SECOND DIVISION

[ G.R. No. L-30616, December 10, 1990 ]

EUFRACIO D. ROJAS, PLAINTIFF-APPELLANT, VS. CONSTANCIO B. MAGLANA, DEFENDANT-APPELLEE.

DECISION

PARAS, J.:

This is a direct appeal to this Court from a decision* of the then Court of First Instance of Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's complaint.

As found by the trial court, the antecedent facts of the case are as follows:

On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership
EDE with an indefinite term of existence was duly registered on January 21, 1955 with the Securities and Exchange Commission.

One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests products licenses and concessions over public and/or private forest lands and to operate,
develop and promote such forests rights and concessions." (Rollo, p. 114)

A duly registered Articles of Co-Partnership was filed together with an application for a timber concession covering the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was
approved and Timber License No. 35-56 was duly issued and became the basis of subsequent renewals made for and in behalf of the duly registered partnership EDE.

Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the partnership, including marketing and handling of cash and is authorized to sign all papers and
instruments relating to the partnership, while appellant Rojas shall be the logging superintendent and shall manage the logging operations of the partnership. It is also provided in the said articles of co-
partnership that all profits and losses of the partnership shall be divided share and share alike between the partners.

During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership (Record on Appeal [R.A.] p. 946).

Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as industrial partner.

On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES
(EDE). Aside from the slight difference in the purpose of the secondpartnership which is to hold and secure renewal of timber license instead of to secure the license as in the first partnership and the
term ofthe second partnership is fixed to thirty (30) years, everything else is the same.

The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to ship logs and realizeprofits. An income was derived from the proceeds of the logs in the
sum of P643,633.07 (Decision, R.A. 919).

On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISES"
(Exhibits "C" and "D") agreeing among themselves that Maglana and Rojas shall purchase the interest, share and participation in the Partnership of Pahamotang assessed in the amount of P31,501.12. It
was also agreed in the said instrument that after payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured by Pahamotang in favor of the partnership, the two (Maglana and
Rojas) shall become the owners of all equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second partnership, be
dissolved. Pahamotang was paid in full on August 31, 1957. No other rights and obligations accrued in the name of the second partnership (R.A. 921).

After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of any written agreement or reconstitution of their written Articles of Partnership (Decision,
R.A. 948).

On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947).

On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area (Decision, R.A. 948).

The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).

On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in equipment, to the capital investments of the partnership as well as his obligation to perform
his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised contributions and he will not work as logging superintendent. Maglana then told Rojas that the
latter's share will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949).

On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery of properties, accounting, receivership and damages, docketed as Civil Case No. 3518
(Record on Appeal, pp. 1-26).

Rojas' petition for appointment of a receiver was denied (R.A. 894).

Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-895).

The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the
entire year 1961 in the report to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started examining the records and supporting papers of the partnership as well as
the information furnished them by the parties, which were compiled in three (3) volumes.

On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim attaching thereto the amended answer (Ibid., pp. 26?336), which was granted on May 22, 1964 (Ibid.,
p. 336).

On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).

On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the report of the commissioners which was opposed by the appellee.

On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).

A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed upon to be submitted to the trialcourt:

(a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the second partnership;

(b) Their sharing basis: whether in proportion to their contribution or share and share alike;

(c) The ownership of properties bought by Maglana in his wife's name;

(d) The damages suffered and who should be liable for them; and

(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision, R. A. pp. 895-896).

After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads as follows:

"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court declaring that:

"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired from the second partnership, that is, after August 31, 1957, when Pahamotang was finally paid his
share - the partnership of the defendant and the plaintiff is one of a de facto and at will;

"2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and proportion of their respective contributions, or on the basis of share and share alike - this covered
by actual contributions of the plaintiff and the defendant and by their verbal agreement; that the sharing of profits and losses is on the basis of actual contributions; that from 1957 to 1959, the sharing is on
the basis of 80% for the defendant and 20% for the plaintiff of the profits, but from 1960 to the date of dissolution, February 23, 1961, the plaintiff's share will be on the basis of his actual contribution and,
considering his indebtedness to the partnership, the plaintiff is not entitled to any share in the profits of the said partnership;

"3. As to whether the properties which were bought by the defendant and placed in his or in his wife's name were acquired with partnership funds or with funds of the defendant and - the Court declares
that there is no evidence that these properties were acquired the partnership funds, and therefore the same should not belong to the partnership;

"4. As to whether damages were suffered and, if so, how much, and who caused them and who should be liable for them - the Court declares that neither parties is entitled to damages, for as already
stated above it is not a wise policy to place a price on the right of a person to litigate and/or to come to Court for the assertion of the rights they believe they are entitled to;

"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961; did it dissolve the partnership or not - the Court declares that the letter of the defendant to the plaintiff
dated February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise to the laborers and employees of the Eastcoast Development Enterprises, - the COURT DECLARES
THE SAME AS NOT BELONGING TO THE PARTNERSHIP;

"7. That the alleged sale of forest concession Exhibit '9-B' executed by Pablo Angeles David - is VALID AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS PART OF
MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP;

"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount of P69,000.00 the profits he received from the CMS Estate, Inc. operated by him;

"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which according to him he is still entitled to receive from the CMS Estate, Inc. is hereby denied considering that it
has not yet been actually received, and further the receipt is merely based upon an expectancy and/or still speculative;

"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal account to the partnership;

"11. The Court also credits the defendant the amount of P85,000.00 the amount he should have received as logging superintendent, and which was not paid to him, and this should be considered as part
of Maglana's contribution likewise to the partnership; and

"12. The complaint is hereby dismissed with costs against the plaintiff.

"SO ORDERED." (Decision, Record on Appeal, pp. 985-989).

Rojas interposed the instant appeal.

The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after Pahamotang retired from the second partnership.

The lower court is of the view that the second partnership superseded the first, so that when the second partnership was dissolved there was no written contract of co-partnership; there was no
reconstitution as provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which was carried on by Rojas and Maglana after the dissolution of the second
partnership was a de factopartnership and at will. It was considered as a partnership at will because there was no term, express or implied; no period was fixed, expressly or impliedly (Decision, R.A. pp.
962-963).

On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955
(Exhibit "A") has not been novated, superseded and/or dissolved by the unregistered articles of co-partnership among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956
(Exhibit "C") and accordingly, the terms and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the relations between him and Maglana. Upon withdrawal of
Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit "A") continues to govern the relations between them and it was legal error to consider
a de factopartnership between said two partners or a partnership at will. Hence, the letter of appellee MagIana dated February 23, 1961, did not legally dissolve the registered partnership between them,
being in contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article 1837 of the
Civil Code and to the sharing profits between them of "share and share alike" as stipulated in the registered Articles of Co-Partnership (Exhibit "A").

