TOPIC: PARTNERSHIP BY ESTOPPEL; PARTNER BY ESTOPPEL

Estoppel does not create partnership

Article 1825
[G.R. No. L-7991. May 21, 1956.]
PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY
BANK OF NEW YORK,Respondent.
PARAS, J.:
FACTS:
1. STASIKINOCEY is a partnership formed by Alan W. Gorcey, Louis F. da
Costa, Jr., William Kusik and Emma Badong Gavino.
2. This partnership was denied registration in the SEC, and while it is
confusing to see in this case that the CARDINAL RATTAN, sometimes
called the CARDINAL RATTAN FACTORY, is treated as a copartnership, of
which Defendants Gorcey and da Costa are considered general partners
3. The was satisfied that, as alleged in various instruments appearing of
record, said Cardinal Rattan is merely the business name or style used by
the partnership Stasikinocey.
3. Prior to June 3, 1949, Defendant Stasikinocey had an overdraft account
with The National City Bank of New York, a foreign banking association
duly licensed to do business in the Philippines.
4. On June 3, 1949, the overdraft showed a balance of P6,134.92 against
the Defendant Stasikinocey or the Cardinal Rattan, which account, due to
the failure of the partnership to make the required payment, was
converted into an ordinary loan for which the corresponding promissory
joint note non-negotiable was executed on June 3, 1949, by Louis F. da
Costa for and in the name of the Cardinal Rattan, Louis F. da Costa and
Alan Gorcey.
5. This promissory note was secured on June 7, 1949, by a chattel
mortgage executed by Louis F. da Costa, Jr., General Partner for and in the
name of Stasikinocey, alleged to be a duly registered Philippine
partnership, doing business under the name and style of Cardinal Rattan,
with principal office at 69 Riverside, San Juan, Rizal.
5. The chattels mortgaged were the following motor vehicles:
(a) Fargo truck;
(b) Plymouth Sedan automobile; and
(c) Fargo Pick-Up (1949).
6. The mortgage deed was fully registered by the mortgagee on June 11,
1949, in the Office of the Register of Deeds for the province of Rizal, at
Pasig, and among other provisions it contained the following:
(a) That the mortgagor shall not sell or otherwise dispose of the said
chattels without the mortgagees written consent; and
(b) That the mortgagee may foreclose the mortgage at any time, after
breach of any condition thereof, the mortgagor waiving the 30- day notice
of foreclosure.
7. On June 7, 1949, the same day of the execution of the chattel mortgage
aforementioned, Gorcey and Da Costa executed an agreement purporting
to convey and transfer all their rights, title and participation
in Defendant partnership to Shaeffer, allegedly in consideration of the
cancellation of an indebtedness of P25,000 owed by them
and Defendant partnership to the latter, which transaction is said to be in
violation of the Bulk Sales Law (Act No. 3952 of the Philippine
Legislature).
8. While the said loan was still unpaid and the chattel mortgage
subsisting, Defendantpartnership, through Defendants Gorcey and Da
Costa transferred to Defendant McDonald the Fargo truck and Plymouth
sedan on June 24, 1949. The Fargo pickup was also sold on June 28, 1949,
by William Shaeffer to Paul McDonald.
9. On or about July 19, 1944, Paul Mcdonald, notwithstanding Plaintiffs
existing mortgage lien, in turn transferred the Fargo truck and the
Plymouth sedan to Benjamin Gonzales.
JUDICIAL FACTS:
10. The National City Bank of New York, Respondent herein, upon learning
of the transfers made by the partnership Stasikinocey to William Shaeffer,
from the latter to Paul McDonald, and from Paul McDonald to Benjamin
Gonzales, of the vehicles previously pledged by Stasikinocey to
the Respondent, filed an action against Stasikinocey and its alleged
partners Gorcey and Da Costa, as well as Paul McDonald and Benjamin
Gonzales, to recover its credit and to foreclose the corresponding chattel
mortgage.
11. McDonald and Gonzales were made Defendants because they claimed
to have a better right over the pledged vehicle.
12. After trial the Court of First Instance of Manila rendered judgment in
favor of the Respondent, annulling the sale of the vehicles in question to
Benjamin Gonzales; sentencing Da Costa and Gorcey to pay to
the Respondent jointly and severally the sum of P6,134.92, with legal
interest from the debt of the promissory note involved; sentencing

the Petitioner Gonzales to deliver the vehicles in question to

the Respondent for sale at public auction if Da Costa and Gorcey should
fail to pay the money judgment; and sentencing Da Costa, Gorcey and
Shaeffers to pay to the Respondent jointly and severally any deficiency
that may remain unpaid should the proceeds of the sale not be
sufficient; and sentencing Gorcey, Da Costa, McDonald and Shaeffer to pay
the costs. Only Paul McDonald and Benjamin Gonzales appealed to the
Court of Appeals which rendered a decision the dispositive part of which
reads as follows:
13. WHEREFORE, the decision appealed from is hereby modified,
relieving Appellant William Shaeffer of the obligation of paying, jointly
and severally, together with Alan W. Gorcey and Louis F. da Costa, Jr., any
deficiency that may remain unpaid after applying the proceeds of the sale
of the said motor vehicles which shall be undertaken upon the lapse of 90
days from the date this decision becomes final, if by
then Defendants Louis F. da Costa, Jr., and Alan W. Gorcey had not paid the
amount of the judgment debt.
14. With this modification the decision appealed from is in all other
respects affirmed, with costs against Appellants. This decision is without
prejudice to whatever action Louis F. da Costa, Jr., and Alan W. Gorcey
may take against their co-partners in the Stasikinocey unregistered
partnership.
15. This appeal by certiorari was taken by Paul McDonald and Benjamin
Gonzales, Petitionersherein, who have assigned the following errors:
I
IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP
WHICH HAS NO INDEPENDENT JURIDICAL PERSONALITY CAN HAVE A
DOMICILE SO THAT A CHATTEL MORTGAGE REGISTERED IN THAT
DOMICILE WOULD BIND THIRD PERSONS WHO ARE INNOCENT
PURCHASERS FOR VALUE.
II
IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE
OF THE MEMBERS OF AN UNREGISTERED COMMERCIAL COPARTNERSHIP WITHOUT JURIDICAL PERSONALITY INDEPENDENT OF
ITS MEMBERS, IT NEED NOT BE REGISTERED IN THE ACTUAL
RESIDENCE OF THE MEMBERS WHO EXECUTED SAME; chan
roblesvirtualawlibraryAND, AS A CONSEQUENCE THEREOF, IN NOT
MAKING ANY FINDING OF FACT AS TO THE ACTUAL RESIDENCE OF SAID
CHATTEL MORTGAGOR, DESPITEAPPELLANTS RAISING THAT
QUESTION PROPERLY BEFORE IT AND REQUESTING A RULING
THEREON.
III
IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES AN
AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF
THE TERRITORIAL JURISDICTION OF THE LATTER, THE AFFIDAVIT IS
VOID AND THE CHATTEL MORTGAGE IS NOT BINDING ON THIRD
PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE; chan
roblesvirtualawlibraryAND, AS A CONSEQUENCE THEREOF, IN NOT
MAKING ANY FINDING OF FACT AS TO WHERE THE DEED WAS IN FACT
EXECUTED, DESPITEAPPELLANTS RAISING THAT QUESTION PROPERLY
BEFORE IT AND EXPRESSLY REQUESTING A RULING THEREON.
IV
IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN
UNREGISTERED COMMERCIAL CO-PARTNERSHIP TO MAKE ALL
OFFICIAL AND BUSINESS ARRANGEMENTS .. WITH THE NATIONAL CITY
BANK OF NEW YORK IN ORDER TO SIMPLIFY ALL MATTERS RELATIVE
TO LCS CABLE TRANSFERS, DRAFTS, OR OTHER BANKING MEDIUMS,
WAS SUFFICIENT AUTHORITY FOR THE SAID MEMBER TO EXECUTE A
CHATTEL MORTGAGE IN ORDER TO GIVE THE BANK SECURITY FOR A
PRE-EXISTING OVERDRAFT, GRANTED WITHOUT SECURITY. WHICH
THE BANK HAD CONVERTED INTO A DEMAND LOAN UPON FAILURE TO
PAY SAME AND BEFORE THE CHATTEL MORTGAGE WAS EXECUTED.
This
is
the
first
question
propounded
by
the Petitioners:chanroblesvirtuallawlibrary Since
an
unregistered
commercial partnership unquestionably has no juridical personality, can
it have a domicile so that the registration of a chattel mortgage therein is
notice to the world?.
While an unregistered commercial partnership has no juridical
personality, nevertheless, where two or more persons attempt to create a
partnership failing to comply with all the legal formalities, the law
considers them as partners and the association is a partnership in so far
as it is a favorable to third persons, by reason of the equitable principle of
estoppel. In Jo Chung Chang vs. Pacific Commercial Co., 45 Phil., 145, it
was held that although the partnership with the firm name of Teck Seing
and Co. Ltd., could not be regarded as a partnership de jure, yet with
respect to third persons it will be considered a partnership with all the
consequent obligations for the purpose of enforcing the rights of such
third persons. Da Costa and Gorcey cannot deny that they are partners of
the partnership Stasikinocey, because in all their transactions with
the Respondent they represented themselves as such. Petitioner McDonald
cannot disclaim knowledge of the partnership Stasikinocey because he
dealt with said entity in purchasing two of the vehicles in question
through Gorcey and Da Costa. As was held in Behn Meyer & Co. vs.

Rosatzin, 5 Phil., 660, where a partnership not duly organized has been
recognized as such in its dealings with certain persons, it shall be
considered as partnership by estoppel and the persons dealing with it
are estopped from denying its partnership existence. The sale of the
vehicles in question being void as to Petitioner McDonald, the transfer
from the latter to Petitioner Benjamin Gonzales is also void, as the buyer
cannot have a better right than the seller.

Stasikinocey; and even assuming that the Petitioners are purchasers in

good faith and for value, the Respondent having transacted with
Stasikinocey earlier than the Petitioners, it should enjoy and be given
priority.

