
Co., (as subrogees of the Banco Hipotecario) in proceedings for the settlement of the
estate of Tan Sin An. This for two reasons: First, Tan Sin An and the partnership "Tan Sin An
& Goquiolay" were solidary (Joint and several)debtors (Exhibits "N", mortgage to the Banco
Hipotecario), and Rule 87, section 6 is the effect that:
Where the obligation of the decedent is joint and several with another debtor, the claim
shall be filed against the decedent as if he were the only debtor, without prejudice to the
right of the estate to recover contribution from the other debtor. (Emphasis supplied).

Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the
partnership and those of Tan Sim An personally, and a mortgage is indivisible, in the sense
that each and every parcel under mortgage answers for the totality of the debt (Civ. Code
of 1889, Article 1860; New Civil Code, Art. 2089).
A final and conclusive consideration: The fraud charged not being one used to obtain a
party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is
fraud at al, it can only be a fraud of creditorsthat gives rise to a rescission of the offending
contract. But by express provision of law (Article 1294, Civil Code of 1889; Article 1383,
New Civil Code) "the action for rescission is subsidiary; it can not be instituted except when
the party suffering damage has no other legal means to obtain reparation for the same".
Since there is no allegation, or evidence, that Goquiolay can not obtain reparation from the
widow and heirs of Tan Sin An, the present suit to rescind the sale in question is not
maintainable, even if the fraud charged actually did exist.
PREMISES CONSIDERED, the motion for reconsideration is denied.

G.R. No. L-14832

January 28, 1961

NG CHO CIO ET AL., plaintiffs-appellants,

vs.
NG DIONG, defendant-appellant.
C. N. HODGES, ET AL., defendants-appellees.
BAUTISTA, ANGELO, J.:
This action was begun in the Court of First Instance of Iloilo by Ng Cho Cio Ng Sian King and
Ng Due King to recover their three-fourths (3/4) pro-indiviso share on seven (7) parcels of
land situated in the City of Iloilo which were sold by Ng Diong as manager of the
commercial firm NG CHIN BENG HERMANOS in favor of C.N. Hodges. The latter had sold
four of those parcels of land to Jose C. Tayengco and the other three parcels to Julian Go,
and for that reason these two were included as party defendants. As the original plaintiffs
sold their rights, title and interest in said partnership to Ng Be Chuat and Ng Feng Tuan,
the latter two were allowed to intervene as plaintiffs. Since Jose C. Tayengco had
mortgaged three of the lands which he purchased from C. N. Hodges in favor of the Bank of
the Philippine Islands, the complaint was amended so as to include the Bank also as party
defendant.
On October 16, 1956, after trial had begun, defendant Ng Diong died, whereupon his heirs
were order to substitute him parties defendants. Defendants C. N. Hodges, Ng Diong and
Jose C. Tayengco answered the complaint separately setting up certain special defenses
and counterclaims. In substance, they refuted the allegations set forth in the complaint
and prayed for its dismissal.
The parties submitted a partial Stipulation of facts on many points covered by the
pleadings thus simplifying the trial of the case while at the same time they introduced
additional evidence in amplification of the fact stipulated, Thereupon, the trial court, after
a thorough evaluation of the evidence, rendered decision dismissing the complaint with
costs. Plaintiffs interposed the present appeal on purely questions of law.
The pertinent facts may be briefly stated, as follow On May 23, 1925, Ng Diong, Ng Be
Chuat, Ng Feng Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng Due King entered into a
contract of general co-partnership under the name NG CHIN BENG HERMANOS. The
partnership was to exist for a period of 10 years from May 23, 1925 and Ng Diong was
named as managing partner. On May 10, 1935, the articles of co-partnership were
amended by extending its life to 16 years more to be counted from May 23, 1925, or up to
May 23, 1941.
On January 5, 1938, the partnership obtained from the National Loan and Investment
Board a loan in the amount of P30,000.00, and to guarantee its payment it executed in its
favor a mortgage on Lots Nos. 236-B, 317-A, 233 and 540 of the cadastral survey of Iloilo.
On the same date, the partnership also obtained from the same entity another loan in the
amount of P50,000.00 to secure which it also executed in its favor a mortgage on Lots Nos.
386, 829 and 237 of the same cadastral survey.
Sometime in 1938, the partnership was declared insolvent upon petition of its creditors in,
Special Proceedings No. 2419 of the Court of First Instance of Iloilo wherein one Crispino

Melocoton was elected as assignee. As a consequence, on June 21, 1939, the titles to the
seven parcels of land abovementioned were issued in his name as assignee. In due time,
the creditors filed their claims in said proceeding which totalled P192,901.12.
On August 9, 1940, a majority of the creditors with claims amounting to P139,704.81, and
the partners of the firm, acting thru counsel, entered into a composition agreement
whereby it was agreed that said creditors would receive 20% of the amount of their claims
in full payment thereof. Prior to this agreement, however, defendant Julian Go had already
acquired the rights of 24 of the creditors of the insolvent whose total claims amounted to
P139,323.10. Said composition agreement was approved by the insolvency court.
On January 30, 1941, the Agricultural and Industrial Bank which had succeeded the
National Loan and Investment Board assigned its rights and interests in the loans obtained
from it by the partnership in the aggregate amount of P80,000.00 in favor of C.N. Hodges,
together with the right and interest in the mortgage executed to secure the loans. Since
said loans became due and no payment was forthcoming, Hodges asked permission from
the insolvency court to file a complaint against the assignee to foreclose he mortgage
executed to secure the same in a separate proceeding, and permission having been
granted, Hodges filed a complaint for that purpose on May 13, 1941. In his complaint,
Hodges prayed that the assignee be ordered to pay him the sum of P75,622.90, with
interest at 8% per annum thereon from March 6, 1941, plus P8,000.00 attorney's fees,
exclusive of costs and charges. Meanwhile, war broke out and nothing appears to have
been done in the insolvency proceedings. The court records were destroyed. However, they
were reconstituted later and given due course.
On August 15, 1945, the partners of the insolvent firm and Julian Go, who acquired most of
the claims of the creditors, filed a petition with the insolvency court praying at the
insolvency proceedings be closed or terminated cause the composition agreement the
creditors had submitted relative to the settlement of the claims had already been approved
on October 10, 1940. And on October 6, 1946, the court, acting favorably on the petition,
ordered, closure of the proceedings directing the assignee to turn and reconvey all the
properties of the partnership back to the latter as required by law. In accordance with this
order of the court, the assignee executed a deed of reconveyance of the properties to the
partnership on April 2, 1946 and by virtue thereof, the register of deeds cancelled the titles
issued in the name of the assignee and issued new ones in lieu thereof in the name of the
partnership.
As of said date, April 2, 1946, the indebtedness of the partnership to C. N. Hodges which
was the subject of the foreclosure proceedings in a separate case was P103,883.34. In
order to pay off the same and raise necessary funds to pay the other obligations of the
partnership, it was deemed proper and wise by Ng Diong, who continued to be the
manager of the partnership, to sell all its properties mortgaged to Hodges in order that the
excess may be applied to the Payment of said other obligations, and to that effect Ng
Diong executed on April 2, 1946 a deed of sale thereof in favor of Hodges for the sum of
P124,580.00. Out of this price; the sum of P103,883.34 was applied to the payment of the
debt of the partnership to Hodges and the balance was paid to the other creditors of the
partnership. On the same date, Hodges executed another contract giving the partnership
the right to repurchase Lots Nos. 237, 386 and 829 in installments for the sum of
P26,000.00 within three years with interest the rate of 1% Per annum, Payable monthly.