After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident that it was not the intention of the partners to dissolve the first partnership, upon the
constitution of the second one, which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for the fact that they took in one industrial
partner; gave him an equal share in the profits and fixed the term of the second partnership to thirty 30 years, everything else was the same. Thus, they adopted the same name, EASTCOAST
DEVELOPMENT ENTERPRISES, they pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated in both partnerships call for the same amounts. Just as important is
the fact that all subsequent renewals of Timber License No. 35-36 were secured in favor of the First Partnership, the original licensee. To all intents and purposes therefore, the First Articles of
Partnership were only amended, in the form of Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the
existence of the second partnership, all business transactions were carried out under the duly registered articles. As found by the trial court, it is an admitted fact that even up to now, there are still
subsisting obligations and contracts of the latter (Decision, R.A. pp. 950-957). No rights and obligations accrued in the name of the second partnership except in favor of Pahamotang which was fully paid
by the duly registered partnership (Decision, R.A., pp. 919-921).

On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said dissolution did not affect the first partnership which continued to
exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and participation in the second partnership of Pahamotang and that thereafter, the two (Maglana and Rojas) became the
owners of equipment contributed by Pahamotang. Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his obligation to contribute either in cash or in
equipment, to the capital investment of the partnership as well as his obligation to perform his duties as logging superintendent. This reminder cannot refer to any other but to the provisions of the duly
registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with the promised contributions and he will not work as logging superintendent. By such
statements, it is obvious that Roxas understood what Maglana was referring to and left no room for doubt that both considered themselves governed by the articles of the duly registered partnership.

Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be considered as a DeFacto Partnership, nor a Partnership At Will, for as stressed, there
is an existing partnership, duly registered.

As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of withdrawal.

Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without
justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal,
the number of members is decreased, hence, the dissolution. And in whatever way we may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly registered Articles of Co-Partnership: that is, all profits and losses of the partnership shall be divided "share and share alike" between the partners.

But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the commissioners appointed for the purpose.

On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961 are as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only
P18,750.00 while Maglana who should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that 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 (Article 1786, Civil Code) and for interests and damages from the time he should have
complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a contract of partnership, each partner must share in the profits and losses of the
venture. That is the essence of a partnership (Ibid., p. 95).

Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports which was approved by the trial court, they showed that on 50-50% basis, Rojas will be
liable in the amount of P131,166.00; on 80-20%, he will be liable forP40,092.96 and finally on the basis of actual capital contribution, he will be liable for P52,040.31.

Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is unquestionably a continuation of the duly registered partnership and the sharing of profits and
losses which should be on the basis of share and share alike as provided for in the duly registered Articles of Co-Partnership, no plausible reason could be found to disturb the findings and conclusions of
the trial court.

As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the withdrawal of Pahamotang, Rojas entered into a management contract with another logging
enterprise, the CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his equipment, refused to contribute either in cash or in equipment to the capital investment
and to perform his duties as logging superintendent, as stipulated in their partnership agreement. The records also show that Rojas not only abandoned the partnership but also took funds in an amount
more than his contribution (Decision, R.A., p.949).

In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.

PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby MODIFIED in the sense that the duly registered partnership of Eastcoast Development
Enterprises continued to exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided for in its Articles of Partnership, in accordance with the computation
of the commissioners. We also hereby AFFIRM the decision of the trial court in all other respects.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-22825 February 14, 1925

TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL., plaintiffs-appellants,

vs.
SALVADOR SERRA, defendant-appellee.

Eduardo Gutierrez Repide for appellants.

Hilado and Hilado, Fisher, DeWitt, Perkins and Brady, Araneta and Zaragosa, Antonio Sanz and Jose Galan y Blanco for appellee.

VILLAMOR, J.:

On February 1, 1919, plaintiffs and defendant entered into a contract of partnership, marked Exhibit A, for the construction and exploitation of a railroad line from the "San Isidro" and "Palma" centrals to
the place known as "Nandong." The original capital stipulated was P150,000. It was covenanted that the parties should pay this amount in equal parts and the plaintiffs were entrusted with the
administration of the partnership. The agreed capital of P150,000, however, did not prove sufficient, as the expenses up to May 15, 1920, had reached the amount of P226,092.92, as per statement
Exhibit B, presented by the administrator and O.K.'d by the defendant.

January 29, 1920, the defendant entered into a contract of sale with Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby he sold to the latter the estate and central known as
"Palma" with its running business, as well as all the improvements, machineries and buildings, real and personal properties, rights, choses in action and interests, including the sugar plantation of the
harvest year of 1920 to 1921, covering all the property of the vendor. This contract was executed before a notary public of Iloilo and is evidenced by Exhibit 1 of the defendant, paragraph 5 of which reads
as follows:

5. The party of the first part hereby states that he has entered into a contract with the owners of the "San Isidro" Central for the construction, operation, and exploitation of a railroad line of about
10 kilometers extending from the "Palma" Central and "San Isidro" Central to a point known as "Nandong," the expenses until the termination of which shall be for the account of the "San Isidro"
Central, and of which expenses, one-half shall be borne by the "Palma" Central with the obligation to reimburse same within five (5) years with interest at the rate of 10 per cent per annum to the
said "San Isidro" Central. The vendee hereby obligates himself to respect the aforesaid contract and all obligations arising therefrom.

Before the delivery to the purchasers of the hacienda thus sold, Eusebio R. de Luzuriaga renounced all his rights under the contract of January 29, 1920, in favor of Messrs. Venancio Concepcion and
Phil. C. Whitaker. This gave rise to the fact that on July 17, 1920, Venancio Concepcion and Phil. C. Whitaker and the herein defendant executed before Mr. Antonio Sanz, a notary public in and for the
City of Manila, another deed of absolute sale of the said "Palma" Estate for the amount of P1,695,961.90, of which the vendor received at the time of executing the deed the amount of P945,861.90, and
the balance was payable by installments in the form and manner stipulated in the contract. The purchasers guaranteed the unpaid balance of the purchase price by a first and special mortgage in favor of
the vendor upon the hacienda and the central with all the improvements, buildings, machineries, and appurtenances then existing on the said hacienda.

Clause 6 of the deed of July 17, 1920, contains the following stipulations:

6. Messrs. Phil. C. Whitaker and Venancio Concepcion hereby state that they are aware of the contract that Mr. Salvador Serra has with the proprietors of the "San Isidro" Central for the
operation and exploitation of a railroad line about 10 kilometers long from the "Palma" and "San Isidro" centrals to the place known as "Nandong;" and hereby obligate themselves to respect the
said contract and subrogate themselves into the rights and obligations thereunder. They also bind themselves to comply with all the contracts heretofore entered by the vendor with the
customers, coparceners on shares and employees.

Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the plaintiffs the one-half of the railroad line pertaining to the latter, executing therefor the document Exhibit 5.
The price of this sale was P237,722.15, excluding any amount which the defendant might be owing to the plaintiffs. Of the purchase price, Venancio Concepcion and Phil. C. Whitaker paid the sum of
P47,544.43 only. In the deed Exhibit 5, the plaintiffs and Concepcion and Whitaker agreed, among other things, that the partnership "Palma" and "San Isidro," formed by the agreement of February 1,
1919, between Serra, Lazaro Mota, now deceased, and Juan J. Vidaurrazaga for himself and in behalf of his brother, Felix and Dionisio Vidaurrazaga, should be dissolved upon the execution of this
contract, and that the said partnership agreement should be totally cancelled and of no force and effect whatever.
So it results that the "Hacienda Palma," with the entire railroad, the subject-matter of the contract of partnership between plaintiffs and defendant, became the property of Whitaker and Concepcion. Phil.
C. Whitaker and Venancio Concepcion having failed to pay to the defendant a part of the purchase price, that is, P750,000, the vendor, the herein defendant, foreclosed the mortgage upon the
said hacienda, which was adjudicated to him at the public sale held by the sheriff for the amount of P500,000, and the defendant put in possession thereof, including what was planted at the time, together
with all the improvements made by Messrs. Phil. C. Whitaker and Venancio Concepcion.

Since the defendant Salvador Serra failed to pay one-half of the amount expended by the plaintiffs upon the construction of the railroad line, that is, P113,046.46, as well as Phil. C. Whitaker and
Venancio Concepcion, the plaintiffs instituted the present action praying: (1) That the deed of February 1, 1919, be declared valid and binding; (2) that after the execution of the said document the
defendant improved economically so as to be able to pay the plaintiffs the amount owed, but that he refused to pay either in part or in whole the said amount notwithstanding the several demands made on
him for the purpose; and (3) that the defendant be sentenced to pay plaintiffs the aforesaid sum of P113,046.46, with the stipulated interest at 10 per cent per annum beginning June 4, 1920, until full
payment thereof, with the costs of the present action.

Defendant set up three special defenses: (1) The novation of the contract by the substitution of the debtor with the conformity of the creditors; (2) the confusion of the rights of the creditor and debtor; and
(3) the extinguishment of the contract, Exhibit A.

The court a quo in its decision held that there was a novation of the contract by the substitution of the debtor, and therefore absolved the defendant from the complaint with costs against the plaintiffs. With
regard to the prayer that the said contract be declared valid and binding, the court held that there was no way of reviving the contract which the parties themselves in interest had spontaneously and
voluntarily extinguished. (Exhibit 5.)

Plaintiffs have appealed from this judgment and as causes for the review, they allege that the trial court erred: (a) In holding that Messrs. Whitaker and Concepcion, upon purchasing the "Palma" Central,
were subrogated in the place of the defendant in all his rights and obligations under the contract relating to the railroad line existing between the "Palma" and the "San Isidro" centrals and that the plaintiffs
agreed to this subrogation; (b) in holding that the deed Exhibit A of February 1, 1919, had been extinguished in its entirety and made null and void by the agreement Exhibit 5 dated December 16, 1920;
(c) in absolving the defendant from the complaint and in sentencing the plaintiffs to pay the costs; and (d) in not sentencing the defendant to pay the plaintiffs the sum of P113,046.46, with legal interest at
10 per cent per annum from June 4, 1920, until full payment, with costs against the defendant.

Taking for granted that the defendant was under obligation to pay the plaintiffs one-half of the cost of the construction of the railroad line in question, by virtue of the contract of partnership Exhibit A, the
decisive point here to determine is whether there was a novation of the contract by the substitution of the debtor with the consent of the creditor, as required by article 1205 of the Civil Code. If so, it is
clear that the obligation of the defendant was, in accordance with article 1156 of the same code, extinguished.

It should be noted that in order to give novation its legal effect, the law requires that the creditor should consent to the substitution of a new debtor. This consent must be given expressly for the reason
that, since novation extinguishes the personality of the first debtor who is to be substituted by new one, it implies on the part of the creditor a waiver of the right that he had before the novation which
waiver must be express under the principle that renuntiatio non praesumitur, recognized by the law in declaring that a waiver of right may not be performed unless the will to waive is indisputably shown by
him who holds the right.

The fact that Phil. C. Whitaker and Venancio Concepcion were willing to assume the defendant's obligation to the plaintiffs is of no avail, if the latter have not expressly consented to the substitution of the
first debtor. Neither can the letter, Exhibit 6, on page 87 of the record be considered as proof of the consent of the plaintiffs to the substitution of the debtor, because that exhibit is a letter written by
plaintiffs to Phil. C. Whitaker and Venancio Concepcion for the very reason that the defendant had told them (plaintiffs) that after the sale of the "Hacienda Palma" to Messrs. Phil. C. Whitaker and
Venancio Concepcion, the latter from then on would bear the cost of the repairs and maintenance of the railroad line and of the construction of whatever addition thereto might be necessary. So the
plaintiffs by their letter of August 14th, submitted a statement of account to Phil. C. Whitaker and Venancio Concepcion containing the accounts of the "San Isidro" Central, as stated June 30, 1920, saying
that they had already explained previously the reason for the increase in the expenses and since the retiring partner, Mr. Serra, had already given conformity with the accounts, as stated May 15, 1920, it
remained only to hear the conformity of the new purchasers for the accounts covering the period from May 15 to June 30, 1920, and their authority for future investments, or their objection, if any, to the
amounts previously expended. Neither can the testimony of Julio Infante in connection with Exhibit 7 be taken as evidence of the consent of the plaintiffs to the change of the person of the debtor for that
of Messrs. Phil. C. Whitaker and Venancio Concepcion. This witness testified, in substance, that he is acquainted with the partnership formed by the owners of the "Hacienda Palma" and Hacienda San
Isidro" for the construction of the railroad line; that the cost of the construction thereof was originally estimated at P150,000; that the owner of the "Hacienda Palma" would pay one-half of this amount; that
when the "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and Venancio Concepcion, the latter agreed to pay one-half of the cost of P150,000; that as the cost of construction exceeded P200,000,
he, as an employee of Messrs. Phil. C. Whitaker and Venancio Concepcion, could not O.K. the accounts as presented by the plaintiffs, and suggested that they take up in writing their points of view
directly with Messrs. Phil. C. Whitaker and Venancio Concepcion. Then the plaintiffs did as suggested, and wrote the letter Exhibit 7 in which they asked the new owners of the "Hacienda Palma" their
decision upon the following three questions: 1. Will the "Palma" Central accept the statement of account as presented by the "San Isidro" Central regarding the actual cost of the railroad line "Palma-San
Isidro-Nandong?" 2. Is the "Palma" Central willing to continue as co-proprietor of the railroad line for the exploitation of the sugar-cane business of "Nandong" and neighboring barrios, and therefore to pay
50 per cent of the expenses that may be incurred in completing the line?