It results that if the law recognizes a defectively organized partnership as

de facto as far as third persons are concerned, for purposes of its de facto
existence it should have such attribute of a partnership as domicile. In
Hung-Man Yoc vs. Kieng-Chiong-Seng, 6 Phil., 498, it was held that
although it has no legal standing, it is a partnership de facto and the
general provisions of the Code applicable to all partnerships apply to it.
The registration of the chattel mortgage in question with the Office of the
Register of Deeds of Rizal, the residence or place of business of the
partnership Stasikinocey being San Juan, Rizal, was therefore in
accordance with section 4 of the Chattel Mortgage Law.

Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo Labrador,

Concepcion, Reyes, J.B.L., and Endencia, JJ., concur.

The
second
question
propounded
by
the Petitioners is:chanroblesvirtuallawlibrary If not, is a chattel mortgage
executed by only one of the partners of an unregistered commercial
partnership validly registered so as to constitute notice to the world if it
is not registered at the place where the aforesaid partner actually
resides but only in the place where the deed states that he resides, which
is not his real residence?
And the third question is as follows: If the actual residence of the chattel
mortgagor not the residence stated in the deed of chattel mortgage
is controlling, may the Court of Appeals refuse to make a finding of fact as
to where the mortgagor resided despite your Petitioners having properly
raised that question before it and expressly requested a ruling thereon?
These two questions have become academic by reason of the answer to
the first question, namely, that as a de facto partnership, Stasikinocey had
its domicile in San Juan, Rizal.
The fourth question asked by the Petitioners is as follows: Is a chattel
mortgage executed by only one of the partners of an unregistered
commercial partnership valid as to third persons when that partner
executed the affidavit of good faith in Quezon City before a notary public
whose appointment is only for the City of Manila? If not, may the Court of
Appeals refuse to make a finding of fact as to where the deed was
executed, despite yourPetitioners having properly raised that issue
before it and expressly requested a ruling thereon?
It is noteworthy that the chattel mortgage in question is in the form
required by law, and there is therefore the presumption of its due
execution which cannot be easily destroyed by the biased testimony of
the one who executed it. The interested version of Da Costa that the
affidavit of good faith appearing in the chattel mortgage was executed in
Quezon City before a notary public for and in the City of Manila was
correctly rejected by the trial court and the Court of Appeals. Indeed,
cumbersome legal formalities are imposed to prevent fraud. As aptly
pointed out in El Hogar Filipino vs. Olviga, 60 Phil., 17, If the biased and
interested testimony of a grantor and the vague and uncertain testimony
of his son are deemed sufficient to overcome a public instrument drawn
up with all the formalities prescribed by the law then there will have been
established a very dangerous doctrine which would throw wide open the
doors to fraud.
The last question raised by the Petitioners is as follows: Does only one of
several partners of an unregistered commercial partnership have
authority, by himself alone, to execute a valid chattel mortgage over
property owned by the unregistered commercial partnership in order to
guarantee a pre-existing overdraft previously granted, without guaranty,
by the bank?
In view of the conclusion that Stasikinocey is a de facto partnership, and
Da Costa appears as a co-manager in the letter of Gorcey to
the Respondent and in the promissory note executed by Da Costa, and that
even the partners considered him as such, as stated in the affidavit of
April 21, 1948, to the effect that That we as the majority partners hereby
agree to appoint Louis da Costa co-managing partner of Alan W. Gorcey,
duly approved managing partner of the said firm, the partner who
executed the chattel mortgage in question must be deemed to be so fully
authorized. Section 6 of the Chattel Mortgage Law provides that when a
partnership is a party to the mortgage, the affidavit may be made and
subscribed by one member thereof. In this case the affidavit was executed
and subscribed by Da Costa, not only as a partner but as a managing
partner.
RATIO:
There is no merit in Petitioners pretense that the motor vehicles in
question are the common property of Da Costa and
Gorcey. Petitioners invoke article 24 of the Code of Commerce in arguing
that an unregistered commercial partnership has no juridical personality
and cannot execute any act that would adversely affect innocent third
persons. Petitioners forget that the Respondent is a third person with
respect to the partnership, and the chattel mortgage executed by Da Costa
cannot therefore be impugned by Gorcey on the ground that there is no
partnership between them and that the vehicles in question belonged to
them in common. As a matter of fact, the Respondent and
the Petitioners are all third persons as regards the partnership

Wherefore, the appealed decision of the Court of Appeals is affirmed with

costs against thePetitioners.

Behn, Meyer and Co. v. Rosatzin, 5 Phil. 660

G.R. No. 2715,February 27, 1906
BEHN, MEYER & CO., plaintiffs-appellees,
vs.
F. ROSATZIN, defendant-appellant.
Hartigan, Marple, Rohde and Gutierrez for appellant.
Pillsbury and Sutro for appellees.
WILLARD, J.:
FACTS:
1. The defendant and appellant was employed by the partnership of Behn,
Meyer & Co. as a bookkeeper during the years 1901, 1902, and 1903.
2. He left their employ in the last-named year, and the partnership
brought this action to recover a balance of 686.24 pesos claimed to be
due it from the defendant.
3. The ledger for the partnership for the year 1901 contained a page
devoted to the account-current of the defendant with the partnership.
That account for that year showed a balance in favor of the partnership
and against the defendant of 686.24 pesos.
4. This account was kept by the defendant himself, and all the entries
therein are in his handwriting. The defendant introduced no evidence in
relation to the account or its payment, and judgment was entered against
him for P571.87 in Philippine currency, the equivalent of 686.24 pesos in
Mexican currency.
5. The defendant moved for a new trial, which was denied, and he has
brought the case here by bill of exceptions.
6. Objection was made in the court below to the admission of some of the
books of the partnership in evidence on the ground that they were not
kept as required by the Code of Commerce.
RULING:
We do not find it necessary to decide this question. The ledger which
contained the account above mentioned in the handwriting of the
defendant was certainly properly received in evidence, being an
admission by him of this indebtedness.
The fact that the book was not kept in accordance with the provisions of
the Code of Commerce could not detract from the force of this admission.
This book alone was sufficient evidence to prove the cause of action, and
the reception in evidence of the other books, if it were error, was error
without prejudice.
It was proved that the defendant continued in the employ of the
partnership during the years 1902 and 1903, and was paid for those
years his regular monthly salary, and it is claimed by the appellant that
this indicates that he must have paid the balance due from him for the
year 1901. This contention can not be sustained.
The plaintiff offered no evidence to show that this balance had not been
paid, and it is claimed by the appellant that the judgment must be
reversed for that reason. The plaintiff having proved the existence of the
obligation, the burden of proof was upon the defendant to show that it
had been discharged. This was the law in force during the Spanish
domination. (Art. 1214, Civil Code.) This rule has not been changed by
section 297 of the present Code of Procedure, which section is as follows:
Party must prove his affirmative allegations. Each party must prove his
own affirmative allegations. Evidence need not be given in support of a
negative allegation except when such negative allegation is an essential
part of the statement of the right or title on which the cause of action of
defense is founded, nor even in such case when the allegation is a denial
of the existence of a document, the custody of which belongs to the
opposite party.
It is also claimed by the appellant that the existence of the plaintiff
partnership was not proved that is, that there was no proof to show
that the partnership had been organized in accordance with the Code of
Commerce. There was evidence presented by the defendant in the case
that a partnership known as Behn, Meyer & Co. existed in 1900. The
defendant contracted with the partnership in 1901 and subsequent years,
and is now estopped to say that it was not a partnership.
The appellant also attempted to prove that there had been a change in the
partners constituting the firm after 1901, and prior to the

commencement of the action, and that the partnership which brought this
suit was not the partnership with which the defendant contracted. He
however, failed in his attempt, because the witness whom he called to
make the proof testified that the new partner, Dittmar, become a member
of the firm in 1900.

"there were some profits, but not large ones." This court, however, does
not find that the amount thereof has been proven, nor deem it possible to
estimate them to be a certain sum, and for a given period of time; hence, it
can not admit the estimate, made in the judgment, of 12 per cent per
annum for the period of six months.

It is finally claimed by the defendant that the court erred in entering

judgment against him for the amount of the debt payable in Philippine
currency. This contention has already been decided adversely to the
appellant in the case of Gaspar vs. Molina,[[1]] No. 2206, November 2, 1905
(3 Off. Gaz., 651).

IV. Inasmuch as in this case nothing appears other than the failure to
fulfill an obligation on the part of a partner who acted as agent in
receiving money for a given purpose, for which he has rendered no
accounting, such agent is responsible only for the losses which, by a
violation of the provisions of the law, he incurred. This being an
obligation to pay in cash, there are no other losses than the legal interest,
which interest is not due except from the time of the judicial demand, or,
in the present case, from the filing of the complaint. (Arts. 1108 and 1100,
Civil Code.) We do not consider that article 1688 is applicable in this case,
in so far as it provides "that the partnership is liable to every partner for
the amounts he may have disbursed on account of the same and for the
proper interest," for the reason that no other money than that
contributed as is involved.

The judgment of the court below is affirmed, with the costs of this
instance against the appellant. After the expiration of twenty days let
judgment be entered in accordance herewith and the case remanded to
the lower court for execution thereof. So ordered.
Torres, Mapa, Johnson, and Carson, JJ., concur.