On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go in he
amount of P24,864.62 under the composition agreement, nor did it have any money to
repurchase Lots Nos. 237, 386 and 829 and so Ng Diong, in behalf of the partnership,
transferred the right of the latter to repurchase the same from Hodges to Julian Go in full
payment of the partnership's indebtedness to him. And having Julian Go exercised the
option January 6, 1948, Hodges executed a deed of sale of the properties in his favor, and
pursuant thereto the register of deeds issued new titles' in his name covering said lots. On
May 29, 1948, Hodges executed another deed of sale covering Lots Nos. 317-A, 236-B, 233
and 540 for the sum of P119,067.79 in favor of Jose C. Tayengco. And on August 31, 1948,
Tayengco mortgaged said lots, together with three other lots of his, to the Bank of the
Philippine Islands to secure a loan of P126,000.00 to be used in the construction of a
commercial building on said lots.

power granted to him by the partnership in its articles of co-partnership. We do not,

therefore, find anything irregular in this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had already expired, the question
may be fixed: Who shall wind up it business affairs? May its manager still execute the sale
of its properties to C. N. Hodges as was done by Ng Diong? The answer to this question
cannot but be in the affirmative because Ng Diong was still the managing partner of the
partnership and he had the necessary authority to liquidate its affairs under its articles of
co-partnership. And considering that war had intervened and the affairs of the partnership
were placed under receivership up to October 6, 1945, we are of the opinion that Ng Diong
could still exercise his power as liquidator when he executed the sale in question in favor of
C. N. Hodges. This is sanctioned by Article 228 of the Code of Commerce which was the
law in force at the time.1

Appellants make in their brief six assignments of errors, which, reduced to bare essentials,
may be boiled down to the following points: (1) the sale made by Ng Diong in behalf of the
partnership NG CHIN BENG HERMANOS of the seven lots belonging to it in favor of C. N.
Hodges on April 2, 1946 is null and void because at that time said parcels were still in the
custody of the assignee of the insolvency proceedings, or in custodia legis, and, hence, the
same is null and void; (2) said sale is also null and void "because of the disparity,
irrationality and unreasonableness between the consideration and the real value of the
properties when sold"; and (3) the lower court erred in not finding that the two deeds of
mortgage executed by he partnership in favor of the National Loan and Investment Board
which were later assigned to C. N. Hodges can no longer be enforced because the action to
foreclose the same has already prescribed.

With regard to the second issue, it is contended that the trial court should have declared
the sale of the lots made to C. N. Hodges null and void "because of the disparity,
irrationality and unreasonableness between the consideration and real value of the
properties when sold." In stressing his point, counsel contends that the lands in question,
which are located in a commercial section of the City of Iloilo, were frittered away only for
a "pittance of P124,580.00" when, borrowing his words they could have been sold like hot
cakes to any resident of the city of regular financial standing upon proper approaches and
representations, because at that time those properties were fairly worth one-half of a
million pesos."

Anent the first issue, it would be well to state the following facts by way of clarification: It
should be recalled that on August 8, 1940 the majority of the creditors of the partnership,
as well as the representatives of the latter, submitted to the court taking cognizance of the
insolvency proceedings a composition agreement whereby it was agreed that said
creditors would receive 20% of the amount of their claims in full payment thereof. This
agreement was approved on October 10, 1940 which, in contemplation of law, has the
effect of putting an end to the insolvency proceedings. However, no further step was taken
thereon because of the outbreak of the war. Later, the record of the case was reconstituted
and the parties on August 15, 1945 filed a petition with the court praying for the dismissal
and closure of the proceedings in view of the approval of the aforesaid composition
agreement, and acting favorably thereon, the court on October 6, 1945, issued an order
declaring the proceedings terminated and ordering the assignee to return and reconvey
the properties the partnership. The actual reconveyance was done by a assignee on April
2, 1946.

Neither can we give any value to the claim that the action for the foreclosure of the
mortgage executed by the partnership in favor of C. N. Hodges has already prescribed not
only because the same is immaterial but because it is an issue that appellants are raising
for the first time in this appeal. Such issue has never been raised in their pleadings, nor in
the trial court. Verily, this claim has no merit.

It would, therefore, appear that for legal and practical purposes the insolvency ended on
said date. Since then partnership became, restored to its status quo. It again reacquired its
personality as such with Ng Diong as its general manager. From that date on its properties
ceased to be in custodia legis. Such being the case, it is obvious that when Ng Diong as
manager of the partnership sold the seven parcels of land to C. N. Hodges on April 2, 1946
by virtue of a deed of sale acknowledged before a notary public on April 6, 1946, the
properties were already was at liberty to do what it may deem convenient and proper to
protect its interest. And acting accordingly, Ng Diong made the sale in the exercise of the

This claim may be true, but the same is unsupported. Appellants have failed to introduce
any evidence to show that they could have secured better offers for the properties if given
a chance to do so and that they advance now is a mere speculation or conjecture which
had no place in our judicial system. Since every claim must be substantiated by sufficient
evidence, and this appellants have failed to do, their pretense cannot be entertained.

With regard to the appeal taken by the heirs of defendant Ng Diong whose main claim is
that the trial court failed to adjudicate to the partnership the properties which were bought
by Julian Go from C. N. Hodges, suffice it to say that the same could not be done, firstly,
because no such claim was made by them in their pleadings in the trial court, and,
secondly, because the evidence shows that said properties were bought by Julian Go by
virtue of the option given to him by the partnership for a valuable consideration in full
payment of the credits assigned to him by a good number of creditors of said partnership.
There is no evidence that he promised to reconvey the same to the partnership.
WHEREFORE, the decision appealed from is affirmed, with costs against appellants.

G.R. No. 167379

June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.

LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T.
LAZATIN and JOSE MARCOS T. LAZATIN, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its
Resolution2 denying petitioners motion for reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic
corporation engaged in real estate development. Rafaelito W. Lopez is its President and
Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and
Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels
of land, with a combined area of 30,000 square meters, located in Tagaytay City and
covered by Transfer Certificate of Title (TCT) No. T-108484 of the Register of Deeds of
Tagaytay City.

the DEVELOPERS control, not to exceed three years from the date of the signing of this
Joint Venture Agreement, except the installation of the electrical facilities which is solely
MERALCOS responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers, support
personnel and marketing staff, to handle all services related to land and housing
development (administrative and construction) and marketing (sales, advertising and
promotions).6
The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw
allowances or make advances not exceeding a total of twenty percent (20%) of the net
revenue for that period, on the basis of sixty percent (60%) for the DEVELOPER and forty
percent (40%) for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net revenue
for the first two years, in order to have sufficient reserves or funds to protect and/or
guarantee the construction and completion of the different types of units mentioned
above.
2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing
allowances and/or advances equivalent to sixty percent (60%) and forty percent (40%),
respectively, of the total net revenue or income of the sale of the units. 7
They also agreed to share in the profits from the joint venture, thus:

On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as
President, entered into a Joint Venture Agreement5 (JVA) for the development of the
aforementioned property into a residential subdivision to be known as "Tagaytay Garden
Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute the two parcels
of land as their share in the joint venture. For its part, Primelink undertook to contribute
money, labor, personnel, machineries, equipment, contractors pool, marketing activities,
managerial expertise and other needed resources to develop the property and construct
therein the units for sale to the public. Specifically, Primelink bound itself to accomplish the
following, upon the execution of the deed:

1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of
the Joint Venture project, after deducting all expenses incurred in connection with the land
development (such as administrative management and construction expenses), and
marketing (such as sales, advertising and promotions), and

a.) Survey the land, and prepare the projects master plans, engineering designs, structural
and architectural plans, site development plans, and such other need plans in accordance
with existing laws and the rules and regulations of appropriate government institutions,
firms or agencies;

SALES-INCOME-COST PROJECTION

b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
c.) Furnish all materials, equipment, labor and services for the development of the land in
preparation for the construction and sale of the different types of units (single-detached,
duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by force majeure
or fortuitous event or by competent authority, or other unavoidable circumstances beyond

2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income
of the Joint Venture project, after deducting all the above-mentioned expenses. 8
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:

lawphil.net
SELLING PRICE

COST PRICE

DIFFERENCE

INCOME

CLUSTER:
A1 3,200,000
TWIN:

A2 1,260,000

= 1,940,000 x 24

= P 46,560,000.00

B1 2,500,000

B2 960,000

= 1,540,000 x 24

= 36,960,000.00

C2 1,400,000

= 2,100,000 x 16

= 33,600,000.00

SINGLE:
C1 3,500,000

ROW-TYPE TOWNHOMES:
RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.)

P307,769,740.00

less:

132,224,000.00

Total Expenses

P175,545,740.009

The parties agreed that any unsettled or unresolved misunderstanding or conflicting

opinions between the parties relative to the interpretation, scope and reach, and the
enforcement/implementation of any provision of the agreement shall be referred to
Voluntary Arbitration in accordance with the Arbitration Law.10
The Lazatins agreed to subject the title over the subject property to an escrow agreement.
Conformably with the escrow agreement, the owners duplicate of the title was deposited
with the China Banking Corporation.11However, Primelink failed to immediately secure a
Development Permit from Tagaytay City, and applied the permit only on August 30, 1995.
On October 12, 1995, the City issued a Development Permit to Primelink. 12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink
comply with its obligations under the JVA, otherwise the appropriate action would be filed
against it to protect their rights and interests. This impelled the officers of Primelink to
meet with the Lazatins and enabled the latter to review its business records/papers. In
another Letter14 dated October 22, 1997, the Lazatins informed Primelink that they had
decided to rescind the JVA effective upon its receipt of the said letter. The Lazatins
demanded that Primelink cease and desist from further developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of
Tagaytay City, Branch 18, a complaint for rescission accounting and damages, with prayer
for temporary restraining order and/or preliminary injunction against Primelink and Lopez.
The case was docketed as Civil Case No. TG-1776. Plaintiffs alleged, among others, that,
despite the lapse of almost four (4) years from the execution of the JVA and the delivery of
the title and possession of the land to defendants, the land development aspect of the
project had not yet been completed, and the construction of the housing units had not yet
made any headway, based on the following facts, namely: (a) of the 50 housing units
programmed for Phase I, only the following types of houses appear on the site in these
condition: (aa) single detached, one completed and two units uncompleted; (bb) cluster

houses, one unit nearing completion; (cc) duplex, two units completed and two units
unfinished; and (dd) row houses, two units, completed; (b) in Phase II thereof, all that was
done by the defendants was to grade the area; the units so far constructed had been the
object of numerous complaints by their owners/purchasers for poor workmanship and the
use of sub-standard materials in their construction, thus, undermining the projects
marketability. Plaintiffs also alleged that defendants had, without justifiable reason,
completely disregarded previously agreed accounting and auditing procedures, checks and
balances system installed for the mutual protection of both parties, and the scheduled
regular meetings were seldom held to the detriment and disadvantage of plaintiffs. They
averred that they sent a letter through counsel, demanding compliance of what was
agreed upon under the agreement but defendants refused to heed said demand. After a
succession of letters with still no action from defendants, plaintiffs sent a letter on October
22, 1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by
defendants, they (plaintiffs) stood to receive the amount of P70,218,296.00 as their net
share in the joint venture project; to date, however, after almost four (4) years and despite
the undertaking in the JVA that plaintiffs shall initially get 20% of the agreed net revenue
during the first two (2) years (on the basis of the 60%-40% sharing) and their full 40%
share thereafter, defendants had yet to deliver these shares to plaintiffs which by
conservative estimates would amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining
order be forthwith issued enjoining the defendants to immediately stop their land
development, construction and marketing of the housing units in the aforesaid project;
after due proceedings, to issue a writ of preliminary injunction enjoining and prohibiting
said land development, construction and marketing of housing units, pending the
disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the
defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well as
expenses incurred and disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty
Million Pesos (P40,000,000.00) in actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two
Million Pesos (P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount
equivalent to ten percent (10%) of the total amount due as and for attorneys fees; and

8. To pay the costs of this suit.

Other reliefs and remedies as are just and equitable are likewise being prayed for. 16
Defendants opposed plaintiffs plea for a writ of preliminary injunction on the ground that
plaintiffs complaint was premature, due to their failure to refer their complaint to a
Voluntary Arbitrator pursuant to the JVA in relation to Section 2 of Republic Act No. 876
before filing their complaint in the RTC. They prayed for the dismissal of the complaint
under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of
Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to
arbitrate, and then asking the parties to resolve their controversies, pursuant to the
Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the completion of the
arbitration, and
d) denying the plaintiffs prayer for the issuance of a temporary restraining order or writ of
preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for. 17
In the meantime, before the expiration of the reglementary period to answer the
complaint, defendants, invoking their counsels heavy workload, prayed for a 15-day
extension18 within which to file their answer. The additional time prayed for was granted by
the RTC.19 However, instead of filing their answer, defendants prayed for a series of 15-day
extensions in eight (8) successive motions for extensions on the same justification. 20 The
RTC again granted the additional time prayed for, but in granting the last extension, it
warned against further extension.21Despite the admonition, defendants again moved for
another 15-day extension,22 which, this time, the RTC denied. No answer having been filed,
plaintiffs moved to declare the defendants in default, 23 which the RTC granted in its
Order24 dated June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim
and Opposition to the Prayer for the Issuance of a Writ of Preliminary Injunction." 25 On July
8, 1998, defendants filed a Motion to Set Aside the Order of Default. 26 This was opposed by
plaintiffs.27 In an Order28 dated July 14, 1998, the RTC denied defendants motion to set
aside the order of default and ordered the reception of plaintiffs evidence ex parte.
Defendants filed a motion for reconsideration 29 of the July 14, 1998 Order, which the RTC
denied in its Order30dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in
default, as well as the Order denying their motion to set aside the order of default, alleging
that these were contrary to facts of the case, the law and jurisprudence. 31 On September
16, 1999, the appellate court issued a Resolution32 dismissing the appeal on the ground
that the Orders appealed from were interlocutory in character and, therefore, not

