III.

OBLIGATIONS OF THE PARTNERS

Art. 1785- Duration of a Partnership:
-Ortega v. CA 245 SCRA 529
Art. 1786-Obligations of a partner with respect to contribution of property
-Moran v. CA L-59956 Oct. 31, 1984
Art. 1788-Effect of failure to contribute and obligation for conversion
-Uy v. Puzon 79 SCRA 598
Art. 1789-Obligations of an industrial partner
-Evangelista v. Abad-Santos 51 SCRA 416
Art. 1797- Rules for the distribution of profits and losses
-Marsman Drysdale v. Philippine Geoanalytics
-Jarantilla v. Jarantilla GR No. 154486-Dec.1,2010
-Ramnani et al, v. CA GR No.85494 May 7, 1991
Art.1803-Rule when manner of management not agreed
-Bachrach v. La Protectora 37 Phil. 441
Art. 1809- Right to demand a formal account
-Lim Tanhu v. Ramolete GR No. L-40098, Aug.29, 1975
-Fue Leung v. IAC GR No.70926 Jan. 31, 1989
-Emnace v. CA GR No. 126334 Nov. 23, 2001

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA, respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of
Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648
affirming in toto that of the Securities and Exchange Commission ("SEC") in
SEC AC 254.
The antecedents of the controversy, summarized by respondent
Commission and quoted at length by the appellate court in its decision, are
hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and
reconstituted with the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were several
subsequent amendments to the articles of partnership on 18
September 1958, to change the firm [name] to ROSS, SELPH and
CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL
ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B.
Bito and Mariano M. Lozada associated themselves together, as
senior partners with respondents-appellees Gregorio F. Ortega,
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondentsappellees a letter stating:
I am withdrawing and retiring from the firm of Bito,
Misa and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to
make the proper liquidation of my participation in
the firm."
On the same day, petitioner-appellant wrote respondents-appellees
another letter stating:
"Further to my letter to you today, I would like to
have a meeting with all of you with regard to the
mechanics of liquidation, and more particularly, my
interest in the two floors of this building. I would
like to have this resolved soon because it has to do
with my own plans."
On 19 February 1988, petitioner-appellant wrote respondentsappellees another letter stating:
"The partnership has ceased to be mutually
satisfactory because of the working conditions of
our employees including the assistant attorneys. All
my efforts to ameliorate the below subsistence
level of the pay scale of our employees have been
thwarted by the other partners. Not only have they
refused to give meaningful increases to the
employees, even attorneys, are dressed down

publicly in a loud voice in a manner that deprived

them of their self-respect. The result of such
policies is the formation of the union, including the
assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for
dissolution and liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and order the
immediate liquidation of (the partnership of) Bito,
Misa & Lozada;
"2. Order the respondents to deliver or pay for
petitioner's share in the partnership assets plus the
profits, rent or interest attributable to the use of his
right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of
Bito, Misa & Lozada in any of their correspondence,
checks and pleadings and to pay petitioners
damages for the use thereof despite the dissolution
of the partnership in the amount of at least
P50,000.00;
"4. Order respondents jointly and severally to pay
petitioner attorney's fees and expense of litigation
in such amounts as maybe proven during the trial
and which the Commission may deem just and
equitable under the premises but in no case less
than ten (10%) per cent of the value of the shares of
petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral
damages with the amount of P500,000.00 and
exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and
further reliefs that the Commission may deem just
and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the
petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling
that:

"[P]etitioner's withdrawal from the law firm Bito,

Misa & Lozada did not dissolve the said law
partnership. Accordingly, the petitioner and
respondents are hereby enjoined to abide by the
provisions of the Agreement relative to the matter
governing the liquidation of the shares of any
retiring or withdrawing partner in the partnership
interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and
held that the withdrawal of Attorney Joaquin L. Misa had dissolved the
partnership of "Bito, Misa & Lozada." The Commission ruled that, being a
partnership at will, the law firm could be dissolved by any partner at
anytime, such as by his withdrawal therefrom, regardless of good faith or
bad faith, since no partner can be forced to continue in the partnership
against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March
1989 is hereby REVERSED insofar as it concludes that the
partnership of Bito, Misa & Lozada has not been dissolved. The case
is hereby REMANDED to the Hearing Officer for determination of
the respective rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa,
in addition, asked for an appointment of a receiver to take over the assets of
the dissolved partnership and to take charge of the winding up of its affairs.
On 4 April 1991, respondent SEC issued an order denying reconsideration, as
well as rejecting the petition for receivership, and reiterating the remand of
the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CAG.R. SP No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus
Bito and Attorney Mariano Lozada both died on, respectively, 05 September
1991 and 21 December 1991. The death of the two partners, as well as the
admission of new partners, in the law firm prompted Attorney Misa to
renew his application for receivership (in CA G.R. SP No. 24648). He
expressed concern over the need to preserve and care for the partnership
assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent
Commission, AFFIRMED in toto the SEC decision and order appealed from. In
fine, the appellate court held, per its decision of 26 February 1993, (a) that
Atty. Misa's withdrawal from the partnership had changed the relation of
the parties and inevitably caused the dissolution of the partnership; (b) that

such withdrawal was not in bad faith; (c) that the liquidation should be to
the extent of Attorney Misa's interest or participation in the partnership
which could be computed and paid in the manner stipulated in the
partnership agreement; (d) that the case should be remanded to the SEC
Hearing Officer for the corresponding determination of the value of
Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been
shown to indicate that the partnership assets were in any such danger of
being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners
confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership
regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that
private respondent's demand for the dissolution of the partnership
so that he can get a physical partition of partnership was not made
in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law
firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is
indeed such a partnership need not be unduly belabored. We quote, with
approval, like did the appellate court, the findings and disquisition of
respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948)
does not provide for a specified period or undertaking. The
"DURATION" clause simply states:
"5. DURATION. The partnership shall continue so
long as mutually satisfactory and upon the death or
legal incapacity of one of the partners, shall be
continued by the surviving partners."
The hearing officer however opined that the partnership is one for a
specific undertaking and hence not a partnership at will, citing
paragraph 2 of the Amended Articles of Partnership (19 August
1948):
"2. Purpose. The purpose for which the partnership
is formed, is to act as legal adviser and

representative of any individual, firm and

corporation engaged in commercial, industrial or
other lawful businesses and occupations; to counsel
and advise such persons and entities with respect to
their legal and other affairs; and to appear for and
represent their principals and client in all courts of
justice and government departments and offices in
the Philippines, and elsewhere when legally
authorized to do so."
The "purpose" of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which necessarily
must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide
for articles on partnership at will as none would so exist. Apparently
what the law contemplates, is a specific undertaking or "project"
which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire
and consent of the partners. The right to choose with whom a person
wishes to associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on the constancy
of that mutual resolve, along with each partner's capability to give it, and
the absence of a 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 4 but
that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or
the statement of a particular purpose for its creation prevent the dissolution
of any partnership by an act or will of a partner. 6 Among partners, 7 mutual
agency arises and the doctrine of delectus personae allows them to have
the power, although not necessarily the right, to dissolve the partnership.
An unjustified dissolution by the partner can subject him to a possible action
for damages.
The dissolution of a partnership is the change in the relation of the parties
caused by any partner ceasing to be associated in the carrying on, as might
be distinguished from the winding up of, the business. 8 Upon its dissolution,
the partnership continues and its legal personality is retained until the
complete winding up of its business culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is
governed by various provisions of the Civil Code; 10 however, an agreement

of the partners, like any other contract, is binding among them and normally
takes precedence to the extent applicable over the Code's general
provisions. We here take note of paragraph 8 of the "Amendment to Articles
of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his
interest in the partnership shall be liquidated and paid in
accordance with the existing agreements and his partnership
participation shall revert to the Senior Partners for allocation as the
Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the
partnership is now acquiring, consisting of the 5th and the 6th floors
of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati,
Metro Manila, their true value at the time of such death or
retirement shall be determined by two (2) independent appraisers,
one to be appointed (by the partnership and the other by the)
retiring partner or the heirs of a deceased partner, as the case may
be. In the event of any disagreement between the said appraisers a
third appraiser will be appointed by them whose decision shall be
final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which
shall be paid monthly within the first ten (10) days of every month
in installments of not less than P20,000.00 for the Senior Partners,
P10,000.00 in the case of two (2) existing Junior Partners and
P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in
a generic sense to mean the dissociation by a partner, inclusive of
resignation or withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court
and respondent Commission on their common factual finding, i.e., that
Attorney Misa did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by "interpersonal conflict" among the
partners. It would not be right, we agree, to let any of the partners remain
in the partnership under such an atmosphere of animosity; certainly, not
against their will. 12Indeed, for as long as the reason for withdrawal of a
partner is not contrary to the dictates of justice and fairness, nor for the
purpose of unduly visiting harm and damage upon the partnership, bad
faith cannot be said to characterize the act. Bad faith, in the context here
used, is no different from its normal concept of a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement

on costs.
SO ORDERED.
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.
GUTIERREZ, JR., J.:+.wph!1
This is a petition for review on certiorari of the decision of the respondent
Court of Appeals which ordered petitioner Isabelo Moran, Jr. to pay
damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate
that: t.hqw
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into an
agreement whereby both would contribute P15,000 each
for the purpose of printing 95,000 posters (featuring the
delegates to the 1971 Constitutional Convention), with
Moran actually supervising the work; that Pecson would
receive a commission of P l,000 a month starting on April
15, 1971 up to December 15, 1971; that on December 15,
1971, a liquidation of the accounts in the distribution and
printing of the 95,000 posters would be made, that Pecson
gave Moran P10,000 for which the latter issued a receipt;
that only a few posters were printed; that on or about May
28, 1971, Moran executed in favor of Pecson a promissory
note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971
and P10,000 payable on or before June 30, 1971), the whole
sum becoming due upon default in the payment of the first
installment on the date due, complete with the costs of
collection.
Private respondent Pecson filed with the Court of First Instance of Manila an
action for the recovery of a sum of money and alleged in his complaint three
(3) causes of action, namely: (1) on the alleged partnership agreement, the
return of his contribution of P10,000.00, payment of his share in the profits
that the partnership would have earned, and, payment of unpaid
commission; (2) on the alleged promissory note, payment of the sum of
P20,000.00; and, (3) moral and exemplary damages and attorney's fees.

After the trial, the Court of First Instance held that: t.hqw
From the evidence presented it is clear in the mind of the
court that by virtue of the partnership agreement entered
into by the parties-plaintiff and defendant the plaintiff did
contribute P10,000.00, and another sum of P7,000.00 for
the Voice of the Veteran or Delegate Magazine. Of the
expected 95,000 copies of the posters, the defendant was
able to print 2,000 copies only authorized of which,
however, were sold at P5.00 each. Nothing more was done
after this and it can be said that the venture did not really
get off the ground. On the other hand, the plaintiff failed to
give his full contribution of P15,000.00. Thus, each party is
entitled to rescind the contract which right is implied in
reciprocal obligations under Article 1385 of the Civil Code
whereunder 'rescission creates the obligation to return the
things which were the object of the contract ...
WHEREFORE, the court hereby renders judgment ordering
defendant Isabelo C. Moran, Jr. to return to plaintiff
Mariano E. Pecson the sum of P17,000.00, with interest at
the legal rate from the filing of the complaint on June 19,
1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim is hereby
dismissed.
From this decision, both parties appealed to the respondent Court of
Appeals. The latter likewise rendered a decision against the petitioner. The
dispositive portion of the decision reads: t.hqw
PREMISES CONSIDERED, the decision appealed from is
hereby SET ASIDE, and a new one is hereby rendered,
ordering defendant-appellant Isabelo C. Moran, Jr. to pay
plaintiff- appellant Mariano E. Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the
amount that could have accrued to Pecson under their
agreement);
(b) Eight thousand (P8,000), (the commission for eight
months);
(c) Seven thousand (P7,000) (as a return of Pecson's
investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the
complaint was filed (up to the time payment is made)

The petitioner contends that the respondent Court of Appeals decided

questions of substance in a way not in accord with law and with Supreme
Court decisions when it committed the following errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE
HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE
PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN
A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR
ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET
PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT
GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR
DAMAGES.
The first question raised in this petition refers to the award of P47,500.00 as
the private respondent's share in the unrealized profits of the partnership.
The petitioner contends that the award is highly speculative. The petitioner
maintains that the respondent court did not take into account the great
risks involved in the business undertaking.
We agree with the petitioner that the award of speculative damages has no
basis in fact and law.
There is no dispute over the nature of the agreement between the
petitioner and the private respondent. It is a contract of partnership. The
latter in his complaint alleged that he was induced by the petitioner to enter
into a partnership with him under the following terms and
conditions: t.hqw
1. That the partnership will print colored posters of the
delegates to the Constitutional Convention;

2. That they will invest the amount of Fifteen Thousand

Pesos (P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies
of the said posters;
4. That plaintiff will receive a commission of One Thousand
Pesos (P1,000.00) a month starting April 15, 1971 up to
December 15, 1971;
5. That upon the termination of the partnership on
December 15, 1971, a liquidation of the account pertaining
to the distribution and printing of the said 95,000 posters
shall be made.
The petitioner on the other hand admitted in his answer the existence of
the partnership.
The rule is, when a partner who has undertaken to contribute a sum of
money fails to do so, he becomes a debtor of the partnership for whatever
he may have promised to contribute (Art. 1786, Civil Code) and for interests
and damages from the time he should have complied with his obligation
(Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted
Art. 2200 of the Civil Code of the Philippines, we allowed a total of
P200,000.00 compensatory damages in favor of the appellee because the
appellant therein was remiss in his obligations as a partner and as prime
contractor of the construction projects in question. This case was decided
on a particular set of facts. We awarded compensatory damages in
the Uy case because there was a finding that the constructing business is a
profitable one and that the UP construction company derived some profits
from its contractors in the construction of roads and bridges despite its
deficient capital." Besides, there was evidence to show that the partnership
made some profits during the periods from July 2, 1956 to December 31,
1957 and from January 1, 1958 up to September 30, 1959. The profits on
two government contracts worth P2,327,335.76 were not speculative. In the
instant case, there is no evidence whatsoever that the partnership between
the petitioner and the private respondent would have been a profitable
venture. In fact, it was a failure doomed from the start. There is therefore
no basis for the award of speculative damages in favor of the private
respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution
while Uy contributed much more than what was expected of him. In this
case, however, there was mutual breach. Private respondent failed to give
his entire contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount

expected of him. He further failed to comply with the agreement to print

95,000 copies of the posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides: t.hqw
The losses and profits shall be distributed in conformity with
the agreement. If only the share of each partner in the
profits has been agreed upon, the share of each in the
losses shall be in the same proportion.
Being a contract of partnership, each partner must share in the profits and
losses of the venture. That is the essence of a partnership. And even with an
assurance made by one of the partners that they would earn a huge amount
of profits, in the absence of fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare business venture
guaranteed to give 100% profits. In this case, on an investment of
P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a
month for eight months and around P142,500.00 on 95,000 posters costing
P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature
of expected profits is obvious. We have to take various factors into account.
The failure of the Commission on Elections to proclaim all the 320
candidates of the Constitutional Convention on time was a major factor. The
petitioner undesirable his best business judgment and felt that it would be a
losing venture to go on with the printing of the agreed 95,000 copies of the
posters. Hidden risks in any business venture have to be considered.
It does not follow however that the private respondent is not entitled to
recover any amount from the petitioner. The records show that the private
respondent gave P10,000.00 to the petitioner. The latter used this amount
for the printing of 2,000 posters at a cost of P2.00 per poster or a total
printing cost of P4,000.00. The records further show that the 2,000 copies
were sold at P5.00 each. The gross income therefore was P10,000.00.
Deducting the printing costs of P4,000.00 from the gross income of
P10,000.00 and with no evidence on the cost of distribution, the net profits
amount to only P6,000.00. This net profit of P6,000.00 should be divided
between the petitioner and the private respondent. And since only
P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the
remaining P6,000.00 should therefore be returned to the private
respondent.
Relative to the second alleged error, the petitioner submits that the award
of P8,000.00 as Pecson's supposed commission has no justifiable basis in
law.
Again, we agree with the petitioner.

The partnership agreement stipulated that the petitioner would give the
private respondent a monthly commission of Pl,000.00 from April 15, 1971
to December 15, 1971 for a total of eight (8) monthly commissions. The
agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant
profits. The parties could not have intended the giving of a commission
inspite of loss or failure of the venture. Since the venture was a failure, the
private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the respondent
Court of Appeals erred in holding him liable to the private respondent in the
sum of P7,000.00 as a supposed return of investment in a magazine
venture.
In awarding P7,000.00 to the private respondent as his supposed return of
investment in the "Voice of the Veterans" magazine venture, the
respondent court ruled that: t.hqw
xxx xxx xxx
... Moran admittedly signed the promissory note of P20,000
in favor of Pecson. Moran does not question the due
execution of said note. Must Moran therefore pay the
amount of P20,000? The evidence indicates that the
P20,000 was assigned by Moran to cover the
following: t.hqw
(a) P 7,000 the amount
of the PNB check given by
Pecson to Moran
representing Pecson's
investment in Moran's
other project (the
publication and printing of
the 'Voice of the Veterans');
(b) P10,000 to cover the
return of Pecson's
contribution in the project
of the Posters;
(c) P3,000 representing
Pecson's commission for
three months (April, May,
June, 1971).

Of said P20,000 Moran has to pay P7,000 (as a return of

Pecson's investment for the Veterans' project, for this
project never left the ground) ...
As a rule, the findings of facts of the Court of Appeals are final and
conclusive and cannot be reviewed on appeal to this Court (Amigo v.
Teves, 96 Phil. 252), provided they are borne out by the record or are based
on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332).
However, this rule admits of certain exceptions. Thus, inCarolina Industries
Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we held that this
Court retains the power to review and rectify the findings of fact of the
Court of Appeals when (1) the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is
manifestly mistaken absurd and impossible; (3) where there is grave abuse
of discretion; (4) when the judgment is based on a misapprehension of facts;
and (5) when the court, in making its findings, went beyond the issues of the
case and the same are contrary to the admissions of both the appellant and
the appellee.
In this case, there is misapprehension of facts. The evidence of the private
respondent himself shows that his investment in the "Voice of Veterans"
project amounted to only P3,000.00. The remaining P4,000.00 was the
amount of profit that the private respondent expected to receive.
The records show the following exhibits- t.hqw
E Xerox copy of PNB Manager's Check No. 234265 dated
March 22, 1971 in favor of defendant. Defendant admitted
the authenticity of this check and of his receipt of the
proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit
is being offered for the purpose of showing plaintiff's capital
investment in the printing of the "Voice of the Veterans" for
which he was promised a fixed profit of P8,000. This
investment of P6,000.00 and the promised profit of P8,000
are covered by defendant's promissory note for P14,000
dated March 31, 1971 marked by defendant as Exhibit 2
(t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff as Exhibit
P. Later, defendant returned P3,000.00 of the P6,000.00
investment thereby proportionately reducing the promised
profit to P4,000. With the balance of P3,000 (capital) and
P4,000 (promised profit), defendant signed and executed
the promissory note for P7,000 marked Exhibit 3 for the
defendant and Exhibit M for plaintiff. Of this P7,000,
defendant paid P4,000 representing full return of the capital

investment and P1,000 partial payment of the promised

profit. The P3,000 balance of the promised profit was made
part consideration of the P20,000 promissory note (t.s.n.,
pp. 22-24, Nov. 29, 1972). It is, therefore, being presented
to show the consideration for the P20,000 promissory note.
F Xerox copy of PNB Manager's check dated May 29,
1971 for P7,000 in favor of defendant. The authenticity of
the check and his receipt of the proceeds thereof were
admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972).
This P 7,000 is part consideration, and in cash, of the
P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972), and it
is being presented to show the consideration for the
P20,000 note and the existence and validity of the
obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being
offered for the purpose of showing the subject matter of
the other partnership agreement and in which plaintiff
invested the P6,000 (Exhibit E) which, together with the
promised profit of P8,000 made up for the consideration of
the P14,000 promissory note (Exhibit 2; Exhibit P). As
explained in connection with Exhibit E. the P3,000 balance
of the promised profit was later made part consideration of
the P20,000 promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is
also defendant's Exhibit E. This document is being offered
for the purpose of further showing the transaction as
explained in connection with Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of
his P3,000 out of his capital investment of P6,000 (Exh. E) in
the P14,000 promissory note (Exh. 2; P). This is also
defendant's Exhibit 4. This document is being offered in
support of plaintiff's explanation in connection with Exhibits
E, L, and M to show the transaction mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's
Exhibit 2. It is being offered for the purpose of showing the
transaction as explained in connection with Exhibits E, L, M,
and N above.

Explaining the above-quoted exhibits, respondent Pecson testified

that: t.hqw
Q During the pre-trial of this case, Mr.
Pecson, the defendant presented a
promissory note in the amount of
P14,000.00 which has been marked as
Exhibit 2. Do you know this promissory
note?
A Yes, sir.
Q What is this promissory note, in
connection with your transaction with the
defendant?
A This promissory note is for the printing of
the "Voice of the Veterans".
Q What is this "Voice of the Veterans", Mr.
Pecson?
A It is a book.t.hqw
(T.S.N., p. 19, Nov. 29,
1972)
Q And what does the amount of P14,000.00
indicated in the promissory note, Exhibit 2,
represent?
A It represents the P6,000.00 cash which I
gave to Mr. Moran, as evidenced by the
Philippine National Bank Manager's check
and the P8,000.00 profit assured me by Mr.
Moran which I will derive from the printing
of this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this
P14,000.00 is covered by, a Manager's
check. I show you Exhibit E, is this the
Manager's check that mentioned?
A Yes, sir.
Q What happened to this promissory note
of P14,000.00 which you said represented
P6,000.00 of your investment and
P8,000.00 promised profits?
A Latter, Mr. Moran returned to me
P3,000.00 which represented one-half (1/2)
of the P6,000.00 capital I gave to him.

Q As a consequence of the return by Mr.

Moran of one-half (1/2) of the P6,000.00
capital you gave to him, what happened to
the promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is
P4,000.00.
Q Was there any document executed by Mr.
Moran in connection with the Balance of
P3,000.00 of your capital investment and
the P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the
amount of P7,000.00 dated March 30, 1971
which for purposes of Identification I
request the same to be marked as Exhibit
M. . .
Court t.hqw
Mark it as Exhibit M.
Q (continuing) is this the promissory note
which you said was executed by Mr. Moran
in connection with your transaction
regarding the printing of the "Voice of the
Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note
executed by Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the
P7,000.00 as shown by the promissory note.
Q Was there a receipt issued by you
covering this payment of P4,000.00 in favor
of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the
amount of P4,000.00 on account of the
P7,000.00 covered by the promissory note,
Exhibit M. What does this P4,000.00
covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00
which he has returned of my P6,000.00

capital investment and the P1,000.00

represents partial payment of the P4,000.00
profit that was promised to me by Mr.
Moran.
Q And what happened to the balance of
P3,000.00 under the promissory note,
Exhibit M?
A The balance of P3,000.00 and the rest of
the profit was applied as part of the
consideration of the promissory note of
P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never left
the ground because the project did take place. Only it failed. It was the
private respondent himself who presented a copy of the book entitled
"Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would
be error to state that the project never took place and on this basis decree
the return of the private respondent's investment.
As already mentioned, there are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing
partner alone, specially if the latter exercised his best business judgment,
which seems to be true in this case. In view of the foregoing, there is no
reason to pass upon the fourth and fifth assignments of errors raised by the
petitioner. We likewise find no valid basis for the grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the respondent
Court of Appeals (now Intermediate Appellate Court) is hereby SET ASIDE
and a new one is rendered ordering the petitioner Isabelo Moran, Jr., to pay
private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS
representing the amount of the private respondent's contribution to the
partnership but which remained unused; and THREE THOUSAND (P3,000.00)
PESOS representing one half (1/2) of the net profits gained by the
partnership in the sale of the two thousand (2,000) copies of the posters,
with interests at the legal rate on both amounts from the date the
complaint was filed until full payment is made.
SO ORDERED.1wph1.t
Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.
De la Fuente J., took no part.

G.R. No. L-19819 October 26, 1977

WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.
R.P. Sarandi for appellant.
Jose L. Uy & Andres P. Salvador for appellee.
CONCEPCION JR., J.:t.hqw
Appeal from the decision of the Court of First Instanre of Manila, dissolving
the "U.P. Construction Company" and ordering the defendant Bartolome
Puzon to pay the plaintiff the amounts of: (1) P115,102.13, with legal
interest thereon from the date of the filing of the complaint until fully paid;
(2) P200,000.00, as plaintiffs share in the unrealized profits of the "U.P.
Construction Company" and (3) P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon had a contract with the
Republic of the Philippines for the construction of the Ganyangan Bato
Section of the Pagadian Zamboanga City Road, province of Zamboanga del
Sur 1 and of five (5) bridges in the Malangas-Ganyangan Road. 2 Finding
difficulty in accomplishing both projects, Bartolome Puzon sought the
financial assistance of the plaintiff, William Uy. As an inducement, Puzon
proposed the creation of a partnership between them which would be the
sub-contractor of the projects and the profits to be divided equally between
them. William Uy inspected the projects in question and, expecting to derive
considerable profits therefrom, agreed to the proposition, thus resulting in
the formation of the "U.P. Construction Company" 3 which was
subsequently engaged as subcontractor of the construction projects. 4
The partners agreed that the capital of the partnership would be
P100,000.00 of which each partner shall contribute the amount of
P50,000.00 in cash. 5 But, as heretofore stated, Puzon was short of cash and
he promised to contribute his share in the partnership capital as soon as his
application for a loan with the Philippine National Bank in the amount of
P150,000.00 shall have been approved. However, before his loan
application could be acted upon, he had to clear his collaterals of its
incumbrances first. For this purpose, on October 24, 1956, Wilham Uy gave
Bartolome Puzon the amount of P10,000.00 as advance contribution of his
share in the partnership to be organized between them under the firm
name U.P. CONSTRUCTION COMPANY which amount mentioned above will
be used by Puzon to pay his obligations with the Philippine National Bank to
effect the release of his mortgages with the said Bank. 6 On October 29,
1956, William Uy again gave Puzon the amount of P30,000.00 as his partial

contribution to the proposed partnership and which the said Puzon was to
use in payment of his obligation to the Rehabilitation Finance
Corporation. 7 Puzon promised William Uy that the amount of P150,000.00
would be given to the partnership to be applied thusly: P40,000.00, as
reimbursement of the capital contribution of William Uy which the said Uy
had advanced to clear the title of Puzon's property; P50,000.00, as Puzon's
contribution to the partnership; and the balance of P60,000.00 as Puzon's
personal loan to the partnership. 8
Although the partnership agreement was signed by the parties on January
18, 1957,9 work on the projects was started by the partnership on October
1, 1956 in view of the insistence of the Bureau of Public Highways to
complete the project right away. 10 Since Puzon was busy with his other
projects, William Uy was entrusted with the management of the projects
and whatever expense the latter might incur, would be considered as part
of his contribution. 11 At the end of December, 1957, William Uy had
contributed to the partnership the amount of P115,453.39, including his
capital. 12
The loan of Puzon was approved by the Philippine National Bank in
November, 1956 and he gave to William Uy the amount of P60,000.00. Of
this amount, P40,000.00 was for the reimbursement of Uy's contribution to
the partnership which was used to clear the title to Puzon's property, and
the P20,000.00 as Puzon's contribution to the partnership capital. 13
To guarantee the repayment of the above-mentioned loan, Bartolome
Puzon, without the knowledge and consent of William Uy, 14 assigned to the
Philippine National Bank all the payments to be received on account of the
contracts with the Bureau of Public Highways for the construction of the
afore-mentioned projects. 15 By virtue of said assignment, the Bureau of
Public Highways paid the money due on the partial accomplishments on the
government projects in question to the Philippine National Bank which, in
turn, applied portions of it in payment of Puzon's loan. Of the amount of
P1,047,181.07, released by the Bureau of Public Highways in payment of the
partial work completed by the partnership on the projects, the amount of
P332,539.60 was applied in payment of Puzon's loan and only the amount of
P27,820.80 was deposited in the partnership funds, 16 which, for all practical
purposes, was also under Puzon's account since Puzon was the custodian of
the common funds.
As time passed and the financial demands of the projects increased, William
Uy, who supervised the said projects, found difficulty in obtaining the
necessary funds with which to pursue the construction projects. William Uy
correspondingly called on Bartolome Puzon to comply with his obligations

under the terms of their partnership agreement and to place, at lest, his
capital contribution at the disposal of the partnership. Despite several
promises, Puzon, however, failed to do so. 17 Realizing that his verbal
demands were to no avail, William Uy consequently wrote Bartolome Puzon
pormal letters of demand, 18 to which Puzon replied that he is unable to put
in additional capital to continue with the projects. 19
Failing to reach an agreement with William Uy, Bartolome Puzon, as prime
contractor of the construction projects, wrote the subcontractor, U.P.
Construction Company, on November 20, 1957, advising the partnership, of
which he is also a partner, that unless they presented an immediate solution
and capacity to prosecute the work effectively, he would be constrained to
consider the sub-contract terminated and, thereafter, to assume all
responsibilities in the construction of the projects in accordance with his
original contract with the Bureau of Public Highways. 20 On November 27,
1957, Bartolome Puzon again wrote the U.P.Construction Company finally
terminating their subcontract agreement as of December 1, 1957. 21
Thereafter, William Uy was not allowed to hold office in the U.P.
Construction Company and his authority to deal with the Bureau of Public
Highways in behalf of the partnership was revoked by Bartolome Puzon who
continued with the construction projects alone. 22
On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated
the terms of their partnership agreement, instituted an action in court,
seeking, inter alia, the dissolution of the partnership and payment of
damages.
Answering, Bartolome Puzon denied that he violated the terms of their
agreement claiming that it was the plaintiff, William Uy, who violated the
terms thereof. He, likewise, prayed for the dissolution of the partnership
and for the payment by the plaintiff of his, share in the losses suffered by
the partnership.
After appropriate proceedings, the trial court found that the defendant,
contrary to the terms of their partnership agreement, failed to contribute
his share in the capital of the partnership applied partnership funds to his
personal use; ousted the plaintiff from the management of the firm, and
caused the failure of the partnership to realize the expected profits of at
least P400,000.00. As a consequence, the trial court dismissed the
defendant's counterclaim and ordered the dissolution of the partnership.
The trial court further ordered the defendant to pay the plaintiff the sum of
P320,103.13.