Martinez v. Ong Pong Co and Ong Lay

January 10, 1910
G.R. No. 5236
Fernando de la Cantera for appellant.
O'Brien and DeWitt for appellee.
ARELLANO, C.J.:
FACTS:
1. On the 12th of December, 1900, the plaintiff herein delivered P1,500 to
the defendants who, in a private document, acknowledged that they had
received the same with the agreement, as stated by them, "that we are to
invest the amount in a store, the profits or losses of which we are to
divide with the former, in equal shares."
2. The plaintiff filed a complaint on April 25, 1907, in order to compel the
defendants to render him an accounting of the partnership as agreed to,
or else to refund him the P1,500 that he had given them for the said
purpose. Ong Pong Co alone appeared to answer the complaint; he
admitted the fact of the agreement and the delivery to him and to Ong Lay
of the P1,500 for the purpose aforesaid, but he alleged that Ong Lay, who
was then deceased, was the one who had managed the business, and that
nothing had resulted therefrom save the loss of the capital of P1,500, to
which loss the plaintiff agreed.
3. The judge of the Court of First Instance of the city of Manila who tried
the case ordered Ong Pong Co to return to the plaintiff one-half of the said
capital of P1,500 which, together with Ong Lay, he had received from the
plaintiff, to wit, P750, plus P90 as one-half of the profits, calculated at the
rate of 12 per cent per annum for the six months that the store was
supposed to have been open, both sums in Philippine currency, making a
total of P840, with legal interest thereon at the rate of 6 per cent per
annum, from the 12th of June, 1901, when the business terminated and
on which date he ought to have returned the said amount to the plaintiff,
until the full payment thereof with costs.
4. From this judgment Ong Pong Co appealed to SC contending that:
1. The fact that the store was closed by virtue of ejectment proceedings
was not taken into consideration.
2. For not having considered the fact that there were losses.
3. For holding that there should have been profits.
4. For having applied article 1138 of the Civil Code.
5. For holding that the capital ought to have yielded profits, and that the
latter should be calculated 12 per cent per annum
I. The fact that the store was closed by virtue of ejectment proceedings is
of no importance for the effects of the suit. The whole action is based
upon the fact that the defendants received certain capital from the
plaintiff for the purpose of organizing a company; they, according to the
agreement, were to handle the said money and invest it in a store which
was the object of the association; they, in the absence of a special
agreement vesting in one sole person the management of the business,
were the actual administrators thereof; as such administrators they were
the agent of the company and incurred the liabilities peculiar to every
agent, among which is that of rendering account to the principal of their
transactions, and paying him everything they may have received by virtue
of the mandatum. (Arts. 1695 and 1720, Civil Code.) Neither of them has
rendered such account nor proven the losses referred to by Ong Pong Co;
they are therefore obliged to refund the money that they received for the
purpose of establishing the said store the object of the association.
This was the principal pronouncement of the judgment.
II. The SC, like the court below, finds no evidence that the entire capital or
any part thereof was lost. It is no evidence of such loss to aver, without
proof, that the effects of the store were ejected. Even though these were
proven, it could not be inferred therefrom that the ejectment was due to
the fact that no rents were paid, and that the rent was not paid on account
of the loss of the capital belonging to the enterprise.
III. With regard to the possible profits, the finding of the court below are
based on the statements of the defendant Ong Pong Co, to the effect that

V. As in the partnership there were two administrators or agents liable

for the above-named amount, article 1138 of the Civil Code has been
invoked; this latter deals with debts of a partnership where the obligation
is not a joint one, as is likewise provided by article 1723 of said code with
respect to the liability of two or more agents with respect to the return of
the money that they received from their principal. Therefore, the other
errors assigned have not been committed.
In view of the foregoing judgment appealed from is hereby affirmed,
provided, however, that the defendant Ong Pong Co shall only pay the
plaintiff the sum of P750 with the legal interest thereon at the rate of 6
per cent per annum from the time of the filing of the complaint, and the
costs, without special ruling as to the costs of this instance. So ordered.
Torres, Johnson, Carson, and Moreland, JJ., concur.

[G.R. No. 114398. October 24, 1997.]

CARMEN LIWANAG, Petitioner, v. THE HON. COURT OF APPEALS and
THE PEOPLE OF THE PHILIPPINES, represented by the Solicitor
General, Respondents.
Efren L. Liwanag for Petitioner.
The Solicitor General for Respondents.
SYLLABUS
1. CRIMINAL LAW; REVISED PENAL CODE; ESTAFA; ELEMENTS
THEREOF. Estafa is a crime committed by a person who defrauds
another causing him to suffer damages, by means of unfaithfulness or
abuse of confidence, or of false pretenses of fraudulent acts. From the
foregoing, the elements of estafa are present, as follows: (1) that the
accused defrauded another by abuse of confidence or deceit, and (2) that
damage or prejudice capable of pecuniary estimation is caused to the
offended party or third party, and it is essential that there be a fiduciary
relation between them either in the form of a trust, commission or
administration.
2. ID.; ID.; ID.; WHEN MONEY OR PROPERTY HAVE BEEN RECEIVED BY A
PARTNER FOR A SPECIFIC PURPOSE, AND HE LATER
MISAPPROPRIATED IT, SUCH PARTNER IS GUILTY OF ESTAFA. Even
assuming that a contract of partnership was indeed entered into by and
between the parties, we have ruled that when money or property have
been received by a partner for a specific purpose (such as that obtaining
in the instant case) and he later misappropriated it, such partner is guilty
of
estafa.
3. CIVIL LAW; LOANS; THE TRANSACTION IN THE CASE AT BAR CANNOT
BE CONSIDERED A LOAN, SINCE IN A CONTRACT OF LOAN ONCE THE
MONEY IS RECEIVED BY THE DEBTOR, OWNERSHIP OVER THE SAME IS
TRANSFERRED. Neither can the transaction be considered a loan, since
in a contract of loan once the money is received by a debtor, ownership
over the same is transferred. Being the owner, the borrower can dispose
of it for whatever purpose he may deem proper. In the instant petition,
however, it is evident that Liwanag could not dispose of the money as she
pleased because it was only delivered to her for a single purpose, namely,
for the purchase of cigarettes, and if this was not possible then to return
the money to Rosales. Since in this case there was no transfer of
ownership of the money delivered, Liwanag is liable for conversion under
Art. 315, par. 1 (b) of the Revised Penal Code.
DECISION
ROMERO, J.:

Petitioner was charged with the crime of estafa before the Regional Trial
Court (RTC), Branch 93, Quezon City, in an information which reads as
follows:jgc:chanrobles.com.ph

profits between them. 1 She also argues that the transaction can also be
interpreted as a simple loan, with Rosales lending to her the amount
stated
on
an
installment
basis.
2

"That on or between the month of May 19, 1988 and August, 1988 in
Quezon City, Philippines and within the jurisdiction of this Honorable
Court, the said accused, with intent of gain, with unfaithfulness, and abuse
of confidence, did then and there, willfully, unlawfully and feloniously
defraud one ISIDORA ROSALES, in the following manner, to wit: on the
date and in the place aforementioned, said accused received in trust from
the offended party cash money amounting to P536,650.00, Philippine
Currency, with the express obligation involving the duty to act as
complainants agent in purchasing local cigarettes (Philip Morris and
Marlboro cigarettes), to resell them to several stores, to give her
commission corresponding to 40% of the profits; and to return the
aforesaid amount of offended party, but said accused, far from complying
her aforesaid obligation, and once in possession thereof, misapplied,
misappropriated and converted the same to her personal use and benefit,
despite repeated demands made upon her, Accused failed and refused and
still fails and refuses to deliver and/or return the same to the damage and
prejudice of the said ISIDORA ROSALES, in the aforementioned amount
and in such other amount as may be awarded under the provision of the
Civil
Code.

The

CONTRARY

"May

TO

LAW."cralaw

virtua1aw

library

The antecedent facts are as follows:chanrob1es virtual 1aw library

FACTS:
1. Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan
went to the house of complainant Isidora Rosales (Rosales) and asked her
to join them in the business of buying and selling cigarettes. Convinced of
the feasibility of the venture, Rosales readily agreed. Under their
agreement, Rosales would give the money needed to buy the cigarettes
while Liwanag and Tabligan would act as her agents, with a
corresponding 40% commission to her if the goods are sold; otherwise
the money would be returned to Rosales. Consequently, Rosales gave
several cash advances to Liwanag and Tabligan amounting to
P633,650.00.
2. During the first two months, Liwanag and Tabligan made periodic visits
to Rosales to report on the progress of the transactions. The visits,
however, suddenly stopped, and all efforts by Rosales to obtain
information
regarding
their
business
proved
futile.
3. Alarmed by this development and believing that the amounts she
advanced were being misappropriated, Rosales filed a case of estafa
against
Liwanag.
4. After trial on the merits, the trial court rendered a decision dated
January 9, 1991, finding Liwanag guilty as charged. The dispositive
portion
of
the
decision
reads
thus:
"WHEREFORE, the Court holds, that the prosecution has established the
guilt of the accused, beyond reasonable doubt, and therefore, imposes
upon the accused, Carmen Liwanag, an Indeterminate Penalty of SIX (6)
YEARS, EIGHT (8) MONTHS AND TWENTY ONE (21) DAYS OF PRISION
CORRECCIONAL TO FOURTEEN (14) YEARS AND EIGHT (8) MONTHS OF
PRISION MAYOR AS MAXIMUM, AND TO PAY THE COSTS.
5. The accused is likewise ordered to reimburse complainant the sum of
P526,650.00, without subsidiary imprisonment, in case of insolvency.
6. Said decision was affirmed with modification by the Court of Appeals in
a decision dated November 29, 1993, the decretal portion of which reads:
"WHEREFORE, in view of the foregoing, the judgment appealed from is
hereby affirmed with the correction of the nomenclature of the penalty
which should be: SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY ONE
(21) DAYS of prision mayor, as minimum, to FOURTEEN (14) YEARS and
EIGHT (8) MONTHS of reclusion temporal, as maximum. In all other
respects,
the
decision
is
AFFIRMED.
7. Her motion for reconsideration having been denied in the resolution of
March 16, 1994, Liwanag filed the instant petition, submitting the
following
assignment
of
errors:
"1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN AFFIRMING
THE CONVICTION OF THE ACCUSED-PETITIONER FOR THE CRIME OF
ESTAFA, WHEN CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN
THE ACCUSED-PETITIONER AND COMPLAINANT IS EITHER THAT OF A
SIMPLE LOAN OR THAT OF A PARTNERSHIP OR JOINT VENTURE HENCE
THE NON RETURN OF THE MONEY OF THE COMPLAINANT IS PURELY
CIVIL
IN
NATURE
AND
NOT
CRIMINAL.
2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT
ACQUITTING THE ACCUSED-PETITIONER ON GROUNDS OF
REASONABLE DOUBT BY APPLYING THE EQUIPOISE RULE."cralaw
virtua1aw
library
Liwanag advances the theory that the intention of the parties was to enter
into a contract of partnership, wherein Rosales would contribute the
funds while she would buy and sell the cigarettes, and later divide the

Court

of

Appeals

correctly

rejected

these

pretenses.