appealable. No motion for reconsideration of the Order of the dismissal was filed by
defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence.
On April 17, 2000, the RTC rendered a Decision, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this
complaint;
2. Ordering the defendants to return possession, including all improvements therein, of the
real estate property belonging to the plaintiffs which is described in, and covered by
Transfer Certificate of Title No. T-10848 of the Register of Deeds of Tagaytay City, and
located in Barangay Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that have been
executed, prepared and retained in connection with any contract to sell or deed of sale of
all lots/units sold during the effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing
their share of the net income of the P2,603,810.64 as of September 30, 1995, as stipulated
in the joint venture agreement;
5. Ordering the defendants to pay the plaintiffs attorneys fees in the amount
of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the
stipulations particularly paragraph II covering Developers (defendant) undertakings, as
well as paragraph III and paragraph V of the JVA. These violations are not limited to those
made against the plaintiffs alone as it appears that some of the unit buyers themselves
have their own separate gripes against the defendants as typified by the letters (Exhibits
"G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs.
Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp.
60 to 62, TSN August 6, 1998) this court has observed, and is thus convinced, that a
pattern of what appears to be a scheme or plot to reduce and eventually blot out the net
income generated from sales of housing units by defendants, has been established. Exhibit
"P-2" is explicit in declaring that, as of September 30, 1995, the joint venture project
earned a net income of aboutP2,603,810.64. This amount, however, was drastically
reduced in a subsequent financial report submitted by the defendants to P1,954,216.39.

Shortly thereafter, and to the dismay of the plaintiffs, the defendants submitted an income
statement and a balance sheet (Exhibits "R" and "R-1") indicating a net loss
of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have
received the sum ofP1,041,524.26 representing their 40% share under paragraph II and V
of the JVA. But this was not to be so. Even before the plaintiffs could get hold of their share
as indicated above, the defendants closed the chance altogether by declaring a net loss.
The court perceives this to be one calculated coup-de-grace that would put to thin air
plaintiffs hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way the
defendants treated the JVA and the manner by which they handled the project itself vis-vis their partners, the plaintiffs herein, there is bound to be certain conflict as the latter
repeatedly would received the losing end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other
recourse but to file the present action to enforce their rights. x x x 34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal 35 alleging
defendants dilatory tactics for its allowance. This was opposed by defendants. 36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of
plaintiffs.37 Upon posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending
appeal was issued on June 20, 2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE
COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED
VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THE
DOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION V. MCDONOUGH
CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN THE
ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND DESPITE
PRIMELINKS STRONG OPPOSITION THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO QUASH THE
WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR RECONSIDERATION,
ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION TO RULE ON ALL QUESTIONS
RELATED TO EXECUTION.
IV

THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH
PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS
FORTY MILLION PESOS, AND DESPITE APPELLEES FAILURE TO PRESENT SUFFICIENT
EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE
OVER THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE EXISTING
IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID RIGHT WAS
NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE
EX PARTE HEARING, AND EVEN WITHOUT ORDERING APPELLEES TO FIRST REIMBURSE
PRIMELINK OF THE SUBSTANTIAL DIFFERENCE BETWEEN THE MARKET VALUE OF
APPELLEES RAW, UNDEVELOPED AND UNPRODUCTIVE LAND (CONTRIBUTED TO THE
PROJECT) AND THE SUM OF MORE OR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD
SPENT FOR THE HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY
ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF
PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with modification,
the appealed decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of
Tagaytay City, Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is
hereby AFFIRMED. Accordingly, Transfer Certificate of Title No. T-10848 held for
safekeeping by Chinabank pursuant to the Escrow Agreement is ordered released for
return to the plaintiffs-appellees and conformably with the affirmed decision, the
cancellation by the Register of Deeds of Tagaytay City of whatever annotation in TCT No.
10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation,41 the appellate court ruled that, under Philippine law, a joint venture is a form
of partnership and is to be governed by the laws of partnership. The aggrieved parties filed
a motion for reconsideration,42 which the CA denied in its Resolution43 dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL
ERROR AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE RETURN TO THE
RESPONDENTS OF THE PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN WITHOUT
ORDERING/REQUIRING THE RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL
EXPENSES INCURRED IN DEVELOPING AND MARKETING THE PROJECT, LESS THE ORIGINAL
VALUE OF THE PROPERTY, AND THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF
ANY) OF THE JOINT VENTURE PROJECT?

2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND

UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS AND
VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL NOTICE, DEFAULT, UNJUST
ENRICHMENT AND RESCISSION OF CONTRACT WHICH REQUIRES MUTUAL RESTITUTION,
NOT UNILATERAL APPROPRIATION, OF PROPERTY BELONGING TO ANOTHER? 44
Petitioners maintain that the aforesaid portion of the decision which unconditionally awards
to respondents "all improvements" on the project without requiring them to pay the value
thereof or to reimburse Primelink for all expenses incurred therefore is inherently and
essentially illegal and confiscatory, oppressive and unconscionable, contrary to the tenets
of good human relations, and will allow respondents to unjustly enrich themselves at
Primelinks expense. At the time respondents contributed the two parcels of land,
consisting of 30,000 square meters to the joint venture project when the JVA was signed on
March 10, 1994, the said properties were worth not more than P500.00 per square meter,
the "price tag" agreed upon the parties for the purpose of the JVA. Moreover, before
respondents rescinded the JVA sometime in October/November 1997, the property had
already been substantially developed as improvements had already been introduced
thereon; petitioners had likewise incurred administrative and marketing expenses, among
others, amounting to more or less P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be declared
the owners and entitled to the possession of the improvements made by petitioner
Primelink on the property; neither did they adduce evidence to prove their entitlement to
said improvements. It follows, petitioners argue, that respondents were not entitled to the
improvements although petitioner Primelink was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to
the extent necessary to cover the damages caused and that, under Article 1385 of the
same Code, rescission creates the obligation to return the things which were not object of
the contract, together with their fruits, and the price with its interest; consequently, it can
be effected only when respondents can return whatever they may be obliged to return.
Respondents who sought the rescission of the JVA must place petitioner Primelink in the
status quo. They insist that respondents cannot rescind and, at the same time, retain the
consideration, or part of the consideration received under the JVA. They cannot have the
benefits of rescission without assuming its burden. All parties must be restored to their
original positions as nearly as possible upon the rescission of a contract. In the event that
restoration to the status quo is impossible, rescission may be granted if the Court can
balance the equities and fashion an appropriate remedy that would be equitable to both
parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their claim
for reimbursement because "[w]hat matters is that the improvements exist and they
cannot be denied."46 Moreover, they point out, the ruling of this Court in Aurbach v.
Sanitary Wares Manufacturing Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did
not specifically pray for their takeover of the property and for the possession of the
improvements on the parcels of land, nevertheless, respondents were entitled to said relief
as a necessary consequence of the ruling of the trial court ordering the rescission of the