Hence, the instant appeal by the defendant Bartolome Puzon during the
pendency of the appeal before this Court, the said Bartolome Puzon died,
and was substituted by Franco Puzon.
The appellant makes in his brief nineteen (19) assignment of errors,
involving questions of fact, which relates to the following points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order to pay the
appellee is not supported by the evidence and the law.
After going over the record, we find no reason for rejecting the findings of
fact below, justifying the reversal of the decision appealed from.
The findings of the trial court that the appellant failed to contribute his
share in the capital of the partnership is clear incontrovertible. The record
shows that after the appellant's loan the amount of P150,000.00 was
approved by the Philippin National Bank in November, 1956, he gave the
amount P60,000.00 to the appellee who was then managing the
construction projects. Of this amount, P40,000.00 was to be applied a
reimbursement of the appellee's contribution to the partnership which was
used to clear the title to the appellant's property, and th balance of
P20,000.00, as Puzon's contribution to the partnership. 23 Thereafter, the
appellant failed to make any further contributions the partnership funds as
shown in his letters to the appellee wherein he confessed his inability to put
in additional capital to continue with the projects. 24
Parenthetically, the claim of the appellant that the appellee is equally guilty
of not contributing his share in the partnership capital inasmuch as the
amount of P40,000.00, allegedly given to him in October, 1956 as partial
contribution of the appellee is merely a personal loan of the appellant which
he had paid to the appellee, is plainly untenable. The terms of the receipts
signed by the appellant are clear and unequivocal that the sums of money
given by the appellee are appellee's partial contributions to the partnership
capital. Thus, in the receipt for P10,000.00 dated October 24, 1956, 25 the
appellant stated:+.wph!1
Received from Mr. William Uy the sum of TEN THOUSAND
PESOS (P10,000.00) in Check No. SC 423285 Equitable
Banking Corporation, dated October 24, 1956, as advance
contribution of the share of said William Uy in the
partnership to be organized between us under the firm
name U.P. CONSTRUCTION COMPANY which amount
mentioned above will be used by the undersigned to pay his
obligations with the Philippine National Bank to effect the

release of his mortgages with the said bank. (Emphasis

supplied)
In the receipt for the amount of P30,000.00 dated October 29, 1956, 26 the
appellant also said:+.wph!1
Received from William Uy the sum of THIRTY THOUSAND
PESOS (P30,000.00) in Check No. SC423287, of the Equitable
Banking Corporation, as partial contribution of the share of
the said William Uy to the U.P. CONSTRUCTION
COMPANY for which the undersigned will use the said
amount in payment of his obligation to the Rehabilitation
Finance Corporation. (Emphasis supplied)
The findings of the trial court that the appellant misapplied partnership
funds is, likewise, sustained by competent evidence. It is of record that the
appellant assigned to the Philippine National Bank all the payments to be
received on account of the contracts with the Bureau of Public Highways for
the construction of the aforementioned projects to guarantee the
repayment of the bank. 27 By virtue of the said appeflant's personal loan
with the said bank assignment, the Bureau of Public Highways paid the
money due on the partial accomplishments on the construction projects in
question to the Philippine National Bank who, in turn, applied portions of it
in payment of the appellant's loan. 28
The appellant claims, however, that the said assignment was made with the
consent of the appellee and that the assignment not prejudice the
partnership as it was reimbursed by the appellant.
But, the appellee categorically stated that the assignment to the Philippine
National Bank was made without his prior knowledge and consent and that
when he learned of said assignment, he cal the attention of the appellant
who assured him that the assignment was only temporary as he would
transfer the loan to the Rehabilitation Finance Corporation within three (3)
months time. 29
The question of whom to believe being a matter large dependent on the
trier's discretion, the findings of the trial court who had the better
opportunity to examine and appraise the fact issue, certainly deserve
respect.
That the assignment to the Philippine National Bank prejudicial to the
partnership cannot be denied. The record show that during the period from
March, 1957 to September, 1959, the appellant Bartolome Puzon received
from the Bureau of Public highways, in payment of the work accomplished
on the construction projects, the amount of P1,047,181.01, which amount
rightfully and legally belongs to the partnership by virtue of the subcontract

agreements between the appellant and the U.P. Construction Company. In

view of the assignemt made by Puzon to the Philippine National Bank, the
latter withheld and applied the amount of P332,539,60 in payment of the
appellant's personal loan with the said bank. The balance was deposited in
Puzon's current account and only the amount of P27,820.80 was deposited
in the current account of the partnership. 30 For sure, if the appellant gave
to the partnership all that were eamed and due it under the subcontract
agreements, the money would have been used as a safe reserve for the
discharge of all obligations of the firm and the partnership would have been
able to successfully and profitably prosecute the projects it subcontracted.
When did the appellant make the reimbursement claimed by him?
For the same period, the appellant actually disbursed for the partnership, in
connection with the construction projects, the amount of
P952,839.77. 31 Since the appellant received from the Bureau of Public
Highways the sum of P1,047,181.01, the appellant has a deficit balance of
P94,342.24. The appellant, therefore, did not make complete restitution.
The findings of the trial court that the appellee has been ousted from the
management of the partnership is also based upon persuasive evidence. The
appellee testified that after he had demanded from the appellant payment
of the latter's contribution to the partnership capital, the said appellant did
not allow him to hold office in the U.P. Construction Company and his
authority to deal with the Bureau of Public Highways was revoked by the
appellant.32
As the record stands, We cannot say, therefore, that the decis of the trial
court is not sustained by the evidence of record as warrant its reverw.
Since the defendantappellant was at fauh, the tral court properly ordered
him to reimburse the plaintiff-appellee whatever amount latter had
invested in or spent for the partnership on account of construction projects.
How much did the appellee spend in the construction projects question?
It appears that although the partnership agreement stated the capital of the
partnership is P100,000.00 of which each part shall contribute to the
partnership the amount of P50,000.00 cash 33 the partners of the U.P.
Construction Company did contribute their agreed share in the
capitalization of the enterprise in lump sums of P50,000.00 each. Aside from
the initial amount P40,000.00 put up by the appellee in October,
1956, 34 the partners' investments took, the form of cash advances coveting
expenses of the construction projects as they were incurred. Since the
determination of the amount of the disbursements which each of them had
made for the construction projects require an examination of the books of
account, the trial court appointed two commissioners, designated by the

parties, "to examine the books of account of the defendant regarding the
U.P. Construction Company and his personal account with particular
reference to the Public Works contract for the construction of the
Ganyangan-Bato Section, Pagadian-Zamboanga City Road and five (5)
Bridges in Malangas-Ganyangan Road, including the payments received by
defendant from the Bureau of Public Highways by virtue of the two projects
above mentioned, the disbursements or disposition made by defendant of
the portion thereof released to him by the Philippine National Bank and in
whose account these funds are deposited . 35
In due time, the loners so appointed, 36 submitted their report 37 they
indicated the items wherein they are in agreement, as well as their points of
disagreement.
In the commissioners' report, the appellant's advances are listed under
Credits; the money received from the firm, under Debits; and the resulting
monthly investment standings of the partners, under Balances. The
commissioners are agreed that at the end of December, 1957, the appellee
had a balance of P8,242.39. 38 It is in their respective adjustments of the
capital account of the appellee that the commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge the appellee
with the sum of P24,239.48, representing the checks isssued by the
appellant, 39 and encashed by the appellee or his brother, Uy Han so that
the appellee would owe the partnership the amount of P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand, would credit
the appellee the following additional amounts:
(1) P7,497.80 items omitted from the books of partnership but
recognized and charged to Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 payrolls paid by the appellee in the amount P128,103.77
less payroll remittances from the appellant in amount of P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee at construction site.
With respect to the amount of P24,239.48, claimed by appellant, we are
hereunder adopting the findings of the trial which we find to be in accord
with the evidence:
To enhance defendant's theory that he should be credited P24,239.48, he
presented checks allegedly given to plaintiff and the latter's brother, Uy
Han, marked as Exhibits 2 to 11. However, defendant admitted that said
cheeks were not entered nor record their books of account, as expenses for
and in behalf of partnership or its affairs. On the other hand, Uy Han
testified that of the cheeks he received were exchange for cash, while other
used in the purchase of spare parts requisitioned by defendant. This
testimony was not refuted to the satisfaction of the Court, considering that

Han's explanation thereof is the more plausible because if they were

employed in the prosecution of the partners projects, the corresponding
disbursements would have certainly been recorded in its books, which is not
the case. Taking into account defendant is the custodian of the books of
account, his failure to so enter therein the alleged disbursements,
accentuates the falsity of his claim on this point. 40
Besides, as further noted by the trial court, the report Commissioner Ablaza
is unreliable in view of his proclivity to favor the appellant and because of
the inaccurate accounting procedure adopted by him in auditing the books
of account of the partnership unlike Mr. Tayag's report which inspires faith
and credence. 41
As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid
by the appellee out of his personal funds which not been entered in the
books of the partnership but which been recognized and conceded to by the
auditor designated by the appellant who included the said amount under
Expenses. 42
The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77
is likewise clear and convincing. 43
As for the sum of of P26,027.04, the same represents the expenses which
the appelle paid in connection withe the projects and not entered in the
books of the partnership since all vouchers and receipts were sent to the
Manila office which were under the control of the appellant. However,
officer which were under the control of the appellant. However, a list of
these expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ-4.
In resume', the appelllee's credit balance would be as follows:
+.wph!1
Undisputed
balance as of
Dec. 1967
Add: Items
omitted from
the books but

P 8,242.

recognized and
charged to
Miscellaneous
Expenses by
Mr. Ablaza

7,497.80

Add:
Payrol
ls paid
by the
appell
ee

P128,1
03.77

Less:
Payrol
l
remitt
ances
receiv
ed

63,000
.00

65,103
.77

Add:
Other
expen
ses
incurr
ed at
the
site
(Exhs,
ZZ, ZZ1 to
ZZ-4)

26,027
.04

TOTAL

P106,8
71.00

At the trial, the appellee presented a claim for the amounts of P3,917.39
and P4,665.00 which he also advanced for the construction projects but
which were not included in the Commissioner's Report. 44
Appellee's total investments in the partnership would, therefore, be:
Appellee's
total credits

P106,871.00

Add:
unrecorded
balances for
the month of
Dec. 1957
(Exhs. KKK,
KK-1 to
KKK_19, KKK22)

3,917,39

Add:
Payments to
Munoz, as
subcontractor
of five,(5)
Bridges (p.
264 tsn; Exhs.
KKK-20, KKK21)

4,665.00

Total
Investments

Pl 15,453.39

Regarding the award of P200,000.00 as his share in the unrealized profits of

the partnership, the appellant contends that the findings of the trial court
that the amount of P400,000.00 as reasonable profits of the partnership
venture is without any basis and is not supported by the evidence. The
appemnt maintains that the lower court, in making its determination, did
not take into consideration the great risks involved in business operations
involving as it does the completion of the projects within a definite period of
time, in the face of adverse and often unpredictable circumstances, as well
as the fact that the appellee, who was in charge of the projects in the field,
contributed in a large measure to the failure of the partnership to realize
such profits by his field management.
This argument must be overruled in the light of the law and evidence on the
matter. Under Article 2200 of the Civil Code, indemnification for damages
shall comprehend not only the value of the loss suffered, but also that of
the profits which the obligee failed to obtain. In other words lucrum
cessans is also a basis for indemnification.

Has the appellee failed to make profits because of appellant's breach of

contract?
There is no doubt that the contracting business is a profitable one and that
the U.P. Construction Company derived some profits from' co io oa ects its
sub ntracts in the construction of the road and bridges projects its deficient
working capital and the juggling of its funds by the appellant.
Contrary to the appellant's claim, the partnership showed some profits
during the period from July 2, 1956 to December 31, 1957. If the Profit and
Loss Statement 45 showed a net loss of P134,019.43, this was primarily due
to the confusing accounting method employed by the auditor who
intermixed h and accthe cas ruamethod of accounting and the erroneous
inclusion of certain items, like personal expenses of the appellant and
afteged extraordinary losses due to an accidental plane crash, in the
operating expenses of the partnership, Corrected, the Profit and Loss
Statement would indicate a net profit of P41,611.28.
For the period from January 1, 1958 to September 30, 1959, the partnership
admittedly made a net profit of P52,943.89. 46
Besides, as We have heretofore pointed out, the appellant received from
the Bureau of Public Highways, in payment of the zonstruction projects in
question, the amount of P1,047,181.01 47 and disbursed the amount of
P952,839.77, 48 leaving an unaccounted balance of P94,342.24. Obviously,
this amount is also part of the profits of the partnership.
During the trial of this case, it was discovered that the appellant had money
and credits receivable froin the projects in question, in the custody of the
Bureau of Public Highways, in the amount of P128,669.75, representing the
10% retention of said projects.49 After the trial of this case, it was shown
that the total retentions Wucted from the appemnt amounted to
P145,358.00. 50 Surely, these retained amounts also form part of the profits
of the partnership.
Had the appellant not been remiss in his obligations as partner and as prime
contractor of the construction projects in question as he was bound to
perform pursuant to the partnership and subcontract agreements, and
considering the fact that the total contract amount of these two projects is
P2,327,335.76, it is reasonable to expect that the partnership would have
earned much more than the P334,255.61 We have hereinabove indicated.
The award, therefore, made by the trial court of the amount of P200,000.00,
as compensatory damages, is not speculative, but based on reasonable
estimate.
WHEREFORE, finding no error in the decision appealed from, the said
decision is hereby affirmed with costs against the appellant, it being

understood that the liability mentioned herein shall be home by the estate
of the deceased Bartolome Puzon, represented in this instance by the
administrator thereof, Franco Puzon.
SO ORDERED.
Fernando (Chairman), Barredo, Antonio and Santos, JJ., concur.1wph1.t
Aquino, J., concurs in the result.
G.R. No. L-31684 June 28, 1973
EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B.
NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.
MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name of
"Evangelista & Co." On June 7, 1955 the Articles of Co-partnership was
amended as to include herein respondent, Estrella Abad Santos, as
industrial partner, with herein petitioners Domingo C. Evangelista, Jr.,
Leonardo Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a contribution of
P17,500 each. The amended Articles provided, inter alia, that "the
contribution of Estrella Abad Santos consists of her industry being an
industrial partner", and that the profits and losses "shall be divided and
distributed among the partners ... in the proportion of 70% for the first
three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and
Leonardo Atienza Abad Santos to be divided among them equally; and 30%
for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other
partners in the Court of First Instance of Manila, alleging that the
partnership, which was also made a party-defendant, had been paying
dividends to the partners except to her; and that notwithstanding her
demands the defendants had refused and continued to refuse and let her
examine the partnership books or to give her information regarding the
partnership affairs to pay her any share in the dividends declared by the
partnership. She therefore prayed that the defendants be ordered to render
accounting to her of the partnership business and to pay her corresponding
share in the partnership profits after such accounting, plus attorney's fees
and costs.

The defendants, in their answer, denied ever having declared dividends or

distributed profits of the partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the partnership books; and
byway of affirmative defense alleged that the amended Articles of Copartnership did not express the true agreement of the parties, which was
that the plaintiff was not an industrial partner; that she did not in fact
contribute industry to the partnership; and that her share of 30% was to be
based on the profits which might be realized by the partnership only until
full payment of the loan which it had obtained in December, 1955 from the
Rehabilitation Finance Corporation in the sum of P30,000, for which the
plaintiff had signed a promisory note as co-maker and mortgaged her
property as security.
The parties are in agreement that the main issue in this case is "whether the
plaintiff-appellee (respondent here) is an industrial partner as claimed by
her or merely a profit sharer entitled to 30% of the net profits that may be
realized by the partnership from June 7, 1955 until the mortgage loan from
the Rehabilitation Finance Corporation shall be fully paid, as claimed by
appellants (herein petitioners)." On that issue the Court of First Instance
found for the plaintiff and rendered judgement "declaring her an industrial
partner of Evangelista & Co.; ordering the defendants to render an
accounting of the business operations of the (said) partnership ... from June
7, 1955; to pay the plaintiff such amounts as may be due as her share in the
partnership profits and/or dividends after such an accounting has been
properly made; to pay plaintiff attorney's fees in the sum of P2,000.00 and
the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed
judgments of the court a quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the
respondent is an industrial partner of Evangelista & Co.,
notwithstanding the admitted fact that since 1954 and until
after promulgation of the decision of the appellate court the
said respondent was one of the judges of the City Court of
Manila, and despite its findings that respondent had been
paid for services allegedly contributed by her to the
partnership. In this connection the Court of Appeals erred:
(A) In finding that the "amended Articles of
Co-partnership," Exhibit "A" is conclusive
evidence that respondent was in fact made
an industrial partner of Evangelista & Co.

(B) In not finding that a portion of

respondent's testimony quoted in the
decision proves that said respondent did
not bind herself to contribute her industry,
and she could not, and in fact did not,
because she was one of the judges of the
City Court of Manila since 1954.
(C) In finding that respondent did not in fact
contribute her industry, despite the
appellate court's own finding that she has
been paid for the services allegedly
rendered by her, as well as for the loans of
money made by her to the partnership.
II. The lower court erred in not finding that in any event the
respondent was lawfully excluded from, and deprived of,
her alleged share, interests and participation, as an alleged
industrial partner, in the partnership Evangelista & Co., and
its profits or net income.
III. The Court of Appeals erred in affirming in toto the
decision of the trial court whereby respondent was declared
an industrial partner of the petitioner, and petitioners were
ordered to render an accounting of the business operation
of the partnership from June 7, 1955, and to pay the
respondent her alleged share in the net profits of the
partnership plus the sum of P2,000.00 as attorney's fees
and the costs of the suit, instead of dismissing respondent's
complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer
to the facts as found by the Court of Appeals. The evidence presented by
the parties as the trial in support of their respective positions on the issue of
whether or not the respondent was an industrial partner was thoroughly
analyzed by the Court of Appeals on its decision, to the extent of
reproducing verbatim therein the lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to reviewing errors of
law that might have been commited by the lower court. It should be
observed, in this regard, that the Court of Appeals did not hold that the
Articles of Co-partnership, identified in the record as Exhibit "A", was
conclusive evidence that the respondent was an industrial partner of the
said company, but considered it together with other factors, consisting of

both testimonial and documentary evidences, in arriving at the factual

conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first
assignment of error are hereunder reproduced if only to demonstrate that
the same were made after a through analysis of then evidence, and hence
are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed
under Appellants' first assigned error, wherein it is pointed
out that "Appellee's documentary evidence does not
conclusively prove that appellee was in fact admitted by
appellants as industrial partner of Evangelista & Co." and
that "The grounds relied upon by the lower Court are
untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S,
appellants' complaint being that "In finding that the
appellee is an industrial partner of appellant Evangelista &
Co., herein referred to as the partnership the lower court
relied mainly on the appellee's documentary evidence,
entirely disregarding facts and circumstances established by
appellants" evidence which contradict the said finding'
(Page 21, Appellants' Brief). The lower court could not have
done otherwise but rely on the exhibits just mentioned,
first, because appellants have admitted their genuineness
and due execution, hence they were admitted without
objection by the lower court when appellee rested her case
and, secondly the said exhibits indubitably show the
appellee is an industrial partner of appellant company.
Appellants are virtually estopped from attempting to
detract from the probative force of the said exhibits
because they all bear the imprint of their knowledge and
consent, and there is no credible showing that they ever
protested against or opposed their contents prior of the
filing of their answer to appellee's complaint. As a matter of
fact, all the appellant Evangelista, Jr., would have us believe
as against the cumulative force of appellee's aforesaid
documentary evidence is the appellee's Exhibit "A", as
confirmed and corroborated by the other exhibits already
mentioned, does not express the true intent and agreement
of the parties thereto, the real understanding between
them being the appellee would be merely a profit sharer

entitled to 30% of the net profits that may be realized

between the partners from June 7, 1955, until the mortgage
loan of P30,000.00 to be obtained from the RFC shall have
been fully paid. This version, however, is discredited not
only by the aforesaid documentary evidence brought
forward by the appellee, but also by the fact that from June
7, 1955 up to the filing of their answer to the complaint on
February 8, 1964 or a period of over eight (8) years
appellants did nothing to correct the alleged false
agreement of the parties contained in Exhibit "A". It is thus
reasonable to suppose that, had appellee not filed the
present action, appellants would not have advanced this
obvious afterthought that Exhibit "A" does not express the
true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of
the argument that 'there is an overriding fact which proves
that the parties to the Amended Articles of Partnership,
Exhibit "A", did not contemplate to make the appellee
Estrella Abad Santos, an industrial partner of Evangelista &
Co. It is an admitted fact that since before the execution of
the amended articles of partnership, Exhibit "A", the
appellee Estrella Abad Santos has been, and up to the
present time still is, one of the judges of the City Court of
Manila, devoting all her time to the performance of the
duties of her public office. This fact proves beyond
peradventure that it was never contemplated between the
parties, for she could not lawfully contribute her full time
and industry which is the obligation of an industrial partner
pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on
this point, quoting it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without
gaining the very definite impression that, even as she was
and still is a Judge of the City Court of Manila, she has
rendered services for appellants without which they would
not have had the wherewithal to operate the business for
which appellant company was organized. Article 1767 of the
New Civil Code which provides that "By contract of
partnership two or more persons bind themselves, to
contribute money, property, or industry to a common fund,

with the intention of dividing the profits among themselves,

'does not specify the kind of industry that a partner may
thus contribute, hence the said services may legitimately be
considered as appellee's contribution to the common fund.
Another article of the same Code relied upon appellants
reads:
'ART. 1789. An industrial partner cannot
engage in business for himself, unless the
partnership expressly permits him to do so;
and if he should do so, the capitalist
partners may either exclude him from the
firm or avail themselves of the benefits
which he may have obtained in violation of
this provision, with a right to damages in
either case.'
It is not disputed that the provision against the industrial
partner engaging in business for himself seeks to prevent
any conflict of interest between the industrial partner and
the partnership, and to insure faithful compliance by said
partner with this prestation. There is no pretense, however,
even on the part of the appellee is engaged in any business
antagonistic to that of appellant company, since being a
Judge of one of the branches of the City Court of Manila can
hardly be characterized as a business. That appellee has
faithfully complied with her prestation with respect to
appellants is clearly shown by the fact that it was only after
filing of the complaint in this case and the answer thereto
appellants exercised their right of exclusion under the codal
art just mentioned by alleging in their Supplemental Answer
dated June 29, 1964 or after around nine (9) years from
June 7, 1955 subsequent to the filing of defendants'
answer to the complaint, defendants reached an agreement
whereby the herein plaintiff been excluded from, and
deprived of, her alleged share, interests or participation, as
an alleged industrial partner, in the defendant partnership
and/or in its net profits or income, on the ground plaintiff
has never contributed her industry to the partnership,
instead she has been and still is a judge of the City Court
(formerly Municipal Court) of the City of Manila, devoting
her time to performance of her duties as such judge and

enjoying the privilege and emoluments appertaining to the

said office, aside from teaching in law school in Manila,
without the express consent of the herein defendants'
(Record On Appeal, pp. 24-25). Having always knows as a
appellee as a City judge even before she joined appellant
company on June 7, 1955 as an industrial partner, why did it
take appellants many yearn before excluding her from said
company as aforequoted allegations? And how can they
reconcile such exclusive with their main theory that
appellee has never been such a partner because "The real
agreement evidenced by Exhibit "A" was to grant the
appellee a share of 30% of the net profits which the
appellant partnership may realize from June 7, 1955, until
the mortgage of P30,000.00 obtained from the
Rehabilitation Finance Corporal shall have been fully paid."
(Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower
Court that appellee is an industrial partner of appellant
company, with the right to demand for a formal accounting
and to receive her share in the net profit that may result
from such an accounting, which right appellants take
exception under their second assigned error. Our said
holding is based on the following article of the New Civil
Code:
'ART. 1899. Any partner shall have the right
to a formal account as to partnership
affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and
reasonable.
We find no reason in this case to depart from the rule which limits this
Court's appellate jurisdiction to reviewing only errors of law, accepting as
conclusive the factual findings of the lower court upon its own assessment
of the evidence.
The judgment appealed from is affirmed, with costs.
Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio and
Esguerra, JJ., concur.

The JVA contained the following pertinent provisions:

SECTION 4. CAPITAL OF THE JV
MARSMAN DRYSDALE LAND, INC.,
Petitioner,

G.R. No. 183374

Present:

- versus PHILIPPINE GEOANALYTICS, INC. AND GOTESCO

PROPERTIES, INC.,
Respondents.
x--------------------------------------------x
GOTESCO PROPERTIES, INC.,
Petitioner,

CARPIO,*
CARPIO MORALES, Chairperson,
BRION,
ABAD,** and
VILLARAMA, JR., JJ.

G.R. No. 183376

- versus MARSMAN DRYSDALE LAND,
PHILIPPINE GEOANALYTICS, INC.,
Respondents.

INC.

AND

Promulgated:
June 29, 2010
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION

It is the desire of the Parties herein to implement this

Agreement by investing in the PROJECT on a FIFTY (50%)
PERCENT- FIFTY (50%) PERCENT basis.
4.1. Contribution of [Marsman Drysdale]-[Marsman
Drysdale] shall contribute the Property.
The total appraised value of the Property is PESOS: FOUR
HUNDRED TWENTY MILLION (P420,000,000.00).
For this purpose, [Marsman Drysdale] shall deliver the
Property in a buildable condition within ninety (90) days from
signing of this Agreement barring any unforeseen
circumstances over which [Marsman Drysdale] has no
control. Buildable condition shall mean that the old
building/structure which stands on the Property is
demolished and taken to ground level.
4.2.

Contribution of [Gotesco]- [Gotesco] shall contribute

the amount of PESOS: FOUR HUNDRED TWENTY
MILLION (P420,000,000.00) in cash which shall be
payable as follows:
4.2.1.

The amount of PESOS: FIFTY MILLION

(P50,000,000.00) upon signing of this
Agreement.

4.2.2.

The balance of PESOS: THREE HUNDRED

SEVENTY MILLION (P370,000,000.00) shall
be paid based on progress billings, relative to
the development and construction of the
Building, but shall in no case exceed ten (10)
months from delivery of the Property in a
Buildable condition as defined in section 4.1.

CARPIO MORALES, J.:

On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman
Drysdale) and Gotesco Properties, Inc. (Gotesco) entered into a Joint Venture
Agreement (JVA) for the construction and development of an office building
on a land owned by Marsman Drysdale in Makati City.[1]

A joint account shall be opened and

maintained by both Parties for handling of
said balance, among other Project concerns.

4.3.9

4.3. Funding and Financing

4.3.1

4.3.2

Construction funding for the Project shall

be obtained from the cash contribution of
[Gotesco].
Subsequent funding shall be obtained from
the pre-selling of units in the Building or,
when necessary, from loans from various
banks or financial institutions. [Gotesco]
shall arrange the required funding from such
banks or financial institutions, under such
terms and conditions which will provide
financing rates favorable to the Parties.

If any Party agrees to make an advance to

the Project but fails to do so (in whole or in
part) the other party may advance the
shortfall and the Party in default shall
indemnify the Party making the substitute
advance on demand for all of its losses,
costs and expenses incurred in so doing.
(emphasis supplied; underscoring in the
original)

Via Technical Services Contract (TSC) dated July 14, 1997,[2] the joint
venture engaged the services of Philippine Geoanalytics, Inc. (PGI) to
provide subsurface soil exploration, laboratory testing, seismic study and
geotechnical engineering for the project. PGI, was, however, able to drill
only four of five boreholes needed to conduct its subsurface soil exploration

4.3.3

[Marsman Drysdale] shall not be obligated

to fund the Project as its contribution is
limited to the Property.

and laboratory testing, justifying its failure to drill the remaining borehole to
the failure on the part of the joint venture partners to clear the area where
the drilling was to be made.[3] PGI was able to complete its seismic study

4.3.4

If the cost of the Project exceeds the cash

contribution of [Gotesco], the proceeds
obtained from the pre-selling of units and
proceeds from loans, the Parties shall agree
on other sources and terms of funding such
excess as soon as practicable.

4.3.5

x x x x.

4.3.6

x x x x.

4.3.7

x x x x.

4.3.8

All funds advanced by a Party (or by third

parties in substitution for advances from a
Party) shall be repaid by the JV.

though.
PGI then billed the joint venture on November 24, 1997
for P284,553.50 representing the cost of partial subsurface soil exploration;
and on January 15, 1998 for P250,800 representing the cost of the
completed seismic study.[4]
Despite repeated demands from PGI,[5] the joint venture failed to
pay its obligations.
Meanwhile, due to unfavorable economic conditions at the time,
the joint venture was cut short and the planned building project was
eventually shelved.[6]

PGI subsequently filed on November 11, 1999 a complaint for

collection of sum of money and damages at the Regional Trial Court (RTC) of

a)

Defendant [Gotesco] is ordered to

reimburse
co-defendant
[Marsman
Drysdale] in the amount of P535,353.[50] in
accordance with the [JVA].

b)

Defendant [Gotesco] is further ordered

to pay co-defendant [Marsman Drysdale] the
sum of P100,000.00 as and for attorneys
fees.

Quezon City against Marsman Drysdale and Gotesco.

In its Answer with Counterclaim and Cross-claim, Marsman Drysdale
passed the responsibility of paying PGI to Gotesco which, under the JVA, was
solely liable for the monetary expenses of the project.[7]

SO ORDERED. (underscoring in the original; emphasis

supplied)

Gotesco, on the other hand, countered that PGI has no cause of

action against it as PGI had yet to complete the services enumerated in the
contract; and that Marsman Drysdale failed to clear the property of debris
which prevented PGI from completing its work.[8]

Marsman Drysdale moved for partial reconsideration, contending

that it should not have been held jointly liable with Gotesco on PGIs claim

By Decision of June 2, 2004,[9] Branch 226 of the Quezon City RTC

rendered judgment in favor of PGI, disposing as follows:
WHEREFORE, in view of all the foregoing, judgment
is hereby rendered in favor of plaintiff [PGI].
The defendants [Gotesco] and [Marsman Drysdale]
are ordered to pay plaintiff, jointly:
(1)

the sum of P535,353.50 with legal interest

from the date of this decision until fully paid;

(2)

the sum of P200,000.00 as exemplary

damages;

(3)

the sum of P200,000.00 as and for attorneys

fees; and

(4)

costs of suit.

The cross-claim of defendant [Marsman Drysdale]

against defendant [Gotesco] is hereby GRANTED as follows:

as well as on the awards of exemplary damages and attorneys fees. The

motion was, by Resolution of October 28, 2005, denied.
Both Marsman Drysdale and Gotesco appealed to the Court of
Appeals which, by Decision of January 28, 2008,[10] affirmed with
modification the decision of the trial court. Thus the appellate court
disposed:
WHEREFORE, premises considered, the instant
appeal is PARTLY GRANTED. The assailed Decision dated
June 2, 2004 and the Resolution dated October 28, 2005 of
the RTC of Quezon City, Branch 226, in Civil Case No. Q9939248 are hereby AFFIRMED with MODIFICATION deleting
the award of exemplary damages in favor of [PGI] and
the P100,000.00 attorneys fees in favor of [Marsman
Drysdale] and ordering defendant-appellant [Gotesco]
to REIMBURSE [Marsman Drysdale] 50% of the aggregate
sum due [PGI], instead of the lump sum P535,353.00
awarded by the RTC. The rest of the Decision stands.

SO ORDERED. (capitalization and emphasis in the

original; underscoring supplied)

D. DISREGARDING CLEAR EVIDENCE SHOWING

[MARSMAN DRYSDALES] ENTITLEMENT TO AN AWARD OF
ATTORNEYS FEES.[13]
On the other hand, in G.R. No. 183376, Gotesco peddles that the

In partly affirming the trial courts decision, the appellate court

appellate court committed error when it

ratiocinated that notwithstanding the terms of the JVA, the joint venture
cannot avoid payment of PGIs claim since [the JVA] could not affect third
persons like [PGI] because of the basic civil law principle of relativity of
contracts which provides that contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof.[11]
Their

been

On the issue of whether PGI was indeed entitled to the payment of

Marsman Drysdale and Gotesco filed separate petitions for

services it rendered, the Court sees no imperative to re-examine the

review with the Court which were docketed as G.R. Nos. 183374 and

congruent findings of the trial and appellate courts thereon. Undoubtedly,

183376, respectively. By Resolution of September 8, 2008, the Court

the exercise involves an examination of facts which is normally beyond the

consolidated the petitions.

ambit of the Courts functions under a petition for review, for it is well-

[12]

denied,

motions

for

partial

reconsideration

having

ORDERED [GOTESCO] TO PAY P535,353.50 AS

COST OF THE WORK PERFORMED BY [PGI] AND
P100,000.00 [AS] ATTORNEYS FEES [AND] TO REIMBURSE
[MARSMAN DRYSDALE] 50% OF P535,353.50 AND PAY
[MARSMAN DRYSDALE] P100,000.00 AS ATTORNEYS
FEES. [14]

settled that this Court is not a trier of facts. While this judicial tenet admits
In G.R. No. 183374, Marsman Drysdale imputes error on the
appellate court in
A. ADJUDGING [MARSMAN DRYSDALE] WITH JOINT
LIABILITY AFTER CONCEDING THAT [GOTESCO] SHOULD
ULTIMATELY BE SOLELY LIABLE TO [PGI].
B. AWARDING ATTORNEYS FEES IN FAVOR OF [PGI]
C. IGNORING THE FACT THAT [PGI] DID NOT COMPLY
WITH THE REQUIREMENT OF SATISFACTORY PERFORMANCE
OF ITS PRESTATION WHICH, PURSUANT TO THE TECHNICAL
SERVICES CONTRACT, IS THE CONDITION SINE QUA NON TO
COMPENSATION.

of exceptions, such as when the findings of facts of the appellate court are
contrary to those of the trial courts, or when the judgment is based on a
misapprehension of facts, or when the findings of facts are contradicted by
the evidence on record,[15] these extenuating grounds find no application in
the present petitions.
AT ALL EVENTS, the Court is convinced that PGI had more than
sufficiently established its claims against the joint venture. In fact, Marsman
Drysdale had long recognized PGIs contractual claims when it (PGI) received
a Certificate of Payment[16] from the joint ventures project manager[17] which
was endorsed to Gotesco for processing and payment.[18]

entire compliance with the prestations. There is a solidary

liability only when the obligation expressly so states, or when
the law or nature of the obligation requires solidarity.

The core issue to be resolved then is which between joint venturers

Marsman Drysdale and Gotesco bears the liability to pay PGI its unpaid
claims.

Art. 1208. If from the law, or the nature or the

wording of the obligations to which the preceding article
refers the contrary does not appear, the credit or debt shall
be presumed to be divided into as many equal shares as
there are creditors or debtors, the credits or debts being
considered distinct from one another, subject to the Rules of
Court governing the multiplicity of suits. (emphasis and
underscoring supplied),

To Marsman Drysdale, it is Gotesco since, under the JVA,

construction funding for the project was to be obtained from Gotescos cash
contribution, as its (Marsman Drysdales) participation in the venture was
limited to the land.
Gotesco maintains, however, that it has no liability to pay PGI since
it was due to the fault of Marsman Drysdale that PGI was unable to complete
its undertaking.

presume that the obligation owing to PGI is joint between Marsman

The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.

Drysdale and Gotesco.

PGI executed a technical service contract with the joint venture and

The only time that the JVA may be made to apply in the present

was never a party to the JVA. While the JVA clearly spelled out, inter alia,

petitions is when the liability of the joint venturers to each other would set

the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as

in.

well as the funding and financing mechanism for the project, the same
cannot be used to defeat the lawful claim of PGI against the two joint
venturers-partners.
The TSC clearly listed the joint venturers Marsman Drysdale and
Gotesco as the beneficial owner of the project,[19] and all billing invoices
indicated the consortium therein as the client.
As the appellate court held, Articles 1207 and 1208 of the Civil Code,
which respectively read:
Art. 1207. The concurrence of two or more creditors
or of two or more debtors in one and the same obligation
does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render,

A joint venture being a form of partnership, it is to be governed by

the laws on partnership.[20] Article 1797 of the Civil Code provides:
Art. 1797. The losses and profits shall be distributed
in conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of
each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each in the
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for
the losses.As for the profits, the industrial partner shall
receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in

proportion to his capital. (emphasis and underscoring

supplied)

redounded to the benefit of the joint venture, that spawned the legal action
against it and Gotesco.

In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio

Finally, an interest of 12% per annum on the outstanding obligation

on the proceeds of the project.[21] They did not provide for the splitting of

must be imposed from the time of demand[23] as the delay in payment makes

losses, however. Applying the above-quoted provision of Article 1797 then,

the obligation one of forbearance of money, conformably with this Courts

the same ratio applies in splitting the P535,353.50 obligation-loss of the joint

ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.[24] Marsman Drysdale

venture.

and Gotesco should bear legal interest on their respective obligations.

The appellate courts decision must be modified, however. Marsman

Drysdale and Gotesco being jointly liable, there is no need for Gotesco to
reimburse Marsman Drysdale for 50% of the aggregate sum due to PGI.

WHEREFORE, the assailed Decision and Resolution of the Court of

Appeals are AFFIRMED with MODIFICATION in that the order for Gotesco to
reimburse Marsman Drysdale is DELETED, and interest of 12% per annum on

Allowing Marsman Drysdale to recover from Gotesco what it paid to

the respective obligations of Marsman Drysdale and Gotesco is imposed,

PGI would not only be contrary to the law on partnership on division of

computed from the last demand or on January 5, 1999 up to the finality of

losses but would partake of a clear case of unjust enrichment at Gotescos

the Decision.

expense. The grant by the lower courts of Marsman Drysdale cross-claim

against Gotesco was thus erroneous.

If the adjudged amount and the interest remain unpaid thereafter,

the interest rate shall be 12% per annum computed from the time the

Marsman Drysdales supplication for the award of attorneys fees in

its favor must be denied. It cannot claim that it was compelled to litigate or

judgment becomes final and executory until it is fully satisfied. The appealed
decision is, in all other respects, affirmed.

that the civil action or proceeding against it was clearly unfounded, for the
JVA provided that, in the event a party advances funds for the project, the
joint venture shall repay the advancing party. [22]
Marsman Drysdale was thus not precluded from advancing funds to
pay for PGIs contracted services to abate any legal action against the joint
venture itself. It was in fact hardline insistence on Gotesco having sole
responsibility to pay for the obligation, despite the fact that PGIs services

Costs against petitioners Marsman Drysdale and Gotesco.