While factual findings of the Court of Appeals are conclusive on the

parties and not reviewable by the Supreme Court, and carry more weight
when these affirm the factual findings of the trial court, 3 we deem it
more expedient to resolve the instant petition on its merits.
Estafa is a crime committed by a person who defrauds another causing
him to suffer damages, by means of unfaithfulness or abuse of confidence,
or
of
false
pretenses
or
fraudulent
acts.
4
From the foregoing, the elements of estafa are present, as follows: (1) that
the accused defrauded another by abuse of confidence or deceit; and (2)
that damage or prejudice capable of pecuniary estimation is caused to the
offended party or third party, 5 and it is essential that there be a fiduciary
relation between them either in the form of a trust, commission or
administration.
6
The receipt signed by Liwanag states thus:jgc:chanrobles.com.ph
19,

1988

Quezon

City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED

TWENTY SIX THOUSAND AND SIX HUNDRED FIFTY PESOS
(P526,650.00) Philippine Currency, to purchase cigarrets (sic) (Philip &
Marlboro) to be sold to customers. In the event the said cigarrets (sic) are
not sold, the proceeds of the sale or the said products (shall) be returned
to said Mrs. Isidora P. Rosales the said amount of P526,650.00 or the said
items
on
or
before
August
30,
1988.
The language of the receipt could not be any clearer. It indicates that the
money delivered to Liwanag was for a specific purpose, that is, for the
purchase of cigarettes, and in the event the cigarettes cannot be sold, the
money
must
be
returned
to
Rosales.
Thus, even assuming that a contract of partnership was indeed entered
into by and between the parties, we have ruled that when money or
property have been received by a partner for a specific purpose (such as
that obtaining in the instant case) and he later misappropriated it, such
partner
is
guilty
of
estafa.
7chanroblesvirtualawlibrary
Neither can the transaction be considered a loan, since in a contract of
loan once the money is received by the debtor, ownership over the same
is transferred. 8 Being the owner, the borrower can dispose of it for
whatever
purpose
he
may
deem
proper.
In the instant petition, however, it is evident that Liwanag could not
dispose of the money as she pleased because it was only delivered to her
for a single purpose, namely, for the purchase of cigarettes, and if this was
not possible then to return the money to Rosales. Since in this case there
was no transfer of ownership of the money delivered, Liwanag is liable
for conversion under Art. 315, par. 1(b) of the Revised Penal Code.
WHEREFORE, in view of the foregoing, the appealed decision of the Court
of Appeals dated November 29, 1993, is AFFIRMED. Costs against
petitioner.
SO
Melo,

ORDERED.
Francisco

and

Panganiban, JJ.,

concur.

Narvasa, C.J., on leave.

G.R. No. L-45624

April 25, 1939

GEORGE LITTON, petitioner-appellant,

vs.
HILL & CERON, ET AL., respondents-appellees.
George E. Reich for appellant.
Roy and De Guzman for appellees.
Espeleta, Quijano and Liwag for appellee Hill.
CONCEPCION, J.:
This is a petition to review on certiorari the decision of the Court of
Appeals in a case originating from the Court of First Instance of Manila
wherein the herein petitioner George Litton was the plaintiff and the
respondents Hill & Ceron, Robert Hill, Carlos Ceron and Visayan Surety &
Insurance Corporation were defendants.
FACTS:

1. On February 14, 1934, the plaintiff sold and delivered to Carlos Ceron,
who is one of the managing partners of Hill & Ceron, a certain number of
mining claims, and by virtue of said transaction, the defendant Carlos
Ceron delivered to the plaintiff a document reading as follows:
Feb. 14, 1934
Received from Mr. George Litton share certificates Nos. 4428,
4429 and 6699 for 5,000, 5,000 and 7,000 shares respectively
total 17,000 shares of Big Wedge Mining Company, which
we have sold at P0.11 (eleven centavos) per share or P1,870.00
less 1/2 per cent brokerage.
HILL

&

CERON

By: (Sgd.) CARLOS CERON

2. Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance
of P720, and unable to collect this sum either from Hill & Ceron or from
its surety Visayan Surety & Insurance Corporation, Litton filed a
complaint in the Court of First Instance of Manila against the said
defendants for the recovery of the said balance.
3. The court, after trial, ordered Carlos Ceron personally to pay the
amount claimed and absolved the partnership Hill & Ceron, Robert Hill
and the Visayan Surety & Insurance Corporation. On appeal to the Court
of Appeals, the latter affirmed the decision of the court on May 29, 1937,
having reached the conclusion that Ceron did not intend to represent and
did not act for the firm Hill & Ceron in the transaction involved in this
litigation.
3. Accepting, as we cannot but accept, the conclusion arrived at by the
Court of Appeals as to the question of fact just mentioned, namely, that
Ceron individually entered into the transaction with the plaintiff, but in
view, however, of certain undisputed facts and of certain regulations and
provisions of the Code of Commerce, we reach the conclusion that the
transaction made by Ceron with the plaintiff should be understood in law
as effected by Hill & Ceron and binding upon it.
RULING
In the first place, it is an admitted fact by Robert Hill when he testified at
the trial that he and Ceron, during the partnership, had the same power to
buy and sell; that in said partnership Hill as well as Ceron made the
transaction as partners in equal parts; that on the date of the transaction,
February 14, 1934, the partnership between Hill and Ceron was in
existence. After this date, or on February 19th, Hill & Ceron sold shares of
the Big Wedge; and when the transaction was entered into with Litton, it
was neither published in the newspapers nor stated in the commercial
registry that the partnership Hill & Ceron had been dissolved.
Hill testified that a few days before February 14th he had a conversation
with the plaintiff in the course of which he advised the latter not to
deliver shares for sale or on commission to Ceron because the
partnership was about to be dissolved; but what importance can be
attached to said advice if the partnership was not in fact dissolved on
February 14th, the date when the transaction with Ceron took place?
RATIO
Under article 226 of the Code of Commerce, the dissolution of a
commercial association shall not cause any prejudice to third parties until
it has been recorded in the commercial registry. (See also
Cardell vs. Maeru, 14 Phil., 368.) The Supreme Court of Spain held that
the dissolution of a partnership by the will of the partners which is not
registered in the commercial registry, does not prejudice third persons.
(Opinion of March 23, 1885.)
Aside from the aforecited legal provisions, the order of the Bureau of
Commerce of December 7, 1933, prohibits brokers from buying and
selling shares on their own account. Said order reads:
The stock and/or bond broker is, therefore, merely an agent or
an intermediary, and as such, shall not be allowed. . . .
(c) To buy or to sell shares of stock or bonds on his own
account for purposes of speculation and/or for manipulating
the market, irrespective of whether the purchase or sale is
made from or to a private individual, broker or brokerage firm.
In its decision the Court of Appeals states:

But there is a stronger objection to the plaintiff's attempt to

make the firm responsible to him. According to the articles of
copartnership of 'Hill & Ceron,' filed in the Bureau of
Commerce.
Sixth. That the management of the business affairs of the
copartnership shall be entrusted to both copartners who shall
jointly administer the business affairs, transactions and
activities of the copartnership, shall jointly open a current
account or any other kind of account in any bank or banks,
shall jointly sign all checks for the withdrawal of funds and
shall jointly or singly sign, in the latter case, with the consent of
the other partner. . . .
Under this stipulation, a written contract of the firm can only
be signed by one of the partners if the other partner consented.
Without the consent of one partner, the other cannot bind the
firm by a written contract. Now, assuming for the moment that
Ceron attempted to represent the firm in this contract with the
plaintiff (the plaintiff conceded that the firm name was not
mentioned at that time), the latter has failed to prove that Hill
had consented to such contract.
It follows from the sixth paragraph of the articles of partnership of Hill &n
Ceron above quoted that the management of the business of the
partnership has been entrusted to both partners thereof, but we dissent
from the view of the Court of Appeals that for one of the partners to bind
the partnership the consent of the other is necessary. Third persons, like
the plaintiff, are not bound in entering into a contract with any of the two
partners, to ascertain whether or not this partner with whom the
transaction is made has the consent of the other partner. The public need
not make inquires as to the agreements had between the partners. Its
knowledge, is enough that it is contracting with the partnership which is
represented by one of the managing partners.
There is a general presumption that each individual partner is
an authorized agent for the firm and that he has authority to
bind the firm in carrying on the partnership transactions.
(Mills vs. Riggle, 112 Pac., 617.)
The presumption is sufficient to permit third persons to hold
the firm liable on transactions entered into by one of members
of the firm acting apparently in its behalf and within the scope
of his authority. (Le Roy vs.Johnson, 7 U. S. [Law. ed.], 391.)
The second paragraph of the articles of partnership of Hill & Ceron reads
in part:
Second: That the purpose or object for which this
copartnership is organized is to engage in the business of
brokerage in general, such as stock and bond brokers, real
brokers, investment security brokers, shipping brokers, and
other activities pertaining to the business of brokers in general.
The kind of business in which the partnership Hill & Ceron is to engage
being thus determined, none of the two partners, under article 130 of the
Code of Commerce, may legally engage in the business of brokerage in
general as stock brokers, security brokers and other activities pertaining
to the business of the partnership. Ceron, therefore, could not have
entered into the contract of sale of shares with Litton as a private
individual, but as a managing partner of Hill & Ceron.
The respondent argues in its brief that even admitting that one of the
partners could not, in his individual capacity, engage in a transaction
similar to that in which the partnership is engaged without binding the
latter, nevertheless there is no law which prohibits a partner in the stock
brokerage business for engaging in other transactions different from
those of the partnership, as it happens in the present case, because the
transaction made by Ceron is a mere personal loan, and this argument, so
it is said, is corroborated by the Court of Appeals. We do not find this
alleged corroboration because the only finding of fact made by the Court
of Appeals is to the effect that the transaction made by Ceron with the
plaintiff was in his individual capacity.
The appealed decision is reversed and the defendants are ordered to pay
to the plaintiff, jointly and severally, the sum of P720, with legal interest,
from the date of the filing of the complaint, minus the commission of onehalf per cent (%) from the original price of P1,870, with the costs to the
respondents. So ordered.
Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.
RESOLUTION
July 13, 1939