It was but natural that the plaintiffs should have done this. Defendant transferred his hacienda to Messrs. Phil. C. Whitaker and Venancio Concepcion and made it known to the plaintiffs that the new
owners would hold themselves liable for the cost of constructing the said railroad line. Plaintiffs could not prevent the defendant from selling to Phil. C. Whitaker and Venancio Concepcion his "Hacienda
Palma" with the rights that he had over the railroad in question. The defendant ceased to be a partner in said line and, therefore, the plaintiffs had to take the vendees as their new partners. Plaintiffs had
to come to an understanding with the new owners of the "Hacienda Palma" in connection with the railroad line "Palma-San Isidro-Nandong." But in all of this, there was nothing to show the express
consent, the manifest and deliberate intention of the plaintiffs to exempt the defendant from his obligation and to transfer it to his successors in interest, Messrs. Phil. C. Whitaker and Venancio
Concepcion.

The plaintiffs were not a party to the document Exhibit 1. Neither in this document, nor in others in the record, do we find any stipulation whereby the obligation of the defendant was novated with the
consent of the creditor, and as it has been held in the case of Martinez vs. Cavives (25 Phil., 581), the oral evidence tending to prove such a fact as this is not in law sufficient.

As has been said, in all contracts of novation consisting in the change of the debtor, the consent of the creditor is indispensable, pursuant to article 1205 of the Civil Code which reads as follows:

Novation which consists in the substitution of a new debtor in the place of the original one may be made without the knowledge of the latter, but not without the consent of the creditor.

Mr. Manresa in his commentaries on articles 1205 and 1206 of the Civil Code (vol. 8, 1907 ed., pp. 424-426) says as follows:

Article 1205 clearly says in what this kind of novation must consist, because in stating that another person must be substituted in lieu of the debtor, it means that it is not enough to extend the
juridical relation to that other person, but that it is necessary to place the latter in the same position occupied by the original debtor.

Consequently, the obligation contracted by a third person to answer for the debtor, as in the case of suretyship, in the last analysis, does not work as a true novation, because the third person is
not put in the same position as the debtor the latter continues in his same place and with the same obligation which is guaranteed by the former.

Since it is necessary that the third person should become a debtor in the same position as the debtor whom he substitutes, this change and the resulting novation may be respected as to the
whole debt, thus untying the debtor from his obligation, except the eventual responsibilities of which we shall speak later, or he may continue with the character of such debtor and also allow the
third person to participate in the obligation. In the first case, there is a complete and perfect novation; in the second, there is a change that does not free the debtor nor authorize the
extinguishment of the accessory obligations of the latter. In this last hypothesis, if there has been no agreement as to solidarity, the first and the new debtor should be considered as obligated
severally.

The provisions of article 1205 which require the consent of the creditor as an indispensable requisite in this kind of novation and not always that of the debtor, while not making it impossible to
express the same, imply the distinction between these two forms of novation and it is based on the simple consideration of justice that since the consequences of the substitution may be
prejudicial to the creditor, but not to the debtor, the consent of the creditor alone is necessary.

The two forms of this novation, also impliedly recognized by article 1206 which employs the word "delegate," as applied to the debt, are the expromission and the delegation. Between these,
there is a marked difference of meaning and, as a consequence, a logical difference of requisite and another clear difference as to their effects, of which we shall speak later.

In the expromission, the initiative of the change does not emanate from the debtor and may be made even without his consent, since it consists in a third person assuming his obligation; it
logically requires the consent of this third man and of the creditor and in this last requisite lies the difference between novation and payment, as the latter can be effected by a third person even
against the will of the creditor, whereas in the former case it cannot.

In the delegation, the debtor offers and the creditor accepts a third person who consents to the substitution so that the intervention and the consent of these three persons are necessary and
they are respectively known as delegante, delegatario, and delegado. It must be noted that the consent need not be given simultaneously and that it may be given afterwards, as for example,
that of the creditor delegatario to the proposition of the debtor accepted by the delegado.

Delegation notably differs from the mere indication made by the debtor that a third person shall pay the debt; in this case, there is no novation and the former is not acquitted of his obligation and
his relations with the third person are regulated by the rules of agency. The French Code in article 1276 expressly provides for this case, as well as the inverse one where the debtor points out
somebody else to answer for the payment, declaring that there is no novation in either case. The same sound criterion is impliedly accepted by our Code.

In the case of E.C. McCullough & Co. vs. Veloso and Serna (46 Phil., 1), it appears that McCullough and Co., Inc., sold to Veloso a real estate worth P700,000 on account of which Veloso paid P50,000,
promising to pay the balance at the times and manner stipulated in the contract. He further bound himself to pay 10 per cent of the amount of the debt as attorney's fees in case of litigation. To secure the
unpaid balance of the purchaser price he executed a first mortgage upon the property in favor of the vendor. Subsequently, Veloso sold the property for P100,000 to Joaquin Serna who bound himself to
respect the mortgage in favor of McCullough and Co., Inc., and to assume Veloso's obligation to pay the unpaid balance of the purchase price of the property at the times agreed upon in the contract
between Veloso and McCullough and Co., Inc.

Veloso had paid on account of the price the amount of P50,000, and Serna also made several payments aggregating the total amount of P250,000. But after this, neither Veloso nor Serna made further
payments and thus gave cause for a litigation. The court in deciding the case said:
 The defendant contends that having sold the property to Serna, and the latter having assumed the obligation to pay the plaintiff the unpaid balance of the price secured by the mortgage upon
the property, he was relieved from this obligation and it then devolved upon Serna to pay the plaintiff. This means that as a consequence of the contract between the defendant and Serna, the
contract between the defendant and the plaintiff was novated by the substitution of Serna as a new debtor. This is untenable. In order that this novation may take place, the law requires the
consent of the creditor (art. 1205 of the Civil Code). The plaintiff did not intervene in the contract between Veloso and Serna and did not expressly give his consent to this substitution. Novation
must be express, and cannot be presumed.

In Martinez vs. Cavives (25 Phil., 581), it was held that:

. . . The consent of the new debtor is as essential to the novation as is that of the creditor . . . .

There is no express stipulation in any of the documents of record that the obligation of the defendant was novated, and the parol evidence tending to show that it was novated is not sufficient in
law to establish that fact.

The same doctrine was upheld in the case of Vaca vs. Kosca (26 Phil., 388):

A new debtor cannot be substituted for the original obligor in the first contract without the creditor's consent.

The supreme court of Spain has constantly laid down the same doctrine with regard to novation of contracts:

The obligations and rights in a contract cannot be novated with regard to a third person who has not intervened in the execution thereof. (Decision of June 28, 1860.)

Novation by the change of debtors cannot be effected without the express approval of the creditor. (Decisions of February 8, 1862 and June 12, 1867.)

Novation should not be established by presumptions but by the express will of the parties. (Decisions of February 14, 1876 and June 16, 1883.)

In order that novation of a contract by subrogation of the debtor may take effect and thus liberate the first debtor from the obligation, it is necessary that the subrogation be made with the
consent of the creditor. (Decision of March 2, 1897.)

It is undeniable that obligations judicially declared, as well as those acquired by any title, can be novated by substituting a new debtor in place of the primitive, only when the creditor gives his
consent to the substitution. (Decision of November 15, 1899.)

Novation can in no case be presumed in contracts, but it is necessary that it should result from the will of the parties, or that the old and the new one be altogether incompatible. (Decision of
December 31, 1904.)