SO ORDERED.
G.R. No. 154486
December 1, 2010
FEDERICO JARANTILLA, JR., Petitioner,
vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by
CYNTHIA REMOTIGUE, DOROTEO JARANTILLA and TOMAS
JARANTILLA, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:

This petition for review on certiorari1 seeks to modify the Decision2 of the
Court of Appeals dated July 30, 2002 in CA-G.R. CV No. 40887, which set
aside the Decision3 dated December 18, 1992 of the Regional Trial Court
(RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight
children: Federico, Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael and
Antonieta.4 Petitioner Federico Jarantilla, Jr. is the grandchild of the late
Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife Leda
Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas
Jarantilla.
Petitioner was one of the defendants in the complaint before the RTC while
Antonieta Jarantilla, his aunt, was the plaintiff therein. His co-respondents
before he joined his aunt Antonieta in her complaint, were his late aunt
Conchita Jarantillas husband Buenaventura Remotigue, who died during the
pendency of the case, his cousin Cynthia Remotigue, the adopted daughter
of Conchita Jarantilla and Buenaventura Remotigue, and his brothers
Doroteo and Tomas Jarantilla.6
In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves
the real properties of their deceased parents.7 With the exception of the
real property adjudicated to Pacita Jarantilla, the heirs also agreed to allot
the produce of the said real properties for the years 1947-1949 for the
studies of Rafael and Antonieta Jarantilla.8
In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo
entered into an agreement with the spouses Buenaventura Remotigue and
Conchita Jarantilla to provide mutual assistance to each other by way of
financial support to any commercial and agricultural activity on a joint
business arrangement. This business relationship proved to be successful as
they were able to establish a manufacturing and trading business, acquire
real properties, and construct buildings, among other things.9 This
partnership ended in 1973 when the parties, in an
"Agreement,"10 voluntarily agreed to completely dissolve their "joint
business relationship/arrangement."11
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue
executed a document wherein they acknowledged that while registered
only in Buenaventura Remotigues name, they were not the only owners of
the capital of the businesses Manila Athletic Supply (712 Raon Street,
Manila), Remotigue Trading (Calle Real, Iloilo City) and Remotigue Trading
(Cotabato City). In this same "Acknowledgement of Participating Capital,"
they stated the participating capital of their co-owners as of the year 1952,

with Antonieta Jarantillas stated as eight thousand pesos (P8,000.00) and

Federico Jarantilla, Jr.s as five thousand pesos (P5,000.00).12
The present case stems from the amended complaint13 dated April 22, 1987
filed by Antonieta Jarantilla against Buenaventura Remotigue, Cynthia
Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and Tomas Jarantilla,
for the accounting of the assets and income of the co-ownership, for its
partition and the delivery of her share corresponding to eight percent (8%),
and for damages. Antonieta claimed that in 1946, she had entered into an
agreement with Conchita and Buenaventura Remotigue, Rafael Jarantilla,
and Rosita and Vivencio Deocampo to engage in business. Antonieta alleged
that the initial contribution of property and money came from the heirs
inheritance, and her subsequent annual investment of seven thousand five
hundred pesos (P7,500.00) as additional capital came from the proceeds of
her farm. Antonieta also alleged that from 1946-1969, she had helped in the
management of the business they co-owned without receiving any salary.
Her salary was supposedly rolled back into the business as additional
investments in her behalf. Antonieta further claimed co-ownership of
certain properties14 (the subject real properties) in the name of the
defendants since the only way the defendants could have purchased these
properties were through the partnership as they had no other source of
income.
The respondents, including petitioner herein, in their Answer,15 denied
having formed a partnership with Antonieta in 1946. They claimed that she
was in no position to do so as she was still in school at that time. In fact, the
proceeds of the lands they partitioned were devoted to her studies. They
also averred that while she may have helped in the businesses that her
older sister Conchita had formed with Buenaventura Remotigue, she was
paid her due salary. They did not deny the existence and validity of the
"Acknowledgement of Participating Capital" and in fact used this as
evidence to support their claim that Antonietas 8% share was limited to the
businesses enumerated therein. With regard to Antonietas claim in their
other corporations and businesses, the respondents said these should also
be limited to the number of her shares as specified in the respective articles
of incorporation. The respondents denied using the partnerships income to
purchase the subject real properties and said that the certificates of title
should be binding on her.16
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr.,
who was one of the original defendants, entered into a compromise
agreement17 with Antonieta Jarantilla wherein he supported Antonietas
claims and asserted that he too was entitled to six percent (6%) of the

supposed partnership in the same manner as Antonieta was. He prayed for

a favorable judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for an
accounting from the other defendants, and the partition of the properties of
the co-ownership and the delivery to the plaintiff and to defendant Federico
Jarantilla, Jr. of their rightful share of the assets and properties in the coownership.181avvphi1
The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to
Approve Compromise Agreement20and on December 18, 1992, decided in
favor of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court renders judgment in
favor of the plaintiff Antonieta Jarantilla and against defendants Cynthia
Remotigue, Doroteo Jarantilla and Tomas Jarantilla ordering the latter:
1. to deliver to the plaintiff her 8% share or its equivalent amount
on the real properties covered by TCT Nos. 35655, 338398, 338399
& 335395, all of the Registry of Deeds of Quezon City; TCT Nos.
(18303)23341, 142882 & 490007(4615), all of the Registry of Deeds
of Rizal; and TCT No. T-6309 of the Registry of Deeds of Cotabato
based on their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent amount
on the Remotigue Agro-Industrial Corporation, Manila Athletic
Supply, Inc., MAS Rubber Products, Inc. and Buendia Recapping
Corporation based on the shares of stocks present book value;
3. to account for the assets and income of the co-ownership and
deliver to plaintiff her rightful share thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of P50,000.00 as
moral damages;
5. to pay, jointly and severally, the sum of P50,000.00 as attorneys
fees; and
6. to pay, jointly and severally, the costs of the suit.21
Both the petitioner and the respondents appealed this decision to the Court
of Appeals. The petitioner claimed that the RTC "erred in not rendering a
complete judgment and ordering the partition of the co-ownership and
giving to [him] six per centum (6%) of the properties."22
While the Court of Appeals agreed to some of the RTCs factual findings, it
also established that Antonieta Jarantilla was not part of the partnership
formed in 1946, and that her 8% share was limited to the businesses
enumerated in the Acknowledgement of Participating Capital. On July 30,
2002, the Court of Appeals rendered the herein challenged decision setting
aside the RTCs decision, as follows:

WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET
ASIDE and a new one is hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share
of 8% in the assets and profits of Manila Athletic Supply, Remotigue
Trading in Iloilo City and Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be given his
share of 6% of the assets and profits of the above-mentioned
enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in the following
corporations to the extent stated in their Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for Partial
Reconsideration but the Court of Appeals denied this in a Resolution24 dated
March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for review
on certiorari25 dated September 16, 2002, assailing the Court of Appeals
decision on "similar grounds and similar assignments of errors as this
present case"26 but it was dismissed on November 20, 2002 for failure to file
the appeal within the reglementary period of fifteen (15) days in accordance
with Section 2, Rule 45 of the Rules of Court.27
Petitioner filed before us this petition for review on the sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING
THAT PETITIONER FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER
CENTUM (6%) SHARE OF THE OWNERSHIP OF THE REAL PROPERTIES
ACQUIRED BY THE OTHER DEFENDANTS USING COMMON FUNDS FROM THE
BUSINESSES WHERE HE HAD OWNED SUCH SHARE.28
Petitioner asserts that he was in a partnership with the Remotigue spouses,
the Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla, Antonieta
Jarantilla and Quintin Vismanos, as evidenced by the Acknowledgement of
Participating Capital the Remotigue spouses executed in 1957. He contends
that from this partnership, several other corporations and businesses were
established and several real properties were acquired. In this petition, he is
essentially asking for his 6% share in the subject real properties. He is relying
on the Acknowledgement of Participating Capital, on his own testimony,
and Antonieta Jarantillas testimony to support this contention.

The core issue is whether or not the partnership subject of the

Acknowledgement of Participating Capital funded the subject real
properties. In other words, what is the petitioners right over these real
properties?
It is a settled rule that in a petition for review on certiorari under Rule 45 of
the Rules of Civil Procedure, only questions of law may be raised by the
parties and passed upon by this Court.29
A question of law arises when there is doubt as to what the law is on a
certain state of facts, while there is a question of fact when the doubt arises
as to the truth or falsity of the alleged facts. For a question to be one of law,
the same must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the
issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact. Thus, the test of whether a
question is one of law or of fact is not the appellation given to such question
by the party raising the same; rather, it is whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in
which case, it is a question of law; otherwise it is a question of fact.30
Since the Court of Appeals did not fully adopt the factual findings of the
RTC, this Court, in resolving the questions of law that are now in issue, shall
look into the facts only in so far as the two courts a quo differed in their
appreciation thereof.
The RTC found that an unregistered partnership existed since 1946 which
was affirmed in the 1957 document, the "Acknowledgement of Participating
Capital." The RTC used this as its basis for giving Antonieta Jarantilla an 8%
share in the three businesses listed therein and in the other businesses and
real properties of the respondents as they had supposedly acquired these
through funds from the partnership.31
The Court of Appeals, on the other hand, agreed with the RTC as to
Antonietas 8% share in the business enumerated in the Acknowledgement
of Participating Capital, but not as to her share in the other corporations
and real properties. The Court of Appeals ruled that Antonietas claim of 8%
is based on the "Acknowledgement of Participating Capital," a duly
notarized document which was specific as to the subject of its coverage.
Hence, there was no reason to pattern her share in the other corporations
from her share in the partnerships businesses. The Court of Appeals also
said that her claim in the respondents real properties was more
"precarious" as these were all covered by certificates of title which served
as the best evidence as to all the matters contained therein.32 Since

petitioners claim was essentially the same as Antonietas, the Court of

Appeals also ruled that petitioner be given his 6% share in the same
businesses listed in the Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the Court of Appeals,
are final and conclusive except in the following cases: (1) when the
inference made is manifestly mistaken, absurd or impossible; (2) when there
is a grave abuse of discretion; (3) when the finding is grounded entirely on
speculations, surmises or conjectures; (4) when the judgment of the Court
of Appeals is based on misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific evidence on
which they are based; (9) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (10) when the findings
of fact of the Court of Appeals are premised on the absence of evidence and
are contradicted by the evidence on record.33
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their relationship
with the respondents as a co-ownership, but in the same breath, assert that
a verbal partnership was formed in 1946 and was affirmed in the 1957
Acknowledgement of Participating Capital.
There is a co-ownership when an undivided thing or right belongs to
different persons.34 It is a partnership when two or more persons bind
themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.35 The Court, in
Pascual v. The Commissioner of Internal Revenue,36 quoted the concurring
opinion of Mr. Justice Angelo Bautista in Evangelista v. The Collector of
Internal Revenue37 to further elucidate on the distinctions between a coownership and a partnership, to wit:
I wish however to make the following observation: Article 1769 of the new
Civil Code lays down the rule for determining when a transaction should be
deemed a partnership or a co-ownership. Said article paragraphs 2 and 3,
provides;
(2) Co-ownership or co-possession does not itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a

partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns
are derived;
From the above it appears that the fact that those who agree to form a coownership share or do not share any profits made by the use of the property
held in common does not convert their venture into a partnership. Or the
sharing of the gross returns does not of itself establish a partnership
whether or not the persons sharing therein have a joint or common right or
interest in the property. This only means that, aside from the circumstance
of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a
juridical personality different from that of the individual partners, and the
freedom to transfer or assign any interest in the property by one with the
consent of the others.
It is evident that an isolated transaction whereby two or more persons
contribute funds to buy certain real estate for profit in the absence of other
circumstances showing a contrary intention cannot be considered a
partnership.
Persons who contribute property or funds for a common enterprise and
agree to share the gross returns of that enterprise in proportion to their
contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common
stock or capital, and no community of interest as principal proprietors in the
business itself which the proceeds derived.
A joint purchase of land, by two, does not constitute a co-partnership in
respect thereto; nor does an agreement to share the profits and losses on
the sale of land create a partnership; the parties are only tenants in
common.
Where plaintiff, his brother, and another agreed to become owners of a
single tract of realty, holding as tenants in common, and to divide the profits
of disposing of it, the brother and the other not being entitled to share in
plaintiffs commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties.
In order to constitute a partnership inter sese there must be: (a) An intent to
form the same; (b) generally participating in both profits and losses; (c) and
such a community of interest, as far as third persons are concerned as
enables each party to make contract, manage the business, and dispose of
the whole property. x x x.

The common ownership of property does not itself create a partnership

between the owners, though they may use it for the purpose of making
gains; and they may, without becoming partners, agree among themselves
as to the management, and use of such property and the application of the
proceeds therefrom.38 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two essential elements in a
contract of partnership: (a) an agreement to contribute money, property or
industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at
bar, for, admittedly, all the parties in this case have agreed to, and did,
contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did.39 It is not denied that all
the parties in this case have agreed to contribute capital to a common fund
to be able to later on share its profits. They have admitted this fact, agreed
to its veracity, and even submitted one common documentary evidence to
prove such partnership - the Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the Acknowledgement of
Participating Capital, it would be instructive to examine the pertinent
portions of this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de
Remotigue, both of legal age, Filipinos and residents of Loyola Heights,
Quezon City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading
of Calle Real, Iloilo City and the Remotigue Trading, Cotabato Branch,
Cotabato, P.I., all dealing in athletic goods and equipments, and general
merchandise are recorded in their respective books with Buenaventura
Remotigue as the registered owner and are being operated by them as such:
That they are not the only owners of the capital of the three establishments
and their participation in the capital of the three establishments together
with the other co-owners as of the year 1952 are stated as follows:
1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)P25,000.00
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND) 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND).... 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00
6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00

8. Quintin Vismanos (TWO THOUSAND)... 2,000.00

That aside from the persons mentioned in the next preceding paragraph, no
other person has any interest in the above-mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I.,
this 29th day of April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a duly notarized document
voluntarily executed by Conchita Jarantilla-Remotigue and Buenaventura
Remotigue in 1957. Petitioner does not dispute its contents and is actually
relying on it to prove his participation in the partnership. Article 1797 of the
Civil Code provides:
Art. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed capital,
he shall also receive a share in the profits in proportion to his capital.
(Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his share as
agreed upon, or in the absence of any such stipulations, then to his share in
proportion to his contribution to the partnership. The petitioner himself
claims his share to be 6%, as stated in the Acknowledgement of Participating
Capital. However, petitioner fails to realize that this document specifically
enumerated the businesses covered by the partnership: Manila Athletic
Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato
City. Since there was a clear agreement that the capital the partners
contributed went to the three businesses, then there is no reason to deviate
from such agreement and go beyond the stipulations in the document.
Therefore, the Court of Appeals did not err in limiting petitioners share to
the assets of the businesses enumerated in the Acknowledgement of
Participating Capital.
In Villareal v. Ramirez,41 the Court held that since a partnership is a separate
juridical entity, the shares to be paid out to the partners is necessarily
limited only to its total resources, to wit:

Since it is the partnership, as a separate and distinct entity, that must refund
the shares of the partners, the amount to be refunded is necessarily limited
to its total resources. In other words, it can only pay out what it has in its
coffers, which consists of all its assets. However, before the partners can be
paid their shares, the creditors of the partnership must first be
compensated. After all the creditors have been paid, whatever is left of the
partnership assets becomes available for the payment of the partners
shares.42
There is no evidence that the subject real properties were assets of the
partnership referred to in the Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to respondents properties
based on the concept of trust. He claims that since the subject real
properties were purchased using funds of the partnership, wherein he has a
6% share, then "law and equity mandates that he should be considered as a
co-owner of those properties in such proportion."43 In Pigao v.
Rabanillo,44 this Court explained the concept of trusts, to wit:
Express trusts are created by the intention of the trustor or of the parties,
while implied trusts come into being by operation of law, either through
implication of an intention to create a trust as a matter of law or through
the imposition of the trust irrespective of, and even contrary to, any such
intention. In turn, implied trusts are either resulting or constructive trusts.
Resulting trusts are based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or interest
and are presumed always to have been contemplated by the parties. They
arise from the nature or circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title
but is obligated in equity to hold his legal title for the benefit of another.45
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was created.
Noting the need to prove the existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party
asserting its existence, and such proof must be clear and satisfactorily show
the existence of the trust and its elements. While implied trusts may be
proved by oral evidence, the evidence must be trustworthy and received by
the courts with extreme caution, and should not be made to rest on loose,
equivocal or indefinite declarations. Trustworthy evidence is required
because oral evidence can easily be fabricated." 46
The petitioner has failed to prove that there exists a trust over the subject
real properties. Aside from his bare allegations, he has failed to show that
the respondents used the partnerships money to purchase the said

properties. Even assuming arguendo that some partnership income was

used to acquire these properties, the petitioner should have successfully
shown that these funds came from his share in the partnership profits. After
all, by his own admission, and as stated in the Acknowledgement of
Participating Capital, he owned a mere 6% equity in the partnership.
In essence, the petitioner is claiming his 6% share in the subject real
properties, by relying on his own self-serving testimony and the equally
biased testimony of Antonieta Jarantilla. Petitioner has not presented
evidence, other than these unsubstantiated testimonies, to prove that the
respondents did not have the means to fund their other businesses and real
properties without the partnerships income. On the other hand, the
respondents have not only, by testimonial evidence, proven their case
against the petitioner, but have also presented sufficient documentary
evidence to substantiate their claims, allegations and defenses. They
presented preponderant proof on how they acquired and funded such
properties in addition to tax receipts and tax declarations.47 It has been held
that "while tax declarations and realty tax receipts do not conclusively prove
ownership, they may constitute strong evidence of ownership when
accompanied by possession for a period sufficient for
prescription."48Moreover, it is a rule in this jurisdiction that testimonial
evidence cannot prevail over documentary evidence.49 This Court had on
several occasions, expressed our disapproval on using mere self-serving
testimonies to support ones claim. In Ocampo v. Ocampo,50 a case on
partition of a co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the property was
sufficiently proved by their witnesses -- Luisa Ocampo-Llorin and Melita
Ocampo. We disagree. Their testimonies cannot prevail over the array of
documents presented by Belen. A claim of ownership cannot be based
simply on the testimonies of witnesses; much less on those of interested
parties, self-serving as they are.51
It is true that a certificate of title is merely an evidence of ownership or title
over the particular property described therein. Registration in the Torrens
system does not create or vest title as registration is not a mode of
acquiring ownership; hence, this cannot deprive an aggrieved party of a
remedy in law.52 However, petitioner asserts ownership over portions of the
subject real properties on the strength of his own admissions and on the
testimony of Antonieta Jarantilla.1avvphi1 As held by this Court in Republic
of the Philippines v. Orfinada, Sr.53:
Indeed, a Torrens title is generally conclusive evidence of ownership of the
land referred to therein, and a strong presumption exists that a Torrens title

was regularly issued and valid. A Torrens title is incontrovertible against

anyinformacion possessoria, of other title existing prior to the issuance
thereof not annotated on the Torrens title. Moreover, persons dealing with
property covered by a Torrens certificate of title are not required to go
beyond what appears on its face.54
As we have settled that this action never really was for partition of a coownership, to permit petitioners claim on these properties is to allow a
collateral, indirect attack on respondents admitted titles. In the words of
the Court of Appeals, "such evidence cannot overpower the conclusiveness
of these certificates of title, more so since plaintiffs [petitioners] claims
amount to a collateral attack, which is prohibited under Section 48 of
Presidential Decree No. 1529, the Property Registration Decree."55
SEC. 48. Certificate not subject to collateral attack. A certificate of title
shall not be subject to collateral attack. It cannot be altered, modified, or
cancelled except in a direct proceeding in accordance with law.
This Court has deemed an action or proceeding to be "an attack on a title
when its objective is to nullify the title, thereby challenging the judgment
pursuant to which the title was decreed."56 In Aguilar v. Alfaro,57 this Court
further distinguished between a direct and an indirect or collateral attack,
as follows:
A collateral attack transpires when, in another action to obtain a different
relief and as an incident to the present action, an attack is made against the
judgment granting the title. This manner of attack is to be distinguished
from a direct attack against a judgment granting the title, through an action
whose main objective is to annul, set aside, or enjoin the enforcement of
such judgment if not yet implemented, or to seek recovery if the property
titled under the judgment had been disposed of. x x x.
Petitioners only piece of documentary evidence is the Acknowledgement of
Participating Capital, which as discussed above, failed to prove that the real
properties he is claiming co-ownership of were acquired out of the proceeds
of the businesses covered by such document. Therefore, petitioners theory
has no factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of
Appeals in CA-G.R. CV No. 40887, dated July 30, 2002 is AFFIRMED.
SO ORDERED.
G.R. No. 85494
May 7, 1991
CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V. RAMNANI and MOTI
G. RAMNANI, petitioners,
vs.

COURT OF APPEALS, SPOUSES ISHWAR JETHMAL RAMNANI, SONYA

JETHMAL RAMNANI and OVERSEAS HOLDING CO., LTD., respondents.
G.R. No. 85496
May 7, 1991
SPOUSES ISHWAR JETHMAL RAMNANI AND SONYA JET
RAMNANI, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ORTIGAS & CO., LTD. PARTNERSHIP,
and OVERSEAS HOLDING CO., LTD., respondents.
Quasha, Asperilla Ancheta, Pea and Nolasco for petitioners Ishwar Jethmal
Ramnani & Sonya Ramnani.
Salonga, Andres, Hernandez & Allado for Choithram Jethmal Ramnani,
Nirmla Ramnani & Moti Ramnani.
Rama Law Office for private respondents in collaboration with Salonga,
Andres, Hernandez & Allado.
Eulogio R. Rodriguez for Ortigas & Co., Ltd.

GANCAYCO, J.:
This case involves the bitter quarrel of two brothers over two (2) parcels of
land and its improvements now worth a fortune. The bone of contention is
the apparently conflicting factual findings of the trial court and the appellate
court, the resolution of which will materially affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are
brothers of the full blood. Ishwar and his spouse Sonya had their main
business based in New York. Realizing the difficulty of managing their
investments in the Philippines they executed a general power of attorney on
January 24, 1966 appointing Navalrai and Choithram as attorneys-in-fact,
empowering them to manage and conduct their business concern in the
Philippines. 1
On February 1, 1966 and on May 16, 1966, Choithram, in his capacity as
aforesaid attorney-in-fact of Ishwar, entered into two agreements for the
purchase of two parcels of land located in Barrio Ugong, Pasig, Rizal, from
Ortigas & Company, Ltd. Partnership (Ortigas for short) with a total area of
approximately 10,048 square meters. 2Per agreement, Choithram paid the
down payment and installments on the lot with his personal checks. A
building was constructed thereon by Choithram in 1966 and this was
occupied and rented by Jethmal Industries and a wardrobe shop called
Eppie's Creation. Three other buildings were built thereon by Choithram
through a loan of P100,000.00 obtained from the Merchants Bank as well as

the income derived from the first building. The buildings were leased out by
Choithram as attorney-in-fact of Ishwar. Two of these buildings were later
burned.
Sometime in 1970 Ishwar asked Choithram to account for the income and
expenses relative to these properties during the period 1967 to 1970.
Choithram failed and refused to render such accounting. As a consequence,
on February 4, 1971, Ishwar revoked the general power of attorney.
Choithram and Ortigas were duly notified of such revocation on April 1,
1971 and May 24, 1971, respectively. 3 Said notice was also registered with
the Securities and Exchange Commission on March 29, 1971 4 and was
published in the April 2, 1971 issue of The Manila Timesfor the information
of the general public. 5
Nevertheless, Choithram as such attorney-in-fact of Ishwar, transferred all
rights and interests of Ishwar and Sonya in favor of his daughter-in-law,
Nirmla Ramnani, on February 19, 1973. Her husband is Moti, son of
Choithram. Upon complete payment of the lots, Ortigas executed the
corresponding deeds of sale in favor of Nirmla. 6Transfer Certificates of Title
Nos. 403150 and 403152 of the Register of Deeds of Rizal were issued in her
favor.
Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for short) filed
a complaint in the Court of First Instance of Rizal against Choithram and/or
spouses Nirmla and Moti (Choithram et al. for brevity) and Ortigas for
reconveyance of said properties or payment of its value and damages. An
amended complaint for damages was thereafter filed by said spouses.
After the issues were joined and the trial on the merits, a decision was
rendered by the trial court on December 3, 1985 dismissing the complaint
and counterclaim. A motion for reconsideration thereof filed by spouses
Ishwar was denied on March 3, 1986.
An appeal therefrom was interposed by spouses Ishwar to the Court of
Appeals wherein in due course a decision was promulgated on March 14,
1988, the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered reversing and setting
aside the appealed decision of the lower court dated December 3,
1985 and the Order dated March 3, 1986 which denied plaintiffsappellants' Motion for Reconsideration from aforesaid decision. A
new decision is hereby rendered sentencing defendants- appellees
Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani,
and Ortigas and Company Limited Partnership to pay, jointly and
severally, plaintiffs-appellants the following:

1. Actual or compensatory damages to the extent of the fair market

value of the properties in question and all improvements thereon
covered by Transfer Certificate of Title No. 403150 and Transfer
Certificate of Title No. 403152 of the Registry of Deeds of Rizal,
prevailing at the time of the satisfaction of the judgment but in no
case shall such damages be less than the value of said properties as
appraised by Asian Appraisal, Inc. in its Appraisal Report dated
August 1985 (Exhibits T to T-14, inclusive).
2. All rental incomes paid or ought to be paid for the use and
occupancy of the properties in question and all improvements
thereon consisting of buildings, and to be computed as follows:
a) On Building C occupied by Eppie's Creation and Jethmal
Industries from 1967 to 1973, inclusive, based on the 1967
to 1973 monthly rentals paid by Eppie's Creation;
b) Also on Building C above, occupied by Jethmal Industries
and Lavine from 1974 to 1978, the rental incomes based on
then rates prevailing as shown under Exhibit "P"; and from
1979 to 1981, based on then prevailing rates as indicated
under Exhibit "Q";
c) On Building A occupied by Transworld Knitting Mills from
1972 to 1978, the rental incomes based upon then
prevailing rates shown under Exhibit "P", and from 1979 to
1981, based on prevailing rates per Exhibit "Q";
d) On the two Bays Buildings occupied by Sigma-Mariwasa
from 1972 to 1978, the rentals based on the Lease Contract,
Exhibit "P", and from 1979 to 1980, the rentals based on the
Lease Contract, Exhibit "Q",
and thereafter commencing 1982, to account for and turn over the
rental incomes paid or ought to be paid for the use and occupancy
of the properties and all improvements totalling 10,048 sq. m based
on the rate per square meter prevailing in 1981 as indicated
annually cumulative up to 1984. Then, commencing 1985 and up to
the satisfaction of the judgment, rentals shall be computed at ten
percent (10%) annually of the fair market values of the properties as
appraised by the Asian Appraisal, Inc. in August 1985 (Exhibits T to
T-14, inclusive.)
3. Moral damages in the sum of P200,000.00;
4. Exemplary damages in the sum of P100,000.00;
5. Attorney's fees equivalent to 10% of the award herein made;

6. Legal interest on the total amount awarded computed from first

demand in 1967 and until the full amount is paid and satisfied; and
7. The cost of suit. 7
Acting on a motion for reconsideration filed by Choithram, et al. and
Ortigas, the appellate court promulgated an amended decision on October
17, 1988 granting the motion for reconsideration of Ortigas by affirming the
dismissal of the case by the lower court as against Ortigas but denying the
motion for reconsideration of Choithram, et al. 8
Choithram, et al. thereafter filed a petition for review of said judgment of
the appellate court alleging the following grounds:
1. The Court of Appeals gravely abused its discretion in making a
factual finding not supported by and contrary, to the evidence
presented at the Trial Court.
2. The Court of Appeals acted in excess of jurisdiction in awarding
damages based on the value of the real properties in question
where the cause of action of private respondents is recovery of a
sum of money.
ARGUMENTS
I
THE COURT OF APPEALS ACTED IN GRAVE ABUSE OF ITS DISCRETION
IN MAKING A FACTUAL FINDING THAT PRIVATE RESPONDENT
ISHWAR REMITTED THE AMOUNT OF US $150,000.00 TO
PETITIONER CHOITHRAM IN THE ABSENCE OF PROOF OF SUCH
REMITTANCE.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION
AND MANIFEST PARTIALITY IN DISREGARDING THE TRIAL COURTS
FINDINGS BASED ON THE DIRECT DOCUMENTARY AND
TESTIMONIAL EVIDENCE PRESENTED BY CHOITHRAM IN THE TRIAL
COURT ESTABLISHING THAT THE PROPERTIES WERE PURCHASED
WITH PERSONAL FUNDS OF PETITIONER CHOITHRAM AND NOT
WITH MONEY ALLEGEDLY REMITTED BY RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN EXCESS OF JURISDICTION IN
AWARDING DAMAGES BASED ON THE VALUE OF THE PROPERTIES
AND THE FRUITS OF THE IMPROVEMENTS THEREON. 9
Similarly, spouses Ishwar filed a petition for review of said amended
decision of the appellate court exculpating Ortigas of liability based on the
following assigned errors
I

THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED

GRAVE ERROR AND HAS DECIDED A QUESTION OF SUBSTANCE NOT
IN ACCORD WITH LAW AND/OR WITH APPLICABLE DECISIONS OF
THIS HONORABLE COURT
A) IN PROMULGATING THE QUESTIONED AMENDED
DECISION (ANNEX "A") RELIEVING RESPONDENT ORTIGAS
FROM LIABILITY AND DISMISSING PETITIONERS' AMENDED
COMPLAINT IN CIVIL CASE NO. 534-P, AS AGAINST SAID
RESPONDENT ORTIGAS;
B) IN HOLDING IN SAID AMENDED DECISION THAT AT ANY
RATE NO ONE EVER TESTIFIED THAT ORTIGAS WAS A
SUBSCRIBER TO THE MANILA TIMES PUBLICATION OR THAT
ANY OF ITS OFFICERS READ THE NOTICE AS PUBLISHED IN
THE MANILA TIMES, THEREBY ERRONEOUSLY CONCLUDING
THAT FOR RESPONDENT ORTIGAS TO BE CONSTRUCTIVELY
BOUND BY THE PUBLISHED NOTICE OF REVOCATION,
ORTIGAS AND/OR ANY OF ITS OFFICERS MUST BE A
SUBSCRIBER AND/OR THAT ANY OF ITS OFFICERS SHOULD
READ THE NOTICE AS ACTUALLY PUBLISHED;
C) IN HOLDING IN SAID AMENDED DECISION THAT ORTIGAS
COULD NOT BE HELD LIABLE JOINTLY AND SEVERALLY WITH
THE DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND
NIRMLA RAMNANI, AS ORTIGAS RELIED ON THE WORD OF
CHOITHRAM THAT ALL ALONG HE WAS ACTING FOR AND IN
BEHALF OF HIS BROTHER ISHWAR WHEN IT TRANSFERRED
THE RIGHTS OF THE LATTER TO NIRMLA V. RAMNANI;
D) IN IGNORING THE EVIDENCE DULY PRESENTED AND
ADMITTED DURING THE TRIAL THAT ORTIGAS WAS
PROPERLY NOTIFIED OF THE NOTICE OF REVOCATION OF
THE GENERAL POWER OF ATTORNEY GIVEN TO
CHOITHRAM, EVIDENCED BY THE PUBLICATION IN THE
MANILA TIMES ISSUE OF APRIL 2, 1971 (EXH. F) WHICH
CONSTITUTES NOTICE TO THE WHOLE WORLD; THE RECEIPT
OF THE NOTICE OF SUCH REVOCATION WHICH WAS SENT
TO ORTIGAS ON MAY 22, 1971 BY ATTY. MARIANO P.
MARCOS AND RECEIVED BY ORTIGAS ON MAY 24, 1971
(EXH. G) AND THE FILING OF THE NOTICE WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MARCH
29,1971 (EXH. H);

E) IN DISCARDING ITS FINDINGS CONTAINED IN ITS

DECISION OF 14 MARCH 1988 (ANNEX B) THAT ORTIGAS
WAS DULY NOTIFIED OF THE REVOCATION OF THE POWER
OF ATTORNEY OF CHOITHRAM, HENCE ORTIGAS ACTED IN
BAD FAITH IN EXECUTING THE DEED OF SALE TO THE
PROPERTIES IN QUESTION IN FAVOR OF NIRMLA V.
RAMNANI;
F) IN SUSTAINING RESPONDENT ORTIGAS VACUOUS
REHASHED ARGUMENTS IN ITS MOTION FOR
RECONSIDERATION THAT IT WOULD NOT GAIN ONE
CENTAVO MORE FROM CHOITHRAM FOR THE SALE OF SAID
LOTS AND THE SUBSEQUENT TRANSFER OF THE SAME TO
THE MATTER'S DAUGHTER-IN-LAW, AND THAT IT WAS IN
GOOD FAITH WHEN IT TRANSFERRED ISHWAR'S RIGHTS TO
THE LOTS IN QUESTION.
II
THE RESPONDENT HONORABLE COURT OF APPEALS HAS SO FAR
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE QUESTIONED AMENDED
DECISION OF 17 NOVEMBER 1988 (ANNEX A) THAT RESPONDENT
ORTIGAS & CO., LTD., IS NOT JOINTLY AND SEVERALLY LIABLE WITH
DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA
RAMNANI IN SPITE OF ITS ORIGINAL DECISION OF 14 MARCH 1988
THAT ORTIGAS WAS DULY NOTIFIED OF THE REVOCATION OF THE
POWER OF ATTORNEY OF CHOITHRAM RAMNANI. 10
The center of controversy is the testimony of Ishwar that during the latter
part of 1965, he sent the amount of US $150,000.00 to Choithram in two
bank drafts of US$65,000.00 and US$85,000.00 for the purpose of investing
the same in real estate in the Philippines. The trial court considered this
lone testimony unworthy of faith and credit. On the other hand, the
appellate court found that the trial court misapprehended the facts in
complete disregard of the evidence, documentary and testimonial.
Another crucial issue is the claim of Choithram that because he was then a
British citizen, as a temporary arrangement, he arranged the purchase of
the properties in the name of Ishwar who was an American citizen and who
was then qualified to purchase property in the Philippines under the then
Parity Amendment. The trial court believed this account but it was
debunked by the appellate court.