CONCEPCION, J.:
A motion has been presented in this case by Robert Hill, one of the
defendants sentenced in our decision to pay to the plaintiff the amount
claimed in his complaint. It is asked that we reconsider our decision, the
said defendant insisting that the appellant had not established that Carlos
Ceron, another of the defendants, had the consent of his copartner, the
movant, to enter with the appellant into the contract whose breach gave
rise to the complaint. It is argued that, it being stipulated in the articles of
partnership that Hill and Ceron, only partners of the firm Hill & Ceron,
would, as managers, have the management of the business of the
partnership, and that either may contract and sign for the partnership
with the consent of the other; the parties of partnership having been, so it
is said, recorded in the commercial registry, the appellant could not
ignore the fact that the consent of the movant was necessary for the
validity of the contract which he had with the other partner and
defendant, Ceron, and there being no evidence that said consent had been
obtained, the complaint to compel compliance with the said contract had
to be, as it must be in fact, a procedural failure.
Although this question has already been considered and settled in our
decision, we nevertheless take cognizance of the motion in order to
enlarge upon our views on the matter.
The stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the
consent of the other, undoubtedly creates an obligation between the two
partners, which consists in asking the other's consent before contracting
for the partnership. This obligation of course is not imposed upon a third
person who contracts with the partnership. Neither is it necessary for the
third person to ascertain if the managing partner with whom he contracts
has previously obtained the consent of the other. A third person may and
has a right to presume that the partner with whom he contracts has, in
the ordinary and natural course of business, the consent of his copartner;
for otherwise he would not enter into the contract. The third person
would naturally not presume that the partner with whom he enters into
the transaction is violating the articles of partnership but, on the
contrary, is acting in accordance therewith. And this finds support in the
legal presumption that the ordinary course of business has been followed
(No. 18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable
to contracts which have the force of law between the parties.
Wherefore, unless the contrary is shown, namely, that one of the partners
did not consent to his copartner entering into a contract with a third
person, and that the latter with knowledge thereof entered into said
contract, the aforesaid presumption with all its force and legal effects
should be taken into account.
There is nothing in the case at bar which destroys this presumption; the
only thing appearing in he findings of fact of the Court of Appeals is that
the plaintiff "has failed to prove that Hill had consented to such contract".
According to this, it seems that the Court of Appeals is of the opinion that
the two partners should give their consent to the contract and that the
plaintiff should prove it. The clause of the articles of partnership should
not be thus understood, for it means that one of the two partners should
have the consent of the other to contract for the partnership, which is
different; because it is possible that one of the partners may not see any
prospect in a transaction, but he may nevertheless consent to the
realization thereof by his copartner in reliance upon his skill and ability
or otherwise. And here we have to hold once again that it is not the
plaintiff who, under the articles of partnership, should obtain and prove
the consent of Hill, but the latter's partner, Ceron, should he file a
complaint against the partnership for compliance with the contract; but
in the present case, it is a third person, the plaintiff, who asks for it. While
the said presumption stands, the plaintiff has nothing to prove.
Passing now to another aspect of the case, had Ceron in any way stated to
the appellant at the time of the execution of the contract, or if it could be
inferred by his conduct, that he had the consent of Hill, and should it turn
out later that he did not have such consent, this alone would not annul the
contract judging from the provisions of article 130 of the Code of
Commerce reading as follows:
No new obligation shall be contracted against the will of one of
the managing partners, should he have expressly stated it; but
if, however, it should be contracted it shall not be annulled for
this reason, and shall have its effects without prejudice to the
liability of the partner or partners who contracted it to
reimburse the firm for any loss occasioned by reason thereof.
(Emphasis supplied.)

The reason or purpose behind these legal provisions is no other than to

protect a third person who contracts with one of the managing partners
of the partnership, thus avoiding fraud and deceit to which he may easily
fall a victim without this protection which the Code of Commerce wisely
provides.
If we are to interpret the articles of partnership in question by holding
that it is the obligation of the third person to inquire whether the
managing copartner of the one with whom he contracts has given his
consent to said contract, which is practically casting upon him the
obligation to get such consent, this interpretation would, in similar cases,
operate to hinder effectively the transactions, a thing not desirable and
contrary to the nature of business which requires promptness and
dispatch one the basis of good faith and honesty which are always
presumed.
In view of the foregoing, and sustaining the other views expressed in the
decision, the motion is denied. So ordered.
Avancea, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.
G.R. No. L-11840

December 10, 1963

ANTONIO
C.
GOQUIOLAY,
ET
AL., plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Norberto J. Quisumbing and Sycip, Salazar and Associates for defendantsappellees.
Jose C. Calayco for plaintiffs-appellants..
RESOLUTION
REYES, J.B.L., J.:
FACTS:
The matter now pending is the appellant's motion for reconsideration of
our main decision, wherein we have upheld the validity of the sale of the
lands owned by the partnership Goquiolay & Tan Sin An, made in 1949 by
the widow of the managing partner, Tan Sin An (Executed in her dual
capacity as Administratrix of the husband's estate and as partner in lieu
of the husband), in favor of the buyers Washington Sycip and Betty Lee
for the following consideration:
Cash paid

P37,000.00

Debts assumed by purchaser:

To Yutivo

62,415.91

To Sing Yee Cuan & Co.,

54,310.13

TOTAL

P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insist that,

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

Under the aforequoted provisions, when, not only without the consent
but against the will of any of the managing partners, a contract is entered
into with a third person who acts in good faith, and the transaction is of
the kind of business in which the partnership is engaged, as in the present
case, said contract shall not be annulled, without prejudice to the liability
of the guilty partner.

1. To engage in real estate business, either by buying and

selling real estates; to subdivide real estates into lots for the
purpose of leasing and selling them.;

(c) That the properties sold were not part of the contributed capital
(which was in cash) but land precisely acquired to be sold, although
subject to a mortgage in favor of the original owners, from whom the
partnership had acquired them.
With these points firmly in mind, let us turn to the points insisted upon
by appellant.
It is first averred that there is "not one iota of evidence" that Kong Chai
Pin managed and retained possession of the partnership properties.
Suffice it to point out that appellant Goquiolay himself admitted that
... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai
Pin continue to manage the properties (as) she had no other
means of income. Then I said, because I wanted to help Mrs.
Kong Chai Pin, she could just do it and besides I am not
interested in agricultural lands. I allowed her to take care of the
properties in order to help her and because I believe in God and
wanted to help her.
Q So the answer to my question is you did not
take any steps?

Again, the disputed sale by the widow took place in 1949. That Kong Chai
Pin carried out no acts of management during the Japanese occupation
(1942-1944) does not mean that she did not do so from 1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and
Young; he actually manifested his willingness that the widow should
manage the partnership properties. Whether or not she complied with
this authority is a question between her and the appellant, and is not here
involved. But the authority was given, and she did have it when she made
the questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai
Pin was only to manage the property, and that it did not include the
power to alienate, citing Article 1713 of the Civil Code of 1889. What this
argument overlooks is that the widow was not a mere agent, because she
had become a partner upon her husband's death, as expressly provided
by the articles of copartnership. Even more, granting that by succession
to her husband, Tan Sin An, the widow only became a limited
partner, Goquiolay's authorization to manage the partnership property
was proof that he considered and recognized her as general partner, at
least since 1945. The reason is plain: Under the law (Article 148, last
paragraph, Code of Commerce), appellant could not empower the widow,
if she were only a limited partner, to administer the properties of the
firm, even as a mere agent:

A I did not.
Q And this conversation which you had with Mrs.
Yu Eng Lai was few months after 1945?
A In the year 1945. (Emphasis supplied).
The appellant subsequently ratified this testimony in his deposition of 30
June 1956, pages 8-9, wherein he stated:
that plantation was being occupied at that time by the widow,
Mrs. Tan Sin An, and of course they are receiving quiet a lot
benefit from the plantation.

Limited partners may not perform any act of administration

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

Moreover, the appellant's reference to the testimony of Hernando Young,

that the witness found the properties "abandoned and undeveloped",
omits to mention that said part of the testimony started with the
question:

Besides, as we pointed out in our main decision, the heir ordinarily (and
we did not say "necessarily") becomes a limited partner for his own
protection, because he would normally prefer to avoid any liability in
excess of the value of the estate inherited so as not to jeopardize his
personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect
to become a collective or general partner, with all the rights and
privileges of one, and answering for the debts of the firm not only with
the inheritance but also with the heir's personal fortune. This choice
pertains exclusively to the heir, and does not require the assent of the
surviving partner.

Now, you said that about 1942 or 1943 you returned to Davao.
Did you meet Mrs. Kong Chai Pin there in Davao at that time?

It must be remember that the articles of co-partnership here involved

expressly stipulated that:

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

In the event of the death of any of the partners at any time

before the expiration of said term, the co-partnership shall not
be dissolved but will have to be continued and the deceased
partner shall be represented by his heirs or assigns in said copartnership (Art. XII, Articles of Co-Partnership).

Discarding the self-serving expressions, these admissions of Goquiolay

are certainly entitled to greater weight than those of Hernando Young
and Rufino Lim, having been made against the party's own interest.

According to Mr. Goquiolay, during the Japanese occupation

Tan Sin an and his family lived on the plantation of the
partnership and derived their subsistence from that plantation.
What can you say to that? (Dep. 19 July 1956, p. 8).
And also
What can you say as to the development of these other
properties of the partnership which you saw during the
occupation? (Dep. p. 13, Emphasis supplied).