An obligation cannot be deemed novated by means of modifications which do not substantially change the essence thereof, nor when it is not extinguished by another obligation, nor when the
debtor is not substituted. (Decision of March 14, 1908.)

The consent of the creditor required in a novation consisting of the change of debtors (art. 1205, Civil Code) must appear in an express and positive manner and must be given with the
deliberate intention of exonerating the primitive debtor of his obligations and transfer them wholly upon the new debtor. (Decision of June 22, 1911.)

In the decision in the case of Martinez vs. Cavives, supra, the following decisions of the several courts of the United States are cited, wherein this question was decided in the same manner:

In Latiolais, admrx. vs. Citizens' Bank of Louisiana (33 La. Ann., 1444), one Duclozel mortgaged property to the defendant bank for the triple purpose of obtaining shares in the capital stock of
the bank, bonds which the bank was authorized to issue, and loans to him as a stockholder. Duclozel subsequently sold this mortgaged property to one Sproule, who, as one of the terms of the
sale, assumed the liabilities of his vendor to the bank. Sproule sold part of the property to Graff and Chalfant. The debt becoming due, the bank brought suit against the last two named and
Sproule as owners. Duclozel was not made a party. The bank discontinued these proceedings and subsequently brought suit against Latiolais, administratrix of Duclozel, who had died.
 The court said: "But the plaintiff insists that in its petition in the proceeding first brought the bank ratified the sale made by Duclozel to Sproule, and by the latter to other parties, in treating them
as owners. Be that so, but it does not follow in the absence of either a formal and express or of an implied consent to novate, which should be irresistibly inferred from surrounding
circumstances, that it has discharged Duclozel unconditionally, and has accepted those parties as new delegated debtors in his place. Nemo presumitur donare.

"Novation is a contract, the object of which is: either to extinguish an existing obligation and to substitute a new one in its place; or to discharge an old debtor and substitute a new one
to him; or to substitute a new creditor to an old creditor with regard to whom the debtor is discharged.

"It is never presumed. The intention must clearly result from the terms of the agreement or by a full discharge of the original debt. Novation by the substitution of a new debtor can take
place without the consent of the debtor, but the delegation does not operate a novation, unless the creditor has expressly declared that he intends to discharge with delegating debtor,
and the delegating debtor was not in open failure or insolvency at the time. The mere indication by a debtor of a person who is to pay in his place does not operate a
novation. Delegatus debitor est odiosus in lege.

"The most that could be inferred would be that the bank in the exercise of a sound discretion, proposed to better its condition by accepting an additional debtor to be and remain bound
with the original one."

In Fidelity L. & T. Co. vs. Engleby (99 Va., 168), the court said: "Whether or not a debt has been novated is a question of fact and depends entirely upon the intention of the parties to the
particular transaction claimed to be novated. In the absence of satisfactory proof to the contrary, the presumption is that the debt has not been extinguished by taking the new evidence in the
absence of an intention expressed or implied, being treated as a conditional payment merely."

In Hamlin vs. Drummond (91 Me., 175; 39 A., 551), it was said that novation is never presumed but must always be proven. In Netterstorn vs. Gallistel (110 Ill. App., 352), it was said that the
burden of establishing a novation is on the party who asserts its existence; that novation is not easily presumed; and that it must clearly appear before the court will recognize it.

Notwithstanding the doctrines above quoted, defendant's counsel calls our attention to the decision of the supreme court of Spain of June 16, 1908, wherein it was held that the provisions of article 1205 of
Code do not mean nor require that the consent of the creditor to the change of a debtor must be given just at the time when the debtors agree on the substitution, because its evident object being the full
protection of the rights of the creditor, it is sufficient if the latter manifests his consent in any form and at any time as long as the agreement among the debtors holds good. And defendant insists that the
acts performed by the plaintiffs after the "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and Venancio Concepcion constitute evidence of the consent of the creditor. First of all, we should have
an idea of the facts upon which that decision was rendered by the supreme court of Spain.

A partnership known as "La Azucarera de Pravia" obtained a fire insurance policy from the company "La Union y Fenix Espanol," by virtue of which, said company insured in consideration of an annual
premium of 3,000 pesetas, the buildings, machinery and other apparatuses pertaining to the "Pravia Factory" for ten years and for half their value, and another insurance from another insurance company
insuring the same property and effects for the other half of their value.

Later, "La Azucarera de Pravia," with other sugar companies, ceded all its property to another company known as "Sociedad General Azucarera de Espaa," in which in consideration of certain amount of
stock that the said "Sociedad General Azucarera de Espaa" issued to the "La Azucarera de Pravia," the latter was merged with the former. After the cession, "La Union y Fenix Expaol" sued the
"Sociedad General Azucarera de Espaa" demanding the payment of the premium that should have been paid by the "La Azucarera de Pravia," which payment the "Sociedad General Azucarera de
Espaa" refused to make on the ground that the "La Azucarera de Pravia" was not merged with the "Sociedad General Azucarera de Espaa," but merely transferred its properties to the latter in
consideration of the stock that was issued to the "La Azucarera de Pravia." It was further contended by the "Sociedad General Azucarera de Espaa" that even if it were true that in the contract of cession
it appeared that the "La Azucarera de Pravia" was merged with the "Sociedad General Azucarera de Espaa," nevertheless, there was no such merger in law, for in truth and in fact, the "La Azucarera de
Pravia" had ceded only its property, but not its rights and obligations; that the existence of the partnership known as "La Azucarera de Pravia" was proven by its registration in the mercantile register,
which was not cancelled, did it contain any statement to the effect that the "La Azucarera de Pravia" had been extinguished or had ceased to do business even after the cession of properties to the
"Sociedad General Azucarera de Espaa." Another argument advanced by the "Sociedad General" was that at the time the "Azucarera de Pravia" ceded its properties to the "Sociedad General Azucarera
de Espaa," the insurance company "La Union y Fenix Espanol" did not assent to the subrogation of the "Sociedad General Azucarera" into the rights and obligations of the "Azucarera de Pravia,"
assuming that there had been such a subrogation or substitution of a debtor by another.

The supreme court of Spain gave judgment in favor of the "La Union y Fenix Espaol" insurance company for the following reasons:

1. While it is true that it cannot be strictly said that "La Azucarera de Pravia" was merged with the "Sociedad General Azucarera de Espaa," the document whereby the property of the "La
Azucarera de Pravia" was ceded to the "Sociedad General Azucarera de Espaa" clearly and expressly recites that this company upon taking charge of the immovable property of the "La
Azucarera de Pravia" accepted in general, with respect to the property ceded, "everything belonging to the same," after making provisions about active and passive easements, contracts for
transportation and other matters.
The supreme court held that by virtue of the words hereinabove quoted, the "Sociedad General Azucarera de Espaa" took over the obligation to pay the insurance premiums of the "La Azucarera de
Pravia" inasmuch as said insurance pertained to the property that was ceded.