JVA. The appellate court cited the ruling of this Court in the Aurbach case and Article 1838
of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general principles of
partnership may be resorted to.48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal
with rescissible contracts. What applies is Article 1191 of the New Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as
found by the RTC and the CA, it was petitioner Primelink that enriched itself at the expense
of respondents. Respondents reiterate the ruling of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and
did not pray that they are and should be entitled to take over the development of the
project, and that the improvements and existing structures which were introduced by
PRIMELINK after spending more or less Forty Million Pesos be awarded to them. They
merely asked in the complaint that the joint venture agreement be rescinded, and that the
parcels of land they contributed to the project be returned to them.
PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to return
possession of the real estate property belonging to the LAZATINs including all
improvements thereon was not a judgment that was different in kind than what was
prayed for by the LAZATINs. The order to return the property with all the improvements
thereon is just a necessary consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general principles of
partnership may be resorted to. In Aurbach v. Sanitary Wares Manufacturing Corporation,
the Supreme Court discussed the following points regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly
distinguishable from the partnership, since elements are similar community of interest in
the business, sharing of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley v.

Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited by
most opinions in common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature. (Tuffs v. Mann, 116
Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74 [1947]; Gates
v. Megargel, 266 Fed. 811 [1920]) This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that, under Philippine law, a joint venture is a form of
partnership and should thus be governed by the laws of partnership. The Supreme Court
has, however, recognized a distinction between these two business forms, and has held
that although a corporation cannot enter into a partnership contract, it may, however,
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954];
Campos and Lopez Campos Comments, Notes and Selected Cases, Corporation Code
1981) (Emphasis Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of
the court a quo, was a pattern of what appears to be a scheme or plot to reduce and
eventually blot out the net incomes generated from sales of housing units by the
defendants. Under Article 1838 of the Civil Code, where the partnership contract is
rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the
party entitled to rescind is, without prejudice to any other right is entitled to a lien on, or
right of retention of, the surplus of the partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by him for the purchase of an interest
in the partnership and for any capital or advance contributed by him. In the instant case,
the joint venture still has outstanding liabilities to third parties or the buyers of the
property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by
Chinabank for safekeeping pursuant to the Escrow Agreement executed between Primelink
Properties and Development Corporation and Ma. Clara T. Lazatin-Magat should also be
returned to the LAZATINs as a necessary consequence of the order of rescission of
contract. The reason for the existence of the Escrow Agreement has ceased to exist when
the joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have
suffered. They likewise stress that they did not enrich themselves at the expense of
petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the
improvements even if their share in the P1,041,524.26 of the net income of the property
and the sale of the land were to be deducted from the value of the improvements, plus
administrative and marketing expenses in the total amount of P40,000,000.00. Petitioners
will still be entitled to an accounting from respondents. Respondents cannot deny the
existence and nature of said improvements as they are visible to the naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the
possession of the parcels of land covered by the JVA and the improvements thereon

introduced by petitioners as their contribution to the JVA; (2) whether petitioners are
entitled to reimbursement for the value of the improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in
their complaint below that possession of the improvements on the parcels of land which
they contributed to the JVA be transferred to them. Respondents made a specific prayer in
their complaint that, upon the rescission of the JVA, they be placed in possession of the
parcels of land subject of the agreement, and for other "reliefs and such other remedies as
are just and equitable in the premises." However, the trial court was not precluded from
awarding possession of the improvements on the parcels of land to respondents in its
decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall specify
the relief sought but it may add as general prayer for such further or other relief as may be
deemed just and equitable. Even without the prayer for a specific remedy, proper relief
may be granted by the court if the facts alleged in the complaint and the evidence
introduced so warrant.50 The court shall grant relief warranted by the allegations and the
proof even if no such relief is prayed for.51 The prayer in the complaint for other reliefs
equitable and just in the premises justifies the grant of a relief not otherwise specifically
prayed for.52
The trial court was not proscribed from placing respondents in possession of the parcels of
land and the improvements on the said parcels of land. It bears stressing that the parcels
of land, as well as the improvements made thereon, were contributed by the parties to the
joint venture under the JVA, hence, formed part of the assets of the joint venture. 53 The trial
court declared that respondents were entitled to the possession not only of the parcels of
land but also of the improvements thereon as a consequence of its finding that petitioners
breached their agreement and defrauded respondents of the net income under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and respondents
entered into a joint venture as evidenced by their JVA which, under the Courts ruling in
Aurbach, is a form of partnership, and as such is to be governed by the laws on
partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on
record that petitioners willfully and persistently committed a breach of the JVA, the court
thereby dissolved/cancelled the partnership.54With the rescission of the JVA on account of
petitioners fraudulent acts, all authority of any partner to act for the partnership is
terminated except so far as may be necessary to wind up the partnership affairs or to
complete transactions begun but not yet finished.55 On dissolution, the partnership is not
terminated but continues until the winding up of partnership affairs is
completed.56 Winding up means the administration of the assets of the partnership for the
purpose of terminating the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon to
respondents was only for a specific purpose: the winding up of partnership affairs, and the
partition and distribution of the net partnership assets as provided by law. 57 After all, Article
1836 of the New Civil Code provides that unless otherwise agreed by the parties in their
JVA, respondents have the right to wind up the partnership affairs:

Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not insolvent, has the
right to wind up the partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of the lands and
the improvements thereon, the said lands and improvements remained partnership
property, subject to the rights and obligations of the parties, inter se, of the creditors and
of third parties under Articles 1837 and 1838 of the New Civil Code, and subject to the
outcome of the settlement of the accounts between the parties as provided in Article 1839
of the New Civil Code, absent any agreement of the parties in their JVA to the
contrary.58 Until the partnership accounts are determined, it cannot be ascertained how
much any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified for
the value of the improvements on the parcels of land owned by the joint
venture/partnership. Notably, the JVA of the parties does not contain any provision
designating any party to wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is
caused in contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or jointly with others, may
do so, during the agreed term for the partnership and for that purpose may possess the
partnership property, provided they secure the payment by bond approved by the court, or
pay to any partner who has caused the dissolution wrongfully, the value of his interest in
the partnership at the dissolution, less any damages recoverable under the second
paragraph, No. 1(b) of this article, and in like manner indemnify him against all present or
future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No. 2, all
the rights of a partner under the first paragraph, subject to liability for damages in the
second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right
as against his co-partners and all claiming through them in respect of their interests in the
partnership, to have the value of his interest in the partnership, less any damage caused
to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment
secured by a bond approved by the court, and to be released from all existing liabilities of

the partnership; but in ascertaining the value of the partners interest the value of the
good-will of the business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after
satisfying the partnership liabilities to third persons for any sum of money paid by him for
the purchase of an interest in the partnership and for any capital or advances contributed
by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the
creditors of the partnership for any payments made by him in respect of the partnership
liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation
against all debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in Article
1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following rules
shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities
specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the
satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to
satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have
the right to enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions
specified in No. 4, to the extent of the amount which he has paid in excess of his share of
the liability.