The Articles did not provide that the heirs of the deceased would be
merely limited partners; on the contrary, they expressly stipulated that in
case of death of either partner "the co-partnership ... will have to be
continued" with the heirs or assigns. It certainly could not be continued if
it were to be converted from a general partnership into a limited
partnership, since the difference between the two kinds of associations is
fundamental; and specially because the conversion into a
limited association would have the heirs of the deceased partner without
a share in the management. Hence, the contractual stipulation does
actually contemplate that the heirs would becomegeneral partners rather
than limited ones.

to which witness gave the following answer:

I saw the properties in Mamay still undeveloped. The third
property which is in Tigato is about eleven (11) hectares and
planted with abaca seedlings planted by Mr. Sin An. When I
went there with Hernando Youngwe saw all the abaca
destroyed. The place was occupied by the Japanese Army. They
planted camotes and vegetables to feed the Japanese Army. Of
course they never paid any money to Tan Sin An or his family.
(Dep., Lim, pp. 13-14. Emphasis supplied).
Plainly, both Young and Lim's testimonies do not belie, or contradict,
Goquiolay's admission that he told Mr. Yu Eng Lai that the widow "could
just do it" (i.e., continue to manage the properties). Witnesses Lim and
Young referred to the period of Japanese occupation; but Goquiolay's
authority was, in fact, given to the widow in 1945,after the occupation.

Of course, the stipulation would not bind the heirs of the deceased
partner should they refuse to assume personal and unlimited
responsibility for the obligations of the firm. The heirs, in other words,
can not be compelled to become general partners against their wishes.
But because they are not so compellable, it does not legitimately follow
that they may not voluntarily choose to become general partners, waiving
the protective mantle of the general laws of succession. And in the latter
event, it is pointless to discuss the legality of any conversion of a limited
partner into a general one. The heir never was a limited partner, but
chose to be, and became, a general partner right at the start.
It is immaterial that the heir's name was not included in the firm name,
since no conversion of status is involved, and the articles of copartnership expressly contemplated the admission of the partner's heirs
into the partnership.

It must never be overlooked that this case involved the rights acquired by
strangers, and does not deal with the rights existing between partners
Goquiolay and the widow of Tan Sin An. The issues between the
partners inter sewere expressly reserved in our main decision. Now, in
determining what kind of partner the widow of partner Tan Sin an Had
elected to become, strangers had to be guided by her conduct and
actuations and those of appellant Goquiolay. Knowing that by law a
limited partner is barred from managing the partnership business or
property, third parties (like the purchasers) who found the widow
possessing and managing the firm property with the acquiescence (or at
least without apparent opposition) of the surviving partners were
perfectly justified in assuming that she had become a general partner,
and, therefore, in negotiating with her as such a partner, having authority
to act for, and in behalf of the firm. This belief, be it noted, was shared
even by the probate court that approved the sale by the widow of the real
property standing in the partnership name. That belief was fostered by
the very inaction of appellant Goquiolay. Note that for seven long years,
from partner Tan Sin An's death in 1942 to the sale in 1949, there was
more than ample time for Goquiolay to take up the management of these
properties, or at least ascertain how its affairs stood. For seven years
Goquiolay could have asserted his alleged rights, and by suitable notice in
the commercial registry could have warned strangers that they must deal
with him alone, as sole general partner. But he did nothing of the sort,
because he was not interested (supra), and he did not even take steps to
pay, or settle the firm debts that were overdue since before the outbreak
of the last war. He did not even take steps, after Tan Sin An died, to cancel,
or modify, the provisions of the partnership articles that he (Goquiolay)
would have no intervention in the management of the partnership.
This laches certainly contributed to confirm the view that the widow of
Tan Sin An had, or was given, authority to manage and deal with the
firm's properties apart from the presumption that a general partner
dealing with partnership property has to requisite authority from his copartners (Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our main
decision, p. 11).
The stipulation in the articles of partnership that any of the
two managing partners may contract and sign in the name of
the partnership with the consent of the other, undoubtedly
creates on obligation between the two partners, which consists
in asking the other's consent before contracting for the
partnership. This obligation of course is not imposed upon a
third person who contracts with the partnership. Neither it is
necessary for the third person to ascertain if the managing
partner with whom he contracts has previously obtained the
consent of the other. A third person may and has a right to
presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his
copartner; for otherwise he would not enter into the contract.
The third person would naturally not presume that the partner
with whom he enters into the transaction is violating the
articles of partnership, but on the contrary is acting in
accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been
followed (No. 18, section 334, Code of Civil Procedure), and
that the law has been obeyed (No. 31, section 334). This last
presumption is equally applicable to contracts which have the
force of law between the parties. (Litton vs. Hill & Ceron, et al.,
67 Phil. 409, 516). (Emphasis supplied.)
It is next urged that the widow, even as a partner, had no authority to sell
the real estate of the firm. This argument is lamentably superficial
because it fails to differentiate between real estate acquired and held
as stock-in-tradeand real estate held merely as business site (Vivante's
"taller o banco social") for the partnership. Where the partnership
business is to deal in merchandise and goods, i.e., movable property, the
sale of its real property (immovables) is not within the ordinary powers
of a partner, because it is not in line with the normal business of the firm.
But where the express and avowed purpose of the partnership is to buy
and sell real estate (as in the present case), the immovables thus acquired
by the firm from part of its stock-in-trade, and the sale thereof is in
pursuance of partnership purposes, hence within the ordinary powers of
the partner. This distinction is supported by the opinion of Gay de
Montella1 , in the very passage quoted in the appellant's motion for
reconsideration:
La enajenacion puede entrar en las facultades del gerante,
cuando es conforme a los fines sociales. Pero esta facultad de
enajenar limitada a las ventas conforme a los fines sociales,
viene limitada a los objetos de comercio o a los productos de la
fabrica para explotacion de los cuales se ha constituido la
Sociedad.Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo caso el
gerente estaria facultado para otorgar las ventas que fuere
necesario. (Montella) (Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:

a partnership to deal in real estate may be created and either

partner has the legal right to sell the firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one
partner has ample power, as a general agent of the firm, to enter into an
executory contract for the sale of real estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
If the several partners engaged in the business of buying and
selling real estate can not bind the firm by purchases or sales
of such property made in the regular course of business, then
they are incapable of exercising the essential rights and powers
of general partners and their association is not really a
partnership at all, but a several agency.
Since the sale by the widow was in conformity with the express objective
of the partnership, "to engage ... in buying and selling real estate" (Art. IV,
No. 1 Articles of Copartnership), it can not be maintained that the sale
was made in excess of her power as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court
of Ohio in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of
that case are vastly different from the one before us. In the McGrath case,
the Court expressly found that:
The firm was then, and for some time had been, insolvent, in
the sense that its property was insufficient to pay its debts,
though it still had good credit, and was actively engaged in the
prosecution of its business. On that day, which was Saturday,
the plaintiff caused to be prepared, ready for execution, the
four chattel mortgages in question, which cover all the tangible
property then belonging to the firm, including the counters,
shelving, and other furnishings and fixtures necessary for, and
used in carrying on, its business, and signed the same in this
form: "In witness whereof, the said Cowen & McGrath, a firm,
and Owen McGrath, surviving partner, of said firm, and Owen
McCrath, individually, have hereunto set their hands, this 20th
day of May, A.D. 1893. Cowen & Mcgrath, by Owen McGrath.
Owen McGrath, Surviving partner of Cowen & McGrath. Owen
McGrath." At the same time, the plaintiff had prepared, ready
for filing, the petitionfor the dissolution of the partnership and
appointment of a receiver which he subsequently filed, as
hereinafter stated. On the day the mortgages were signed, they
were placed in the hands of the mortgagees, which was the
first intimation to them that there was any intention to make
them. At the timenone of the claims secured by the mortgages
were due, except, it may be, a small part of one of them,
andnone of the creditors to whom the mortgages were
made had requested security, or were pressing for the payment
of their debts. ... The mortgages appear to be without a
sufficient condition of defiance, and contain a stipulation
authorizing the mortgagees to take immediate possession of
the property, which they did as soon as the mortgages were
filed through the attorney who then represented them, as well
as the plaintiff; and the stores were at once closed, and
possession delivered by them to the receiver appointed upon the
filing of the petition. The avowed purposes of the plaintiff, in the
course pursued by him, was to terminate the partnership, place
its properly beyond the control of the firm, and insure the
preference of the mortgagees, all of which was known to them
at the time; .... (Cas cit., p. 343, Emphasis supplied).
It is natural that form these facts the Supreme Court of Ohio should draw
the conclusion that the conveyances were made with intent to terminate
the partnership, and that they were not within the powers of McGrath as
a partner. But there is no similarity between those acts and the sale by
the widow of Tan Sin An. In the McGrath case, the sale included even the
fixtures used in the business; in our case, the lands sold were those
acquired to be sold. In the McGrath case, none of the creditors were
pressing for payment; in our case, the creditors had been unpaid for more
than seven years, and their claims had been approved by the probate
court for payment. In the McGrath case, the partnership received nothing
beyond the discharge of its debts; in the present case, not only were its
debts assumed by the buyers, but the latter paid, in addition, P37,000.00
in cash to the widow, to the profit of the partnership. Clearly, the McGrath
ruling is not applicable.
We will now turn to the question of fraud. No direct evidence of it exists;
but appellant point out, as indicia thereof, the allegedly low price paid for
the property, and the relationship between the buyers, the creditors of
the partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for
a total of P153,726.04, of which P37,000.00 was in cash, and the rest in