As to the issue of whether of not spouses Ishwar actually sent

US$150,000.00 to Choithram precisely to be used in the real estate
business, the trial court made the following disquisition
After a careful, considered and conscientious examination of the
evidence adduced in the case at bar, plaintiff Ishwar Jethmal
Ramanani's main evidence, which centers on the alleged payment
by sending through registered mail from New York two (2) US$
drafts of $85,000.00 and $65,000.00 in the latter part of 1965 (TSN
28 Feb. 1984, p. 10-11). The sending of these moneys were before
the execution of that General Power of Attorney, which was dated
in New York, on January 24, 1966. Because of these alleged
remittances of US $150,000.00 and the subsequent acquisition of
the properties in question, plaintiffs averred that they constituted a
trust in favor of defendant Choithram Jethmal Ramnani. This Court
can be in full agreement if the plaintiffs were only able to prove
preponderantly these remittances. The entire record of this case is
bereft of even a shred of proof to that effect. It is completely
barren. His uncorroborated testimony that he remitted these
amounts in the "later part of 1965" does not engender enough faith
and credence. Inadequacy of details of such remittance on the two
(2) US dollar drafts in such big amounts is completely not positive,
credible, probable and entirely not in accord with human
experience. This is a classic situation, plaintiffs not exhibiting any
commercial document or any document and/or paper as regard to
these alleged remittances. Plaintiff Ishwar Ramnani is not an
ordinary businessman in the strict sense of the word. Remember his
main business is based in New York, and he should know better how
to send these alleged remittances. Worst, plaintiffs did not present
even a scum of proof, that defendant Choithram Ramnani received
the alleged two US dollar drafts. Significantly, he does not know
even the bank where these two (2) US dollar drafts were purchased.
Indeed, plaintiff Ishwar Ramnani's lone testimony is unworthy of
faith and credit and, therefore, deserves scant consideration, and
since the plaintiffs' theory is built or based on such testimony, their
cause of action collapses or falls with it.
Further, the rate of exchange that time in 1966 was P4.00 to $1.00.
The alleged two US dollar drafts amounted to $150,000.00 or about
P600,000.00. Assuming the cash price of the two (2) lots was only
P530,000.00 (ALTHOUGH he said: "Based on my knowledge I have
no evidence," when asked if he even knows the cash price of the

two lots). If he were really the true and bonafide investor and
purchaser for profit as he asserted, he could have paid the price in
full in cash directly and obtained the title in his name and not thru
"Contracts To Sell" in installments paying interest and thru an
attorney-in fact (TSN of May 2, 1984, pp. 10-11) and, again, plaintiff
Ishwar Ramnani told this Court that he does not know whether or
not his late father-in-law borrowed the two US dollar drafts from the
Swiss Bank or whether or not his late father-in-law had any debit
memo from the Swiss Bank (TSN of May 2, 1984, pp. 9-10). 11
On the other hand, the appellate court, in giving credence to the version of
Ishwar, had this to say
While it is true, that generally the findings of fact of the trial court
are binding upon the appellate courts, said rule admits of
exceptions such as when (1) the conclusion is a finding grounded
entirely on speculations, surmises and conjectures; (2) when the
inferences made is manifestly mistaken, absurd and impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts and when the court, in making
its findings, went beyond the issues of the case and the same are
contrary to the admissions of both appellant and appellee (Ramos
vs. Court of Appeals, 63 SCRA 33; Philippine American Life
Assurance Co. vs. Santamaria, 31 SCRA 798; Aldaba vs. Court of
Appeals, 24 SCRA 189).
The evidence on record shows that the t court acted under a
misapprehension of facts and the inferences made on the evidence
palpably a mistake.
The trial court's observation that "the entire records of the case is
bereft of even a shred of proof" that plaintiff-appellants have
remitted to defendant-appellee Choithram Ramnani the amount of
US $ 150,000.00 for investment in real estate in the Philippines, is
not borne by the evidence on record and shows the trial court's
misapprehension of the facts if not a complete disregard of the
evidence, both documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his own
behalf, declared that during the latter part of 1965, he sent the
amount of US $150,000.00 to his brother Choithram in two bank
drafts of US $65,000.00 and US $85,000.00 for the purpose of
investing the same in real estate in the Philippines. His testimony is
as follows:
ATTY. MARAPAO:

Mr. Witness, you said that your attorney-in-fact paid in your

behalf. Can you tell this Honorable Court where your
attorney-in-fact got the money to pay this property?
ATTY. CRUZ:
Wait. It is now clear it becomes incompetent or hearsay.
COURT:
Witness can answer.
A I paid through my attorney-in-fact. I am the one who gave
him the money.
ATTY. MARAPAO:
Q You gave him the money?
A That's right.
Q How much money did you give him?
A US $ 150,000.00.
Q How was it given then?
A Through Bank drafts. US $65,000.00 and US $85,000.00
bank drafts. The total amount which is $ 150,000.00 (TSN,
28 February 1984, p. 10; Emphasis supplied.)
xxx
xxx
xxx
ATTY. CRUZ:
Q The two bank drafts which you sent I assume you bought
that from some banks in New York?
A No, sir.
Q But there is no question those two bank drafts were for
the purpose of paying down payment and installment of the
two parcels of land?
A Down payment, installment and to put up the building.
Q I thought you said that the buildings were constructed . . .
subject to our continuing objection from rentals of first
building?
ATTY. MARAPAO:
Your Honor, that is misleading.
COURT;
Witness (may) answer.
A Yes, the first building was immediately put up after the
purchase of the two parcels of land that was in 1966 and
the finds were used for the construction of the building
from the US $150,000.00 (TSN, 7 March 1984, page 14;
Emphasis supplied.)
xxx
xxx
xxx

Q These two bank drafts which you mentioned and the use
for it you sent them by registered mail, did you send them
from New Your?
A That is right.
Q And the two bank drafts which were put in the registered
mail, the registered mail was addressed to whom?
A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-15).
On cross-examination, the witness reiterated the remittance of the
money to his brother Choithram, which was sent to him by his
father-in-law, Rochiram L. Mulchandoni from Switzerland, a man of
immense wealth, which even defendants-appellees' witness
Navalrai Ramnani admits to be so (tsn., p. 16, S. Oct. 13, 1985).
Thus, on cross-examination, Ishwar testified as follows:
Q How did you receive these two bank drafts from the bank
the name of which you cannot remember?
A I got it from my father-in-law.
Q From where did your father- in-law sent these two bank
drafts?
A From Switzerland.
Q He was in Switzerland.
A Probably, they sent out these two drafts from
Switzerland.
(TSN, 7 March 1984, pp. 16-17; Emphasis supplied.)
This positive and affirmative testimony of plaintiff-appellant that he
sent the two (2) bank drafts totalling US $ 150,000.00 to his brother,
is proof of said remittance. Such positive testimony has greater
probative force than defendant-appellee's denial of receipt of said
bank drafts, for a witness who testifies affirmatively that something
did happen should be believed for it is unlikely that a witness will
remember what never happened (Underhill's Cr. Guidance, 5th Ed.,
Vol. 1, pp. 10-11).
That is not all. Shortly thereafter, plaintiff-appellant Ishwar Ramnani
executed a General Power of Attorney (Exhibit "A") dated January
24, 1966 appointing his brothers, defendants-appellees Navalrai and
Choithram as attorney-in-fact empowering the latter to conduct and
manage plaintiffs-appellants' business affairs in the Philippines and
specifically
No. 14. To acquire, purchase for us, real estates and
improvements for the purpose of real estate business
anywhere in the Philippines and to develop, subdivide,

improve and to resell to buying public (individual, firm or

corporation); to enter in any contract of sale in oar behalf
and to enter mortgages between the vendees and the
herein grantors that may be needed to finance the real
estate business being undertaken.
Pursuant thereto, on February 1, 1966 and May 16, 1966, Choithram
Jethmal Ramnani entered into Agreements
(Exhibits "B' and "C") with the other defendant. Ortigas and
Company, Ltd., for the purchase of two (2) parcels of land situated
at Barrio Ugong, Pasig, Rizal, with said defendant-appellee signing
the Agreements in his capacity as Attorney-in-fact of Ishwar Jethmal
Ramnani.
Again, on January 5, 1972, almost seven (7) years after Ishwar sent
the US $ 150,000.00 in 1965, Choithram Ramnani, as attorney-in
fact of Ishwar entered into a Contract of Lease with SigmaMariwasa (Exhibit "P") thereby re-affirming the ownership of Ishwar
over the disputed property and the trust relationship between the
latter as principal and Choithram as attorney-in-fact of Ishwar.
All of these facts indicate that if plaintiff-appellant Ishwar had not
earlier sent the US $ 150,000.00 to his brother, Choithram, there
would be no purpose for him to execute a power of attorney
appointing his brothers as s attorney-in-fact in buying real estate in
the Philippines.
As against Choithram's denial that he did not receive the US
$150,000.00 remitted by Ishwar and that the Power of Attorney, as
well as the Agreements entered into with Ortigas & Co., were only
temporary arrangements, Ishwar's testimony that he did send the
bank drafts to Choithram and was received by the latter, is the more
credible version since it is natural, reasonable and probable. It is in
accord with the common experience, knowledge and observation of
ordinary men (Gardner vs. Wentors 18 Iowa 533). And in
determining where the superior weight of the evidence on the
issues involved lies, the court may consider the probability or
improbability of the testimony of the witness (Sec. 1, Rule 133,
Rules of Court).
Contrary, therefore, to the trial court's sweeping observation that
'the entire records of the case is bereft of even a shred of proof that
Choithram received the alleged bank drafts amounting to US $
150,000.00, we have not only testimonial evidence but also
documentary and circumstantial evidence proving said remittance

of the money and the fiduciary relationship between the former and
Ishwar.12
The Court agrees. The environmental circumstances of this case buttress the
claim of Ishwar that he did entrust the amount of US $ 150,000.00 to his
brother, Choithram, which the latter invested in the real property business
subject of this litigation in his capacity as attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in the possession of Ishwar to
evidence the same, but it is not unusual among brothers and close family
members to entrust money and valuables to each other without any
formalities or receipt due to the special relationship of trust between them.
And another proof thereof is the fact that Ishwar, out of frustration when
Choithram failed to account for the realty business despite his demands,
revoked the general power of attorney he extended to Choithram and
Navalrai. Thereafter, Choithram wrote a letter to Ishwar pleading that the
power of attorney be renewed or another authority to the same effect be
extended, which reads as follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty. immediately, because the case has
been postponed for two weeks. The same way as it has
been send before in favor of both names. Send it
immediately otherwise everything will be lost unnecessarily,
and then it will take us in litigation. Now that we have gone
ahead with a case and would like to end it immediately
otherwise squatters will take the entire land. Therefore,
send it immediately.
(2) Ortigas also has sued us because we are holding the
installments, because they have refused to give a rebate of
P5.00 per meter which they have to give us as per contract.
They have filed the law suit that since we have not paid the
installment they should get back the land. The hearing of
this case is in the month of July. Therefore, please send the
power immediately. In one case DADA (Elder Brother) will
represent and in another one, I shall.
(3) In case if you do not want to give power then make one
letter in favor of Dada and the other one in my favor
showing that in any litigation we can represent you and
your wife, and whatever the court decide it will be
acceptable by me. You can ask any lawyer, he will be able to

prepare these letters. After that you can have these letters
ratify before P.I. Consulate. It should be dated April 15,
1971.
(4) Try to send the power because it will be more useful.
Make it in any manner whatever way you have confident in
it. But please send it immediately.
You have cancelled the power. Therefore, you have lost your reputation
everywhere. What can I further write you about it. I have told everybody
that due to certain reasons I have written you to do this that is why you
have done this. This way your reputation have been kept intact. Otherwise if
I want to do something about it, I can show you that inspite of the power
you have cancelled you can not do anything. You can keep this letter
because my conscience is clear. I do not have anything in my mind.
I should not be writing you this, but because my conscience is clear do you
know that if I had predated papers what could you have done? Or do you
know that I have many paper signed by you and if had done anything or do
then what can you do about it? It is not necessary to write further about this.
It does not matter if you have cancelled the power. At that time if I had
predated and done something about it what could you have done? You do
not know me. I am not after money. I can earn money anytime. It has been
ten months since I have not received a single penny for expenses from Dada
(elder brother). Why there are no expenses? We can not draw a single
penny from knitting (factory). Well I am not going to write you further, nor
there is any need for it. This much I am writing you because of the way you
have conducted yourself. But remember, whenever I hale the money I will
not keep it myself Right now I have not got anything at all.
I am not going to write any further.
Keep your business clean with Naru. Otherwise he will discontinue because
he likes to keep his business very clean. 13
The said letter was in Sindhi language. It was translated to English by the
First Secretary of the Embassy of Pakistan, which translation was verified
correct by the Chairman, Department of Sindhi, University of Karachi. 14
From the foregoing letter what could be gleaned is that
1. Choithram asked for the issuance of another power of attorney in
their favor so they can continue to represent Ishwar as Ortigas has
sued them for unpaid installments. It also appears therefrom that
Ortigas learned of the revocation of the power of attorney so the
request to issue another.
2. Choithram reassured Ishwar to have confidence in him as he was
not after money, and that he was not interested in Ishwar's money.

3. To demonstrate that he can be relied upon, he said that he could

have ante-dated the sales agreement of the Ortigas lots before the
issuance of the powers of attorney and acquired the same in his
name, if he wanted to, but he did not do so.
4. He said he had not received a single penny for expenses from
Dada (their elder brother Navalrai). Thus, confirming that if he was
not given money by Ishwar to buy the Ortigas lots, he could not
have consummated the sale.
5. It is important to note that in said letter Choithram never claimed
ownership of the property in question. He affirmed the fact that he
bought the same as mere agent and in behalf of Ishwar. Neither did
he mention the alleged temporary arrangement whereby Ishwar,
being an American citizen, shall appear to be the buyer of the said
property, but that after Choithram acquires Philippine citizenship,
its ownership shall be transferred to Choithram.
This brings us to this temporary arrangement theory of Choithram.
The appellate court disposed of this matter in this wise
Choithram's claim that he purchased the two parcels of land for
himself in 1966 but placed it in the name of his younger brother,
Ishwar, who is an American citizen, as a temporary arrangement,'
because as a British subject he is disqualified under the 1935
Constitution to acquire real property in the Philippines, which is not
so with respect to American citizens in view of the Ordinance
Appended to the Constitution granting them parity rights, there is
nothing in the records showing that Ishwar ever agreed to such a
temporary arrangement.
During the entire period from 1965, when the US $ 150,000. 00 was
transmitted to Choithram, and until Ishwar filed a complaint against
him in 1982, or over 16 years, Choithram never mentioned of a
temporary arrangement nor can he present any memorandum or
writing evidencing such temporary arrangement, prompting
plaintiff-appellant to observe:
The properties in question which are located in a prime
industrial site in Ugong, Pasig, Metro Manila have a present
fair market value of no less than P22,364,000.00 (Exhibits T
to T-14, inclusive), and yet for such valuable pieces of
property, Choithram who now belatedly that he purchased
the same for himself did not document in writing or in a
memorandum the alleged temporary arrangement with
Ishwar' (pp. 4-41, Appellant's Brief).

Such verbal allegation of a temporary arrangement is simply

improbable and inconsistent. It has repeatedly been held that
important contracts made without evidence are highly improbable.
The improbability of such temporary arrangement is brought to fore
when we consider that Choithram has a son (Haresh Jethmal
Ramnani) who is an American citizen under whose name the
properties in question could be registered, both during the time the
contracts to sell were executed and at the time absolute title over
the same was to be delivered. At the time the Agreements were
entered into with defendant Ortigas & Co. in 1966, Haresh, was
already 18 years old and consequently, Choithram could have
executed the deeds in trust for his minor son. But, he did not do
this. Three (3) years, thereafter, or in 1968 after Haresh had
attained the age of 21, Choithram should have terminated the
temporary arrangement with Ishwar, which according to him would
be effective only pending the acquisition of citizenship papers.
Again, he did not do anything.
Evidence to be believed, said Vice Chancellor Van Fleet of
New Jersey, must not only proceed from the mouth of a
credible witness, but it must be credible in itselfsuch as
the common experience and observation of mankind can
approve as probable under the circumstances. We have no
test of the truth of human testimony, except its conformity
to our knowledge, observation and experience. Whatever is
repugnant to these belongs to the miraculous and is outside
of judicial cognizance. (Daggers vs. Van Dyek 37 M.J. Eq.
130, 132).
Another factor that can be counted against the temporary
arrangement excuse is that upon the revocation on February 4, 1971
of the Power of attorney dated January 24, 1966 in favor of Navalrai
and Choithram by Ishwar, Choithram wrote (tsn, p. 21, S. July 19,
1985) a letter dated June 25, 1971 (Exhibits R, R-1, R-2 and R-3)
imploring Ishwar to execute a new power of attorney in their favor.
That if he did not want to give power, then Ishwar could make a
letter in favor of Dada and another in his favor so that in any
litigation involving the properties in question, both of them could
represent Ishwar and his wife. Choithram tried to convince Ishwar to
issue the power of attorney in whatever manner he may want. In
said letter no mention was made at all of any temporary
arrangement.

On the contrary, said letter recognize(s) the existence of principal

and attorney-in-fact relationship between Ishwar and himself.
Choithram wrote: . . . do you know that if I had predated papers
what could you have done? Or do you know that I have many
papers signed by you and if I had done anything or do then what can
you do about it?' Choithram was saying that he could have
repudiated the trust and ran away with the properties of Ishwar by
predating documents and Ishwar would be entirely helpless. He was
bitter as a result of Ishwar's revocation of the power of attorney but
no mention was made of any temporary arrangement or a claim of
ownership over the properties in question nor was he able to
present any memorandum or document to prove the existence of
such temporary arrangement.
Choithram is also estopped in pais or by deed from claiming an
interest over the properties in question adverse to that of
Ishwar. Section 3(a) of Rule 131 of the Rules of Court states that
whenever a party has, by his own declaration, act, or omission
intentionally and deliberately led another to believe a particular
thing true and act upon such belief, he cannot in any litigation
arising out of such declaration, act or omission be permitted to
falsify it.' While estoppel by deed is a bar which precludes a party to
a deed and his privies from asserting as against the other and his
privies any right of title in derogation of the deed, or from denying
the truth of any material fact asserted in it (31 C.J.S. 195; 19 Am. Jur.
603).
Thus, defendants-appellees are not permitted to repudiate their
admissions and representations or to assert any right or title in
derogation of the deeds or from denying the truth of any material
fact asserted in the (1) power of attorney dated January 24, 1966
(Exhibit A); (2) the Agreements of February 1, 1966 and May 16,
1966 (Exhibits B and C); and (3) the Contract of Lease dated January
5, 1972 (Exhibit P).
. . . The doctrine of estoppel is based upon the grounds of
public policy, fair dealing, good faith and justice, and its
purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to
whom they were directed and who reasonably relied
thereon. The doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed to aid
the law in the administration of justice where without its aid

injustice might result. It has been applied by court wherever

and whenever special circumstances of a case so demands'
(Philippine National Bank vs. Court of Appeals, 94 SCRA 357,
368 [1979]).
It was only after the services of counsel has been obtained that
Choithram alleged for the first time in his Answer that the General
Power of attorney (Annex A) with the Contracts to Sell (Annexes B
and C) were made only for the sole purpose of assuring defendants'
acquisition and ownership of the lots described thereon in due time
under the law; that said instruments do not reflect the true intention
of the parties (par. 2, Answer dated May 30, 1983), seventeen (17)
long years from the time he received the money transmitted to him
by his brother, Ishwar.
Moreover, Choithram's 'temporary arrangement,' by which he
claimed purchasing the two (2) parcels in question in 1966 and
placing them in the name of Ishwar who is an American citizen, to
circumvent the disqualification provision of aliens acquiring real
properties in the Philippines under the 1935 Philippine Constitution,
as Choithram was then a British subject, show a palpable disregard
of the law of the land and to sustain the supposed "temporary
arrangement" with Ishwar would be sanctioning the perpetration of
an illegal act and culpable violation of the Constitution.
Defendants-appellees likewise violated the Anti-Dummy Law
(Commonwealth Act 108, as amended), which provides in Section 1
thereof that:
In all cases in which any constitutional or legal provision
requires Philippine or any other specific citizenship as a
requisite for the exercise or enjoyment of a right, franchise
or privilege, . . . any alien or foreigner profiting thereby,
shall be punished . . . by imprisonment . . . and of a fine of
not less than the value of the right, franchise or privileges,
which is enjoyed or acquired in violation of the provisions
hereof . . .
Having come to court with unclean hands, Choithram must not be
permitted foist his 'temporary arrangement' scheme as a defense
before this court. Being in delicto, he does not have any right
whatsoever being shielded from his own wrong-doing, which is not
so with respect to Ishwar, who was not a party to such an
arrangement.

The falsity of Choithram's defense is further aggravated by the

material inconsistencies and contradictions in his testimony. While
on January 23, 1985 he testified that he purchased the land in
question on his own behalf (tsn, p. 4, S. Jan. 23, 1985), in the July
18, 1985 hearing, forgetting probably what he stated before,
Choithram testified that he was only an attorney-in-fact of Ishwar
(tsn, p. 5, S. July 18, 1985). Also in the hearing of January 23, 1985,
Choithram declared that nobody rented the building that was
constructed on the parcels of land in question (tsn, pp. 5 and 6),
only to admit in the hearing of October 30, 1985, that he was in fact
renting the building for P12,000. 00 per annum (tsn, p. 3). Again, in
the hearing of July 19, 1985, Choithram testified that he had no
knowledge of the revocation of the Power of Attorney (tsn, pp. 2021), only to backtrack when confronted with the letter of June 25,
1971 (Exhibits R to R-3), which he admitted to be in "his own
writing," indicating knowledge of the revocation of the Power of
Attorney.
These inconsistencies are not minor but go into the entire credibility
of the testimony of Choithram and the rule is that contradictions on
a very crucial point by a witness, renders s testimony incredible
People vs. Rafallo, 80 Phil. 22). Not only this the doctrine of falsus in
uno, falsus in omnibus is fully applicable as far as the testimony of
Choithram is concerned. The cardinal rule, which has served in all
ages, and has been applied to all conditions of men, is that a witness
willfully falsifying the truth in one particular, when upon oath, ought
never to be believed upon the strength of his own testimony,
whatever he may assert (U.S. vs. Osgood 27 Feb. Case No. 15971-a,
p. 364); Gonzales vs. Mauricio, 52 Phil, 728), for what ground of
judicial relief can there be left when the party has shown such gross
insensibility to the difference between right and wrong, between
truth and falsehood? (The Santisima Trinidad, 7 Wheat, 283, 5 U.S.
[L. ed.] 454).
True, that Choithram's testimony finds corroboration from the
testimony of his brother, Navalrai, but the same would not be of
much help to Choithram. Not only is Navalrai an interested and
biased witness, having admitted his close relationship with
Choithram and that whenever he or Choithram had problems, they
ran to each other (tsn, pp. 17-18, S. Sept. 20, 1985), Navalrai has a
pecuniary interest in the success of Choithram in the case in
question. Both he and Choithram are business partners in Jethmal

and Sons and/or Jethmal Industries, wherein he owns 60% of the

company and Choithram, 40% (p. 62, Appellant's Brief). Since the
acquisition of the properties in question in 1966, Navalrai was
occupying 1,200 square meters thereof as a factory site plus the fact
that his son (Navalrais) was occupying the apartment on top of the
factory with his family rent free except the amount of P l,000.00 a
month to pay for taxes on said properties (tsn, p. 17, S. Oct. 3,
1985).
Inherent contradictions also marked Navalrai testimony. "While the
latter was very meticulous in keeping a receipt for the P 10,000.00
that he paid Ishwar as settlement in Jethmal Industries, yet in the
alleged payment of P 100,000.00 to Ishwar, no receipt or voucher
was ever issued by him (tsn, p. 17, S. Oct. 3, 1983). 15
We concur.
The foregoing findings of facts of the Court of Appeals which are supported
by the evidence is conclusive on this Court. The Court finds that Ishwar
entrusted US$150,000.00 to Choithram in 1965 for investment in the realty
business. Soon thereafter, a general power of attorney was executed by
Ishwar in favor of both Navalrai and Choithram. If it is true that the purpose
only is to enable Choithram to purchase realty temporarily in the name of
Ishwar, why the inclusion of their elder brother Navalrai as an attorney-infact?
Then, acting as attorney-in-fact of Ishwar, Choithram purchased two parcels
of land located in Barrio Ugong Pasig, Rizal, from Ortigas in 1966. With the
balance of the money of Ishwar, Choithram erected a building on said lot.
Subsequently, with a loan obtained from a bank and the income of the said
property, Choithram constructed three other buildings thereon. He
managed the business and collected the rentals. Due to their relationship of
confidence it was only in 1970 when Ishwar demanded for an accounting
from Choithram. And even as Ishwar revoked the general power of attorney
on February 4, 1971, of which Choithram was duly notified, Choithram
wrote to Ishwar on June 25, 1971 requesting that he execute a new power
of attorney in their favor. 16 When Ishwar did not respond thereto,
Choithram nevertheless proceeded as such attorney-in-fact to assign all the
rights and interest of Ishwar to his daughter-in-law Nirmla in 1973 without
the knowledge and consent of Ishwar. Ortigas in turn executed the
corresponding deeds of sale in favor of Nirmla after full payment of the
purchase accomplice of the lots.
In the prefatory statement of their petition, Choithram pictured Ishwar to
be so motivated by greed and ungratefulness, who squandered the family

business in New York, who had to turn to his wife for support, accustomed
to living in ostentation and who resorted to blackmail in filing several
criminal and civil suits against them. These statements find no support and
should be stricken from the records. Indeed, they are irrelevant to the
proceeding.
Moreover, assuming Ishwar is of such a low character as Choithram
proposes to make this Court to believe, why is it that of all persons, under
his temporary arrangement theory, Choithram opted to entrust the
purchase of valuable real estate and built four buildings thereon all in the
name of Ishwar? Is it not an unconscious emergence of the truth that this
otherwise wayward brother of theirs was on the contrary able to raise
enough capital through the generosity of his father-in-law for the purchase
of the very properties in question? As the appellate court aptly observed if
truly this temporary arrangement story is the only motivation, why Ishwar
of all people? Why not the own son of Choithram, Haresh who is also an
American citizen and who was already 18 years old at the time of purchase
in 1966? The Court agrees with the observation that this theory is an
afterthought which surfaced only when Choithram, Nirmla and Moti filed
their answer.
When Ishwar asked for an accounting in 1970 and revoked the general
power of attorney in 1971, Choithram had a total change of heart. He
decided to claim the property as his. He caused the transfer of the rights
and interest of Ishwar to Nirmla. On his representation, Ortigas executed
the deeds of sale of the properties in favor of Nirmla. Choithram obviously
surmised Ishwar cannot stake a valid claim over the property by so doing.
Clearly, this transfer to Nirmla is fictitious and, as admitted by Choithram,
was intended only to place the property in her name until Choithram
acquires Philippine citizenship. 17 What appears certain is that it appears to
be a scheme of Choithram to place the property beyond the reach of Ishwar
should he successfully claim the same. Thus, it must be struck down.
Worse still, on September 27, 1990 spouses Ishwar filed an urgent motion
for the issuance of a writ of preliminary attachment and to require
Choithram, et al. to submit certain documents, inviting the attention of this
Court to the following:
a) Donation by Choithram of his 2,500 shares of stock in General
Garments Corporation in favor of his children on December 29,
1989; 18
b) Sale on August 2, 1990 by Choithram of his 100 shares in Biflex
(Phils.), Inc., in favor of his children; 19and

c) Mortgage on June 20, 1989 by Nirmla through her attorney-infact, Choithram, of the properties subject of this litigation, for the
amount of $3 Million in favor of Overseas Holding, Co. Ltd.,
(Overseas for brevity), a corporation which appears to be organized
and existing under and by virtue of the laws of Cayman Islands, with
a capital of only $100.00 divided into 100 shares of $1.00 each, and
with address at P.O. Box 1790, Grand Cayman, Cayman Islands. 20
An opposition thereto was filed by Choithram, et al. but no documents were
produced. A manifestation and reply to the opposition was filed by spouses
Ishwar.
All these acts of Choithram, et al. appear to be fraudulent attempts to
remove these properties to the detriment of spouses Ishwar should the
latter prevail in this litigation.
On December 10, 1990 the court issued a resolution that substantially reads
as follows:
Considering the allegations of petitioners Ishwar Jethmal Ramnani
and Sonya Ramnani that respondents Choithram Jethmal Ramnani,
Nirmla Ramnani and Moti G. Ramnani have fraudulently executed a
simulated mortgage of the properties subject of this litigation dated
June 20, 1989, in favor of Overseas Holding Co., Ltd. which appears
to be a corporation organized in Cayman Islands, for the amount of
$ 3,000,000.00, which is much more than the value of the
properties in litigation; that said alleged mortgagee appears to be a
"shell" corporation with a capital of only $100.00; and that this
alleged transaction appears to be intended to defraud petitioners
Ishwar and Sonya Jethmal Ramnani of any favorable judgment that
this Court may render in this case;
Wherefore the Court Resolved to issue a writ of preliminary
injunction enjoining and prohibiting said respondents Choithram
Jethmal Ramnani, Nirmla V. Ramnani, Moti G. Ramnani and the
Overseas Holding Co., Ltd. from encumbering, selling or otherwise
disposing of the properties and improvements subject of this
litigation until further orders of the Court. Petitioners Ishwar and
Sonya Jethmal Ramnani are hereby required to post a bond of P
100,000.00 to answer for any damages d respondents may suffer by
way of this injunction if the Court finally decides the said petitioners
are not entitled thereto.
The Overseas Holding Co., Ltd. with address at P.O. Box 1790 Grand
Cayman, Cayman Islands, is hereby IMPLEADED as a respondent in
these cases, and is hereby required to SUBMIT its comment on the

Urgent Motion for the Issuance of a Writ of Preliminary Attachment

and Motion for Production of Documents, the Manifestation and
the Reply to the Opposition filed by said petitioners, within Sixty
(60) days after service by publication on it in accordance with the
provisions of Section 17, Rule 14 of the Rules of Court, at the
expense of petitioners Ishwar and Sonya Jethmal Ramnani.
Let copies of this resolution be served on the Register of Deeds of
Pasig, Rizal, and the Provincial Assessor of Pasig, Rizal, both in Metro
Manila, for its annotation on the transfer Certificates of Titles Nos.
403150 and 403152 registered in the name of respondent Nirmla V.
Ramnani, and on the tax declarations of the said properties and its
improvements subject of this litigation. 21
The required injunction bond in the amount of P 100,000.00 was filed by the
spouses Ishwar which was approved by the Court. The above resolution of
the Court was published in the Manila Bulletin issue of December 17, 1990
at the expense of said spouses. 22 On December 19, 1990 the said resolution
and petition for review with annexes in G.R. Nos. 85494 and 85496 were
transmitted to respondent Overseas, Grand Cayman Islands at its address
c/o Cayman Overseas Trust Co. Ltd., through the United Parcel Services Bill
of Lading 23 and it was actually delivered to said company on January 23,
1991. 24
On January 22, 1991, Choithram, et al., filed a motion to dissolve the writ of
preliminary injunction alleging that there is no basis therefor as in the
amended complaint what is sought is actual damages and not a
reconveyance of the property, that there is no reason for its issuance, and
that acts already executed cannot be enjoined. They also offered to file a
counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses Ishwar that there is
basis for the injunction as the alleged mortgage of the property is simulated
and the other donations of the shares of Choithram to his children are
fraudulent schemes to negate any judgment the Court may render for
petitioners.
No comment or answer was filed by Overseas despite due notice, thus it is
and must be considered to be in default and to have lost the right to contest
the representations of spouses Ishwar to declare the aforesaid alleged
mortgage nun and void.
This purported mortgage of the subject properties in litigation appears to be
fraudulent and simulated. The stated amount of $3 Million for which it was
mortgaged is much more than the value of the mortgaged properties and its
improvements. The alleged mortgagee-company (Overseas) was organized

only on June 26,1989 but the mortgage was executed much earlier, on June
20, 1989, that is six (6) days before Overseas was organized. Overseas is a
"shelf" company worth only $100.00. 25 In the manifestation of spouses
Ishwar dated April 1, 1991, the Court was informed that this matter was
brought to the attention of the Central Bank (CB) for investigation, and that
in a letter of March 20, 1991, the CB informed counsel for spouses Ishwar
that said alleged foreign loan of Choithram, et al. from Overseas has not
been previously approved/registered with the CB. 26
Obviously, this is another ploy of Choithram, et al. to place these properties
beyond the reach of spouses Ishwar should they obtain a favorable
judgment in this case. The Court finds and so declares that this alleged
mortgage should be as it is hereby declared null and void.
All these contemporaneous and subsequent acts of Choithram, et al., betray
the weakness of their cause so they had to take an steps, even as the case
was already pending in Court, to render ineffective any judgment that may
be rendered against them.
The problem is compounded in that respondent Ortigas is caught in the web
of this bitter fight. It had all the time been dealing with Choithram as
attorney-in-fact of Ishwar. However, evidence had been adduced that notice
in writing had been served not only on Choithram, but also on Ortigas, of
the revocation of Choithram's power of attorney by Ishwar's lawyer, on May
24, 1971. 27 A publication of said notice was made in the April 2, 1971 issue
ofThe Manila Times for the information of the general public. 28 Such notice
of revocation in a newspaper of general circulation is sufficient warning to
third persons including Ortigas. 29 A notice of revocation was also registered
with the Securities and Exchange Commission on March 29, 1 971. 30
Indeed in the letter of Choithram to Ishwar of June 25, 1971, Choithram was
pleading that Ishwar execute another power of attorney to be shown to
Ortigas who apparently learned of the revocation of Choithram's power of
attorney. 31 Despite said notices, Ortigas nevertheless acceded to the
representation of Choithram, as alleged attorney-in-fact of Ishwar, to assign
the rights of petitioner Ishwar to Nirmla. While the primary blame should be
laid at the doorstep of Choithram, Ortigas is not entirely without fault. It
should have required Choithram to secure another power of attorney from
Ishwar. For recklessly believing the pretension of Choithram that his power
of attorney was still good, it must, therefore, share in the latter's liability to
Ishwar.
In the original complaint, the spouses Ishwar asked for a reconveyance of
the properties and/or payment of its present value and damages. 32 In the
amended complaint they asked, among others, for actual damages of not

less than the present value of the real properties in litigation, moral and
exemplary damages, attorneys fees, costs of the suit and further prayed for
"such other reliefs as may be deemed just and equitable in the premises
.33 The amended complaint contain the following positive allegations:
7. Defendant Choithram Ramnani, in evident bad faith and despite
due notice of the revocation of the General Power of Attorney,
Annex 'D" hereof, caused the transfer of the rights over the said
parcels of land to his daughter-in-law, defendant Nirmla Ramnani in
connivance with defendant Ortigas & Co., the latter having agreed
to the said transfer despite receiving a letter from plaintiffs' lawyer
informing them of the said revocation; copy of the letter is hereto
attached and made an integral part hereof as Annex "H";
8. Defendant Nirmla Ramnani having acquired the aforesaid
property by fraud is, by force of law, considered a trustee of an
implied trust for the benefit of plaintiff and is obliged to return the
same to the latter:
9. Several efforts were made to settle the matter within the family
but defendants (Choithram Ramnani, Nirmla Ramnani and Moti
Ramnani) refused and up to now fail and still refuse to cooperate
and respond to the same; thus, the present case;
10. In addition to having been deprived of their rights over the
properties (described in par. 3 hereof), plaintiffs, by reason of
defendants' fraudulent act, suffered actual damages by way of lost
rental on the property which defendants (Choithram Ramnani,
Nirmla Ramnani and Moti Ramnani have collected for themselves; 34
In said amended complaint, spouses Ishwar, among others, pray for
payment of actual damages in an amount no less than the value of the
properties in litigation instead of a reconveyance as sought in the original
complaint. Apparently they opted not to insist on a reconveyance as they
are American citizens as alleged in the amended complaint.
The allegations of the amended complaint above reproduced clearly spelled
out that the transfer of the property to Nirmla was fraudulent and that it
should be considered to be held in trust by Nirmla for spouses Ishwar. As
above-discussed, this allegation is well-taken and the transfer of the
property to Nirmla should be considered to have created an implied trust by
Nirmla as trustee of the property for the benefit of spouses Ishwar. 35
The motion to dissolve the writ of preliminary injunction filed by Choithram,
et al. should be denied. Its issuance by this Court is proper and warranted
under the circumstances of the case. Under Section 3(c) Rule 58 of the Rules

of Court, a writ of preliminary injunction may be granted at any time after

commencement of the action and before judgment when it is established:
(c) that the defendant is doing, threatens, or is about to do, or is
procuring or suffering to be done, some act probably in violation of
plaintiffs's rights respecting the subject of the action, and tending to
render the judgment ineffectual.
As above extensively discussed, Choithram, et al. have committed and
threaten to commit further acts of disposition of the properties in litigation
as well as the other assets of Choithram, apparently designed to render
ineffective any judgment the Court may render favorable to spouses Ishwar.
The purpose of the provisional remedy of preliminary injunction is to
preserve the status quo of the things subject of the litigation and to protect
the rights of the spouses Ishwar respecting the subject of the action during
the pendency of the Suit 36 and not to obstruct the administration of justice
or prejudice the adverse party. 37 In this case for damages, should
Choithram, et al. continue to commit acts of disposition of the properties
subject of the litigation, an award of damages to spouses Ishwar would
thereby be rendered ineffectual and meaningless. 38
Consequently, if only to protect the interest of spouses Ishwar, the Court
hereby finds and holds that the motion for the issuance of a writ of
preliminary attachment filed by spouses Ishwar should be granted covering
the properties subject of this litigation.
Section 1, Rule 57 of the Rules of Court provides that at the commencement
of an action or at any time thereafter, the plaintiff or any proper party may
have the property of the adverse party attached as security for the
satisfaction of any judgment that may be recovered, in, among others, the
following cases:
(d) In an action against a party who has been guilty of a fraud in
contracting the debt or incurring the obligation upon which the
action is brought, or in concealing or disposing of the property for
the taking, detention or conversion of which the action is brought;
(e) In an action against a party who has removed or disposed of his
property, or is about to do so, with intent to defraud his creditors; . .
.
Verily, the acts of Choithram, et al. of disposing the properties subject of the
litigation disclose a scheme to defraud spouses Ishwar so they may not be
able to recover at all given a judgment in their favor, the requiring the
issuance of the writ of attachment in this instance.
Nevertheless, under the peculiar circumstances of this case and despite the
fact that Choithram, et al., have committed acts which demonstrate their

bad faith and scheme to defraud spouses Ishwar and Sonya of their rightful
share in the properties in litigation, the Court cannot ignore the fact that
Choithram must have been motivated by a strong conviction that as the
industrial partner in the acquisition of said assets he has as much claim to
said properties as Ishwar, the capitalist partner in the joint venture.
The scenario is clear. Spouses Ishwar supplied the capital of $150,000.00 for
the business.1wphi1 They entrusted the money to Choithram to invest in a
profitable business venture in the Philippines. For this purpose they
appointed Choithram as their attorney-in-fact.
Choithram in turn decided to invest in the real estate business. He bought
the two (2) parcels of land in question from Ortigas as attorney-in-fact of
Ishwar- Instead of paying for the lots in cash, he paid in installments and
used the balance of the capital entrusted to him, plus a loan, to build two
buildings. Although the buildings were burned later, Choithram was able to
build two other buildings on the property. He rented them out and collected
the rentals. Through the industry and genius of Choithram, Ishwar's
property was developed and improved into what it is nowa valuable asset
worth millions of pesos. As of the last estimate in 1985, while the case was
pending before the trial court, the market value of the properties is no less
than P22,304,000.00. 39 It should be worth much more today.
We have a situation where two brothers engaged in a business venture. One
furnished the capital, the other contributed his industry and talent. Justice
and equity dictate that the two share equally the fruit of their joint
investment and efforts. Perhaps this Solomonic solution may pave the way
towards their reconciliation. Both would stand to gain. No one would end
up the loser. After all, blood is thicker than water.
However, the Court cannot just close its eyes to the devious machinations
and schemes that Choithram employed in attempting to dispose of, if not
dissipate, the properties to deprive spouses Ishwar of any possible means to
recover any award the Court may grant in their favor. Since Choithram, et al.
acted with evident bad faith and malice, they should pay moral and
exemplary damages as well as attorney's fees to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is DENIED, while the petition in
G.R. No. 85496 is hereby given due course and GRANTED. The judgment of
the Court of Appeals dated October 18, 1988 is hereby modified as follows:
1. Dividing equally between respondents spouses Ishwar, on the one hand,
and petitioner Choithram Ramnani, on the other, (in G.R. No. 85494) the
two parcels of land subject of this litigation, including all the improvements
thereon, presently covered by transfer Certificates of Title Nos. 403150 and