2. While it is true that "La Union y Fenix Espaol" insurance company did not give its consent to the contract of cession at the moment of its execution, yet the mere fact that the said insurance
company now sues the "Sociedad General Azucarera de Espaa" is an incontrovertible proof that the said insurance company accepts the substitution of the new debtor.

By comparing the facts of that case with the defenses of the case at bar, it will be seen that, whereas in the former case the creditor sued the new debtor, in the instant case the creditor sues the original
debtor. The supreme court of Spain in that case held that the fact that the creditor sued the new debtor was proof incontrovertible of his assent to the substitution of the debtor. This would seem evident
because the judicial demand made on the new debtor to comply with the obligation of the first debtor is the best proof that the creditor accepts the change of the debtor. His complaint is an authentic
document where his consent is given to the change of the debtor. We are not holding that the creditor's consent must necessarily be given in the same instrument between the first and the new debtor.
The consent of the creditor may be given subsequently, but in either case it must be expressly manifested. In the present case, however, the creditor makes judicial demand upon the first debtor for the
fulfillment of his obligation, evidently showing by this act that he does not give his consent to the substitution of the new debtor. We are of the opinion that the decision of the supreme court of Spain of
June 16, 1908, cannot be successfully invoked in support of defendant's contention. Wherefore, we hold that in accordance with article 1205 of the Civil Code, in the instant case, there was no novation of
the contract, by the change of the person of the debtor.

Another defense urged by the defendant is the merger of the rights of debtor and creditor, whereby under article 1192 of the Civil Code, the obligation, the fulfillment of which is demanded in the complaint,
became extinguished. It is maintained in appellee's brief that the debt of the defendant was transferred to Phil. C. Whitaker and Venancio Concepcion by the document Exhibit 1. These in turn acquired
the credit of the plaintiffs by virtue of the debt, Exhibit 5; thus the rights of the debtor and creditor were merged in one person. The argument would at first seem to be incontrovertible, but if we bear in
mind that the rights and titles which the plaintiffs sold to Phil. C. Whitaker and Venancio Concepcion refer only to one-half of the railroad line in question, it will be seen that the credit which they had
against the defendant for the amount of one-half of the cost of construction of the said line was not included in the sale contained in Exhibit 5. That the plaintiffs sold their rights and titles over one-half of
the line, is evident from the very Exhibit 5. The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the payment of the price, executed a mortgage in favor of the plaintiffs on the same
rights and titles that they had bought and also upon what they had purchased from Mr. Salvador Serra. In other words, Phil. C. Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what they
had bought from the plaintiffs and also what they had bought from Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased something from Mr. Salvador Serra, the herein
defendant, regarding the railroad line, it was undoubtedly the one-half thereof pertaining to Mr. Salvador Serra. This clearly shows that the rights and titles transferred by the plaintiffs to Phil. C. Whitaker
and Venancio Concepcion were only those they had over the other half of the railroad line. Therefore, as already stated, since there was no novation of the contract between the plaintiffs and the
defendant, as regards the obligation of the latter to pay the former one-half of the cost of the construction of the said railroad line, and since the plaintiffs did not include in the sale, evidenced by Exhibit 5,
the credit that they had against the defendant, the allegation that the obligation of the defendant became extinguished by the merger of the rights of creditor and debtor by the purchase of Messrs. Phil. C.
Whitaker and Venancio Concepcion is wholly untenable.

Appellants assign also as a ground of their appeal the holding of the court that by the termination of the partnership, as shown by the document Exhibit 5, no legal rights can be derived therefrom.

By virtue of the contract Exhibit 5, the plaintiffs and Phil. C. Whitaker and Venancio Concepcion, by common consent, decided to dissolve the partnership between the "Hacienda Palma" and "Hacienda
San Isidro," thus cancelling the contract of partnership of February 1, 1919.

Counsel for appellee in his brief and oral argument maintains that the plaintiffs cannot enforce any right arising out of that contract of partnership, which has been annulled, such as the right to claim now a
part of the cost of the construction of the railroad line stipulated in that contract.

Defendant's contention signifies that any person, who has contracted a valid obligation with a partnership, is exempt from complying with his obligation by the mere fact of the dissolution of the
partnership. Defendant's contention is untenable. The dissolution of a partnership must not be understood in the absolute and strict sense so that at the termination of the object for which it was created
the partnership is extinguished, pending the winding up of some incidents and obligations of the partnership, but in such case, the partnership will be reputed as existing until the juridical relations arising
out of the contract are dissolved. This doctrine has been upheld by the supreme court of Spain in its decision of February 6, 1903, in the following case: There was a partnership formed between several
persons to purchase some lands sold by the state. The partnership paid the purchase price and distributed among its members the lands so acquired, but after the lapse of some time, one of the partners
instituted an action in the court of Badajoz, praying that he be accepted as a partner with the same rights and obligations as the others, for the reason that he had not been allowed all that he had a right
to. The court granted the petition, which judgment was affirmed by the Audiencia de Caceres.

From that decision the defendant sued out a writ of error alleging infringement of articles 1680 and 1700 of the Civil Code, on the proposition that all contracts are reputed consummated and therefore
extinguished, when the contracting parties fulfill all the obligations arising therefrom and that by the payment of the money and the granting and distribution of the lands without any opposition, the juridical
relations between the contracting parties become extinguished and none of the parties has any right of action under the contract. The supreme court, holding that some corrections and liquidations asked
by the actor were still pending, denied the writ, ruling that the articles cited were not infringed because a partnership cannot be considered as extinguished until all the obligations pertaining to it are
fulfilled. (11 Manresa, page 312.)

The dissolution of a firm does not relieve any of its members from liability for existing obligations, although it does save them from new obligations to which they have not expressly or impliedly assented,
and any of them may be discharged from old obligations by novation of other form of release. It is often said that a partnership continues, even after dissolution, for the purpose of winding up its affairs. (30
Cyc., page 659.)
Another question presented by appellee's counsel in his memorandum and oral argument is that as in the partnership articles of February 1, 1919, it was covenanted that the defendant would put up one-
half of the cost of the railroad line within five years from the date, that is, from February 1, 1919, with interest at 10 per cent per annum, the present action is premature since, from the execution of the
contract until October 25, 1922, the date of the complaint, the five years, within which the defendant could pay his part of the cost of the construction of the line, had not yet elapsed. Suffice it to say that
the plaintiff and the successors in interest of the defendant, by mutual consent, dissolved the partnership on June 16, 1920, cancelling the contract Exhibit A to all of which the defendant consented as
evidence by his allegations in his answer. If this is so, there is no reason for waiting for the expiration of the five years which the parties themselves had seen fit to stipulate and therefore the provisions of
article 113, regarding the fulfillment of pure obligations, must be applied in this case.

For all of the foregoing, the judgment appealed from is reversed, and we hold that the defendant Salvador Serra is indebted to the plaintiffs, the Testate Estate of Lazaro Mota, et al., in the amount of
P113,046.46, and said defendant is hereby sentenced to pay the plaintiffs the said amount, together with the agreed interest at the rate of 10 per cent per annum from the date of the filing of the
complaint.