partnership debts assumed by the purchaser. These debts (62,415.91 to

Yutivo, and P54,310.13 to Sing Ye Cuan & Co.) are not questioned; they
were approved by the court, and its approval is now final. The claims
were, in fact, for the balance on the original purchase price of the land
sold (sue first to La Urbana, later to the Banco Hipotecario) plus accrued
interests and taxes, redeemed by the two creditors-claimants. To show
that the price was inadquate, appellant relies on the testimony of the
realtor Mata, who is 1955, six years after the sale in question, asserted
that the land was worth P312,000.00. Taking into account the continued
rise of real estate values since liberation, and the fact that the sale in
question was practically a forced sale because the partnership had no
other means to pay its legitimate debts, this evidence certainly does not
show such "gross inadequacy" as to justify recission of the sale. If at the
time of the sale (1949) the price of P153,726.04 was really low, how is it
that appellant was not able to raise the amount, even if the creditor's
representative, Yu Khe Thai, had already warned him four years before
(1945) that the creditors wanted their money back, as they were justly
entitled to?
It is argued that the land could have been mortgaged to raise the sum
needed to discharge the debts. But the lands were already mortgaged, and
had been mortgaged since 1940, first to La Urbana, and then to the Banco
Hipotecario. Was it reasonable to expect that other persons would loan
money to the partnership when it was unable even to pay the taxes on the
property, and the interest on the principal since 1940? If it had been
possible to find lenders willing to take a chance on such a bad financial
record, would not Goquiolay have taken advantage of it? But the fact is
clear on the record that since liberation until 1949 Goquiolay never lifted
a finger to discharge the debts of the partnership. Is he entitled now to
cry fraud after the debts were discharged with no help from him.
With regard to the relationship between the parties, suffice it to say that
the Supreme Court has ruled that relationship alone is not a badge of
fraud (Oria Hnos. vs. McMicking, 21 Phil. 243; also Hermandad del Smo.
Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence
that the original buyers, Washington Sycip and Betty Lee, were without
independent means to purchase the property. That the Yutivos should be
willing to extend credit to them, and not to appellant, is neither illegal nor
immoral; at the very least, these buyers did not have a record of
inveterate defaults like the partnership "Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a
conspiracy between the Yutivo firm and their component members. But
no proof is adduced. If he was such a victim, he could have easily defeated
the conspirators by raising money and paying off the firm's debts
between 1945 and 1949; but he did not; he did not even care to look for a
purchaser of the partnership assets. Were it true that the conspiracy to
defraud him arose (as he claims) because of his refusal to sell the lands
when in 1945 Yu Khe Thai asked him to do so, it is certainly strange that
the conspirators should wait 4 years, until 1949, to have the sale effected
by the widow of Tan Sin An, and that the sale should have been routed
through the probate court taking cognizance of Tan Sin An's estate, all of
which increased the risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and
Sing Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in
proceedings for the settlement of the estate of Tan Sin An. This for two
reasons: First, Tan Sin An and the partnership "Tan Sin An & Goquiolay"
were solidary (Joint and several)debtors (Exhibits "N", mortgage to the
Banco Hipotecario), and Rule 87, section 6 is the effect that:
Where the obligation of the decedent is joint and several with
another debtor, the claim shall be filed against the decedent as if
he were the only debtor, without prejudice to the right of the
estate to recover contribution from the other debtor.
(Emphasis supplied).
Secondly, the solidary obligation was guaranteed by a mortgage on the
properties of the partnership and those of Tan Sim An personally, and a
mortgage is indivisible, in the sense that each and every parcel under
mortgage answers for the totality of the debt (Civ. Code of 1889, Article
1860; New Civil Code, Art. 2089).
A final and conclusive consideration: The fraud charged not being one
used to obtain a party's consent to a contract (i.e., not being deceit
or dolus in contrahendo), if there is fraud at al, it can only be a fraud of
creditorsthat gives rise to a rescission of the offending contract. But by
express provision of law (Article 1294, Civil Code of 1889; Article 1383,
New Civil Code) "the action for rescission is subsidiary; it can not be
instituted except when the party suffering damage has no other legal
means to obtain reparation for the same". Since there is no allegation, or
evidence, that Goquiolay can not obtain reparation from the widow and
heirs of Tan Sin An, the present suit to rescind the sale in question is not
maintainable, even if the fraud charged actually did exist.
PREMISES CONSIDERED, the motion for reconsideration is denied.

Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.

Regala, J., took no part.
Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First Instance of Davao
dismissing the complaint filed by Antonio C. Goquiolay, et al., seeking to
annul the sale made Z. Sycip and Betty Y. Lee on the ground that it was
executed without proper authority and under fraudulent circumstances.
In a decision rendered on July 26, 1960 we affirmed this decision
although on grounds different from those on which the latter is predicted.
The case is once more before us on a motion for reconsideration filed by
appellants raising both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao
City a commercial partnership for a period of ten years with a capital of
P30,000.00 of which Goquiolay contributed P18,000.00 representing
60% while Tan Sin An P12,000.00 representing 40%. The business of the
partnership was to engage in buying real estate properties for
subdivision, resale and lease. The partnership was duly registered, and
among the conditions agreed upon in the partnership agreement which
are material to this case are: (1) that Tan Sin An would be the exclusive
managing partner, and (2) in the event of the death of any of the partners
the partnership would continue, the deceased to be represented by his
heirs. On May 31, 1940, Goquiolay executed a general power of attorney
in favor of Tan Sin An appointing the latter manager of the partnership
and conferring upon him the usual powers of management.
On May 29, 1940, the partnership acquired three parcels of land known
as Lots Nos. 526, 441 and 521 of the cadastral survey of Davao, the only
assets of the partnership, with the capital orginally invested, financing the
balance of the purchase price with a mortgage in favor of "La Urbana
Sociedad Mutua de Construccion Prestamos" in the amount of
P25,000.00, payable in ten years. On the same date, Tan Sin An, in his
individual capacity, acquired 46 parcels of land executing a mortgage
thereon in favor of the same company for the sum of P35,000.00. On
September 25, 1940, these two mortgage obligations were consolidated
and transferred to the Banco Hipotecario de Filipinas and as a result Tan
Sin An, in his individual capacity, and the partnership bound themselves
to pay jointly and severally the total amount of P52,282.80, with 8%
annual interest thereon within a period of eight years mortgaging in favor
of said entity the 3 parcels of land belonging to the partnership and the
46 parcels of land belonging individually to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow,
defendant Kong Chai Pin, and four children, all of whom are minors of
tender age. On March 18, 1944, Kong Chai Pin, was appointed
administratrix of the intestate estate of Tan Sin An. And on the same date,
Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the remaining
unpaid balance of the mortgage obligation of the partnership amounting
to P46,116.75 in Japanese currency.
Sometimes in 1945, after the liberation of Manila, Yu Khe Thai, president
and general manager of Yutivo Sons Hardware Co. and Sing, Yee and Cuan
Co., Inc., called for Goquiolay and the two had a conference in the office of
the former during which he offered to buy the interest of Goquiolay in the
partnership. In 1948, Kong Chai Pin, the widow, sent her counsel, Atty.
Dominador Zuo, to ask Goquiolay to execute in her favor a power of
attorney. Goquiolay refused both to sell his interest in the partnership as
well as to execute the power of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo
Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. filed in November,
1946 a claim each in the intestate proceedings of Tan Sin An for the sum
of P84,705.48 and P66,529.91, respectively, alleging that they represent
obligations of both Tan Sin An and the partnership. After first denying
any knowledge of the claims, Kong Chai Pin, as administratrix, admitted
later without qualification the two claims in an amended answer she filed
on February 28, 1947. The admission was predicted on the ground that
she and the creditors were closely related by blood, affinity and business
ties. In due course, these two claims were approved by the court.
On March 29, 1949, more than two years after the approval of the claims,
Kong Chai Pin filed a petition in the probate court to sell all the properties
of the partnership as well as some of the conjugal properties left by Tan
Sin An for the purpose of paying the claims. Following approval by the
court of the petition for authority to sell, Kong Chai Pin, in her capacity as
administratrix, and presuming to act as managing partner of the
partnership, executed on April 4, 1949 a deed of sale of the properties
owned by Tan Sin An and by the partnership in favor of Betty Y. Lee and
Washington Z. Sycip in consideration of the payment to Kong Chai Pin of
the sum of P37,000.00, and the assumption by the buyers of the claims
filed by Yutivo & Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in
whose favor the buyers executed a mortgage on the properties
purchased. Betty Y. Lee and Washington Z. Zycip subsequently executed a

deed of sale of the same properties in favor of their co-defendant Insular

Development Company, Inc. It should be noted that these transactions
took place without the knowledge of Goquiolay and it is admitted that
Betty Lee and Washington Z. Sycip bought the properties on behalf of the
ultimate buyer, the Insular Development Company, Inc., with money
given by the latter.

and well-known authorities; (3) even if Kong Chai Pin acted as general
manager she had no authority to sell the partnership properties as to
make it legal and valid; and (4) Kong Chai Pin had no necessity to sell the
properties to pay the obligation of the partnership and if she did so it was
merely to favor the purchasers who were close relatives to the prejudice
of Goquiolay.

Upon learning of the sale of the partnership properties, Goquiolay filed on

July 25, 1949 in the intestate proceedings a petition to set aside the order
of the court approving the sale. The court granted the petition. While the
order was pending appeal in the Supreme Court, Goquiolay filed the
present case on January 15, 1953 seeking to nullify the sale as stated in
the early part of this decision. In the meantime, the Supreme Court
remanded the original case to the probate court for rehearing due to lack
of necessary parties.

1. This point is pivotal for if Kong Chai Pin did not execute the acts of
management imputed to her our ruling cannot be sustained. In making
our aforesaid ruling we apparently gave particular importance to the fact
that it was Goquiolay himself who tried to prove the acts of management.
Appellants, however, have emphasized the fact, and with reason,
the appellees themselves are the ones who denied and refuted the socalled acts of management imputed to Kong Chai Pin. To have a clear view
of this factual situation, it becomes necessary that we analyze the
evidence of record.