403152 of the Registry of Deeds, as well as the rental income of the

property from 1967 to the present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C.
Ramnani and respondent Ortigas and Company, Limited Partnership (in G.R.
No. 85496) are ordered solidarily to pay in cash the value of said one-half
(1/2) share in the said land and improvements pertaining to respondents
spouses Ishwar and Sonya at their fair market value at the time of the
satisfaction of this judgment but in no case less than their value as
appraised by the Asian Appraisal, Inc. in its Appraisal Report dated August
1985 (Exhibits T to T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti Ramnani and respondent Ortigas
& Co., Ltd. Partnership shall also be jointly and severally liable to pay to said
respondents spouses Ishwar and Sonya Ramnani one-half (1/2) of the total
rental income of said properties and improvements from 1967 up to the
date of satisfaction of the judgment to be computed as follows:
a. On Building C occupied by Eppie's Creation and Jethmal
Industries from 1967 to 1973, inclusive, based on the 1967
to 1973 monthly rentals paid by Eppie's Creation;
b. Also on Building C above, occupied by Jethmal Industries
and Lavine from 1974 to 1978, the rental incomes based on
then rates prevailing as shown under Exhibit "P"; and from
1979 to 1981, based on then prevailing rates as indicated
under Exhibit "Q";
c. On Building A occupied by Transworld Knitting Mills from
1972 to 1978, the rental incomes based upon then
prevailing rates shown under Exhibit "P", and from 1979 to
1981, based on prevailing rates per Exhibit "Q";
d. On the two Bays Buildings occupied by Sigma-Mariwasa
from 1972 to 1978, the rentals based on the Lease Contract,
Exhibit "P", and from 1979 to 1980, the rentals based on the
Lease Contract, Exhibit "Q".
and thereafter commencing 1982, to account for and turn over the rental
incomes paid or ought to be paid for the use and occupancy of the
properties and all improvements totalling 10,048 sq. m., based on the rate
per square meter prevailing in 1981 as indicated annually cumulative up to
1984. Then, commencing 1985 and up to the satisfaction of the judgment,
rentals shall be computed at ten percent (10%) annually of the fair market
values of the properties as appraised by the Asian Appraisals, Inc. in August
1985. (Exhibits T to T-14, inclusive.)

4. To determine the market value of the properties at the time of the

satisfaction of this judgment and the total rental incomes thereof, the trial
court is hereby directed to hold a hearing with deliberate dispatch for this
purpose only and to have the judgment immediately executed after such
determination.
5. Petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, are also
jointly and severally liable to pay respondents Ishwar and Sonya Ramnani
the amount of P500,000.00 as moral damages, P200,000.00 as exemplary
damages and attorney's fees equal to 10% of the total award. to said
respondents spouses.
6. The motion to dissolve the writ of preliminary injunction dated December
10, 1990 filed by petitioners Choithram, Nirmla and Moti, all surnamed
Ramnani, is hereby DENIED and the said injunction is hereby made
permanent. Let a writ of attachment be issued and levied against the
properties and improvements subject of this litigation to secure the
payment of the above awards to spouses Ishwar and Sonya.
7. The mortgage constituted on the subject property dated June 20, 1989 by
petitioners Choithram and Nirmla, both surnamed Ramnani in favor of
respondent Overseas Holding, Co. Ltd. (in G.R. No. 85496) for the amount of
$3-M is hereby declared null and void. The Register of Deeds of Pasig, Rizal,
is directed to cancel the annotation of d mortgage on the titles of the
properties in question.
8. Should respondent Ortigas Co., Ltd. Partnership pay the awards to Ishwar
and Sonya Ramnani under this judgment, it shall be entitled to
reimbursement from petitioners Choithram, Nirmla and Moti, all surnamed
Ramnani.
9. The above awards shag bear legal rate of interest of six percent (6%) per
annum from the time this judgment becomes final until they are fully paid
by petitioners Choithram Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and
Ortigas, Co., Ltd. Partnership. Said petitioners Choithram, et al. and
respondent Ortigas shall also pay the costs.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
G.R. No. L-11624
January 21, 1918
E. M. BACHRACH, plaintiff-appellee,
vs.
"LA PROTECTORA", ET AL., defendants-appellants.
Vicente Foz for appellants.
A. J. Burke for appellee.
STREET, J.:

In the year 1913, the individuals named as defendants in this action formed
a civil partnership, called "La Protectora," for the purpose of engaging in the
business of transporting passengers and freight at Laoag, Ilocos Norte. In
order to provide the enterprise with means of transportation, Marcelo
Barba, acting as manager, came to Manila and upon June 23, 1913,
negotiated the purchase of two automobile trucks from the plaintiff, E. M.
Bachrach, for the agree price of P16,500. He paid the sum of 3,000 in cash,
and for the balance executed promissory notes representing the deferred
payments. These notes provided for the payment of interest from June 23,
1913, the date of the notes, at the rate of 10 per cent per annum. Provision
was also made in the notes for the payment of 25 per cent of the amount
due if it should be necessary to place the notes in the hands of an attorney
for collection. Three of these notes, for the sum of P3,375 each, have been
made the subject of the present action, and there are exhibited with the
complaint in the cause. One was signed by Marcelo Barba in the following
manner:
P. P. La Protectora
By Marcelo Barba
Marcelo Barba.
The other two notes are signed in the same way with the word "By" omitted
before the name of Marcelo Barba in the second line of the signature. It is
obvious that in thus signing the notes Marcelo Barba intended to bind both
the partnership and himself. In the body of the note the word "I" (yo)
instead of "we" (nosotros) is used before the words "promise to
pay" (prometemos) used in the printed form. It is plain that the singular
pronoun here has all the force of the plural.
As preliminary to the purchase of these trucks, the defendants Nicolas
Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano, upon June
12, 1913, executed in due form a document in which they declared that
they were members of the firm "La Protectora" and that they had granted
to its president full authority "in the name and representation of said
partnership to contract for the purchase of two automobiles" (en nombre y
representacion de la mencionada sociedad contratante la compra de dos
automoviles). This document was apparently executed in obedience to the
requirements of subsection 2 of article 1697 of the Civil Code, for the
purpose of evidencing the authority of Marcelo Barba to bind the
partnership by the purchase. The document in question was delivered by
him to Bachrach at the time the automobiles were purchased.
From time to time after this purchase was made, Marcelo Barba purchased
of the plaintiff various automobile effects and accessories to be used in the

business of "La Protectora." Upon May 21, 1914, the indebtedness resulting
from these additional purchases amounted to the sum of P2,916.57
In May, 1914, the plaintiff foreclosed a chattel mortgage which he had
retained on the trucks in order to secure the purchase price. The amount
realized from this sale was P1,000. This was credited unpaid. To recover this
balance, together with the sum due for additional purchases, the present
action was instituted in the Court of First Instance of the city of Manila,
upon May 29, 1914, against "La Protectora" and the five individuals Marcelo
Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto
Serrano. No question has been made as to the propriety of impleading "La
Protectora" as if it were a legal entity. At the hearing, judgment was
rendered against all of the defendants. From this judgment no appeal was
taken in behalf either of "La Protectora" or Marcelo Barba; and their liability
is not here under consideration. The four individuals who signed the
document to which reference has been made, authorizing Barba to
purchase the two trucks have, however, appealed and assigned errors. The
question here to be determined is whether or not these individuals are
liable for the firm debts and if so to what extent.
The amount of indebtedness owing to the plaintiff is not in dispute, as the
principal of the debt is agreed to be P7,037. Of this amount it must now be
assumed, in view of the finding of the trial court, from which no appeal has
been taken by the plaintiff, that the unpaid balance of the notes amounts to
P4,121, while the remainder (P2,916) represents the amount due for
automobile supplies and accessories.
The business conducted under the name of "La Protectora" was evidently
that of a civil partnership; and the liability of the partners to this association
must be determined under the provisions of the Civil Code. The authority of
Marcelo Barba to bind the partnership, in the purchase of the trucks, is fully
established by the document executed by the four appellants upon June 12,
1913. The transaction by which Barba secured these trucks was in
conformity with the tenor of this document. The promissory notes
constitute the obligation exclusively of "La Protectora" and of Marcelo
Barba; and they do not in any sense constitute an obligation directly binding
on the four appellants. Their liability is based on the fact that they are
members of the civil partnership and as such are liable for its debts. It is true
that article 1698 of the Civil Code declares that a member of a civil
partnership is not liable in solidum (solidariamente) with his fellows for its
entire indebtedness; but it results from this article, in connection with
article 1137 of the Civil Code, that each is liable with the others

(mancomunadamente) for his aliquot part of such indebtedness. And so it

has been held by this court. (Co-Pitco vs. Yulo, 8 Phil. Rep., 544.)
The Court of First Instance seems to have founded its judgment against the
appellants in part upon the idea that the document executed by them
constituted an authority for Marcelo Barba to bind them personally, as
contemplated in the second clause of article 1698 of the Civil Code. That
cause says that no member of the partnership can bind the others by a
personal act if they have not given him authority to do so. We think that the
document referred to was intended merely as an authority to enable Barba
to bind the partnership and that the parties to that instrument did not
intend thereby to confer upon Barba an authority to bind them personally.
It is obvious that the contract which Barba in fact executed in pursuance of
that authority did not by its terms profess to bind the appellants personally
at all, but only the partnership and himself. It follows that the four
appellants cannot be held to have been personally obligated by that
instrument; but, as we have already seen, their liability rests upon the
general principles underlying partnership liability.
As to so much of the indebtedness as is based upon the claim for
automobile supplies and accessories, it is obvious that the document of June
12, 1913, affords no authority for holding the appellants liable. Their liability
upon this account is, however, no less obvious than upon the debt incurred
by the purchase of the trucks; and such liability is derived from the fact that
the debt was lawfully incurred in the prosecution of the partnership
enterprise.
There is no proof in the record showing what the agreement, if any, was
made with regard to the form of management. Under these circumstances it
is declared in article 1695 of the Civil Code that all the partners are
considered agents of the partnership. Barba therefore must be held to have
had authority to incur these expenses. But in addition to this he is shown to
have been in fact the president or manager, and there can be no doubt that
he had actual authority to incur this obligation.
From what has been said it results that the appellants are severally liable for
their respective shares of the entire indebtedness found to be due; and the
Court of First Instance committed no error in giving judgment against them.
The amount for which judgment should be entered is P7,037, to which shall
be added (1) interest at 10 per cent per annum from June 23, 1913, to be
calculated upon the sum of P4.121; (2) interest at 6 per cent per annum
from July 21, 1915, to be calculated upon the sum of P2,961; (3) the further
sum of P1,030.25, this being the amount stipulated to be paid by way of
attorney's fees. However, it should be noted that any property pertaining to

"La Protectora" should first be applied to this indebtedness pursuant to the

judgment already entered in this case in the court below; and each of the
four appellants shall be liable only for the one-fifth part of the remainder
unpaid.
Let judgment be entered accordingly, without any express finding of costs of
this instance. So ordered.
Arellano, C.J., Torres, Araullo, Malcolm, and Avancea, JJ., concur.

G.R. No. L-40098 August 29, 1975

ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO
OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN
PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain actuations of
respondent Court of First Instance of Cebu Branch III in its Civil Case No.
12328, an action for accounting of properties and money totalling allegedly
about P15 million pesos filed with a common cause of action against six
defendants, in which after declaring four of the said defendants herein
petitioners, in default and while the trial as against the two defendants not
declared in default was in progress, said court granted plaintiff's motion to
dismiss the case in so far as the non-defaulted defendants were concerned
and thereafter proceeded to hear ex-parte the rest of the plaintiffs evidence
and subsequently rendered judgment by default against the defaulted
defendants, with the particularities that notice of the motion to dismiss was
not duly served on any of the defendants, who had alleged a compulsory
counterclaim against plaintiff in their joint answer, and the judgment so
rendered granted reliefs not prayed for in the complaint, and (2) prohibition
to enjoin further proceedings relative to the motion for immediate
execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by
respondent Tan Put only against the spouses-petitioners Antonio Lim Tanhu
and Dy Ochay. Subsequently, in an amended complaint dated September

26, 1972, their son Lim Teck Chuan and the other spouses-petitioners
Alfonso Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo
were included as defendants. In said amended complaint, respondent Tan
alleged that she "is the widow of Tee Hoon Lim Po Chuan, who was a
partner in the commercial partnership, Glory Commercial Company ... with
Antonio Lim Tanhu and Alfonso Ng Sua that "defendant Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo,
through fraud and machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Company, defendants managed to use the funds of the
partnership to purchase lands and building's in the cities of Cebu, Lapulapu,
Mandaue, and the municipalities of Talisay and Minglanilla, some of which
were hidden, but the description of those already discovered were as
follows: (list of properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the
defendants, without liquidation continued the business of
Glory Commercial Company by purportedly organizing a
corporation known as the Glory Commercial Company,
Incorporated, with paid up capital in the sum of
P125,000.00, which money and other assets of the said
Glory Commercial Company, Incorporated are actually the
assets of the defunct Glory Commercial Company
partnership, of which the plaintiff has a share equivalent to
one third (/ 3) thereof;
14. (P)laintiff, on several occasions after the death of her
husband, has asked defendants of the above-mentioned
properties and for the liquidation of the business of the
defunct partnership, including investments on real estate in
Hong Kong, but defendants kept on promising to liquidate
said properties and just told plaintiff to
15. (S)ometime in the month of November, 1967,
defendants, Antonio Lim Tanhu, by means of fraud deceit
and misrepresentations did then and there, induce and
convince the plaintiff to execute a quitclaim of all her rights
and interests, in the assets of the partnership of Glory
Commercial Company, which is null and void, executed
through fraud and without any legal effect. The original of
said quitclaim is in the possession of the adverse party
defendant Antonio Lim Tanhu.

16. (A)s a matter of fact, after the execution of said

quitclaim, defendant Antonio Lim Tanhu offered to pay the
plaintiff the amount P65,000.00 within a period of one (1)
month, for which plaintiff was made to sign a receipt for the
amount of P65,000.00 although no such amount was given
and plaintiff was not even given a copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants who
had earlier promised to liquidate the aforesaid properties
and assets in favor among others of plaintiff and until the
middle of the year 1970 when the plaintiff formally
demanded from the defendants the accounting of real and
personal properties of the Glory Commercial Company,
defendants refused and stated that they would not give the
share of the plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment
be rendered:
a) Ordering the defendants to render an accounting of the
real and personal properties of the Glory Commercial
Company including those registered in the names of the
defendants and other persons, which properties are located
in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after
accounting, one third (/ 3) of the total value of all the
properties which is approximately P5,000,000.00
representing the just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the
plaintiff the sum of Two Hundred Fifty Thousand Pesos
(P250,000.00) by way of attorney's fees and damages in the
sum of One Million Pesos (P1,000,000.00).
This Honorable Court is prayed for other remedies and
reliefs consistent with law and equity and order the
defendants to pay the costs. (Page 38, Record.)
The admission of said amended complaint was opposed by defendants upon
the ground that there were material modifications of the causes of action
previously alleged, but respondent judge nevertheless allowed the
amendment reasoning that:
The present action is for accounting of real and personal
properties as well as for the recovery of the same with
damages.

An objective consideration of pars. 13 and 15 of the

amended complaint pointed out by the defendants to
sustain their opposition will show that the allegations of
facts therein are merely to amplify material averments
constituting the cause of action in the original complaint. It
likewise include necessary and indispensable defendants
without whom no final determination can be had in the
action and in order that complete relief is to be accorded as
between those already parties.
Considering that the amendments sought to be introduced
do not change the main causes of action in the original
complaint and the reliefs demanded and to allow
amendments is the rule, and to refuse them the exception
and in order that the real question between the parties may
be properly and justly threshed out in a single proceeding to
avoid multiplicity of actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their common
counsel, defendants denied specifically not only the allegation that
respondent Tan is the widow of Tee Hoon because, according to them, his
legitimate wife was Ang Siok Tin still living and with whom he had four (4)
legitimate children, a twin born in 1942, and two others born in 1949 and
1965, all presently residing in Hongkong, but also all the allegations of fraud
and conversion quoted above, the truth being, according to them, that
proper liquidation had been regularly made of the business of the
partnership and Tee Hoon used to receive his just share until his death, as a
result of which the partnership was dissolved and what corresponded to
him were all given to his wife and children. To quote the pertinent portions
of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged
in the answer, and further most respectfully declare:
1. That in the event that plaintiff is filing the present
complaint as an heir of Tee Hoon Lim Po Chuan, then, she
has no legal capacity to sue as such, considering that the
legitimate wife, namely: Ang Siok Tin, together with their
children are still alive. Under Sec. 1, (d), Rule 16 of the
Revised Rules of Court, lack of legal capacity to sue is one of
the grounds for a motion to dismiss and so defendants
prays that a preliminary hearing be conducted as provided
for in Sec. 5, of the same rule;

2. That in the alternative case or event that plaintiff is filing

the present case under Art. 144 of the Civil Code, then, her
claim or demand has been paid, waived abandoned or
otherwise extinguished as evidenced by the 'quitclaim'
Annex 'A' hereof, the ground cited is another ground for a
motion to dismiss (Sec. 1, (h), Rule 16) and hence
defendants pray that a preliminary hearing be made in
connection therewith pursuant to Section 5 of the
aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang
Siok Tin and were blessed with the following children, to
wit: Ching Siong Lim and Ching Hing Lim (twins) born on
February 16, 1942; Lim Shing Ping born on March 3, 1949
and Lim Eng Lu born on June 25, 1965 and presently
residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan,
the plaintiff was no longer his common law wife and even
though she was not entitled to anything left by Tee Hoon
Lim Po Chuan, yet, out of the kindness and generosity on
the part of the defendants, particularly Antonio Lain Tanhu,
who, was inspiring to be monk and in fact he is now a monk,
plaintiff was given a substantial amount evidenced by the
'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their
own personal fund and certainly not from the funds
belonging to the partnership, just as Tee Hoon Lim Po
Chuan had acquired properties out of his personal fund and
which are now in the possession of the widow and neither
the defendants nor the partnership have anything to do
about said properties;
6. That it would have been impossible to buy properties
from funds belonging to the partnership without the other
partners knowing about it considering that the amount
taken allegedly is quite big and with such big amount
withdrawn the partnership would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not
blessed with children who would have been lawfully
entitled to succeed to the properties left by the latter
together with the widow and legitimate children;

8. That despite the fact that plaintiff knew that she was no
longer entitled to anything of the shares of the late Tee
Hoon Lim Po Chuan, yet, this suit was filed against the
defendant who have to interpose the following
COUNTERCLAIM
A. That the defendants hereby reproduced, by way of
reference, all the allegations and foregoing averments as
part of this counterclaim; .
B. That plaintiff knew and was aware she was merely the
common-law wife of Tee Hoon Lim Po Chuan and that the
lawful and legal is still living, together with the legitimate
children, and yet she deliberately suppressed this fact, thus
showing her bad faith and is therefore liable for exemplary
damages in an amount which the Honorable Court may
determine in the exercise of its sound judicial discretion. In
the event that plaintiff is married to Tee Hoon Lim Po
Chuan, then, her marriage is bigamous and should suffer
the consequences thereof;
C. That plaintiff was aware and had knowledge about the
'quitclaim', even though she was not entitled to it, and yet
she falsely claimed that defendants refused even to see her
and for filing this unfounded, baseless, futile and puerile
complaint, defendants suffered mental anguish and torture
conservatively estimated to be not less than P3,000.00;
D. That in order to defend their rights in court, defendants
were constrained to engage the services of the undersigned
counsel, obligating themselves to pay P500,000.00 as
attorney's fees;
E. That by way of litigation expenses during the time that
this case will be before this Honorable Court and until the
same will be finally terminated and adjudicated, defendants
will have to spend at least P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is merely
permissive and should be dismissed for non-payment of the corresponding
filing fee, and after being overruled by the court, in due time, plaintiff
answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of the two
defendants-spouses the Lim Tanhus and Ng Suas, did not appear, for which
reason, upon motion of plaintiff dated February 16, 1973, in an order of
March 12, 1973, they were all "declared in DEFAULT as of February 3, 1973

when they failed to appear at the pre-trial." They sought to hive this order
lifted thru a motion for reconsideration, but the effort failed when the court
denied it. Thereafter, the trial started, but at the stage thereof where the
first witness of the plaintiff by the name of Antonio Nuez who testified that
he is her adopted son, was up for re-cross-examination, said plaintiff
unexpectedly filed on October 19, 1974 the following simple and
unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned counsel,
unto the Honorable Court most respectfully moves to drop
from the complaint the defendants Lim Teck Chuan and Eng
Chong Leonardo and to consider the case dismissed insofar
as said defendants Lim Teck Chuan and Eng Chong Leonardo
are concerned.
WHEREFORE, it is most respectfully prayed of the Honorable
Court to drop from the complaint the defendants Lim Teck
Chuan and Eng Chong Leonardo and to dismiss the case
against them without pronouncement as to costs. (Page 50,
Record.)
which she set for hearing on December 21, 1974. According
to petitioners, none of the defendants declared in default
were notified of said motion, in violation of Section 9 of
Rule 13, since they had asked for the lifting of the order of
default, albeit unsuccessfully, and as regards the defendants
not declared in default, the setting of the hearing of said
motion on October 21, 1974 infringed the three-day
requirement of Section 4 of Rule 15, inasmuch as Atty.
Adelino Sitoy of Lim Teck Chuan was served with a copy of
the motion personally only on October 19, 1974, while Atty.
Benjamin Alcudia of Eng Chong Leonardo was served by
registered mail sent only on the same date.
Evidently without even verifying the notices of service, just
as simply as plaintiff had couched her motion, and also
without any legal grounds stated, respondent court granted
the prayer of the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for the
dismissal of the complaint as against defendants Lim Teck
Chuan and Eng Chong Leonardo.

The same is hereby GRANTED. The complaint as against

defendant Lim Teck Chuan and Eng Chong Leonardo is
hereby ordered DISMISSED without pronouncement as to
costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and his
spouse Dy Ochay as well as defendants Alfonso Ng Sua and
his spouse Co Oyo have been declared in default for failure
to appear during the pre-trial and as to the other
defendants the complaint had already been ordered
dismissed as against them.
Let the hearing of the plaintiff's evidence ex-parte be set on
November 20, 1974, at 8:30 A.M. before the Branch Clerk of
Court who is deputized for the purpose, to swear in
witnesses and to submit her report within ten (10) days
thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte reception of
evidence did not take place on November 20, 1974, for on October 28,
1974, upon verbal motion of plaintiff, the court issued the following selfexplanatory order: .
Acting favorably on the motion of the plaintiff dated
October 18, 1974, the Court deputized the Branch Clerk of
Court to receive the evidence of the plaintiff ex-parte to be
made on November 20, 1974. However, on October 28,
1974, the plaintiff, together with her witnesses, appeared in
court and asked, thru counsel, that she be allowed to
present her evidence.
Considering the time and expenses incurred by the plaintiff
in bringing her witnesses to the court, the Branch Clerk of
Court is hereby authorized to receive immediately the
evidence of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant Lim Teck
Cheng, thru counsel, Atty. Sitoy, filed a motion for reconsideration thereof,
and on November 1, 1974, defendant Eng Chong Leonardo, thru counsel
Atty. Alcudia, filed also his own motion for reconsideration and clarification
of the same orders. These motions were denied in an order dated

December 6, 1974 but received by the movants only on December 23, 1974.
Meanwhile, respondent court rendered the impugned decision on
December 20, 1974. It does not appear when the parties were served copies
of this decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a
motion to quash the order of October 28, 1974. Without waiting however
for the resolution thereof, on January 13, 1974, Lim Teck Chuan and Eng
Chong Leonardo went to the Court of Appeals with a petition for certiorari
seeking the annulment of the above-mentioned orders of October 21, 1974
and October 28, 1974 and decision of December 20, 1974. By resolution of
January 24, 1975, the Court of Appeals dismissed said petition, holding that
its filing was premature, considering that the motion to quash the order of
October 28, 1974 was still unresolved by the trial court. This holding was
reiterated in the subsequent resolution of February 5, 1975 denying the
motion for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants, petitioners
herein, filed their notice of appeal, appeal bond and motion for extension to
file their record on appeal, which was granted, the extension to expire after
fifteen (15) days from January 26 and 27, 1975, for defendants Lim Tanhu
and Ng Suas, respectively. But on February 7, 1975, before the perfection of
their appeal, petitioners filed the present petition with this Court. And with
the evident intent to make their procedural position clear, counsel for
defendants, Atty. Manuel Zosa, filed with respondent court a manifestation
dated February 14, 1975 stating that "when the non-defaulted defendants
Eng Chong Leonardo and Lim Teck Chuan filed their petition in the Court of
Appeals, they in effect abandoned their motion to quash the order of
October 28, 1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay,
Alfonso Leonardo Ng Sua and Co Oyo, filed their petition for certiorari and
prohibition ... in the Supreme Court, they likewise abandoned their motion
to quash." This manifestation was acted upon by respondent court together
with plaintiffs motion for execution pending appeal in its order of the same
date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the order of
October 28, 1974 and the motion for execution pending
appeal were called for hearing today, counsel for the
defendants-movants submitted their manifestation inviting
the attention of this Court that by their filing for certiorari
and prohibition with preliminary injunction in the Court of
Appeals which was dismissed and later the defaulted

defendants filed with the Supreme Court certiorari with

prohibition they in effect abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered
ABANDONED. The resolution of the motion for execution
pending appeal shall be resolved after the petition for
certiorari and prohibition shall have been resolved by the
Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216,
Record.)
Upon these premises, it is the position of petitioners that respondent court
acted illegally, in violation of the rules or with grave abuse of discretion in
acting on respondent's motion to dismiss of October 18, 1974 without
previously ascertaining whether or not due notice thereof had been served
on the adverse parties, as, in fact, no such notice was timely served on the
non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and no
notice at all was ever sent to the other defendants, herein petitioners, and
more so, in actually ordering the dismissal of the case by its order of
October 21, 1974 and at the same time setting the case for further hearing
as against the defaulted defendants, herein petitioners, actually hearing the
same ex-parte and thereafter rendering the decision of December 20, 1974
granting respondent Tan even reliefs not prayed for in the complaint.
According to the petitioners, to begin with, there was compulsory
counterclaim in the common answer of the defendants the nature of which
is such that it cannot be decided in an independent action and as to which
the attention of respondent court was duly called in the motions for
reconsideration. Besides, and more importantly, under Section 4 of Rule 18,
respondent court had no authority to divide the case before it by dismissing
the same as against the non-defaulted defendants and thereafter
proceeding to hear it ex-parte and subsequently rendering judgment against
the defaulted defendants, considering that in their view, under the said
provision of the rules, when a common cause of action is alleged against
several defendants, the default of any of them is a mere formality by which
those defaulted are not allowed to take part in the proceedings, but
otherwise, all the defendants, defaulted and not defaulted, are supposed to
have but a common fate, win or lose. In other words, petitioners posit that
in such a situation, there can only be one common judgment for or against
all the defendant, the non-defaulted and the defaulted. Thus, petitioners
contend that the order of dismissal of October 21, 1974 should be
considered also as the final judgment insofar as they are concerned, or, in

the alternative, it should be set aside together with all the proceedings and
decision held and rendered subsequent thereto, and that the trial be
resumed as of said date, with the defendants Lim Teck Chuan and Eng
Chong Leonardo being allowed to defend the case for all the defendants.
On the other hand, private respondent maintains the contrary view that
inasmuch as petitioners had been properly declared in default, they have no
personality nor interest to question the dismissal of the case as against their
non-defaulted co-defendants and should suffer the consequences of their
own default. Respondent further contends, and this is the only position
discussed in the memorandum submitted by her counsel, that since
petitioners have already made or at least started to make their appeal, as
they are in fact entitled to appeal, this special civil action has no reason for
being. Additionally, she invokes the point of prematurity upheld by the
Court of Appeals in regard to the above-mentioned petition therein of the
non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally,
she argues that in any event, the errors attributed to respondent court are
errors of judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the court
below and mature deliberation, the Court has arrived at the conclusion that
petitioners should be granted relief, if only to stress emphatically once more
that the rules of procedure may not be misused and abused as instruments
for the denial of substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative instance of how
some members of the bar, availing of their proficiency in invoking the letter
of the rules without regard to their real spirit and intent, succeed in inducing
courts to act contrary to the dictates of justice and equity, and, in some
instances, to wittingly or unwittingly abet unfair advantage by ironically
camouflaging their actuations as earnest efforts to satisfy the public clamor
for speedy disposition of litigations, forgetting all the while that the plain
injunction of Section 2 of Rule 1 is that the "rules shall be liberally construed
in order to promote their object and to assist the parties in obtaining not
only 'speedy' but more imperatively, "just ... and inexpensive determination
of every action and proceeding." We cannot simply pass over the impression
that the procedural maneuvers and tactics revealed in the records of the
case at bar were deliberately planned with the calculated end in view of
depriving petitioners and their co-defendants below of every opportunity to
properly defend themselves against a claim of more than substantial
character, considering the millions of pesos worth of properties involved as
found by respondent judge himself in the impugned decision, a claim that
appears, in the light of the allegations of the answer and the documents

already brought to the attention of the court at the pre-trial, to be rather

dubious. What is most regrettable is that apparently, all of these alarming
circumstances have escaped respondent judge who did not seem to have
hesitated in acting favorably on the motions of the plaintiff conducive to the
deplorable objective just mentioned, and which motions, at the very least,
appeared to be 'of highly controversial' merit, considering that their obvious
tendency and immediate result would be to convert the proceedings into a
one-sided affair, a situation that should be readily condemnable and
intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more
on the contentions of private respondent may be discerned from the
manner it resolved the attempts of defendants Dy Ochay and Antonio Lim
Tanhu to have the earlier order of default against them lifted.
Notwithstanding that Dy Ochay's motion of October 8, 1971, co-signed by
her with their counsel, Atty. Jovencio Enjambre (Annex 2 of respondent
answer herein) was over the jurat of the notary public before whom she
took her oath, in the order of November 2, 1971, (Annex 3 id.) it was held
that "the oath appearing at the bottom of the motion is not the one
contemplated by the abovequoted pertinent provision (See. 3, Rule 18) of
the rules. It is not even a verification. (See. 6, Rule 7.) What the rule requires
as interpreted by the Supreme Court is that the motion must have to be
accompanied by an affidavit of merits that the defendant has a meritorious
defense, thereby ignoring the very simple legal point that the ruling of the
Supreme Court in Ong Peng vs. Custodio, 1 SCRA 781, relied upon by His
Honor, under which a separate affidavit of merit is required refers obviously
to instances where the motion is not over oath of the party concerned,
considering that what the cited provision literally requires is no more than a
"motion under oath." Stated otherwise, when a motion to lift an order of
default contains the reasons for the failure to answer as well as the facts
constituting the prospective defense of the defendant and it is sworn to by
said defendant, neither a formal verification nor a separate affidavit of merit
is necessary.
What is worse, the same order further held that the motion to lift the order
of default "is an admission that there was a valid service of summons" and
that said motion could not amount to a challenge against the jurisdiction of
the court over the person of the defendant. Such a rationalization is
patently specious and reveals an evident failure to grasp the import of the
legal concepts involved. A motion to lift an order of default on the ground
that service of summons has not been made in accordance with the rules is
in order and is in essence verily an attack against the jurisdiction of the

court over the person of the defendant, no less than if it were worded in a
manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the
order of default as against defendant Lim Tanhu, His Honor posited that said
defendant "has a defense (quitclaim) which renders the claim of the plaintiff
contentious." We have read defendants' motion for reconsideration of
November 25, 1971 (Annex 5, id.), but We cannot find in it any reference to
a "quitclaim". Rather, the allegation of a quitclaim is in the amended
complaint (Pars. 15-16, Annex B of the petition herein) in which plaintiff
maintains that her signature thereto was secured through fraud and deceit.
In truth, the motion for reconsideration just mentioned, Annex 5, merely
reiterated the allegation in Dy Ochay's earlier motion of October 8, 1971,
Annex 2, to set aside the order of default, that plaintiff Tan could be but the
common law wife only of Tee Hoon, since his legitimate wife was still alive,
which allegation, His Honor held in the order of November 2, 1971, Annex 3,
to be "not good and meritorious defense". To top it all, whereas, as already
stated, the order of February 19, 1972, Annex 6, lifted the default against
Lim Tanhu because of the additional consideration that "he has a defense
(quitclaim) which renders the claim of the plaintiff contentious," the default
of Dy Ochay was maintained notwithstanding that exactly the same
"contentions" defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest
inconsistency in the legal postures in the orders in question can hardly
convince Us that the matters here in issue were accorded due and proper
consideration by respondent court. In fact, under the circumstances herein
obtaining, it seems appropriate to stress that, having in view the rather
substantial value of the subject matter involved together with the obviously
contentious character of plaintiff's claim, which is discernible even on the
face of the complaint itself, utmost care should have been taken to avoid
the slightest suspicion of improper motivations on the part of anyone
concerned. Upon the considerations hereunder to follow, the Court
expresses its grave concern that much has to be done to dispel the
impression that herein petitioners and their co-defendants are being
railroaded out of their rights and properties without due process of law, on
the strength of procedural technicalities adroitly planned by counsel and
seemingly unnoticed and undetected by respondent court, whose orders,
gauged by their tenor and the citations of supposedly pertinent provisions
and jurisprudence made therein, cannot be said to have proceeded from
utter lack of juridical knowledgeability and competence.
1