Without special pronouncement as to costs, it is so ordered.

 FIRST DIVISION

[G.R. No. 127405. October 4, 2000]

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A. ANAY, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616,[1] affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil Case No. 88-509.[2]

Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean
Water Purifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local
distribution of kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay the job of marketing the product considering her experience and established relationship with West
Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and sales force while Tocao hired and fired employees, determined commissions and/or salaries of the employees,
and assigned them to different branches. The parties agreed that Belos name should not appear in any documents relating to their transactions with West Bend Company. Instead, they agreed to use
Anays name in securing distributorship of cookware from that company. The parties agreed further that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2)
overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and (4) two percent (2%) for her demonstration services. The agreement
was not reduced to writing on the strength of Belos assurances that he was sincere, dependable and honest when it came to financial commitments.

Anay having secured the distributorship of cookware products from the West Bend Company and organized the administrative staff and the sales force, the cookware business took off
successfully. They operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made
good his monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987
and to the southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as president and general
manager of Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:

Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of our company, will attend in response to the invitation. (Italics supplied.)[3]

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the business on account of the unsatisfactory sales record in the Makati and Cubao offices. On
August 31, 1987, she received a plaque of appreciation from the administrative and sales people through Marjorie Tocao [4] for her excellent job performance. On October 7, 1987, in the presence of Anay,
Belo signed a memo[5] entitling her to a thirty-seven percent (37%) commission for her personal sales "up Dec 31/87. Belo explained to her that said commission was apart from her ten percent (10%)
share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter [6] addressed to the Cubao sales office to the effect that she was no longer the vice-president of Geminesse
Enterprise. The following day, October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred her from holding office and conducting demonstrations in both Makati
and Cubao offices.[7] Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to
determine her share in the net profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not answered.

Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did not receive the same commission although the company netted a gross
sales of P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with damages [8] against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati,
Branch 140.

In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988;
(2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the inception of its business operation
until she was illegally dismissed to determine her ten percent (10%) share in the net profits. She further prayed that she be paid the five percent (5%) overriding commission on the remaining 150 West
Bend cookware sets before her dismissal.

In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was neither reduced in writing, nor ratified, was either unenforceable or void or inexistent. As far as
Belo was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship
of Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and her complaint referred to either her compensation or dismissal, such
complaint should have been lodged with the Department of Labor and not with the regular court.

Petitioners (defendants therein) further alleged that Anay filed the complaint on account of ill-will and resentment because Marjorie Tocao did not allow her to lord it over in the Geminesse
Enterprise. Anay had acted like she owned the enterprise because of her experience and expertise. Hence, petitioners were the ones who suffered actual damages including unreturned and unaccounted
stocks of Geminesse Enterprise, and serious anxiety, besmirched reputation in the business world, and various damages not less than P500,000.00. They also alleged that, to vindicate their names, they
had to hire counsel for a fee of P23,000.00.

At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to
damages.[10]

In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business. He, however, admitted that the two had agreed that Anay would receive a three to four percent
(3-4%) share in the gross sales of the cookware. He denied contributing capital to the business or receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao, who was new in the
business. He attended and/or presided over business meetings of the venture in his capacity as a guarantor but he never participated in decision-making. He claimed that he wrote the memo granting the
plaintiff thirty-seven percent (37%) commission upon her dismissal from the business venture at the request of Tocao, because Anay had no other income.

For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay. However, she admitted that Anay was an expert in the cookware business and hence, they agreed
to grant her the following commissions: thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two percent (2%) on product demonstrations, and two percent (2%) for recruitment
of personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that she got the capital for the business out of the sale of the sewing machines used
in her garments business and from Peter Lo, a Singaporean friend-financier who loaned her the funds with interest. Because she treated Anay as her co-equal, Marjorie received the same amounts of
commissions as her. However, Anay failed to account for stocks valued at P200,000.00.

On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten
percent (10%) share of plaintiff in the net profits of the cookware business;

2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty (150) cookware sets available for disposition when plaintiff was wrongfully excluded from
the partnership by defendants;

3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary damages, and

5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.

SO ORDERED.

The trial court held that there was indeed an oral partnership agreement between the plaintiff and the defendants, based on the following: (a) there was an intention to create a partnership; (b) a
common fund was established through contributions consisting of money and industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin and the
administrative officer of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a partnership existed between the parties. The letter of Roger
Muencheberg of West Bend Company stating that he awarded the distributorship to Anay and Marjorie Tocao because he was convinced that with Marjories financial contribution and Anays experience,
the combination of the two would be invaluable to the partnership, also supported that conclusion. Belos claim that he was merely a guarantor has no basis since there was no written evidence thereof as
required by Article 2055 of the Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a memo giving Anay 37% commission on personal
sales belied this. On the contrary, it demonstrated his involvement as a partner in the business.

The trial court further held that the payment of commissions did not preclude the existence of the partnership inasmuch as such practice is often resorted to in business circles as an impetus to
bigger sales volume. It did not matter that the agreement was not in writing because Article 1771 of the Civil Code provides that a partnership may be constituted in any form. The fact that Geminesse
Enterprise was registered in Marjorie Tocaos name is not determinative of whether or not the business was managed and operated by a sole proprietor or a partnership. What was registered with the
Bureau of Domestic Trade was merely the business name or style of Geminesse Enterprise.

The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership
as well as damages or share in the profits realized from the appropriation of the partnership business and goodwill. An innocent partner thus possesses pecuniary interest in every existing contract that
was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully expelled.
 Petitioners appeal to the Court of Appeals [11] was dismissed, but the amount of damages awarded by the trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary
damages. Their Motion for Reconsideration was denied by the Court of Appeals for lack of merit. [12] Petitioners Belo and Marjorie Tocao are now before this Court on a petition for review on certiorari,
asserting that there was no business partnership between them and herein private respondent Nenita A. Anay who is, therefore, not entitled to the damages awarded to her by the Court of Appeals.

Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership existed between them and private respondent Anay because Geminesse Enterprise came into
being exactly a year before the alleged partnership was formed, and that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing, without
any memorandum whatsoever regarding the alleged partnership.[13]

The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain of both the trial and appellate courts. This Court cannot set aside factual findings of such
courts absent any showing that there is no evidence to support the conclusion drawn by the court a quo.[14] In this case, both the trial court and the Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership. This Court finds no reason to rule otherwise.

To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2)
intention on the part of the partners to divide the profits among themselves. [15] It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are
contributed thereto.[16] This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable property or real rights are involved,
what matters is that the parties have complied with the requisites of a partnership. The fact that there appears to be no record in the Securities and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article 1772 of the Civil Code[17] did not cause the nullification of the partnership. The pertinent provision of the Civil Code on the matter states:

Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, first paragraph.