(7) The individual property of a deceased partner shall be liable for the contributions
specified in No. 4.
(8) When partnership property and the individual properties of the partners are in
possession of a court for distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual property, saving the rights of lien
or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his
separate property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as they
conform to this Decision of the Court.
Costs against petitioners.
SO ORDERED.

G.R. No. L-17526

June 30, 1962

GREGORIO MAGDUSA, ET AL., petitioners,

vs.
GERUNDIO ALBARAN, ET AL., respondents.
Montenegro, Madayag, Viola and Hernandez, Olimpio R. Epis, David C. Ocangas and
Bonifacio M. Belderol for petitioners.
Lozano, Soria, Muana, Ruiz and Morales for respondents.
REYES, J.B.L., J.:
Appeal from a decision of the Court of Appeals (G.R. No. 24248-R) reversing a judgment of
the Court of First Instance of Bohol and ordering appellant Gregorio Magdusa to pay to
appellees, by way of refund of their shares as partners, the following amounts: Gerundio
Albaran, P8,979.10; Pascual Albaran, P5,394.78; Zosimo Albaran, P1,979.28; and Telesforo
Bebero, P3,020.27; plus legal interests from the filing of the complaint, and costs.
The Court of Appeals found that appellant and appellees, together with various other
persons, had verbally formed a partnership de facto, for the sale of general merchandise in
Surigao, Surigao, to which appellant contributed P2,000 as capital, and the others
contributed their labor, under the condition that out of the net profits of the business 25%
would be added to the original capital, and the remaining 75% would be divided among the
members in proportion to the length of service of each. Sometime in 1953 and 1954, the
appellees expressed their desire to withdraw from the partnership, and appellant
thereupon made a computation to determine the value of the partners' shares to that date.
The results of the computation were embodied in the document Exhibit "C", drawn in the
handwriting of appellant. Appellees thereafter made demands upon appellant for payment,
but appellant having refused, they filed the initial complaint in the court below. Appellant
defended by denying any partnership with appellees, whom he claimed to be mere
employees of his.
The Court of First Instance of Bohol refused to give credence to Exhibit "C", and dismissed
the complaint on the ground that the other were indispensable parties but hid not been
impleaded. Upon appeal, the Court of Appeals reversed, with the result noted at the start
of this opinion.
Gregorio Magdusa then petitioned for a review of the decision, and we gave it due
course.1wph1.t
The main argument of appellant is that the appellees' action can not be entertained,
because in the distribution of all or part of a partnership's assets, all the partners have no
interest and are indispensable parties without whose intervention no decree of distribution
can be validly entered. This argument was considered and answered by the Court of
Appeals in the following words:
We now come to the last issue involved. While finding that some amounts are due the
plaintiffs, the lower court withheld an award in their favor, reasoning that a judgment
ordering the defendant to pay might affect the rights of other partners who were not made
parties in this case. The reason cited by the lower court does not constitute a legal

impediment to a judgment for the plaintiffs in this case. This is not an action for a
dissolution of a partnership and winding up of its affairs or liquidation of its assets in which
the interest of other partners who are not brought into the case may be affected. The
action of the plaintiffs is one for the recovery of a sum of money with Gregorio Magdusa as
the principal defendant. The partnership, with Gregorio Magdusa as managing partner, was
brought into the case as an alternative defendant only. Plaintiffs' action was based on the
allegation, substantiated in evidence, that Gregorio Magdusa, having taken delivery of
their shares, failed and refused and still fails and refuses to pay them their claims. The
liability, therefore, is personal to Gregorio Magdusa, and the judgment should be against
his sole interest, not against the partnership's although the judgment creditors may satisfy
the judgment against the interest of Gregorio Magdusa in the partnership subject to the
condition imposed by Article 1814 of the Civil Code.
We do not find the preceding reasoning tenable. A partner's share can not be returned
without first dissolving and liquidating the partnership (Po Yeng Cheo vs. Lim Ka Yam, 44
Phil. 177), for the return is dependent on the discharge of the creditors, whose claims
enjoy preference over those of the partners; and it is self-evident that all members of the
partnership are interested in his assets and business, and are entitled to be heard in the
matter of the firm's liquidation and the distribution of its property. The liquidation Exhibit
"C" is not signed by the other members of the partnership besides appellees and
appellant; it does not appear that they have approved, authorized, or ratified the same,
and, therefore, it is not binding upon them. At the very least, they are entitled to be heard
upon its correctness.
In addition, unless a proper accounting and liquidation of the partnership affairs is first
had, the capital shares of the appellees, as retiring partners, can not be repaid, for the
firm's outside creditors have preference over the assets of the enterprise (Civ. Code, Art.
1839), and the firm's property can not be diminished to their prejudice. Finally, the
appellant can not be held liable in his personal capacity for the payment of partners'
shares for he does not hold them except as manager of, or trustee for, the partnership. It is
the latter that must refund their shares to the retiring partners. Since not all the members
of the partnership have been impleaded, no judgment for refund can be rendered, and the
action should have been dismissed.
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals is reversed and the
action ordered dismissed, without prejudice to a proper proceeding for the dissolution and
liquidation of the common enterprise. Costs against appellees.

G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS
COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN
JENG and CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.

FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm name of
"Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was
originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of
China (Taiwan), as limited partners. The partnership business consisted of exploiting a
marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in
Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz
spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as
Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu,
however, he actually received only half of his stipulated monthly salary, since he had
accepted the promise of the partners that the balance would be paid when the firm shall
have secured additional operating funds from abroad. Benjamin Yu actually managed the
operations and finances of the business; he had overall supervision of the workers at the
marble quarry in Bulacan and took charge of the preparation of papers relating to the
exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal
and Rhodora Bendal sold and transferred their interests in the partnership to private
respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also
sold and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel
Zapanta and himself, private respondent Willy Co acquired the great bulk of the
partnership interest. The partnership now constituted solely by Willy Co and Emmanuel
Zapanta continued to use the old firm name of Jade Mountain, though they moved the
firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the
Memorandum Agreement relating to the operation of the marble quarry was entered into
with the Cruz spouses in February of 1988. 2 The actual operations of the business
enterprise continued as before. All the employees of the partnership continued working in
the business, all, save petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from Makati
to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and

there met private respondent Willy Co for the first time. Petitioner was informed by Willy
Co that the latter had bought the business from the original partners and that it was for
him to decide whether or not he was responsible for the obligations of the old partnership,
including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in
the Jade Mountain business enterprise. His unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of
unpaid salaries accruing from November 1984 to October 1988, moral and exemplary
damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private
respondents. The partnership and Willy Co denied petitioner's charges, contending in the
main that Benjamin Yu was never hired as an employee by the present or new
partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that
petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement and
awarded him his claim for unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the
Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November
1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel
Zapanta had bought the Jade Mountain business, that the new partnership had not
retained petitioner Yu in his original position as Assistant General Manager, and that there
was no law requiring the new partnership to absorb the employees of the old partnership.
Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had
simply declined to retain him in his former managerial position or any other position.
Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted
against the original members of the preceding partnership, but these though impleaded
had, apparently, not been served with summons in the proceedings before the Labor
Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set
aside and annul the Resolution of the NLRC as a product of grave abuse of discretion
amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a
partnership has a juridical personality separate and distinct from that of each of its
members. Such independent legal personality subsists, petitioner claims, notwithstanding
changes in the identities of the partners. Consequently, the employment contract between
Benjamin Yu and the partnership Jade Mountain could not have been affected by changes
in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the
partnership which had hired petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel
Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner
Yu could nonetheless assert his rights under his employment contract as against the new
partnership.