The first thing that has struck the Court upon reviewing the record is the
seeming alacrity with which the motion to dismiss the case against nondefaulted defendants Lim Teck Chuan and Eng Chong Leonardo was
disposed of, which definitely ought not to have been the case. The trial was
proceeding with the testimony of the first witness of plaintiff and he was
still under re-cross-examination. Undoubtedly, the motion to dismiss at that
stage and in the light of the declaration of default against the rest of the
defendants was a well calculated surprise move, obviously designed to
secure utmost advantage of the situation, regardless of its apparent
unfairness. To say that it must have been entirely unexpected by all the
defendants, defaulted and non-defaulted , is merely to rightly assume that
the parties in a judicial proceeding can never be the victims of any
procedural waylaying as long as lawyers and judges are imbued with the
requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact that the
adverse parties who were entitled to be notified of such unanticipated
dismissal motion did not get due notice thereof. Certainly, the nondefaulted defendants had the right to the three-day prior notice required by
Section 4 of Rule 15. How could they have had such indispensable notice
when the motion was set for hearing on Monday, October 21, 1974,
whereas the counsel for Lim Teck Chuan, Atty. Sitoy was personally served
with the notice only on Saturday, October 19, 1974 and the counsel for Eng
Chong Leonardo, Atty. Alcudia, was notified by registered mail which was
posted only that same Saturday, October 19, 1974? According to Chief
Justice Moran, "three days at least must intervene between the date of
service of notice and the date set for the hearing, otherwise the court may
not validly act on the motion." (Comments on the Rules of Court by Moran,
Vol. 1, 1970 ed. p. 474.) Such is the correct construction of Section 4 of Rule
15. And in the instant case, there can be no question that the notices to the
non-defaulted defendants were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is
incomprehensible is the seeming inattention of respondent judge to the
explicit mandate of the pertinent rule, not to speak of the imperatives of
fairness, considering he should have realized the far-reaching implications,
specially from the point of view he subsequently adopted, albeit
erroneously, of his favorably acting on it. Actually, he was aware of said
consequences, for simultaneously with his order of dismissal, he
immediately set the case for the ex-parte hearing of the evidence against
the defaulted defendants, which, incidentally, from the tenor of his order
which We have quoted above, appears to have been done by him motu

propio As a matter of fact, plaintiff's motion also quoted above did not pray
for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores
or is inconsistent with a number of known juridical principles concerning
defaults, which We will here take occasion to reiterate and further elucidate
on, if only to avoid a repetition of the unfortunate errors committed in this
case. Perhaps some of these principles have not been amply projected and
elaborated before, and such paucity of elucidation could be the reason why
respondent judge must have acted as he did. Still, the Court cannot but
express its vehement condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear and specific
warrant under the terms of existing rules or binding jurisprudence. Extreme
care must be the instant reaction of every judge when confronted with a
situation involving risks that the proceedings may not be fair and square to
all the parties concerned. Indeed, a keen sense of fairness, equity and
justice that constantly looks for consistency between the letter of the
adjective rules and these basic principles must be possessed by every judge,
If substance is to prevail, as it must, over form in our courts. Literal
observance of the rules, when it is conducive to unfair and undue advantage
on the part of any litigant before it, is unworthy of any court of justice and
equity. Withal, only those rules and procedure informed, with and founded
on public policy deserve obedience in accord with their unequivocal
language or words..
Before proceeding to the discussion of the default aspects of this case,
however, it should not be amiss to advert first to the patent incorrectness,
apparent on the face of the record, of the aforementioned order of
dismissal of October 21, 1974 of the case below as regards non-defaulted
defendants Lim and Leonardo. While it is true that said defendants are not
petitioners herein, the Court deems it necessary for a full view of the
outrageous procedural strategy conceived by respondent's counsel and
sanctioned by respondent court to also make reference to the very evident
fact that in ordering said dismissal respondent court disregarded completely
the existence of defendant's counterclaim which it had itself earlier held if
indirectly, to be compulsory in nature when it refused to dismiss the same
on the ground alleged by respondent Tan that he docketing fees for the
filing thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended
elaboration. As may be noted in the allegations hereof aforequoted, it arose
out of or is necessarily connected with the occurrence that is the subject
matter of the plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's allegedly

being the widow of the deceased Tee Hoon entitled, as such, to demand
accounting of and to receive the share of her alleged late husband as
partner of defendants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in
Glory Commercial Company, the truth of which allegations all the
defendants have denied. Defendants maintain in their counterclaim that
plaintiff knew of the falsity of said allegations even before she filed her
complaint, for she had in fact admitted her common-law relationship with
said deceased in a document she had jointly executed with him by way of
agreement to terminate their illegitimate relationship, for which she
received P40,000 from the deceased, and with respect to her pretended
share in the capital and profits in the partnership, it is also defendants'
posture that she had already quitclaimed, with the assistance of able
counsel, whatever rights if any she had thereto in November, 1967, for the
sum of P25,000 duly receipted by her, which quitclaim was, however,
executed, according to respondent herself in her amended complaint,
through fraud. And having filed her complaint knowing, according to
defendants, as she ought to have known, that the material allegations
thereof are false and baseless, she has caused them to suffer damages.
Undoubtedly, with such allegations, defendants' counterclaim is
compulsory, not only because the same evidence to sustain it will also
refute the cause or causes of action alleged in plaintiff's complaint,
(Moran, supra p. 352) but also because from its very nature, it is obvious
that the same cannot "remain pending for independent adjudication by the
court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a
counterclaim has been pleaded by a defendant prior to the service upon
him of the plaintiff's motion to dismiss, the action shall not be dismissed
against the defendant's objection unless the counterclaim can remain
pending for independent adjudication by the court." Defendants Lim and
Leonardo had no opportunity to object to the motion to dismiss before the
order granting the same was issued, for the simple reason that they were
not opportunity notified of the motion therefor, but the record shows
clearly that at least defendant Lim immediately brought the matter of their
compulsory counterclaim to the attention of the trial court in his motion for
reconsideration of October 23, 1974, even as the counsel for the other
defendant, Leonardo, predicated his motion on other grounds. In its order
of December 6, 1974, however, respondent court not only upheld the
plaintiffs supposed absolute right to choose her adversaries but also held
that the counterclaim is not compulsory, thereby virtually making
unexplained and inexplicable 180-degree turnabout in that respect.

There is another equally fundamental consideration why the motion to

dismiss should not have been granted. As the plaintiff's complaint has been
framed, all the six defendants are charged with having actually taken part in
a conspiracy to misappropriate, conceal and convert to their own benefit
the profits, properties and all other assets of the partnership Glory
Commercial Company, to the extent that they have allegedly organized a
corporation, Glory Commercial Company, Inc. with what they had illegally
gotten from the partnership. Upon such allegations, no judgment finding
the existence of the alleged conspiracy or holding the capital of the
corporation to be the money of the partnership is legally possible without
the presence of all the defendants. The non-defaulted defendants are
alleged to be stockholders of the corporation and any decision depriving the
same of all its assets cannot but prejudice the interests of said defendants.
Accordingly, upon these premises, and even prescinding from the other
reasons to be discussed anon it is clear that all the six defendants below,
defaulted and non-defaulted, are indispensable parties. Respondents could
do no less than grant that they are so on page 23 of their answer. Such
being the case, the questioned order of dismissal is exactly the opposite of
what ought to have been done. Whenever it appears to the court in the
course of a proceeding that an indispensable party has not been joined, it is
the duty of the court to stop the trial and to order the inclusion of such
party. (The Revised Rules of Court, Annotated & Commented by Senator
Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See also Cortez vs. Avila, 101
Phil. 705.) Such an order is unavoidable, for the "general rule with reference
to the making of parties in a civil action requires the joinder of all necessary
parties wherever possible, and the joinder of all indispensable parties under
any and all conditions, the presence of those latter being a sine qua non of
the exercise of judicial power." (Borlasa vs. Polistico, 47 Phil. 345, at p. 347.)
It is precisely " when an indispensable party is not before the court (that)
the action should be dismissed." (People v. Rodriguez, 106 Phil. 325, at p.
327.) The absence of an indispensable party renders all subsequent
actuations of the court null and void, for want of authority to act, not only
as to the absent parties but even as to those present. In short, what
respondent court did here was exactly the reverse of what the law ordains
it eliminated those who by law should precisely be joined.
As may he noted from the order of respondent court quoted earlier, which
resolved the motions for reconsideration of the dismissal order filed by the
non-defaulted defendants, His Honor rationalized his position thus:
It is the rule that it is the absolute prerogative of the
plaintiff to choose, the theory upon which he predicates his

right of action, or the parties he desires to sue, without

dictation or imposition by the court or the adverse party. If
he makes a mistake in the choice of his right of action, or in
that of the parties against whom he seeks to enforce it, that
is his own concern as he alone suffers therefrom. The
plaintiff cannot be compelled to choose his defendants, He
may not, at his own expense, be forced to implead anyone
who, under the adverse party's theory, is to answer for
defendant's liability. Neither may the Court compel him to
furnish the means by which defendant may avoid or
mitigate their liability. (Vao vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to
continue prosecuting her cause of action against the
defendants-movants if in the course of the trial she believes
she can enforce it against the remaining defendants subject
only to the limitation provided in Section 2, Rule 17 of the
Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal terminology as in
plaintiff's motion of October 18, 1974 by referring to the action he had
taken as being "dismissal of the complaint against them or their being
dropped therefrom", without perceiving that the reason for the evidently
intentional ambiguity is transparent. The apparent idea is to rely on the
theory that under Section 11 of Rule 3, parties may be dropped by the court
upon motion of any party at any stage of the action, hence "it is the
absolute right prerogative of the plaintiff to choosethe parties he desires
to sue, without dictation or imposition by the court or the adverse party." In
other words, the ambivalent pose is suggested that plaintiff's motion of
October 18, 1974 was not predicated on Section 2 of Rule 17 but more on
Section 11 of Rule 3. But the truth is that nothing can be more incorrect. To
start with, the latter rule does not comprehend whimsical and irrational
dropping or adding of parties in a complaint. What it really contemplates is
erroneous or mistaken non-joinder and misjoinder of parties. No one is free
to join anybody in a complaint in court only to drop him unceremoniously
later at the pleasure of the plaintiff. The rule presupposes that the original
inclusion had been made in the honest conviction that it was proper and the
subsequent dropping is requested because it has turned out that such
inclusion was a mistake. And this is the reason why the rule ordains that the
dropping be "on such terms as are just" just to all the other parties. In the
case at bar, there is nothing in the record to legally justify the dropping of
the non-defaulted defendants, Lim and Leonardo. The motion of October

18, 1974 cites none. From all appearances, plaintiff just decided to ask for it,
without any relevant explanation at all. Usually, the court in granting such a
motion inquires for the reasons and in the appropriate instances directs the
granting of some form of compensation for the trouble undergone by the
defendant in answering the complaint, preparing for or proceeding partially
to trial, hiring counsel and making corresponding expenses in the premises.
Nothing of these, appears in the order in question. Most importantly, His
Honor ought to have considered that the outright dropping of the nondefaulted defendants Lim and Leonardo, over their objection at that, would
certainly be unjust not only to the petitioners, their own parents, who
would in consequence be entirely defenseless, but also to Lim and Leonardo
themselves who would naturally correspondingly suffer from the eventual
judgment against their parents. Respondent court paid no heed at all to the
mandate that such dropping must be on such terms as are just" meaning
to all concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order of
dismissal of October 21, 1974 as well as its order of December 6, 1974
denying reconsideration of such dismissal. As We make this ruling, We are
not oblivious of the circumstance that defendants Lim and Leonardo are not
parties herein. But such consideration is inconsequential. The fate of the
case of petitioners is inseparably tied up with said order of dismissal, if only
because the order of ex-parte hearing of October 21, 1974 which directly
affects and prejudices said petitioners is predicated thereon. Necessarily,
therefore, We have to pass on the legality of said order, if We are to decide
the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further
their questioning of the dismissal is from another point of view
understandable. On the one hand, why should they insist on being
defendants when plaintiff herself has already release from her claims? On
the other hand, as far as their respective parents-co-defendants are
concerned, they must have realized that they (their parents) could even be
benefited by such dismissal because they could question whether or not
plaintiff can still prosecute her case against them after she had secured the
order of dismissal in question. And it is in connection with this last point
that the true and correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court of
Appeals of January 24, 1975 in G. R. No. SP-03066 dismissing the petition for
certiorari of non-defaulted defendants Lim and Leonardo impugning the
order of dismissal of October 21, 1974, has no bearing at all in this case, not
only because that dismissal was premised by the appellate court on its

holding that the said petition was premature inasmuch as the trial court had
not yet resolved the motion of the defendants of October 28, 1974 praying
that said disputed order be quashed, but principally because herein
petitioners were not parties in that proceeding and cannot, therefore, be
bound by its result. In particular, We deem it warranted to draw the
attention of private respondent's counsel to his allegations in paragraphs XI
to XIV of his answer, which relate to said decision of the Court of Appeals
and which have the clear tendency to make it appear to the Court that the
appeals court had upheld the legality and validity of the actuations of the
trial court being questioned, when as a matter of indisputable fact, the
dismissal of the petition was based solely and exclusively on its being
premature without in any manner delving into its merits. The Court must
and does admonish counsel that such manner of pleading, being deceptive
and lacking in candor, has no place in any court, much less in the Supreme
Court, and if We are adopting a passive attitude in the premises, it is due
only to the fact that this is counsel's first offense. But similar conduct on his
part in the future will definitely be dealt with more severely. Parties and
counsel would be well advised to avoid such attempts to befuddle the issues
as invariably then will be exposed for what they are, certainly unethical and
degrading to the dignity of the law profession. Moreover, almost always
they only betray the inherent weakness of the cause of the party resorting
to them.
2
Coming now to the matter itself of default, it is quite apparent that the
impugned orders must have proceeded from inadequate apprehension of
the fundamental precepts governing such procedure under the Rules of
Court. It is time indeed that the concept of this procedural device were fully
understood by the bench and bar, instead of being merely taken for granted
as being that of a simple expedient of not allowing the offending party to
take part in the proceedings, so that after his adversary shall have
presented his evidence, judgment may be rendered in favor of such
opponent, with hardly any chance of said judgment being reversed or
modified.
The Rules of Court contain a separate rule on the subject of default, Rule 18.
But said rule is concerned solely with default resulting from failure of the
defendant or defendants to answer within the reglementary period.
Referring to the simplest form of default, that is, where there is only one
defendant in the action and he fails to answer on time, Section 1 of the rule
provides that upon "proof of such failure, (the court shall) declare the
defendant in default. Thereupon the court shall proceed to receive the

plaintiff's evidence and render judgment granting him such relief as the
complaint and the facts proven may warrant." This last clause is clarified by
Section 5 which says that "a judgment entered against a party in default
shall not exceed the amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not readily
convey the full import of what they contemplate. To begin with, contrary to
the immediate notion that can be drawn from their language, these
provisions are not to be understood as meaning that default or the failure of
the defendant to answer should be "interpreted as an admission by the said
defendant that the plaintiff's cause of action find support in the law or that
plaintiff is entitled to the relief prayed for." (Moran, supra, p. 535 citing
Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v.
McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson,
59 Ga. 105; People v. Rust, 292 111. 328; Ken v. Leopold 21 111. A. 163;
Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of rights except that
of being heard and of presenting evidence in the trial court. According to
Section 2, "except as provided in Section 9 of Rule 13, a party declared in
default shall not be entitled to notice of subsequent proceedings, nor to
take part in the trial." That provision referred to reads: "No service of papers
other than substantially amended pleadings and final orders or judgments
shall be necessary on a party in default unless he files a motion to set aside
the order of default, in which event he shall be entitled to notice of all
further proceedings regardless of whether the order of default is set aside
or not." And pursuant to Section 2 of Rule 41, "a party who has been
declared in default may likewise appeal from the judgment rendered against
him as contrary to the evidence or to the law, even if no petition for relief to
set aside the order of default has been presented by him in accordance with
Rule 38.".
In other words, a defaulted defendant is not actually thrown out of court.
While in a sense it may be said that by defaulting he leaves himself at the
mercy of the court, the rules see to it that any judgment against him must
be in accordance with law. The evidence to support the plaintiff's cause is,
of course, presented in his absence, but the court is not supposed to admit
that which is basically incompetent. Although the defendant would not be in
a position to object, elementary justice requires that, only legal evidence
should be considered against him. If the evidence presented should not be
sufficient to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be justifiable, it cannot

exceed in amount or be different in kind from what is prayed for in the

complaint.
Incidentally, these considerations argue against the present widespread
practice of trial judges, as was done by His Honor in this case, of delegating
to their clerks of court the reception of the plaintiff's evidence when the
defendant is in default. Such a Practice is wrong in principle and orientation.
It has no basis in any rule. When a defendant allows himself to be declared
in default, he relies on the faith that the court would take care that his
rights are not unduly prejudiced. He has a right to presume that the law and
the rules will still be observed. The proceedings are held in his forced
absence, and it is but fair that the plaintiff should not be allowed to take
advantage of the situation to win by foul or illegal means or with inherently
incompetent evidence. Thus, in such instances, there is need for more
attention from the court, which only the judge himself can provide. The
clerk of court would not be in a position much less have the authority to act
in the premises in the manner demanded by the rules of fair play and as
contemplated in the law, considering his comparably limited area of
discretion and his presumably inferior preparation for the functions of a
judge. Besides, the default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the demeanor and conduct of
the witnesses of the plaintiff, the better to appreciate their truthfulness and
credibility. We therefore declare as a matter of judicial policy that there
being no imperative reason for judges to do otherwise, the practice should
be discontinued.
Another matter of practice worthy of mention at this point is that it is
preferable to leave enough opportunity open for possible lifting of the order
of default before proceeding with the reception of the plaintiff's evidence
and the rendition of the decision. "A judgment by default may amount to a
positive and considerable injustice to the defendant; and the possibility of
such serious consequences necessitates a careful and liberal examination of
the grounds upon which the defendant may seek to set it aside."
(Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The
expression, therefore, in Section 1 of Rule 18 aforequoted which says that
"thereupon the court shall proceed to receive the plaintiff's evidence etc." is
not to be taken literally. The gain in time and dispatch should the court
immediately try the case on the very day of or shortly after the declaration
of default is far outweighed by the inconvenience and complications
involved in having to undo everything already done in the event the
defendant should justify his omission to answer on time.

The foregoing observations, as may be noted, refer to instances where the

only defendant or all the defendants, there being several, are declared in
default. There are additional rules embodying more considerations of justice
and equity in cases where there are several defendants against whom a
common cause of action is averred and not all of them answer opportunely
or are in default, particularly in reference to the power of the court to
render judgment in such situations. Thus, in addition to the limitation of
Section 5 that the judgment by default should not be more in amount nor
different in kind from the reliefs specifically sought by plaintiff in his
complaint, Section 4 restricts the authority of the court in rendering
judgment in the situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and other
make difficult. When a complaint states a common cause
of action against several defendant some of whom answer,
and the others fail to do so, the court shall try the case
against all upon the answer thus filed and render judgment
upon the evidence presented. The same proceeding applies
when a common cause of action is pleaded in a
counterclaim, cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision and the
controlling jurisprudence explanatory thereof this wise:
Where a complaint states a common cause of action against
several defendants and some appear to defend the case on
the merits while others make default, the defense
interposed by those who appear to litigate the case inures
to the benefit of those who fail to appear, and if the court
finds that a good defense has been made, all of the
defendants must be absolved. In other words, the answer
filed by one or some of the defendants inures to the benefit
of all the others, even those who have not seasonably filed
their answer. (Bueno v. Ortiz, L-22978, June 27, 1968, 23
SCRA 1151.) The proper mode of proceeding where a
complaint states a common cause of action against several
defendants, and one of them makes default, is simply to
enter a formal default order against him, and proceed with
the cause upon the answers of the others. The defaulting
defendant merely loses his standing in court, he not being
entitled to the service of notice in the cause, nor to appear
in the suit in any way. He cannot adduce evidence; nor can
he be heard at the final hearing, (Lim Toco v. Go Fay, 80

Phil. 166.) although he may appeal the judgment rendered

against him on the merits. (Rule 41, sec. 2.) If the case is
finally decided in the plaintiff's favor, a final decree is then
entered against all the defendants; but if the suit should be
decided against the plaintiff, the action will be dismissed as
to all the defendants alike. (Velez v. Ramas, 40 Phil. 787792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.) In other
words the judgment will affect the defaulting defendants
either favorably or adversely. (Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his
favor. (Castro v. Pea, supra.) (Moran, Rules of Court, Vol. 1,
pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous cases
cited by Moran, this Court elaborated on the construction of
the same rule when it sanctioned the execution, upon
motion and for the benefit of the defendant in default, of a
judgment which was adverse to the plaintiff. The Court
held:
As above stated, Emilia Matanguihan, by her counsel, also
was a movant in the petition for execution Annex 1. Did she
have a right to be such, having been declared in default?
In Frow vs. De la Vega,supra, cited as authority in Velez vs.
Ramas, supra, the Supreme Court of the United States
adopted as ground for its own decision the following ruling
of the New York Court of Errors in Clason vs. Morris, 10
Jons., 524:
It would be unreasonable to hold that because one
defendant had made default, the plaintiff should have a
decree even against him, where the court is satisfied from
the proofs offered by the other, that in fact the plaintiff is
not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The
complaint stating a common cause of action against several
defendants, the complainant's rights or lack of them in
the controversy have to be the same, and not different, as
against all the defendant's although one or some make
default and the other or others appear, join issue, and enter
into trial. For instance, in the case of Clason vs.
Morris above cited, the New York Court of Errors in effect
held that in such a case if the plaintiff is not entitled to a

decree, he will not be entitled to it, not only as against the

defendant appearing and resisting his action but also as
against the one who made default. In the case at bar, the
cause of action in the plaintiff's complaint was common
against the Mayor of Manila, Emilia Matanguihan, and the
other defendants in Civil Case No. 1318 of the lower court.
The Court of First Instance in its judgment found and held
upon the evidence adduced by the plaintiff and the
defendant mayor that as between said plaintiff and
defendant Matanguihan the latter was the one legally
entitled to occupy the stalls; and it decreed, among other
things, that said plaintiff immediately vacate them.
Paraphrasing the New York Court of Errors, it would be
unreasonable to hold now that because Matanguihan had
made default, the said plaintiff should be declared, as
against her, legally entitled to the occupancy of the stalls, or
to remain therein, although the Court of First Instance was
so firmly satisfied, from the proofs offered by the other
defendant, that the same plaintiff was not entitled to such
occupancy that it peremptorily ordered her to vacate the
stalls. If in the cases of Clason vs. Morris, supra, Frow vs. De
la Vega, supra, and Velez vs. Ramas, supra the decrees
entered inured to the benefit of the defaulting defendants,
there is no reason why that entered in said case No. 1318
should not be held also to have inured to the benefit of the
defaulting defendant Matanguihan and the doctrine in said
three cases plainly implies that there is nothing in the law
governing default which would prohibit the court from
rendering judgment favorable to the defaulting defendant
in such cases. If it inured to her benefit, it stands to reason
that she had a right to claim that benefit, for it would not be
a benefit if the supposed beneficiary were barred from
claiming it; and if the benefit necessitated the execution of
the decree, she must be possessed of the right to ask for the
execution thereof as she did when she, by counsel,
participated in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to
the above considerations. It provides that when a complaint
states a common cause of action against several
defendants, some of whom answer, and the others make

default, 'the court shall try the case against all upon the
answer thus filed and render judgment upon the evidence
presented by the parties in court'. It is obvious that under
this provision the case is tried jointly not only against the
defendants answering but also against those defaulting, and
the trial is held upon the answer filed by the former; and
the judgment, if adverse, will prejudice the defaulting
defendants no less than those who answer. In other words,
the defaulting defendants are held bound by the answer
filed by their co-defendants and by the judgment which the
court may render against all of them. By the same token,
and by all rules of equity and fair play, if the judgment
should happen to be favorable, totally or partially, to the
answering defendants, it must correspondingly benefit the
defaulting ones, for it would not be just to let the judgment
produce effects as to the defaulting defendants only when
adverse to them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under
discussion in the following words:
In answer to the charge that respondent Judge had
committed a grave abuse of discretion in rendering a
default judgment against the PC, respondents allege that,
not having filed its answer within the reglementary period,
the PC was in default, so that it was proper for Patanao to
forthwith present his evidence and for respondent Judge to
render said judgment. It should be noted, however, that in
entering the area in question and seeking to prevent
Patanao from continuing his logging operations therein, the
PC was merely executing an order of the Director of
Forestry and acting as his agent. Patanao's cause of action
against the other respondents in Case No. 190, namely, the
Director of Forestry, the District Forester of Agusan, the
Forest Officer of Bayugan, Agusan, and the Secretary of
Agriculture and Natural Resources. Pursuant to Rule 18,
Section 4, of the Rules of Court, 'when a complaint states a
common cause of action against several defendants some of
whom answer and the others fail to do so, the court shall
try the case against all upon the answer thus filed (by some)
and render judgment upon the evidence presented.' In
other words, the answer filed by one or some of the

defendants inures to the benefit of all the others, even

those who have not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a
common cause of action against all of the respondents
therein, a decision in favor of one of them would necessarily
favor the others. In fact, the main issue, in said case, is
whether Patanao has a timber license to undertake logging
operations in the disputed area. It is not possible to decide
such issue in the negative, insofar as the Director of
Forestry, and to settle it otherwise, as regards the PC, which
is merely acting as agent of the Director of Forestry, and is,
therefore, his alter ego, with respect to the disputed forest
area.
Stated differently, in all instances where a common cause of action is
alleged against several defendants, some of whom answer and the others
do not, the latter or those in default acquire a vested right not only to own
the defense interposed in the answer of their co- defendant or codefendants not in default but also to expect a result of the litigation totally
common with them in kind and in amount whether favorable or
unfavorable. The substantive unity of the plaintiff's cause against all the
defendants is carried through to its adjective phase as ineluctably
demanded by the homogeneity and indivisibility of justice itself. Indeed,
since the singleness of the cause of action also inevitably implies that all the
defendants are indispensable parties, the court's power to act is integral
and cannot be split such that it cannot relieve any of them and at the same
time render judgment against the rest. Considering the tenor of the section
in question, it is to be assumed that when any defendant allows himself to
be declared in default knowing that his defendant has already answered, he
does so trusting in the assurance implicit in the rule that his default is in
essence a mere formality that deprives him of no more than the right to
take part in the trial and that the court would deem anything done by or for
the answering defendant as done by or for him. The presumption is that
otherwise he would not -have seen to that he would not be in default. Of
course, he has to suffer the consequences of whatever the answering
defendant may do or fail to do, regardless of possible adverse
consequences, but if the complaint has to be dismissed in so far as the
answering defendant is concerned it becomes his inalienable right that the
same be dismissed also as to him. It does not matter that the dismissal is
upon the evidence presented by the plaintiff or upon the latter's mere
desistance, for in both contingencies, the lack of sufficient legal basis must

be the cause. The integrity of the common cause of action against all the
defendants and the indispensability of all of them in the proceedings do not
permit any possibility of waiver of the plaintiff's right only as to one or some
of them, without including all of them, and so, as a rule, withdrawal must be
deemed to be a confession of weakness as to all. This is not only elementary
justice; it also precludes the concomitant hazard that plaintiff might resort
to the kind of procedural strategem practiced by private respondent herein
that resulted in totally depriving petitioners of every opportunity to defend
themselves against her claims which, after all, as will be seen later in this
opinion, the record does not show to be invulnerable, both in their factual
and legal aspects, taking into consideration the tenor of the pleadings and
the probative value of the competent evidence which were before the trial
court when it rendered its assailed decision where all the defendants are
indispensable parties, for which reason the absence of any of them in the
case would result in the court losing its competency to act validly, any
compromise that the plaintiff might wish to make with any of them must, as
a matter of correct procedure, have to await until after the rendition of the
judgment, at which stage the plaintiff may then treat the matter of its
execution and the satisfaction of his claim as variably as he might please.
Accordingly, in the case now before Us together with the dismissal of the
complaint against the non-defaulted defendants, the court should have
ordered also the dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and
indivisibility of the action just discussed because all the defendants here
have already joined genuine issues with plaintiff. Their default was only at
the pre-trial. And as to such absence of petitioners at the pre-trial, the same
could be attributed to the fact that they might not have considered it
necessary anymore to be present, since their respective children Lim and
Leonardo, with whom they have common defenses, could take care of their
defenses as well. Anything that might have had to be done by them at such
pre-trial could have been done for them by their children, at least initially,
specially because in the light of the pleadings before the court, the
prospects of a compromise must have appeared to be rather remote. Such
attitude of petitioners is neither uncommon nor totally unjustified. Under
the circumstances, to declare them immediately and irrevocably in default
was not an absolute necessity. Practical considerations and reasons of
equity should have moved respondent court to be more understanding in
dealing with the situation. After all, declaring them in default as respondent
court did not impair their right to a common fate with their children.
3

Another issue to be resolved in this case is the question of whether or not

herein petitioners were entitled to notice of plaintiff's motion to drop their
co-defendants Lim and Leonardo, considering that petitioners had been
previously declared in default. In this connection, the decisive consideration
is that according to the applicable rule, Section 9, Rule 13, already quoted
above, (1) even after a defendant has been declared in default, provided he
"files a motion to set aside the order of default, he shall be entitled to
notice of all further proceedings regardless of whether the order of default
is set aside or not" and (2) a party in default who has not filed such a motion
to set aside must still be served with all "substantially amended or
supplemented pleadings." In the instant case, it cannot be denied that
petitioners had all filed their motion for reconsideration of the order
declaring them in default. Respondents' own answer to the petition therein
makes reference to the order of April 3, 1973, Annex 8 of said answer,
which denied said motion for reconsideration. On page 3 of petitioners'
memorandum herein this motion is referred to as "a motion to set aside the
order of default." But as We have not been favored by the parties with a
copy of the said motion, We do not even know the excuse given for
petitioners' failure to appear at the pre-trial, and We cannot, therefore,
determine whether or not the motion complied with the requirements of
Section 3 of Rule 18 which We have held to be controlling in cases of default
for failure to answer on time. (The Philippine-British Co. Inc. etc. et al. vs.
The Hon. Walfrido de los Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default for failure
to answer but one for failure to appear at the pre-trial. We reiterate, in the
situation now before Us, issues have already been joined. In fact, evidence
had been partially offered already at the pre-trial and more of it at the
actual trial which had already begun with the first witness of the plaintiff
undergoing re-cross-examination. With these facts in mind and considering
that issues had already been joined even as regards the defaulted
defendants, it would be requiring the obvious to pretend that there was still
need for an oath or a verification as to the merits of the defense of the
defaulted defendants in their motion to reconsider their default. Inasmuch
as none of the parties had asked for a summary judgment there can be no
question that the issues joined were genuine, and consequently, the reason
for requiring such oath or verification no longer holds. Besides, it may also
be reiterated that being the parents of the non-defaulted defendants,
petitioners must have assumed that their presence was superfluous,
particularly because the cause of action against them as well as their own
defenses are common. Under these circumstances, the form of the motion

by which the default was sought to be lifted is secondary and the

requirements of Section 3 of Rule 18 need not be strictly complied with,
unlike in cases of default for failure to answer. We can thus hold as We do
hold for the purposes of the revival of their right to notice under Section 9
of Rule 13, that petitioner's motion for reconsideration was in substance
legally adequate regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo from
plaintiff's amended complaint was virtually a second amendment of
plaintiffs complaint. And there can be no doubt that such amendment was
substantial, for with the elimination thereby of two defendants allegedly
solidarily liable with their co-defendants, herein petitioners, it had the effect
of increasing proportionally what each of the remaining defendants, the
said petitioners, would have to answer for jointly and severally. Accordingly,
notice to petitioners of the plaintiff's motion of October 18, 1974 was legally
indispensable under the rule above-quoted. Consequently, respondent
court had no authority to act on the motion, to dismiss, pursuant to Section
6 of Rule 15, for according to Senator Francisco, "(t) he Rules of Court clearly
provide that no motion shall be acted upon by the Court without the proof
of service of notice thereof, together with a copy of the motion and other
papers accompanying it, to all parties concerned at least three days before
the hearing thereof, stating the time and place for the hearing of the
motion. (Rule 26, section 4, 5 and 6, Rules of Court (now Sec. 15, new
Rules). When the motion does not comply with this requirement, it is not a
motion. It presents no question which the court could decide. And the Court
acquires no jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing
Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866;
Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The Revised Rules of Court in
the Philippines, pp. 861-862.) Thus, We see again, from a different angle,
why respondent court's order of dismissal of October 21, 1974 is fatally
ineffective.
4
The foregoing considerations notwithstanding, it is respondents' position
that certiorari is not the proper remedy of petitioners. It is contended that
inasmuch as said petitioners have in fact made their appeal already by filing
the required notice of appeal and appeal bond and a motion for extension
to file their record on appeal, which motion was granted by respondent
court, their only recourse is to prosecute that appeal. Additionally, it is also
maintained that since petitioners have expressly withdrawn their motion to

quash of January 4, 1975 impugning the order of October 28, 1974, they
have lost their right to assail by certiorari the actuations of respondent court
now being questioned, respondent court not having been given the
opportunity to correct any possible error it might have committed.
We do not agree. As already shown in the foregoing discussion, the
proceedings in the court below have gone so far out of hand that prompt
action is needed to restore order in the entangled situation created by the
series of plainly illegal orders it had issued. The essential purpose
of certiorari is to keep the proceedings in lower judicial courts and tribunals
within legal bounds, so that due process and the rule of law may prevail at
all times and arbitrariness, whimsicality and unfairness which justice abhors
may immediately be stamped out before graver injury, juridical and
otherwise, ensues. While generally these objectives may well be attained in
an ordinary appeal, it is undoubtedly the better rule to allow the special
remedy of certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far reaching in its
consequences that the long and cumbersome procedure of appeal will only
further aggravate the situation of the aggrieved party because other
untoward actuations are likely to materialize as natural consequences of
those already perpetrated. If the law were otherwise, certiorari would have
no reason at all for being.
No elaborate discussion is needed to show the urgent need for corrective
measures in the case at bar. Verily, this is one case that calls for the exercise
of the Supreme Court's inherent power of supervision over all kinds of
judicial actions of lower courts. Private respondent's procedural technique
designed to disable petitioners to defend themselves against her claim
which appears on the face of the record itself to be at least highly
controversial seems to have so fascinated respondent court that none
would be surprised should her pending motion for immediate execution of
the impugned judgment receive similar ready sanction as her previous
motions which turned the proceedings into a one-sided affair. The stakes
here are high. Not only is the subject matter considerably substantial; there
is the more important aspect that not only the spirit and intent of the rules
but even the basic rudiments of fair play have been disregarded. For the
Court to leave unrestrained the obvious tendency of the proceedings below
would be nothing short of wittingly condoning inequity and injustice
resulting from erroneous construction and unwarranted application of
procedural rules.
5