Petitioners admit that private respondent had the expertise to engage in the business of distributorship of cookware. Private respondent contributed such expertise to the partnership and hence,
under the law, she was the industrial or managing partner. It was through her reputation with the West Bend Company that the partnership was able to open the business of distributorship of that
companys cookware products; it was through the same efforts that the business was propelled to financial success. Petitioner Tocao herself admitted private respondents indispensable role in putting up
the business when, upon being asked if private respondent held the positions of marketing manager and vice-president for sales, she testified thus:

A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only me there then her and then two (2) people, so about four (4). Now, after that when she
recruited already Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of marketing managers of which definitely Nita as superior to them would be the Vice
President.[18]

By the set-up of the business, third persons were made to believe that a partnership had indeed been forged between petitioners and private respondents. Thus, the communication dated June 4, 1986 of
Missy Jagler of West Bend Company to Roger Muencheberg of the same company states:

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does not have cookware experience. Nita Anay has started to gather former managers, Lina Torda and
Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key people and build up the organization. All they need is the
finance and the products to sell.[19]

On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face of the established fact that he presided over meetings regarding matters affecting the operation of
the business. Moreover, his having authorized in writing on October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of
the proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest in the business. His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code,[20]he should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that guaranty must be express, Article 1403, the Statute of Frauds, requires that a special promise to answer for the debt, default or miscarriage of
another be in writing.[21]

Petitioner Tocao, a former ramp model,[22] was also a capitalist in the partnership. She claimed that she herself financed the business. Her and petitioner Belos roles as both capitalists to the
partnership with private respondent are buttressed by petitioner Tocaos admissions that petitioner Belo was her boyfriend and that the partnership was not their only business venture together. They also
established a firm that they called Wiji, the combination of petitioner Belos first name, William, and her nickname, Jiji.[23] The special relationship between them dovetails with petitioner Belos claim that he
was acting in behalf of petitioner Tocao. Significantly, in the early stage of the business operation, petitioners requested West Bend Company to allow them to utilize their banking and trading facilities in
Singapore in the matter of importation and payment of the cookware products. [24] The inevitable conclusion, therefore, was that petitioners merged their respective capital and infused the amount into the
partnership of distributing cookware with private respondent as the managing partner.

The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship between petitioners and private respondent. While it is true that the receipt of a
percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the business,[25] the evidence in the case at bar controverts an employer-employee relationship between the
parties. In the first place, private respondent had a voice in the management of the affairs of the cookware distributorship, [26] including selection of people who would constitute the administrative staff and
the sales force. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship. She admitted that, like her who owned Geminesse Enterprise,[27] private respondent received
only commissions and transportation and representation allowances [28] and not a fixed salary.[29] Petitioner Tocao testified:

Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will
you please go over this and tell the Honorable Court whether you ever came across this document and know of your own knowledge the amount ---
 A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain percentage for promotions, advertising, incentive.

Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote: Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount?

A: Oh yes, sir.

Q: I see. And, by way of amplification this is what you are saying as one representing commission, representation, advertising and promotion?

A: Yes, sir.

Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?

A: Thats her overriding commission.

Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same P21,410.50 is merely by coincidence?

A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense because of her expertise in the business she is vital to my business. So, as part of the incentive
I offer her the same thing.

Q: So, in short you are saying that this you have shared together, I mean having gotten from the company P21,140.50 is your way of indicating that you were treating her as an equal?

A: As an equal.

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

A: Yes, sir.

Q: I am calling again your attention to Exh. Y Overrides Makati the other one is ---

A: That is the same thing, sir.

Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount there you will acknowledge you have received that?

A: Yes, sir.

Q: Again in concept of commission, representation, promotion, etc.?

A: Yes, sir.

Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received the same amount?

A: Yes, sir.

Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?

A: No, sir.

Q: It is again in concept of you treating Miss Anay as your equal?

A: Yes, sir. (Italics supplied.)[30]

If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall receive the same income in the business. In a partnership, each partner must share in the profits
and losses of the venture, except that the industrial partner shall not be liable for the losses. [31] As an industrial partner, private respondent had the right to demand for a formal accounting of the business
and to receive her share in the net profit.[32]

The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on
August 19, 1987 was merely the name of that enterprise.[33] While it is true that in her undated application for renewal of registration of that firm name, petitioner Tocao indicated that it would be engaged in
retail of kitchenwares, cookwares, utensils, skillet,[34] she also admitted that the enterprise was only 60% to 70% for the cookware business, while 20% to 30% of its business activity was devoted to the
sale of water sterilizer or purifier.[35] Indubitably then, the business name Geminesse Enterprise was used only for practical reasons - it was utilized as the common name for petitioner Tocaos various
business activities, which included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and unremitted stocks of Geminesse Enterprise amounting to P208,250.00. [36] Obviously a ploy to offset the
damages awarded to private respondent, that claim, more than anything else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial
court. Since the partnership has not been terminated, the petitioner and private complainant remained as co-partners. x x x.[37]

It is not surprising then that, even after private respondent had been unceremoniously booted out of the partnership in October 1987, she still received her overriding commission until December 1987.

Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for herself and/or for petitioner Belo financial gains resulting from private respondents efforts to
make the business venture a success. Thus, as petitioner Tocao became adept in the business operation, she started to assert herself to the extent that she would even shout at private respondent in
front of other people.[38] Her instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her perception
that private respondent was no longer necessary in the business operation,[39] and resulted in a falling out between the two.However, a mere falling out or misunderstanding between partners does not
convert the partnership into a sham organization.[40] The partnership exists until dissolved under the law. Since the partnership created by petitioners and private respondent has no fixed term and is
therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner. Thus:

x x x. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partners capability to give it, and the absence of cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages. [41]

An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to have
the power, although not necessarily the right to dissolve the partnership.[42]

In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9,
1987, no longer the vice-president for sales of Geminesse Enterprise.[43] By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be
associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business. [44]

The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in petitioners claim for stocks that had been entrusted to private respondent in the pursuit of
the partnership business.

The determination of the amount of damages commensurate with the factual findings upon which it is based is primarily the task of the trial court. [45] The Court of Appeals may modify that amount
only when its factual findings are diametrically opposed to that of the lower court, [46] or the award is palpably or scandalously and unreasonably excessive. [47] However, exemplary damages that are
awarded by way of example or correction for the public good, [48] should be reduced to P50,000.00, the amount correctly awarded by the Court of Appeals. Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be granted on account of the award of exemplary damages and petitioners evident bad
faith in refusing to satisfy private respondents plainly valid, just and demandable claims, [49] appear to have been excessively granted by the trial court and should therefore be reduced to P25,000.00.

WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the
winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil Code. This case is remanded to the Regional Trial Court for proper proceedings relative to said dissolution. The
appealed decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine
private respondents ten percent (10%) share in the net profits of the partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding commission for the one hundred and fifty (150) cookware sets available for disposition since the time
private respondent was wrongfully excluded from the partnership by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the total production which, for the period covering January 8, 1988 to February 5, 1988, amounted to
P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys fees in the amount
of P25,000.00.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.