In respect of the first issue, we agree with the result reached by the NLRC, that is, that the
legal effect of the changes in the membership of the partnership was the dissolution of the
old partnership which had hired petitioner in 1984 and the emergence of a new firm
composed of Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite unaware is
found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code
provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when no definite term or
particular undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where the circumstances do
not permit a dissolution under any other provision of this article, by the express will of any
partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel
Zapanta. The record does not show what happened to the remaining 18% of the original
partnership interest. The acquisition of 82% of the partnership interest by new partners,
coupled with the retirement or withdrawal of the partners who had originally owned such
82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the termination of the legal
personality of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership persists
for the limited purpose of winding up and closing of the affairs of the partnership. In the
case at bar, it is important to underscore the fact that the business of the old partnership
was simply continued by the new partners, without the old partnership undergoing the

procedures relating to dissolution and winding up of its business affairs. In other words, the
new partnership simply took over the business enterprise owned by the preceeding
partnership, and continued using the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the old partnership, paying off its debts,
liquidating and distributing its net assets, and then re-assembling the said assets or most
of them and opening a new business enterprise. There were, no doubt, powerful tax
considerations which underlay such an informal approach to business on the part of the
retiring and the incoming partners. It is not, however, necessary to inquire into such
matters.
What is important for present purposes is that, under the above described situation, not
only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which
continued the business of the old, dissolved, one, are liable for the debts of the preceding
partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts
very similar to those in the case at bar, a withdrawing partner remains liable to a third
party creditor of the old partnership. 9 The liability of the new partnership, upon the other
hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840
of the Civil Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of
the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any partner
retires and assigns (or the representative of the deceased partner assigns) his rights in
partnership property to two or more of the partners, or to one or more of the partners and
one or more third persons, if the business is continued without liquidation of the
partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased partner
assigns) their rights in partnership property to the remaining partner, who continues the
business without liquidation of partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired
partners or the representative of the deceased partner, but without any assignment of his
right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership
property to one or more third persons who promise to pay the debts and who continue the
business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners continue the
businessunder the provisions of article 1837, second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either
alone or with others without liquidation of the partnership affairs;

The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be satisfied
out of the partnership property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set
forth in this article the creditors of the retiring or deceased partner or the representative of
the deceased partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or partnership continuing the
business on account of the retired or deceased partner's interest in the dissolved
partnership or on account of any consideration promised for such interest or for his right in
partnership property.
Nothing in this article shall be held to modify any right of creditors to set assignment on
the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new
Jade Mountain which continued the business of the old one without liquidation of the
partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu
in respect of his claim for unpaid wages, is entitled to priority vis-a-visany claim of any
retired or previous partner insofar as such retired partner's interest in the dissolved
partnership is concerned. It is not necessary for the Court to determine under which one or
mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts
on record are not detailed with sufficient precision to permit such determination. It is,
however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to
enforce his claim for unpaid salaries, as well as other claims relating to his employment
with the previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to
appoint and hire a new general or assistant general manager to run the affairs of the
business enterprise take over. An assistant general manager belongs to the most senior
ranks of management and a new partnership is entitled to appoint a top manager of its
own choice and confidence. The non-retention of Benjamin Yu as Assistant General
Manager did not therefore constitute unlawful termination, or termination without just or
authorized cause. We think that the precise authorized cause for termination in the case at
bar was redundancy. 10 The new partnership had its own new General Manager, apparently
Mr. Willy Co, the principal new owner himself, who personally ran the business of Jade
Mountain. Benjamin Yu's old position as Assistant General Manager thus became
superfluous or redundant. 11 It follows that petitioner Benjamin Yu is entitled to separation
pay at the rate of one month's pay for each year of service that he had rendered to the old
partnership, a fraction of at least six (6) months being considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its
employ, we consider that Benjamin Yu was very shabbily treated by the new partnership.
The old partnership certainly benefitted from the services of Benjamin Yu who, as noted,
previously ran the whole marble quarrying, processing and exporting enterprise. His work

constituted value-added to the business itself and therefore, the new partnership similarly
benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did
not try to suggest that there was any cause consisting of some blameworthy act or
omission on the part of Mr. Yu which compelled the new partnership to terminate his
services. Nonetheless, the new Jade Mountain did not notify him of the change in
ownership of the business, the relocation of the main office of Jade Mountain from Makati
to Mandaluyong and the assumption by Mr. Willy Co of control of operations. The treatment
(including the refusal to honor his claim for unpaid wages) accorded to Assistant General
Manager Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad faith
treatment, for which the new Jade Mountain may legitimately be required to respond by
paying moral damages. This Court, exercising its discretion and in view of all the
circumstances of this case, believes that an indemnity for moral damages in the amount of
P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate
of six percent (6%) per annum on the amount of unpaid wages, and of his separation pay,
computed from the date of promulgation of the award of the Labor Arbiter. Finally, because
the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in
the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the
total amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the
Comment filed by private respondents is treated as their Answer to the Petition
for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED
and SET ASIDE. A new Decision is hereby ENTERED requiring private respondent Jade
Mountain Products Company Limited to pay to petitioner Benjamin Yu the following
amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of
P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to December
1987) in the total amount of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3)
years of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a) and (b) above,
commencing on 26 December 1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount due from private respondent
Jade Mountain.
Costs against private respondents.
SO ORDERED.