The sum and total of all the foregoing disquisitions is that the decision here
in question is legally anomalous. It is predicated on two fatal malactuations
of respondent court namely (1) the dismissal of the complaint against the
non-defaulted defendants Lim and Leonardo and (2) the ex-parte reception
of the evidence of the plaintiff by the clerk of court, the subsequent using of
the same as basis for its judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed above, the
order of dismissal of October 21, 1974 is unworthy of Our sanction: (1) there
was no timely notice of the motion therefor to the non-defaulted
defendants, aside from there being no notice at all to herein petitioners; (2)
the common answer of the defendants, including the non-defaulted,
contained a compulsory counterclaim incapable of being determined in an
independent action; and (3) the immediate effect of such dismissal was the
removal of the two non-defaulted defendants as parties, and inasmuch as
they are both indispensable parties in the case, the court consequently lost
the" sine qua non of the exercise of judicial power", per Borlasa vs.
Polistico, supra. This is not to mention anymore the irregular delegation to
the clerk of court of the function of receiving plaintiff's evidence. And as
regards the ex-parte reception of plaintiff's evidence and subsequent
rendition of the judgment by default based thereon, We have seen that it
was violative of the right of the petitioners, under the applicable rules and
principles on default, to a common and single fate with their non-defaulted
co-defendants. And We are not yet referring, as We shall do this anon to the
numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws
in respondent court's actuations do not call for a common corrective
remedy. We cannot simply rule that all the impugned proceedings are null
and void and should be set aside, without being faced with the
insurmountable obstacle that by so doing We would be reviewing the case
as against the two non-defaulted defendants who are not before Us not
being parties hereto. Upon the other hand, for Us to hold that the order of
dismissal should be allowed to stand, as contended by respondents
themselves who insist that the same is already final, not only because the
period for its finality has long passed but also because allegedly, albeit not
very accurately, said 'non-defaulted defendants unsuccessfully tried to have
it set aside by the Court of Appeals whose decision on their petition is also
already final, We would have to disregard whatever evidence had been
presented by the plaintiff against them and, of course, the findings of
respondent court based thereon which, as the assailed decision shows, are
adverse to them. In other words, whichever of the two apparent remedies

the Court chooses, it would necessarily entail some kind of possible juridical
imperfection. Speaking of their respective practical or pragmatic effects, to
annul the dismissal would inevitably prejudice the rights of the nondefaulted defendants whom We have not heard and who even respondents
would not wish to have anything anymore to do with the case. On the other
hand, to include petitioners in the dismissal would naturally set at naught
every effort private respondent has made to establish or prove her case
thru means sanctioned by respondent court. In short, We are confronted
with a legal para-dilemma. But one thing is certain this difficult situations
has been brought about by none other than private respondent who has
quite cynically resorted to procedural maneuvers without realizing that the
technicalities of the adjective law, even when apparently accurate from the
literal point of view, cannot prevail over the imperatives of the substantive
law and of equity that always underlie them and which have to be inevitably
considered in the construction of the pertinent procedural rules.
All things considered, after careful and mature deliberation, the Court has
arrived at the conclusion that as between the two possible alternatives just
stated, it would only be fair, equitable and proper to uphold the position of
petitioners. In other words, We rule that the order of dismissal of October
21, 1974 is in law a dismissal of the whole case of the plaintiff, including as
to petitioners herein. Consequently, all proceedings held by respondent
court subsequent thereto including and principally its decision of December
20, 1974 are illegal and should be set aside.
This conclusion is fully justified by the following considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted to by private
respondent in securing the decision in her favor was ill-conceived. It was
characterized by that which every principle of law and equity disdains
taking unfair advantage of the rules of procedure in order to unduly deprive
the other party of full opportunity to defend his cause. The idea of
"dropping" the non-defaulted defendants with the end in view of
completely incapacitating their co-defendants from making any defense,
without considering that all of them are indispensable parties to a common
cause of action to which they have countered with a common defense
readily connotes an intent to secure a one-sided decision, even improperly.
And when, in this connection, the obvious weakness of plaintiff's evidence is
taken into account, one easily understands why such tactics had to be
availed of. We cannot directly or indirectly give Our assent to the
commission of unfairness and inequity in the application of the rules of
procedure, particularly when the propriety of reliance thereon is not
beyond controversy.

2. The theories of remedial law pursued by private respondents, although

approved by His Honor, run counter to such basic principles in the rules on
default and such elementary rules on dismissal of actions and notice of
motions that no trial court should be unaware of or should be mistaken in
applying. We are at a loss as to why His Honor failed to see through
counsel's inequitous strategy, when the provisions (1) on the three-day rule
on notice of motions, Section 4 of Rule 15, (2) against dismissal of actions on
motion of plaintiff when there is a compulsory counterclaim, Section 2, Rule
17, (3) against permitting the absence of indispensable parties, Section 7,
Rule 3, (4) on service of papers upon defendants in default when there are
substantial amendments to pleadings, Section 9, Rule 13, and (5) on the
unity and integrity of the fate of defendants in default with those not in
default where the cause of action against them and their own defenses are
common, Section 4, Rule 18, are so plain and the jurisprudence declaratory
of their intent and proper construction are so readily comprehensible that
any error as to their application would be unusual in any competent trial
court.
3. After all, all the malactuations of respondent court are traceable to the
initiative of private respondent and/or her counsel. She cannot, therefore,
complain that she is being made to unjustifiably suffer the consequences of
what We have found to be erroneous orders of respondent court. It is only
fair that she should not be allowed to benefit from her own frustrated
objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis of its own
recitals, the decision in question cannot stand close scrutiny. What is more,
the very considerations contained therein reveal convincingly the inherent
weakness of the cause of the plaintiff. To be sure, We have been giving
serious thought to the idea of merely returning this case for a resumption of
trial by setting aside the order of dismissal of October 21, 1974, with all its
attendant difficulties on account of its adverse effects on parties who have
not been heard, but upon closer study of the pleadings and the decision and
other circumstances extant in the record before Us, We are now persuaded
that such a course of action would only lead to more legal complications
incident to attempts on the part of the parties concerned to desperately
squeeze themselves out of a bad situation. Anyway, We feel confident that
by and large, there is enough basis here and now for Us to rule out the claim
of the plaintiff.
Even a mere superficial reading of the decision would immediately reveal
that it is littered on its face with deficiencies and imperfections which would
have had no reason for being were there less haste and more

circumspection in rendering the same. Recklessness in jumping to

unwarranted conclusions, both factual and legal, is at once evident in its
findings relative precisely to the main bases themselves of the reliefs
granted. It is apparent therein that no effort has been made to avoid glaring
inconsistencies. Where references are made to codal provisions and
jurisprudence, inaccuracy and inapplicability are at once manifest. It hardly
commends itself as a deliberate and consciencious adjudication of a
litigation which, considering the substantial value of the subject matter it
involves and the unprecedented procedure that was followed by
respondent's counsel, calls for greater attention and skill than the general
run of cases would.
Inter alia, the following features of the decision make it highly improbable
that if We took another course of action, private respondent would still be
able to make out any case against petitioners, not to speak of their codefendants who have already been exonerated by respondent herself thru
her motion to dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is the
widow of the late Tee Hoon Po Chuan (Po Chuan, for short) who was then
one of the partners in the commercial partnership, Glory Commercial Co.
with defendants Antonio Lim Tanhu (Lim Tanhu, for short) and Alfonso
Leonardo Ng Sua (Ng Sua, for short) as co-partners; that after the death of
her husband on March 11, 1966 she is entitled to share not only in the
capital and profits of the partnership but also in the other assets, both real
and personal, acquired by the partnership with funds of the latter during its
lifetime."
Relatedly, in the latter part of the decision, the findings are to the following
effect: .
That the herein plaintiff Tan Put and her late husband Po
Chuan married at the Philippine Independent Church of
Cebu City on December, 20, 1949; that Po Chuan died on
March 11, 1966; that the plaintiff and the late Po Chuan
were childless but the former has a foster son Antonio
Nuez whom she has reared since his birth with whom she
lives up to the present; that prior to the marriage of the
plaintiff to Po Chuan the latter was already managing the
partnership Glory Commercial Co. then engaged in a little
business in hardware at Manalili St., Cebu City; that prior to
and just after the marriage of the plaintiff to Po Chuan she
was engaged in the drugstore business; that not long after
her marriage, upon the suggestion of Po Chuan the plaintiff

sold her drugstore for P125,000.00 which amount she gave

to her husband in the presence of defendant Lim Tanhu and
was invested in the partnership Glory Commercial Co.
sometime in 1950; that after the investment of the abovestated amount in the partnership its business flourished and
it embarked in the import business and also engaged in the
wholesale and retail trade of cement and GI sheets and
under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively managed
the business of the partnership Glory Commercial Co. he
was the one who made the final decisions and approved the
appointments of new personnel who were taken in by the
partnership; that the late Po Chuan and defendants Lim
Tanhu and Ng Sua are brothers, the latter two (2) being the
elder brothers of the former; that defendants Lim Tanhu
and Ng Sua are both naturalized Filipino citizens whereas
the late Po Chuan until the time of his death was a Chinese
citizen; that the three (3) brothers were partners in the
Glory Commercial Co. but Po Chuan was practically the
owner of the partnership having the controlling interest;
that defendants Lim Tanhu and Ng Sua were partners in
name but they were mere employees of Po Chuan .... (Pp.
89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is not clear
in the decision whether or not in making its findings of fact the court took
into account the allegations in the pleadings of the parties and whatever
might have transpired at the pre-trial. All that We can gather in this respect
is that references are made therein to pre-trial exhibits and to Annex A of
the answer of the defendants to plaintiff's amended complaint. Indeed, it
was incumbent upon the court to consider not only the evidence formally
offered at the trial but also the admissions, expressed or implied, in the
pleadings, as well as whatever might have been placed before it or brought
to its attention during the pre-trial. In this connection, it is to be regretted
that none of the parties has thought it proper to give Us an idea of what
took place at the pre-trial of the present case and what are contained in the
pre-trial order, if any was issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every
opportunity to compromise or settle their differences, is for the court to be
apprised of the unsettled issues between the parties and of their respective

evidence relative thereto, to the end that it may take corresponding

measures that would abbreviate the trial as much as possible and the judge
may be able to ascertain the facts with the least observance of technical
rules. In other words whatever is said or done by the parties or their counsel
at the pre- trial serves to put the judge on notice of their respective basic
positions, in order that in appropriate cases he may, if necessary in the
interest of justice and a more accurate determination of the facts, make
inquiries about or require clarifications of matters taken up at the pre-trial,
before finally resolving any issue of fact or of law. In brief, the pre-trial
constitutes part and parcel of the proceedings, and hence, matters dealt
with therein may not be disregarded in the process of decision making.
Otherwise, the real essence of compulsory pre-trial would be insignificant
and worthless.
Now, applying these postulates to the findings of respondent court just
quoted, it will be observed that the court's conclusion about the supposed
marriage of plaintiff to the deceased Tee Hoon Lim Po Chuan is contrary to
the weight of the evidence brought before it during the trial and the pretrial.
Under Article 55 of the Civil Code, the declaration of the contracting parties
that they take each other as husband and wife "shall be set forth in an
instrument" signed by the parties as well as by their witnesses and the
person solemnizing the marriage. Accordingly, the primary evidence of a
marriage must be an authentic copy of the marriage contract. While a
marriage may also be proved by other competent evidence, the absence of
the contract must first be satisfactorily explained. Surely, the certification of
the person who allegedly solemnized a marriage is not admissible evidence
of such marriage unless proof of loss of the contract or of any other
satisfactory reason for its non-production is first presented to the court. In
the case at bar, the purported certification issued by a Mons. Jose M.
Recoleto, Bishop, Philippine Independent Church, Cebu City, is not,
therefore, competent evidence, there being absolutely no showing as to
unavailability of the marriage contract and, indeed, as to the authenticity of
the signature of said certifier, the jurat allegedly signed by a second
assistant provincial fiscal not being authorized by law, since it is not part of
the functions of his office. Besides, inasmuch as the bishop did not testify,
the same is hearsay.
As regards the testimony of plaintiff herself on the same point and that of
her witness Antonio Nuez, there can be no question that they are both
self-serving and of very little evidentiary value, it having been disclosed at
the trial that plaintiff has already assigned all her rights in this case to said

Nuez, thereby making him the real party in interest here and, therefore,
naturally as biased as herself. Besides, in the portion of the testimony of
Nuez copied in Annex C of petitioner's memorandum, it appears admitted
that he was born only on March 25, 1942, which means that he was less
than eight years old at the supposed time of the alleged marriage. If for this
reason alone, it is extremely doubtful if he could have been sufficiently
aware of such event as to be competent to testify about it.
Incidentally, another Annex C of the same memorandum purports to be the
certificate of birth of one Antonio T. Uy supposed to have been born on
March 23, 1937 at Centro Misamis, Misamis Occidental, the son of one Uy
Bien, father, and Tan Put, mother. Significantly, respondents have not made
any adverse comment on this document. It is more likely, therefore, that the
witness is really the son of plaintiff by her husband Uy Kim Beng. But she
testified she was childless. So which is which? In any event, if on the
strength of this document, Nuez is actually the legitimate son of Tan Put
and not her adopted son, he would have been but 13 years old in 1949, the
year of her alleged marriage to Po Chuan, and even then, considering such
age, his testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it,
two documents of great weight belying the pretended marriage. We refer to
(1) Exhibit LL, the income tax return of the deceased Tee Hoon Lim Po Chuan
indicating that the name of his wife was Ang Sick Tin and (2) the quitclaim,
Annex A of the answer, wherein plaintiff Tan Put stated that she had been
living with the deceased without benefit of marriage and that she was his
"common-law wife". Surely, these two documents are far more reliable than
all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is
evidence offered to the judge himself, not to the clerk of court, and should
have at least moved him to ask plaintiff to explain if not rebut it before
jumping to the conclusion regarding her alleged marriage to the deceased,
Po Chuan. And in regard to the quitclaim containing the admission of a
common-law relationship only, it is to be observed that His Honor found
that "defendants Lim Tanhu and Ng Sua had the plaintiff execute a quitclaim
on November 29, 1967 (Annex "A", Answer) where they gave plaintiff the
amount of P25,000 as her share in the capital and profits of the business of
Glory Commercial Co. which was engaged in the hardware business",
without making mention of any evidence of fraud and misrepresentation in
its execution, thereby indicating either that no evidence to prove that
allegation of the plaintiff had been presented by her or that whatever
evidence was actually offered did not produce persuasion upon the court.

Stated differently, since the existence of the quitclaim has been duly
established without any circumstance to detract from its legal import, the
court should have held that plaintiff was bound by her admission therein
that she was the common-law wife only of Po Chuan and what is more, that
she had already renounced for valuable consideration whatever claim she
might have relative to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these considerations,
there are mentioned and discussed in the memorandum of petitioners (1)
the certification of the Local Civil Registrar of Cebu City and (2) a similar
certification of the Apostolic Prefect of the Philippine Independent Church,
Parish of Sto. Nio, Cebu City, that their respective official records
corresponding to December 1949 to December 1950 do not show any
marriage between Tee Hoon Lim Po Chuan and Tan Put, neither of which
certifications have been impugned by respondent until now, it stands to
reason that plaintiff's claim of marriage is really unfounded. Withal, there is
still another document, also mentioned and discussed in the same
memorandum and unimpugned by respondents, a written agreement
executed in Chinese, but purportedly translated into English by the Chinese
Consul of Cebu, between Tan Put and Tee Hoon Lim Po Chuan to the
following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City,
Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have
lived with Mr. Lim Po Chuan alias TeeHoon since 1949 but it
recently occurs that we are incompatible with each other
and are not in the position to keep living together
permanently. With the mutual concurrence, we decided to
terminate the existing relationship of common law-marriage
and promised not to interfere each other's affairs from now
on. The Forty Thousand Pesos (P40,000.00) has been given
to me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of
the Republic of China (corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284,
Record.)

Indeed, not only does this document prove that plaintiff's relation to the
deceased was that of a common-law wife but that they had settled their
property interests with the payment to her of P40,000.
In the light of all these circumstances, We find no alternative but to hold
that plaintiff Tan Put's allegation that she is the widow of Tee Hoon Lim Po
Chuan has not been satisfactorily established and that, on the contrary, the
evidence on record convincingly shows that her relation with said deceased
was that of a common-law wife and furthermore, that all her claims against
the company and its surviving partners as well as those against the estate of
the deceased have already been settled and paid. We take judicial notice of
the fact that the respective counsel who assisted the parties in the
quitclaim, Attys. H. Hermosisima and Natalio Castillo, are members in good
standing of the Philippine Bar, with the particularity that the latter has been
a member of the Cabinet and of the House of Representatives of the
Philippines, hence, absent any credible proof that they had allowed
themselves to be parties to a fraudulent document His Honor did right in
recognizing its existence, albeit erring in not giving due legal significance to
its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate
wife of Po Chuan is not only unconvincing but has been actually overcome
by the more competent and weighty evidence in favor of the defendants,
her attempt to substantiate her main cause of action that defendants Lim
Tanhu and Ng Sua have defrauded the partnership Glory Commercial Co.
and converted its properties to themselves is even more dismal. From the
very evidence summarized by His Honor in the decision in question, it is
clear that not an iota of reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is
actually admitted impliedly in defendants' affirmative defense that Po
Chuan's share had already been duly settled with and paid to both the
plaintiff and his legitimate family. But the evidence as to the actual
participation of the defendants Lim Tanhu and Ng Sua in the operation of
the business that could have enabled them to make the extractions of funds
alleged by plaintiff is at best confusing and at certain points manifestly
inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow of Po
Chuan she is entitled to / 3 share of the assets and properties of the
partnership. In fact, her prayer in said complaint is, among others, for the
delivery to her of such / 3 share. His Honor's statement of the case as well
as his findings and judgment are all to that same effect. But what did she
actually try to prove at the ex- parte hearing?

According to the decision, plaintiff had shown that she had money of her
own when she "married" Po Chuan and "that prior to and just after the
marriage of the plaintiff to Po Chuan, she was engaged in the drugstore
business; that not long after her marriage, upon the suggestion of Po Chuan,
the plaintiff sold her drugstore for P125,000 which amount she gave to her
husband in the presence of Tanhu and was invested in the partnership Glory
Commercial Co. sometime in 1950; that after the investment of the abovestated amount in the partnership, its business flourished and it embarked in
the import business and also engaged in the wholesale and retail trade of
cement and GI sheets and under (sic) huge profits." (pp. 25-26, Annex L,
petition.)
To begin with, this theory of her having contributed of P125,000 to the
capital of the partnership by reason of which the business flourished and
amassed all the millions referred to in the decision has not been alleged in
the complaint, and inasmuch as what was being rendered was a judgment
by default, such theory should not have been allowed to be the subject of
any evidence. But inasmuch as it was the clerk of court who received the
evidence, it is understandable that he failed to observe the rule. Then, on
the other hand, if it was her capital that made the partnership flourish, why
would she claim to be entitled to only to / 3 of its assets and profits? Under
her theory found proven by respondent court, she was actually the owner of
everything, particularly because His Honor also found "that defendants Lim
Tanhu and Ng Sua were partners in the name but they were employees of
Po Chuan that defendants Lim Tanhu and Ng Sua had no means of livelihood
at the time of their employment with the Glory Commercial Co. under the
management of the late Po Chuan except their salaries therefrom; ..." (p.
27, id.) Why then does she claim only / 3 share? Is this an indication of her
generosity towards defendants or of a concocted cause of action existing
only in her confused imagination engendered by the death of her commonlaw husband with whom she had settled her common-law claim for
recompense of her services as common law wife for less than what she
must have known would go to his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial court was
confused as to the participation of defendants Lim Tanhu and Ng Sua in
Glory Commercial Co. At one point, they were deemed partners, at another
point mere employees and then elsewhere as partners-employees, a newly
found concept, to be sure, in the law on partnership. And the confusion is
worse comfounded in the judgment which allows these "partners in name"
and "partners-employees" or employees who had no means of livelihood
and who must not have contributed any capital in the business, "as Po

Chuan was practically the owner of the partnership having the controlling
interest", /3 each of the huge assets and profits of the partnership.
Incidentally, it may be observed at this juncture that the decision has made
Po Chuan play the inconsistent role of being "practically the owner" but at
the same time getting his capital from the P125,000 given to him by plaintiff
and from which capital the business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by her exhibits to
be in the names of defendants Lim Tanhu and Ng Sua were bought by them
with partnership funds, His Honor confirmed the same by finding and
holding that "it is likewise clear that real properties together with the
improvements in the names of defendants Lim Tanhu and Ng Sua were
acquired with partnership funds as these defendants were only partnersemployees of deceased Po Chuan in the Glory Commercial Co. until the time
of his death on March 11, 1966." (p. 30, id.) It Is Our considered view,
however, that this conclusion of His Honor is based on nothing but pure
unwarranted conjecture. Nowhere is it shown in the decision how said
defendants could have extracted money from the partnership in the
fraudulent and illegal manner pretended by plaintiff. Neither in the
testimony of Nuez nor in that of plaintiff, as these are summarized in the
decision, can there be found any single act of extraction of partnership
funds committed by any of said defendants. That the partnership might
have grown into a multi-million enterprise and that the properties described
in the exhibits enumerated in the decision are not in the names of Po
Chuan, who was Chinese, but of the defendants who are Filipinos, do not
necessarily prove that Po Chuan had not gotten his share of the profits of
the business or that the properties in the names of the defendants were
bought with money of the partnership. In this connection, it is decisively
important to consider that on the basis of the concordant and mutually
cumulative testimonies of plaintiff and Nuez, respondent court found very
explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively managed
the business of the partnership Glory Commercial Co. he
was the one who made the final decisions and approved the
appointments of new Personnel who were taken in by the
partnership; that the late Po Chuan and defendants Lim
Tanhu and Ng Sua are brothers, the latter to (2) being the
elder brothers of the former; that defendants Lim Tanhu
and Ng Sua are both naturalized Filipino citizens whereas
the late Po Chuan until the time of his death was a Chinese

citizen; that the three (3) brothers were partners in the

Glory Commercial Co. but Po Chuan was practically the
owner of the partnership having the controlling interest;
that defendants Lim Tanhu and Ng Sua were partners in
name but they were mere employees of Po Chuan; .... (Pp.
90-91, Record.)
If Po Chuan was in control of the affairs and the running of the partnership,
how could the defendants have defrauded him of such huge amounts as
plaintiff had made his Honor believe? Upon the other hand, since Po Chuan
was in control of the affairs of the partnership, the more logical inference is
that if defendants had obtained any portion of the funds of the partnership
for themselves, it must have been with the knowledge and consent of Po
Chuan, for which reason no accounting could be demanded from them
therefor, considering that Article 1807 of the Civil Code refers only to what
is taken by a partner without the consent of the other partner or partners.
Incidentally again, this theory about Po Chuan having been actively
managing the partnership up to his death is a substantial deviation from the
allegation in the amended complaint to the effect that "defendants Antonio
Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng Chong
Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po Chuan was
the manager of Glory Commercial Co., defendants managed to use the
funds of the partnership to purchase lands and buildings etc. (Par. 4, p. 2 of
amended complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally did not know
any better.
Moreover, it is very significant that according to the very tax declarations
and land titles listed in the decision, most if not all of the properties
supposed to have been acquired by the defendants Lim Tanhu and Ng Sua
with funds of the partnership appear to have been transferred to their
names only in 1969 or later, that is, long after the partnership had been
automatically dissolved as a result of the death of Po Chuan. Accordingly,
defendants have no obligation to account to anyone for such acquisitions in
the absence of clear proof that they had violated the trust of Po Chuan
during the existence of the partnership. (See Hanlon vs. Hansserman and.
Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor to readily
disbelieve plaintiffs' pretensions. Nuez testified that "for about 18 years he
was in charge of the GI sheets and sometimes attended to the imported
items of the business of Glory Commercial Co." Counting 18 years back from

1965 or 1966 would take Us to 1947 or 1948. Since according to Exhibit LL,
the baptismal certificate produced by the same witness as his birth
certificate, shows he was born in March, 1942, how could he have started
managing Glory Commercial Co. in 1949 when he must have been barely six
or seven years old? It should not have escaped His Honor's attention that
the photographs showing the premises of Philippine Metal Industries after
its organization "a year or two after the establishment of Cebu Can Factory
in 1957 or 1958" must have been taken after 1959. How could Nuez have
been only 13 years old then as claimed by him to have been his age in those
photographs when according to his "birth certificate", he was born in 1942?
His Honor should not have overlooked that according to the same witness,
defendant Ng Sua was living in Bantayan until he was directed to return to
Cebu after the fishing business thereat floundered, whereas all that the
witness knew about defendant Lim Teck Chuan's arrival from Hongkong and
the expenditure of partnership money for him were only told to him
allegedly by Po Chuan, which testimonies are veritably exculpatory as to Ng
Sua and hearsay as to Lim Teck Chuan. Neither should His Honor have failed
to note that according to plaintiff herself, "Lim Tanhu was employed by her
husband although he did not go there always being a mere employee of
Glory Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known
income except their salaries. Actually, it is not stated, however, from what
evidence such conclusion was derived in so far as Ng Sua is concerned. On
the other hand, with respect to Lim Tanhu, the decision itself states that
according to Exhibit NN-Pre trial, in the supposed income tax return of Lim
Tanhu for 1964, he had an income of P4,800 as salary from Philippine Metal
Industries alone and had a total assess sable net income of P23,920.77 that
year for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per
Exhibit GG-Pretrial in the year, he had a net income of P32,000 for which be
paid a tax of P3,512.40. (id.) As early as 1962, "his fishing business in
Madridejos Cebu was making money, and he reported "a net gain from
operation (in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From
what then did his Honor gather the conclusion that all the properties
registered in his name have come from funds malversed from the
partnership?
It is rather unusual that His Honor delved into financial statements and
books of Glory Commercial Co. without the aid of any accountant or without
the same being explained by any witness who had prepared them or who
has knowledge of the entries therein. This must be the reason why there are
apparent inconsistencies and inaccuracies in the conclusions His Honor

made out of them. In Exhibit SS-Pre-trial, the reported total assets of the
company amounted to P2,328,460.27 as of December, 1965, and yet,
Exhibit TT-Pre-trial, according to His Honor, showed that the total value of
goods available as of the same date was P11,166,327.62. On the other hand,
per Exhibit XX-Pre-trial, the supposed balance sheet of the company for
1966, "the value of inventoried merchandise, both local and imported", as
found by His Honor, was P584,034.38. Again, as of December 31, 1966, the
value of the company's goods available for sale was P5,524,050.87, per
Exhibit YY and YY-Pre-trial. Then, per Exhibit II-3-Pre-trial, the supposed
Book of Account, whatever that is, of the company showed its "cash
analysis" was P12,223,182.55. We do not hesitate to make the observation
that His Honor, unless he is a certified public accountant, was hardly
qualified to read such exhibits and draw any definite conclusions therefrom,
without risk of erring and committing an injustice. In any event, there is no
comprehensible explanation in the decision of the conclusion of His Honor
that there were P12,223,182.55 cash money defendants have to account
for, particularly when it can be very clearly seen in Exhibits 11-4, 11-4- A, 115 and 11-6-Pre-trial, Glory Commercial Co. had accounts payable as of
December 31, 1965 in the amount of P4,801,321.17. (p. 15, id.) Under the
circumstances, We are not prepared to permit anyone to predicate any
claim or right from respondent court's unaided exercise of accounting
knowledge.
Additionally, We note that the decision has not made any finding regarding
the allegation in the amended complaint that a corporation denominated
Glory Commercial Co., Inc. was organized after the death of Po Chuan with
capital from the funds of the partnership. We note also that there is
absolutely no finding made as to how the defendants Dy Ochay and Co Oyo
could in any way be accountable to plaintiff, just because they happen to be
the wives of Lim Tanhu and Ng Sua, respectively. We further note that while
His Honor has ordered defendants to deliver or pay jointly and severally to
the plaintiff P4,074,394.18 or / 3 of the P12,223,182.55, the supposed cash
belonging to the partnership as of December 31, 1965, in the same breath,
they have also been sentenced to partition and give / 3 share of the
properties enumerated in the dispositive portion of the decision, which
seemingly are the very properties allegedly purchased from the funds of the
partnership which would naturally include the P12,223,182.55 defendants
have to account for. Besides, assuming there has not yet been any
liquidation of the partnership, contrary to the allegation of the defendants,
then Glory Commercial Co. would have the status of a partnership in
liquidation and the only right plaintiff could have would be to what might

result after such liquidation to belong to the deceased partner, and before
this is finished, it is impossible to determine, what rights or interests, if any,
the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In other words, no
specific amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being first
terminated.
Indeed, only time and the fear that this decision would be much more
extended than it is already prevent us from further pointing out the
inexplicable deficiencies and imperfections of the decision in question. After
all, what have been discussed should be more than sufficient to support Our
conclusion that not only must said decision be set aside but also that the
action of the plaintiff must be totally dismissed, and, were it not seemingly
futile and productive of other legal complications, that plaintiff is liable on
defendants' counterclaims. Resolution of the other issues raised by the
parties albeit important and perhaps pivotal has likewise become
superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings
held in respondent court in its Civil Case No. 12328 subsequent to the order
of dismissal of October 21, 1974 are hereby annulled and set aside,
particularly the ex-parte proceedings against petitioners and the decision on
December 20, 1974. Respondent court is hereby ordered to enter an order
extending the effects of its order of dismissal of the action dated October
21, 1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso
Leonardo Ng Sua and Co Oyo. And respondent court is hereby permanently
enjoined from taking any further action in said civil case gave and except as
herein indicated. Costs against private respondent.
Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ., concur.
[G.R. No. 70926. January 31, 1989.]
DAN FUE LEUNG, Petitioner, v. HON. INTERMEDIATE APPELLATE COURT
and LEUNG YIU,Respondents.

1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; CAUSE OF ACTION; NATURE

OF ACTION IS DETERMINED BY THE FACTS CONSTITUTING THE CAUSE OF
ACTION. The well-settled doctrine is that the." . . nature of the action
filed in court is determined by the facts alleged in the complaint as
constituting the cause of action." (De Tavera v. Philippine Tuberculosis
Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA
37).
2. CIVIL LAW; SPECIAL CONTRACTS; PARTNERSHIP; REQUISITES. The
requisites of a partnership which are 1) two or more persons bind
themselves to contribute money, property, or industry to a common fund;
and 2) intention on the part of the partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.
110)
3. ID.; ID.; ID.; OBLIGATIONS OF PARTNERS; RIGHT TO DEMAND AN
ACCOUNTING EXISTS AS LONG AS PARTNERSHIP EXISTS; PRESCRIPTION
BEGINS TO RUN ONLY UPON DISSOLUTION OF PARTNERSHIP WHEN FINAL
ACCOUNTING IS DONE. Regarding the prescriptive period within which
the private respondent may demand an accounting, Articles 1806, 1807, and
1809 show that the right to demand an accounting exists as long as the
partnership exists. Prescription begins to run only upon the dissolution of
the partnership when the final accounting is done.
4. ID.; ID.; ID.; DISSOLUTION AND WINDING UP; LIQUIDATION AND
WINDING UP OF PARTNERSHIP AFFAIRS, RETURN OF CAPITAL AND OTHER
INCIDENTS OF DISSOLUTION PROPER BECAUSE CONTINUATION OF
PARTNERSHIP HAS BECOME INEQUITABLE. There shall be a liquidation
and winding up of partnership affairs, return of capital, and other incidents
of dissolution because the continuation of the partnership has become
inequitable.

John L. Uy for Petitioner.