G.R. No. L-24243

January 15, 1926

ILDEFONSO DE LA ROSA, administrator of the intestate estate of the deceased

Go-Lio, plaintiff-appellant,
vs.
ENRIQUE ORTEGA GO-COTAY, defendant-appellant.
Crispin Oben for palintiff-appellant.
Paredes, Buencamino and Yulo for defendant-appellant.
VILLA-REAL, J.:
During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a society
for the purchase and sale of articles of commerce, and for this purpose they opened a
store in the town of San Isidro, Nueva Ecija. Later Go-Lio went to China. Vicenyte GoSengco died and his son Enrique Ortega Go-Cotay took charge of the businesses. Go-Lio
died in China in October, 1916, leaving a widow and three children, one of whom came to
the Philippines and filed a petition for the appointment of Ildefonso de la Rosa as
administrator of the intestate estate of his deceased father, which petition was granted by
the Court of First Instance of Nueva Ecija. Ildefonso de la Rosa, in his capacity as
administrator of the intestate estate of the deceased Go-Lio, requested Enrique Go-Cotay
to wind up the business and to deliver to him the portion corresponding to the deceased
Go-Lio. Enrique Ortega Go-Cotay denied the petition, alleging that the business was his
exclusively. In view of this denial, Ildefonso de la Rosa, as administratorm, on July 2, 1918,
filed with the Court of First Instance of Nueva Ecija a complaint against Enrique Ortega CoCotay in which he prayed that the defendant be sentenced to deliver to the plaintiff onehalf of all the property of the partnership formed by Go-lIo and Vicente Go-Sengco, with
costs against the defendant, and that the said plaintiff be appointed receiver for the
property of the said partnership.
Defendant, in answering the complaint, denied each and every allegation thereof, and as a
special defense alleged that more than ten years had elapsed before the filing of the
complaint, and prayed that he be absolved therefrom, with costs against the plaintiff.
On August 3, 1918, the Court of First Instance of Nueva Ecija appointed Justo Cabo-Chan,
Francisco T. Tantengco and Go-Tiao, as commissioners to make an inventory, liquidate and
determine the one-half belonging to the plaintiff of all the property of the store in question.
On August 9, 1918, in order to prevent Justo Cabo-Chan from assuming the office of
receiver, pursuant to the order of the court dated August 3, 1918, the defendant filed a
bond in the sum of P10,000.
Under the date of November 15, 1920, the said commissioners submitted to the court their
report, showing the net profits of the business between the period from 1913 to 1917,
which amounted to the total sum of P25,038.70 and consisted of the following items:
Profits for the year 1913........................

P2,979.00

Profits for the year 1914........................

3,046.94

Profits for the year 1915........................

4,103.07

Profits for the year 1916........................

4,735.00

Profits for the year 1917........................

10,174.69

Total...........................................................

25.038.70

In view of the appeal taken by defendant the parties on December 7, 1921, entered into an
agreement whereby they agreed to suspend the liquidation ordered by the court until the
appeal to the Supreme Court was decided, and whereby the defenadnt was authorized to
continue in the possession of the property in litigation, upon the giving of a bond in the
amount of P25,000, and cancelling the former bond for P10,000.
This court in deciding case R. G. No. 18919, on October 5, 1922, 1 held that the appeal was
premature and ordered that the record be remanded to the court of origin with instruction
to enter a final order in accordance with the liquidation made by the commissioners.
The record having been remanded and two of the commissioners having filed their
resignations, the copurt below appointed again Justo Cabo-Chan suggested by the
defendant and Cua POco suggested by the plaintiff, as commissioners, who submitted two
reports, one prepared by commissioners Tantengco and Cua Poco, and the other by
commissioners Justo Cabo-Chan. The former stated in their report that they had examined
the books for the years 1919 to 1922, for the reason, they said, that they appeared "to
have been prepared by some person in a careful way at a certain time." The later
commissioner examined all books and stated in his report that the business had suffered a
net loss amounting to the sum of P89,099.22.
After trial and the parties having introduced all their evidence, the lower court, by order of
December 13, 1924, disapproved the report of the commissioners Tantengco and Cua
Poco, but approved, with slight modifications, the report of commissioner Cabo-Chan,
holding that the result of the liquidation showed liabilities to the amiount of P89,690.45 in
view of which plaintiff had nothing to recover from defendant, as there was no profit to
divide.
From this decision the plaintiff has appealed in due time and form making the following
assignment of errors: (1) The lower court erred in holding that the books were authentic,
and in not holding that they were false books exhibited by the defendant about alleged
operations in the years 1918 et seq. which show enormous debts and imaginary losses of
the business; (2) the lower court erred in giving full credit to the testimony of
commissioner Justo Cabo-Chan; (3) the lower court erred in holding that the partnership
had incurred debts and suffered losses, as shown in the report of Justo Cabo-Cahn from
1918 on; (4) the lower court erred in not holding that the share of the plaintiff, as his
capital and profits until the end of 1917, is equivalent to the sum of twenty-seven
thousand seven hundred fifty-five pesos and forty-seven centavos (P27,755.47). Philippine
currency, plus an annual quota of at least two thousand five hundred three pesos and
eighty-seven centavos (P2,503.87), Philippime currency, as his portion of the profits since
the beginning of 1918 until the delivery to the palintiff of his share in the partnership; (5)

the court below erred in not ordering the prosecuting attorney to commence an
investigation as to the falsified books of accounts that the defendant had exhibited for
proper criminal proceeding.
From the evidence it appears that the partnership capital was P4,779.39, and the net
profits until the year 1915 amounted to P5,551.40. Because some books of account had
been destroyed by white ants (anay), the liquidation of the business of the partnership for
the period from 1906 to 1912 could not be made. But knowing the net profit for the period
between 1904 and 1905, which is P5,551.40, and findng the average of the profits for each
of these years, which is P2,775.70; and knowing the net profit for the year 1913, which is
P2,979, we can find the average between the net profit for 1905, namely, P2,979. Said
average is the sum of P2,877.35, which may be considered as the average of the net
annual profits for the period between 1906 an 1912, which in seven years make a total of
P20,141.45. The assets of the partnership, as well as the value of its property, could not be
determined when making the liquidation because there was no inventory and for this
reason it was not possible to determine the capital of the partnership. The plaintiff,
however, seems to be agreeable to considering the initial partnership capital as the capital
at the time of the winding up of the business.
August 3, 1918, defendant assumed complete responsibility for the business by objecting
to the appointment of a receiver as prayed for by plaintiff, and giving a bond therefor. Until
that date his acts were those of a managing partner, binding against the partnership; but
thereafter his acts were those of a receiver whose authority is contained in section 175 of
the Code of Civil Procedure.
A receiver has no right to carry on and conduct a business unless he is authorized or
directed by the court to do some, and such authority is not derived from an order of
appointment to take and preserve the property (34 Cyc., 283; 23 R. C. L., 73). It does not
appear that the defendant as a receiver was authorized by the court to continue the
business of the partnership in liquidation. This being so, he is personally liable for the
losses that the business amy have sustained. (34 Cyc., 296.) The partnership must not,
therefore, be liable for the acts of the defendant in connection with the management of the
business until August 3, 1918, the date when he ceased to be a member and manager in
order to become receiver.

As to the first semester of 1918, during which time the defendant had seen managing the
business of the partnership as a member and manager, taking into account that the profits
had been on the increase, said profits having reached the amount of P10,174.69 in the
year 1917, it would not be an exaggeration to estimate that the profits for 1918 would
have been at least the same as the profits of 1917; so that for the first half of 1918, the
profit would be P5,087.34.
In conclusion we have the following profits of the business of this partnership now in
liquidation, to wit:
Capital of partnership...........................

P4,779.39

Profits until 1905..................................

5,551.40

Profits 1906-1912................................

20,141.45

Profits 1913-1917................................

25,038.70

Profits first semester 1918...............

5,087.34

Total.......................................................

60,598.28

One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of the
intestate estate of Go-Lio.
In view of the foregoing, we are of the opinion that the case must be, as is hereby, decided
by the reversing the judgment appealed from, and sentencing the defendant to pay the
plaintiff the sum of P30,299.14 with legal interest at the rate of 6 per cent per annum from
July 1, 1918, until fully paid, with costs. So ordered.