DECISION
Edgardo F. Sundiam for Private Respondent.
GUTIERREZ, JR., J.:
SYLLABUS

The petitioner asks for the reversal of the decision of the then Intermediate
Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the
then Court of First Instance of Manila, Branch II in Civil Case No. 116725
declaring private respondent Leung Yiu a partner of petitioner Dan Fue
Leung in the business of Sun Wah Panciteria and ordering the petitioner to
pay to the private respondent his share in the annual profits of the said
restaurant.
This case originated from a complaint filed by respondent Leung Yiu with
the then Court of First Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the annual profits derived from
the operation of Sun Wah Panciteria since October, 1955 from petitioner
Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street,
Sta. Cruz, Manila, was established sometime in October, 1955. It was
registered as a single proprietorship and its licenses and permits were
issued to and in favor of petitioner Dan Fue Leung as the sole proprietor.
Respondent Leung Yiu adduced evidence during the trial of the case to show
that Sun Wah Panciteria was actually a partnership and that he was one of
tile partners having contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:chanrob1es
virtual 1aw library
About the time the Sun Wah Panciteria started to become operational, the
private respondent gave P4,000.00 as his contribution to the partnership.
This is evidenced by a receipt identified as Exhibit "A" wherein the petitioner
acknowledged his acceptance of the P4,000.00 by affixing his signature
thereto. The receipt was written in Chinese characters so that the trial court
commissioned an interpreter in the person of Ms. Florence Yap to translate
its contents into English. Florence Yap issued a certification and testified
that the translation to the best of her knowledge and belief was correct. The
private respondent identified the signature on the receipt as that of the
petitioner (Exhibit A-3) because it was affixed by the latter in his (private
respondentss) presence. Witnesses So Sia and Antonio Ah Heng
corroborated the private respondents testimony to the effect that they
were both present when the receipt (Exhibit "A") was signed by the
petitioner. So Sia further testified that he himself received from the
petitioner a similar receipt (Exhibit D) evidencing delivery of his own

investment in another amount of P4,000.00. An examination was conducted

by the PC Crime Laboratory on orders of the trial court granting the private
respondents motion for examination of certain documentary exhibits. The
signatures in Exhibits "A" and "D" when compared to the signature of the
petitioner appearing in the pay envelopes of employees of the restaurant,
namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the
signatures in the two receipts were indeed the signatures of the
petitioner.chanrobles lawlibrary : rednad
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latters Equitable Banking Corporation
Check No. 13389470-B from the profits of the operation of the restaurant
for the year 1974. Witness Teodulo Diaz, Chief of the Savings Department of
the China Banking Corporation testified that said check (Exhibit B) was
deposited by and duly credited to the private respondents savings account
with the bank after it was cleared by the drawee bank, the Equitable
Banking Corporation. Another witness Elvira Rana of the Equitable Banking
Corporation testified that the check in question was in fact and in truth
drawn by the petitioner and debited against his own account in said bank.
This fact was clearly shown and indicated in the petitioners statement of
account after the check (Exhibit B) was duly cleared. Rana further testified
that upon clearance of the check and pursuant to normal banking
procedure, said check was returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the
amount of P4,000.00. He contested and impugned the genuineness of the
receipt (Exhibit D). His evidence is summarized as follows:chanrob1es virtual
1aw library
The petitioner did not receive any contribution at the time he started the
Sun Wah Panciteria. He used his savings from his salaries as an employee at
Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant
amounting to a little more than P2,000.00 as capital in establishing Sun Wah
Panciteria. To bolster his contention that he was the sole owner of the
restaurant, the petitioner presented various government licenses and
permits showing the Sun Wah Panciteria was and still is a single
proprietorship solely owned and operated by himself alone. Fue Leung also
flatly denied having issued to the private respondent the receipt (Exhibit G)
and the Equitable Banking Corporations Check No. 13389470 B in the
amount of P12,000.00 (Exhibit B).

As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Hence, the court ruled in favor of the
private Respondent. The dispositive portion of the decision
reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to deliver and pay to the former,
the sum equivalent to 22% of the annual profit derived from the operation
of Sun Wah Panciteria from October, 1955, until fully paid, and attorneys
fees in the amount of P5,000.00 and cost of suit." (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the
nature of a motion for new trial and, as supplement to the said motion, he
requested that the decision rendered should include the net profit of the
Sun Wah Panciteria which was not specified in the decision, and allow
private respondent to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to further
litigation.chanrobles virtual lawlibrary

"WHEREFORE, the decision appealed from is modified, the dispositive

portion thereof reading as follows:jgc:chanrobles.com.ph
"1. Ordering the defendant to pay the plaintiff by way of temperate
damages 22% of the net profit of P2,000.00 a day from judicial demand to
May 15, 1971;
"2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day
from May 16, 1971 to August 30, 1975;
"3. And thereafter until fully paid the sum equivalent to 22% of the net
profit of P8,000.00 a day.
"Except as modified, the decision of the court a quo is affirmed in all other
respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed
the lower courts decision. The dispositive portion of the resolution
reads:jgc:chanrobles.com.ph

The motion was granted over the objections of the petitioner. After hearing,
the trial court rendered an amended decision, the dispositive portion of
which reads:jgc:chanrobles.com.ph

"WHEREFORE, the dispositive portion of the amended judgment of the court

a quo reading as follows:chanrob1es virtual 1aw library

"FOR ALL THE FOREGOING CONSIDERATIONS, the motion for

reconsideration filed by the plaintiff, which was granted earlier by the Court,
is hereby reiterated and the decision rendered by this Court on September
30, 1980, is hereby amended. The dispositive portion of said decision should
read now as follows:jgc:chanrobles.com.ph

WHEREFORE, judgment is rendered in favor of the plaintiff and against the

defendant, ordering the latter to pay to the former the sum equivalent to
22% of the net profit of P8,000.00 per day from the time of judicial demand,
until fully paid, plus the sum of P5,000.00 as and for attorneys fees and
costs of suit.

"WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and

against the defendant, ordering the latter to pay the former the sum
equivalent to 22% of the net profit of P8,000.00 per day from the time of
judicial demand, until fully paid, plus the sum of P5,000.00 as and for
attorneys fees and costs of suit." (p. 150, Rollo)

is hereby retained in full and affirmed in toto it being understood that the
date of judicial demand is July 13, 1978." (pp. 105-106, Rollo).

The petitioner appealed the trial courts amended decision to the then
Intermediate Appellate Court. The questioned decision was further modified
by the appellate court. The dispositive portion of the appellate courts
decision reads:jgc:chanrobles.com.ph

Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and operations of
the panciteria. While the dispositive portions merely ordered the payment
of the respondents share, there is no question from the factual findings

In the same resolution, the motion for reconsideration filed by petitioner

was denied.chanrobles lawlibrary : rednad

that the respondent invested in the business as a partner. Hence, the two
courts declared that the private petitioner is entitled to a share of the
annual profits of the restaurant. The petitioner, however, claims that this
factual finding is erroneous. Thus, the petitioner argues: "The complaint
avers that private respondent extended financial assistance to herein
petitioner at the time of the establishment of the Sun Wah Panciteria, in
return of which private respondent allegedly will receive a share in the
profits of the restaurant. The same complaint did not claim that private
respondent is a partner of the business. It was, therefore, a serious error for
the lower court and the Hon. Intermediate Appellate Court to grant a relief
not called for by the complaint. It was also error for the Hon. Intermediate
Appellate Court to interpret or construe financial assistance to mean the
contribution of capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:chanrob1es virtual 1aw library
x
x
x

"2. That on or about the latter (sic) of September, 1955, defendant sought
the financial assistance of plaintiff in operating the defendants eatery
known as Sun Wah Panciteria, located in the given address of defendant; as
a return for such financial assistance. plaintiff would be entitled to twentytwo percentum (22%) of the annual profit derived from the operation of the
said panciteria;
"3. That on October 1, 1955, plaintiff delivered to the defendant the sum of
four thousand pesos (P4,000.00), Philippine Currency, of which copy for the
receipt of such amount, duly acknowledged by the defendant is attached
hereto as Annex "A", and form an integral part hereof;" (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria
was established, he gave P4,000.00 to the petitioner with the understanding
that he would be entitled to twenty-two percent (22%) of the annual profit
derived from the operation of the said panciteria. These allegations, which
were proved, make the private respondent and the petitioner partners in
the establishment of Sun Wah Panciteria because Article 1767 of the Civil
Code provides that "By the contract of partnership two or more persons
bind themselves to contribute money, property or industry to a common
fund, with the intention of dividing the profits among themselves."

Therefore, the lower courts did not err in construing the complaint as one
wherein the private respondent asserted his rights as partner of the
petitioner in the establishment of the Sun Wah Panciteria, notwithstanding
the use of the term financial assistance therein. We agree with the appellate
courts observation to the effect that." . . given its ordinary meaning,
financial assistance is the giving out of money to another without the
expectation of any returns therefrom. It connotes an ex gratia dole out in
favor of someone driven into a state of destitution. But this circumstance
under which the P4,000.00 was given to the petitioner does not obtain in
this case." (p. 99, Rollo) The complaint explicitly stated that "as a return for
such financial assistance, plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria." (p. 107, Rollo) The well-settled doctrine is
that the." . . nature of the action filed in court is determined by the facts
alleged in the complaint as constituting the cause of action." (De Tavera v.
Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v.
Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant
case was whether or not the private respondent is a partner of the
petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in
giving probative value to the PC Crime Laboratory Report (Exhibit "J") on the
ground that the alleged standards or specimens used by the PC Crime
Laboratory in arriving at the conclusion were never testified to by any
witness nor has any witness identified the handwriting in the standards or
specimens belonging to the petitioner. The supposed standards or
specimens of handwriting were marked as Exhibits "H", "H-1" to "H-24" and
admitted as evidence for the private respondent over the vigorous objection
of the petitioners counsel.chanrobles law library
The records show that the PC Crime Laboratory upon orders of the lower
court examined the signatures in the two receipts issued separately by the
petitioner to the private respondent and So Sia (Exhibits "A" and "D") and
compared the signatures on them with the signatures of the petitioner on
the various pay envelopes (Exhibits "H", "H-1" to "H-24") of Antonio Ah
Heng and Maria Wong, employees of the restaurant. After the usual
examination conducted on the questioned documents, the PC Crime
Laboratory submitted its findings (Exhibit J) attesting that the signatures

appearing in both receipts (Exhibits "A" and "D") were the signatures of the
petitioner.

creditor, and when there is any written acknowledgment of the debt by the
debtor."cralaw virtua1aw library

The records also show that when the pay envelopes (Exhibits "H", "H-1" to
"H-24") were presented by the private respondent for marking as exhibits,
the petitioner did not interpose any objection. Neither did the petitioner file
an opposition to the motion of the private respondent to have these
exhibits together with the two receipts examined by the PC Crime
Laboratory despite due notice to him. Likewise, no explanation has been
offered for his silence nor was any hint of objection registered for that
purpose.

The argument is not well-taken.

Under these circumstances, we find no reason why Exhibit "J" should be

rejected or ignored. The records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not resolving the
issue of prescription in favor of petitioner. The alleged receipt is dated
October 1, 1955 and the complaint was filed only on July 13, 1978 or after
the lapse of twenty-two (22) years, nine (9) months and twelve (12) days.
From October 1, 1955 to duly 13, 1978, no written demands were ever
made by private Respondent.
The petitioners argument is based on Article 1144 of the Civil Code which
provides:chanrob1es virtual 1aw library
Art. 1144. The following actions must be brought within ten years from the
time the right of section accrues:jgc:chanrobles.com.ph

The private respondent is a partner of the petitioner in Sun Wah Panciteria.

The requisites of a partnership which are 1) two or more persons bind
themselves to contribute money, property, or industry to a common fund;
and 2) intention on the part of the partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.
110) have been established. As stated by the respondent, a partner
shares not only in profits but also in the losses of the firm. If excellent
relations exist among the partners at the start of business and all the
partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly
plausible. It would be incorrect to state that if a partner does not assert his
rights anytime within ten years from the start of operations, such rights are
irretrievably lost. The private respondents cause of action is premised upon
the failure of the petitioner to give him the agreed profits in the operation
of Sun Wah Panciteria. In effect the private respondent was asking for an
accounting of his interests in the partnership.cralawnad
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155
which is applicable. Article 1842 states:jgc:chanrobles.com.ph
"The right to an account of his interest shall accrue to any partner, or his
legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date of
dissolution, in the absence or any agreement to the contrary."cralaw
virtua1aw library

"(1) Upon a written contract;

(2) Upon an obligation created by law;
(3) Upon a judgment."cralaw virtua1aw library

Regarding the prescriptive period within which the private respondent may
demand an accounting, Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the partnership exists. Prescription
begins to run only upon the dissolution of the partnership when the final
accounting is done.

in relation to Article 1155 thereof which provides:jgc:chanrobles.com.ph

"Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extra-judicial demand by the

Finally, the petitioner assails the appellate courts monetary awards in favor
of the private respondent for being excessive and unconscionable and
above the claim of private respondent as embodied in his complaint and

testimonial evidence presented by said private respondent to support his

claim in the complaint.
Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup,
to testify on the income of the restaurant.

catering outside the place.

"Q What about the catering service, will you please tell the Honorable Court
how many times a week were there catering services?
"A Sometimes three times a month; sometimes two times a month or more.
x
x
x

Mrs. Licup stated:jgc:chanrobles.com.ph

"ATTY. HIPOLITO (direct examination to Mrs. Licup).

"Q Now more or less, do you know the cost of the catering service?

"Q Mrs. Witness, yon stated that among your duties was that you were in
charge of the custody of the cashiers box, of the money, being the cashier,
is that correct?

"A Yes, because I am the one who receives the payment also of the catering.

"A Yes, sir.

"A That ranges from two thousand to six thousand pesos, sir.

"Q So that every time there is a customer who pays, you were the one who
accepted the money and you gave the change, if any, is that correct?

"Q Per service?

"Q How much is that?

"A Per service, Per catering.

"A Yes.
"Q Now, after 11:30 (P.M.) which is the closing time as you said, what do
you do with the money?

"Q So in other words, Mrs. witness, for your shift alone in a single day from
3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an income of
P7,000.00 in a regular day?

"A We balance it with the manager, Mr. Dan Fue Leung.

"A Yes.

"ATTY. HIPOLITO:chanrob1es virtual 1aw library

"Q And ten thousand pesos during pay day?

I see.

"A Yes.(TSN, pp. 53 to 59, inclusive, November 15, 1978).

x
x
x

"Q So, in other words, after your job, you huddle or confer together?
"A Yes, count it all. I total it. We sum it up.

"COURT:chanrob1es virtual 1aw library

"Q Now, Mrs. Witness, in an average day, more or less, will you please tell
us, how much is the gross income of the restaurant?

Any cross?
"ATTY. UY (counsel for defendant):chanrob1es virtual 1aw library

"A For regular days, I received around P7,000.00 a day during my shift alone
and during pay days I receive more than P10,000.00. That is excluding the

No cross-examination, Your Honor. (TSN. p. 65, November 15, 1978)."

(Rollo, pp. 127-128)

The statements of the cashier were not rebutted. Not only did the
petitioners counsel waive the cross-examination on the matter of income
but he failed to comply with his promise to produce pertinent records.
When a subpoena duces tecum was issued to the petitioner for the
production of their records of sale, his counsel voluntarily offered to bring
them to court. He asked for sufficient time prompting the court to cancel all
hearings for January, 1981 and reset them to the later part of the following
month. The petitioners counsel never produced any books, prompting the
trial court to state:chanrobles virtual lawlibrary
"Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book, ledgers, journals and for this
purpose, employed a bookkeeper. This inspired the Court to ask counsel for
the defendant to bring said records and counsel for the defendant promised
to bring those that were available. Seemingly, that was the reason why this
case dragged for quite sometime. To bemuddle the issue, defendant instead
of presenting the books where the same, etc. were recorded, presented
witnesses who claimed to have supplied chicken, meat, shrimps, egg and
other poultry products which, however, did not show the gross sales nor
does it prove that the same is the best evidence. This Court gave warning to
the defendants counsel that if he failed to produce the books, the same will
be considered a waiver on the part of the defendant to produce the said
books inimitably showing decisive records on the income of the eatery
pursuant to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully
suppressed would be adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due
process to the petitioner.
"The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness. Notably
there were several postponement asked by counsel for the defendant and
the last one was on October 1, 1981 when he asked that this case be
postponed for 45 days because said defendant was then in Hongkong and
he (defendant) will be back after said period. The Court acting with great
concern and understanding reset the hearing to November 17, 1981. On

said date, the counsel for the defendant who again failed to present the
defendant asked for another postponement, this time to November 24,
1981 in order to give said defendant another judicial magnanimity and
substantial due process. It was however a condition in the order granting
the postponement to said date that if the defendant cannot be presented,
counsel is deemed to have waived the presentation of said witness and will
submit his case for decision.
"On November 24, 1981, there being a typhoon prevailing in Manila said
date was declared a partial non-working holiday, so much so, the hearing
was reset to December 7 and 22, 1981. On December 7, 1981, on motion of
defendants counsel, the same was again reset to December 22, 1981 as
previously scheduled which hearing was understood as intransferable in
character. Again on December 22, 1981, the defendants counsel asked for
postponement on the ground that the defendant was sick. The Court, after
much tolerance and judicial magnanimity, denied said motion and ordered
that the case be submitted for resolution based on the evidence on record
and gave the parties 30 days from December 23, 1981, within which to file
their simultaneous memoranda." (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in
front of the Republic Supermarket. It is near the corner of Claro M. Recto
Street. According to the trial court, it is in the heart of Chinatown where
people who buy and sell jewelries, businessmen, brokers, manager, bank
employees, and people from all walks of life converge and patronize Sun
Wah.
There is more than substantial evidence to support the factual findings of
the trial court and the appellate court. If the respondent court awarded
damages only from judicial demand in 1978 and not from the opening of the
restaurant in 1955, it is because of the petitioners contentions that all
profits were being plowed back into the expansion of the business. There is
no basis in the records to sustain the petitioners contention that the
damages awarded are excessive. Even if the Court is minded to modify the
factual findings of both the trial court and the appellate court, it cannot
refer to any portion of the records for such modification. There is no basis in
the records for this Court to change or set aside the factual findings of the
trial court and the appellate court. The petitioner was given every
opportunity to refute or rebut the respondents submissions but, after
promising to do so, it deliberately failed to present its books and other

evidence.
Fernan, (C.J., Chairman), Feliciano, Bidin and Cortes, JJ., concur.
The resolution of the Intermediate Appellate Court ordering the payment of
the petitioners obligation shows that the same continues until fully paid.
The question now arises as to whether or not the payment of a share of
profits shall continue into the future with no fixed ending date.chanrobles
law library : red
Considering the facts of this case, the Court may decree a dissolution of the
partnership under Article 1831 of the Civil Code which, in part,
provides:jgc:chanrobles.com.ph
"Art. 1831. On application by or for a partner the court shall decree a
dissolution whenever:chanrob1es virtual 1aw library
x
x
x

"(3) A partner has been guilty of such conduct as tends to affect prejudicially
the carrying on of the business;
"(4) A partner willfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
x
x
x

"(6) Other circumstances render a dissolution equitable."cralaw virtua1aw

library
There shall be a liquidation and winding up of partnership affairs, return of
capital, and other incidents of dissolution because the continuation of the
partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit.
The decision of the respondent court is AFFIRMED with a MODIFICATION
that as indicated above, the partnership of the parties is ordered dissolved.
SO ORDERED.

[G.R. No. 126334. November 23, 2001.]

EMILIO EMNACE, Petitioner, v. COURT OF APPEALS, ESTATE OF VICENTE
TABANAO, SHERWIN TABANAO, VICENTE WILLIAM TABANAO, JANETTE
TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO
and VINCENT TABANAO, Respondents.
DECISION

YNARES-SANTIAGO, J.:

Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were

partners in a business concern known as Ma. Nelma Fishing Industry.
Sometime in January of 1986, they decided to dissolve their partnership and
executed an agreement of partition and distribution of the partnership
properties among them, consequent to Jacinto Divinagracias withdrawal
from the partnership. 1 Among the assets to be distributed were five (5)
fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Nio and
Talisay, Negros Occidental, and cash deposits in the local branches of the
Bank of the Philippine Islands and Prudential Bank.chanrob1es virtua1 1aw
1ibrary
Throughout the existence of the partnership, and even after Vicente
Tabanaos untimely demise in 1994, petitioner failed to submit to Tabanaos
heirs any statement of assets and liabilities of the partnership, and to render

an accounting of the partnerships finances. Petitioner also reneged on his

promise to turn over to Tabanaos heirs the deceaseds 1/3 share in the
total assets of the partnership, amounting to P30,000,000.00, or the sum of
P10,000,000.00, despite formal demand for payment thereof. 2

the correct docket fee may be paid. Finally, the trial court held that the heirs
of Tabanao had a right to sue in their own names, in view of the provision of
Article 777 of the Civil Code, which states that the rights to the succession
are transmitted from the moment of the death of the decedent. 6

Consequently, Tabanaos heirs, respondents herein, filed against petitioner

an action for accounting, payment of shares, division of assets and damages.
3 In their complaint, respondents prayed as follows:chanrob1es virtual 1aw
library

The following day, respondents filed an amended complaint, 7 incorporating

the additional prayer that petitioner be ordered to "sell all (the
partnerships) assets and thereafter pay/remit/deliver/surrender/yield to
the plaintiffs" their corresponding share in the proceeds thereof. In due
time, petitioner filed a manifestation and motion to dismiss, 8 arguing that
the trial court did not acquire jurisdiction over the case due to the plaintiffs
failure to pay the proper docket fees. Further, in a supplement to his motion
to dismiss, 9 petitioner also raised prescription as an additional ground
warranting the outright dismissal of the complaint.

1. Defendant be ordered to render the proper accounting of all the assets

and liabilities of the partnership at bar; and
2. After due notice and hearing defendant be ordered to
pay/remit/deliver/surrender/yield to the plaintiffs the following:chanrob1es
virtual 1aw library
A. No less than One Third (1/3) of the assets, properties, dividends, cash,
land(s), fishing vessels, trucks, motor vehicles, and other forms and
substance of treasures which belong and/or should belong, had accrued
and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral
damages;
C. Attorneys fees equivalent to Thirty Percent (30%) of the entire
share/amount/award which the Honorable Court may resolve the plaintiffs
as entitled to plus P1,000.00 for every appearance in court. 4
Petitioner filed a motion to dismiss the complaint on the grounds of
improper venue, lack of jurisdiction over the nature of the action or suit,
and lack of capacity of the estate of Tabanao to sue. 5 On August 30, 1994,
the trial court denied the motion to dismiss. It held that venue was properly
laid because, while realties were involved, the action was directed against a
particular person on the basis of his personal liability; hence, the action is
not only a personal action but also an action in personam. As regards
petitioners argument of lack of jurisdiction over the action because the
prescribed docket fee was not paid considering the huge amount involved in
the claim, the trial court noted that a request for accounting was made in
order that the exact value of the partnership may be ascertained and, thus,

On June 15, 1995, the trial court issued an Order, 10 denying the motion to
dismiss inasmuch as the grounds raised therein were basically the same as
the earlier motion to dismiss which has been denied. Anent the issue of
prescription, the trial court ruled that prescription begins to run only upon
the dissolution of the partnership when the final accounting is done. Hence,
prescription has not set in the absence of a final accounting. Moreover, an
action based on a written contract prescribes in ten years from the time the
right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals, 11
raising the following issues:chanrob1es virtual 1aw library
I. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in taking cognizance of a case despite the failure to pay
the required docket fee;
II. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in insisting to try the case which involve (sic) a parcel of
land situated outside of its territorial jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction or with
grave abuse of discretion in allowing the estate of the deceased to appear
as party plaintiff, when there is no intestate case and filed by one who was
never appointed by the court as administratrix of the estates; and

IV. Whether or not respondent Judge acted without jurisdiction or with

grave abuse of discretion in not dismissing the case on the ground of
prescription.
On August 8, 1996, the Court of Appeals rendered the assailed decision, 12
dismissing the petition forcertiorari, upon a finding that no grave abuse of
discretion amounting to lack or excess of jurisdiction was committed by the
trial court in issuing the questioned orders denying petitioners motions to
dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the
same issues resolved by the Court of Appeals, namely:chanrob1es virtual
1aw library
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial court is outside
the said courts territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao;
and
IV. Prescription of the plaintiff heirs cause of action.
It can be readily seen that respondents primary and ultimate objective in
instituting the action below was to recover the decedents 1/3 share in the
partnerships assets. While they ask for an accounting of the partnerships
assets and finances, what they are actually asking is for the trial court to
compel petitioner to pay and turn over their share, or the equivalent value
thereof, from the proceeds of the sale of the partnership assets. They also
assert that until and unless a proper accounting is done, the exact value of
the partnerships assets, as well as their corresponding share therein,
cannot be ascertained. Consequently, they feel justified in not having paid
the commensurate docket fee as required by the Rules of Court.
We do not agree. The trial court does not have to employ guesswork in
ascertaining the estimated value of the partnerships assets, for
respondents themselves voluntarily pegged the worth thereof at Thirty
Million Pesos (P30,000,000.00). Hence, this case is one which is really not
beyond pecuniary estimation, but rather partakes of the nature of a simple

collection case where the value of the subject assets or amount demanded
is pecuniarily determinable. 13 While it is true that the exact value of the
partnerships total assets cannot be shown with certainty at the time of
filing, respondents can and must ascertain, through informed and practical
estimation, the amount they expect to collect from the partnership,
particularly from petitioner, in order to determine the proper amount of
docket and other fees. 14 It is thus imperative for respondents to pay the
corresponding docket fees in order that the trial court may acquire
jurisdiction over the action. 15
Nevertheless, unlike in the case of Manchester Development Corp. v. Court
of Appeals, 16 where there was clearly an effort to defraud the government
in avoiding to pay the correct docket fees, we see no attempt to cheat the
courts on the part of respondents. In fact, the lower courts have noted their
expressed desire to remit to the court "any payable balance or lien on
whatever award which the Honorable Court may grant them in this case
should there be any deficiency in the payment of the docket fees to be
computed by the Clerk of Court." 17 There is evident willingness to pay, and
the fact that the docket fee paid so far is inadequate is not an indication
that they are trying to avoid paying the required amount, but may simply be
due to an inability to pay at the time of filing. This consideration may have
moved the trial court and the Court of Appeals to declare that the unpaid
docket fees shall be considered a lien on the judgment award.
Petitioner, however, argues that the trial court and the Court of Appeals
erred in condoning the non-payment of the proper legal fees and in allowing
the same to become a lien on the monetary or property judgment that may
be rendered in favor of respondents. There is merit in petitioners assertion.
The third paragraph of Section 16, Rule 141 of the Rules of Court states
that:chanrob1es virtual 1aw library
The legal fees shall be a lien on the monetary or property judgment in favor
of the pauper-litigant.
Respondents cannot invoke the above provision in their favor because it
specifically applies to pauper-litigants. Nowhere in the records does it
appear that respondents are litigating as paupers, and as such are exempted
from the payment of court fees. 18
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules

of Court, which defines the two kinds of claims as: (1) those which are
immediately ascertainable; and (2) those which cannot be immediately
ascertained as to the exact amount. This second class of claims, where the
exact amount still has to be finally determined be the courts based on
evidence presented, falls squarely under the third paragraph of said Section
5(a), which provides:chanrob1es virtual 1aw library
In case the value of the property or estate or the sum claimed is less or
more in accordance with the appraisal of the court, the difference of fee
shall be refunded or paid as the case may be. (Emphasis ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals, 19 this Court
pronounced that the above-quoted provision "clearly contemplates an
initial payment of the filing fees corresponding to the estimated amount of
the claim subject to adjustment as to what later may be proved." 20
Moreover, we reiterated therein the principle that the payment of filing fees
cannot be made contingent or dependent on the result of the case. Thus, an
initial payment of the docket fees based on an estimated amount must be
paid simultaneous with the filing of the complaint. Otherwise, the court
would stand to lose the filing fees should the judgment later turn out to be
adverse to any claim of the respondent heirs.
The matter of payment of docket fees is not a mere triviality. These fees are
necessary to defray court expenses in the handling of cases. Consequently,
in order to avoid tremendous losses to the judiciary, and to the government
as well, the payment of docket fees cannot be made dependent on the
outcome of the case, except when the claimant is a pauper-litigant.
Applied to the instant case, respondents have a specific claim 1/3 of the
value of all the partnership assets but they did not allege a specific
amount. They did, however, estimate the partnerships total assets to be
worth Thirty Million Pesos (P30,000,000.00), in a letter 21 addressed to
petitioner. Respondents cannot now say that they are unable to make an
estimate, for the said letter and the admissions therein form part of the
records of this case. They cannot avoid paying the initial docket fees by
conveniently omitting the said amount in their amended complaint. This
estimate can be made the basis for the initial docket fees that respondents
should pay. Even if it were later established that the amount proved was
less or more than the amount alleged or estimated, Rule 141, Section 5(a) of
the Rules of Court specifically provides that the court may refund the excess

or exact additional fees should the initial payment be insufficient. It is clear

that it is only the difference between the amount finally awarded and the
fees paid upon filing of this complaint that is subject to adjustment and
which may be subjected to a lien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano
Asuncion, 22 this Court held that when the specific claim "has been left for
the determination by the court, the additional filing fee therefor shall
constitute a lien on the judgment and it shall be the responsibility of the
Clerk of Court or his duly authorized deputy to enforce said lien and assess
and collect the additional fee." Clearly, the rules and jurisprudence
contemplate the initial payment of filing and docket fees based on the
estimated claims of the plaintiff, and it is only when there is a deficiency
that a lien may be constituted on the judgment award until such additional
fee is collected.
Based on the foregoing, the trial court erred in not dismissing the complaint
outright despite their failure to pay the proper docket fees. Nevertheless, as
in other procedural rules, it may be liberally construed in certain cases if
only to secure a just and speedy disposition of an action. While the rule is
that the payment of the docket fee in the proper amount should be adhered
to, there are certain exceptions which must be strictly construed. 23
In recent rulings, this Court has relaxed the strict adherence to the
Manchester doctrine, allowing the plaintiff to pay the proper docket fees
within a reasonable time before the expiration of the applicable prescriptive
or reglementary period. 24
In the recent case of National Steel Corp. v. Court of Appeals, 25 this Court
held that:chanrob1es virtual 1aw library
The court acquires jurisdiction over the action if the filing of the initiatory
pleading is accompanied by the payment of the requisite fees, or, if the fees
are not paid at the time of the filing of the pleading, as of the time of full
payment of the fees within such reasonable time as the court may grant,
unless, of course, prescription has set in the meantime.
It does not follow, however, that the trial court should have dismissed the
complaint for failure of private respondent to pay the correct amount of
docket fees. Although the payment of the proper docket fees is a

jurisdictional requirement, the trial court may allow the plaintiff in an action
to pay the same within a reasonable time before the expiration of the
applicable prescriptive or reglementary period. If the plaintiff fails to comply
within this requirement, the defendant should timely raise the issue of
jurisdiction or else he would be considered in estoppel. In the latter case,
the balance between the appropriate docket fees and the amount actually
paid by the plaintiff will be considered a lien or any award he may obtain in
his favor. (Emphasis ours)
Accordingly, the trial court in the case at bar should determine the proper
docket fee based on the estimated amount that respondents seek to collect
from petitioner, and direct them to pay the same within a reasonable time,
provided the applicable prescriptive or reglementary period has not yet
expired. Failure to comply therewith, and upon motion by petitioner, the
immediate dismissal of the complaint shall issue on jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the trial
court and the Court of Appeals in holding that the case below is a personal
action which, under the Rules, may be commenced and tried where the
defendant resides or may be found, or where the plaintiffs reside, at the
election of the latter. 26
Petitioner, however, insists that venue was improperly laid since the action
is a real action involving a parcel of land that is located outside the
territorial jurisdiction of the court a quo. This contention is not well-taken.
The records indubitably show that respondents are asking that the assets of
the partnership be accounted for, sold and distributed according to the
agreement of the partners. The fact that two of the assets of the
partnership are parcels of land does not materially change the nature of the
action. It is an action in personam because it is an action against a person,
namely,Petitioner, on the basis of his personal liability. It is not an action in
rem where the action is against the thing itself instead of against the
person. 27 Furthermore, there is no showing that the parcels of land
involved in this case are being disputed. In fact, it is only incidental that part
of the assets of the partnership under liquidation happen to be parcels of
land.
The time-tested case of Claridades v. Mercader, Et Al., 28 settled this issue
thus:chanrob1es virtual 1aw library

The fact that plaintiff prays for the sale of the assets of the partnership,
including the fishpond in question, did not change the nature or character of
the action, such sale being merely a necessary incident of the liquidation of
the partnership, which should precede and/or is part of its process of
dissolution.
The action filed by respondents not only seeks redress against petitioner. It
also seeks the enforcement of, and petitioners compliance with, the
contract that the partners executed to formalize the partnerships
dissolution, as well as to implement the liquidation and partition of the
partnerships assets. Clearly, it is a personal action that, in effect, claims a
debt from petitioner and seeks the performance of a personal duty on his
part. 29 In fine, respondents complaint seeking the liquidation and partition
of the assets of the partnership with damages is a personal action which
may be filed in the proper court where any of the parties reside. 30 Besides,
venue has nothing to do with jurisdiction for venue touches more upon the
substance or merits of the case. 31 As it is, venue in this case was properly
laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente
Tabanao has no legal capacity to sue since she was never appointed as
administratrix or executrix of his estate. Petitioners objection in this regard
is misplaced. The surviving spouse does not need to be appointed as
executrix or administratrix of the estate before she can file the action. She
and her children are complainants in their own right as successors of
Vicente Tabanao. From the very moment of Vicente Tabanaos death, his
rights insofar as the partnership was concerned were transmitted to his
heirs, for rights to the succession are transmitted from the moment of
death of the decedent. 32
Whatever claims and rights Vicente Tabanao had against the partnership
and petitioner were transmitted to respondents by operation of law, more
particularly by succession, which is a mode of acquisition by virtue of which
the property, rights and obligations to the extent of the value of the
inheritance of a person are transmitted. 33 Moreover, respondents became
owners of their respective hereditary shares from the moment Vicente
Tabanao died. 34
A prior settlement of the estate, or even the appointment of Salvacion
Tabanao as executrix or administratrix, is not necessary for any of the heirs

to acquire legal capacity to sue. As successors who stepped into the shoes of
their decedent upon his death, they can commence any action originally
pertaining to the decedent. 35 From the moment of his death, his rights as a
partner and to demand fulfillment of petitioners obligations as outlined in
their dissolution agreement were transmitted to respondents. They,
therefore, had the capacity to sue and seek the courts intervention to
compel petitioner to fulfill his obligations.
Finally, petitioner contends that the trial court should have dismissed the
complaint on the ground of prescription, arguing that respondents action
prescribed four (4) years after it accrued in 1986. The trial court and the
Court of Appeals gave scant consideration to petitioners hollow arguments,
and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2) windingup; and (3) termination. 36 The partnership, although dissolved, continues
to exist and its legal personality is retained, at which time it completes the
winding up of its affairs, including the partitioning and distribution of the
net partnership assets to the partners. 37 For as long as the partnership
exists, any of the partners may demand an accounting of the partnerships
business. Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is done. 38

action before the trial court, since petitioner has failed or refused to render
an accounting of the partnerships business and assets. Hence, the said
action is not barred by prescription.
In fine, the trial court neither erred nor abused its discretion when it denied
petitioners motions to dismiss. Likewise, the Court of Appeals did not
commit reversible error in upholding the trial courts orders. Precious time
has been lost just to settle this preliminary issue, with petitioner
resurrecting the very same arguments from the trial court all the way up to
the Supreme Court. The litigation of the merits and substantial issues of this
controversy is now long overdue and must proceed without further
delay.chanrob1es virtua1 1aw 1ibrary
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for
lack of merit, and the case is REMANDED to the Regional Trial Court of Cadiz
City, Branch 60, which is ORDERED to determine the proper docket fee
based on the estimated amount that plaintiffs therein seek to collect, and
direct said plaintiffs to pay the same within a reasonable time, provided the
applicable prescriptive or reglementary period has not yet expired.
Thereafter, the trial court is ORDERED to conduct the appropriate
proceedings in Civil Case No. 416-C.
Costs against petitioner.

Contrary to petitioners protestations that respondents right to inquire into

the business affairs of the partnership accrued in 1986, prescribing four (4)
years thereafter, prescription had not even begun to run in the absence of a
final accounting. Article 1842 of the Civil Code provides:chanrob1es virtual
1aw library
The right to an account of his interest shall accrue to any partner, or his
legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date of
dissolution, in the absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the duty
to account, the above-cited provision states that the right to demand an
accounting accrues at the date of dissolution in the absence of any
agreement to the contrary. When a final accounting is made, it is only then
that prescription begins to run. In the case at bar, no final accounting has
been made, and that is precisely what respondents are seeking in their

SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.