The plaintiffs in their complaint challenged the authority of Kong Chai Pin
to sell the partnership properties on the ground that she had no authority
to sell because even granting that she became a partner upon the death of
Tan Sin An the power of attorney granted in favor of the latter expired
after his death.
Defendants, on the other hand, defended the validity of the sale on the
theory that she succeeded to all the rights and prerogatives of Tan Sin an
as managing partner.
The trial court sustained the validity of the sale on the ground that under
the provisions of the articles of partnership allowing the heirs of the
deceased partner to represent him in the partnership after his death
Kong Chai Pin became a managing partner, this being the capacity held by
Tan Sin an when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this
decision but on different grounds, among which the salient points are: (1)
the power of attorney given by Goquiloay to Tan Sin An as manager of the
partnership expired after his death; (2) his widow Kong Chai Pin did not
inherit the management of the partnership, it being a personal right; (3)
as a general rule, the heirs of a deceased general partner come into the
partnership in the capacity only of limited partners; (4) Kong Chai Pin,
however, became a general partner because she exercised certain alleged
acts of management; and (5) the sale being necessary to pay the
obligations of the partnership properties without the consent of
Goquiolay under the principle of estoppel the buyers having the right to
rely on her acts of management and to believe her to be in fact the
managing partner.
Considering that some of the above findings of fact and conclusions of law
are without legal or factual basis, appellants have in due course filed a
motion for reconsideration which because of the importance of the issues
therein raised has been the subject of mature deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule
enter the partnership as limited partners only, therefore Kong
Chai Pin, who must necessarily have entered the partnership as
a limited partner originally, could have not chosen to be a
general partner by exercising the alleged acts of management,
because under Article 148 of the Code of Commerce a limited
partner cannot intervene in the management of the
partnership, even if given a power of attorney by the general
partners. An Act prohibited by law cannot given rise to any
right and is void under the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them
being members of the Yu (Yutivo) family, the rest, members of
the law firm which handles the Yutivo interests and handled
the papers of sale. They did not rely on the alleged acts of
management they believed (this was the opinion of their
lawyers) that Kong Chai Pin succeeded her husband as a
managing partner and it was on this theory alone that they
submitted the case in the lower court.
3. The alleged acts of management were denied and
repudiated by the very witnesses presented by the defendants
themselves.
The arguments advanced by appellants are in our opinion well-taken and
furnish sufficient to reconsider our decision if we want to do justice to
Antonio C. Goquiolay. And to justify this conclusion, it is enough that we
lay stress on the following points: (1) there is no sufficient factual basis to
conclude that Kong Chai Pin executed acts of management to give her the
character of general manager of the partnership, or to serve as basis for
estoppel that may benefit the purchasers of the partnership properties;
(92) the alleged acts of management, even if proven, could not give Kong
Chai Pin the character of general manager for the same contrary to law

Plaintiff Goquiolay, it is intimated, testified on cross-examination that he

had a conversation with one Hernando Young in Manila in the year 1945
who informed him that Kong Chai Pin "was attending to the properties
and deriving some income therefrom and she had no other means of
livelihood except those properties and some rentals derived from the
properties." He went on to say by way of remark that she could continue
doing this because he wanted to help her. One point that he emphasized
was that he was "no interested in agricultural lands."
On the other hand, defendants presented Hernando Young, the same
person referred to by Goquiolay, who was a close friend of the family of
Kong Chai Pin, for the purpose of denying the testimony of Goquiolay.
Young testified that in 1945 he was still in Davao, and insisted no less
than six times during his testimony that he was not in Manila in 1945, the
year when he allegedly gave the information to Goquiolay, stating that he
arrived in Manila for the first time in 1947. He testified further that he
had visited the partnership properties during the period covered by the
alleged information given by him to Goquiolay and that he found them
"abandoned and underdeveloped," and that Kong Chai Pin was not
deriving any income from them.
The other witness for the defendants, Rufino Lim, also testified that he
had seen the partnership properties and corroborated the testimony of
Hernando Young in all respects: "the properties in Mamay were
underdeveloped, the shacks were destroyed in Tigato, and the family of
Kong Chai Pin did not receive my income from the partnership
properties." He specifically rebutted the testimony of Goquiolay, in his
deposition given on June 30, 1956 that Kong Chai Pin and her family were
living in the partnership properties, and stated that the "family never
actually lived in the properties of the partnership even before the war or
after the war."
It is unquestionable that Goquiolay was merely repeating an information
given to him by a third person, Hernando Young he stressed this point
twice. A careful analysis of the substance of Goquiolay's testimony will
show that he merely had no objection to allowing Kong Chai Pin to
continue attending to the properties in order to give her some means of
livelihood, because, according to the information given him by Hernando
Young, which he assumed to be true, Kong Chai Pin had no other means of
livelihood. But certainly he made it very clear that he did not allow her
to manage the partnership when he explained his reason for refusing to
sign a general power of attorney for Kong Chai Pin which her counsel,
Atty. Zuo, brought with him to his house in 1948. He said:
... Then Mr. Yu Eng Lai told me that he brought with him Atty.
Zuo and he asked me if I could execute a general power of
attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuo what is
the use of executing a general power of attorney for Mrs. Kong
Chai Pin when Mrs. Kong Chai Pin had already got that
plantation for agricultural purposes, I said for agricultural
purposes she can use that plantation ... (T.S.N. p. 9, Hearing on
May 5, 1955).
It must be noted that in his testimony Goquiolay was categorically stating
his opposition to the management of the partnership by Kong Chai Pin
and carefully made the distinction that his conformity was for her to
attend to the partnership properties in order to give her merely a means
of livelihood. It should be stated that the period covered by the testimony
refers to the period of occupation when living condition was difficult and
precarious. And Atty. Zuo, it should also be stated, did not deny the
statement of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin
exercised certain acts of management of the partnership properties is
highly controverted. The most that we can say is that the alleged acts are
doubtful more so when they are disputed by the defendants themselves
who later became the purchasers of the properties, and yet these alleged
acts, if at all, only refer to management of the properties and not to
management of the partnership, which are two different things.

In resume, we may conclude that the sale of the partnership properties by

Kong Chai Pin cannot be upheld on the ground of estoppel, first, because
the alleged acts of management have not been clearly proven; second,
because the record clearly shows that the defendants, or the buyers, were
not misled nor did they rely on the acts of management, but instead they
acted solely on the opinion of their counsel, Atty. Quisumbing, to the
effect that she succeeded her husband in the partnership as managing
partner by operation of law; and third, because the defendants are
themselves estopped to invoke a defense which they tried to dispute and
repudiate.
2. Assuming arguendo that the acts of management imputed to Kong Chai
Pin are true, could such acts give as we have concluded in our decision?
Our answer is in the negative because it is contrary to law and
precedents. Garrigues, a well-known commentator, is clearly of the
opinion that mere acceptance of the inheritance does not maked the heir
of a general partner a general partner himself. He emphasized that
heir must declare that he is entering the partnership as a general partner
unless the deceased partner has made it an express condition in his will
that the heir accepts the condition of entering the partnership as a
prerequisite of inheritance, in which case acceptance of the inheritance is
enough.1 But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to
become a general partner by exercising acts of management? We believe
not, for, in consonance with our ruling that as a general rule the heirs of a
deceased partner succeed as limited partners only by operation of law, it
is obvious that the heirs, upon entering the partnership, must make a
declaration of his characters, otherwise he should be deemed as having
succeeded as limited partner by the mere acceptance of the inheritance.
And here Kong Chai Pin did not make such declaration. Being then a
limited partner upon the death of Tan Sin An by operation of law, the
peremptory prohibition contained in Article 1482 of the Code of
Commerce became binding upon her and as a result she could not change
her status by violating its provisions not only under the general principle
that prohibited acts cannot produce any legal effect, but also because
under the provisions of Article 1473 of the same Code she was precluded
from acquiring more rights than those pertaining to her as a limited
partner. The alleged acts of management, therefore, did not give Kong
Chai Pin the character of general manager to authorized her to bind the
partnership.
Assuming also arguendo that the alleged acts of management imputed to
Kong Chai Pin gave her the character of a general partner, could she sell
the partnership properties without authority from the other partners?
Our answer is also in the negative in the light of the provisions of the
articles of partnership and the pertinent provisions of the Code of
Commerce and the Civil Code. Thus, Article 129 of the Code of Commerce
says:
If the management of the general partnership has not been
limited by special agreement to any of the members, all shall
have the power to take part in the direction and management
of the common business, and the members present shall come
to an agreement for all contracts or obligations which may
concern the association.
And the pertinent portions of the articles of partnership provides:
VII. The affairs of the co-partnership shall be managed
exclusively by the managing partner or by his authorized
agent, and it is expressly stipulated that the managing partner
may delegate the entire management of the affairs of the copartnership by irrevocable power of attorney to any person,
firm or corporation he may select, upon such terms as regards
compensation as he may deem proper, and vest in such person,
firm or corporation full power and authority, as the agent of
the co-partnership and in his name, place and stead to do
anything for it or on his behalf which he as such managing
partner might do or cause to be done. (Page 23, Record on
Appeal).
It would thus be seen that the powers of the managing partner are not
defined either under the provisions of the Code of Commerce or in the
articles of partnership, a situation which, under Article 2 of the same
Code, renders applicable herein the provisions of the Civil Code. And
since, according to well-known authorities, the relationship between a
managing partner and the partnership is substantially the same as that of
the agent and his principal,4the extent of the power of Kong Chai Pin
must, therefore, be determined under the general principles governing
agency. And, on this point, the law says that an agency created in general
terms includes only acts of administrations, but with regard to the power
to compromise, sell mortgage, and other acts of strict ownership, an
express power of attorney is required.5 Here Kong Chai Pin did not have
such power when she sold the properties of the partnership.

Of course, there is authority to the effect that a managing partner, even

without express power of attorney may perform acts affecting ownership
if the same are necessary to promote or accomplish a declared object of
the partnership, but here the transaction is not for this purpose. It was
effected not to promote any avowed object of the partnership. 6 Rather,
the sale was affected to pay an obligation of the partnership by selling its
real properties which Kong Chai Pin could not do without express
authority. The authorities supporting this view are overwhelming.
La enajenacion puede entrar en las facultades del
gerente, cuando es conforme a los fines sociales. Pero esta
facultad de enajenar limitada a las ventas conforme a los fines
sociales, viene limitada a los objetos de comercio, o a los
productos de la fabrica para explotacion de los cauale se ha
constituido la Sociedad. Ocurrira una cosa parecida cuando el
objeto de la Sociedad fuese la compra y venta de inmuebles, en
cuyo caso el gerente estaria facultado para otorgar las ventas
que fuere necesario. Por el contrario el generente no tiene
attribuciones para vender las instalaciones del comercio, ni la
fabrica, ni las maquinarias, vehiculos de transporte, etc. que
forman parte de la explotacion social. En todos estas casos,
equalmente que sisse tratase de la venta de una marca o
procedimiento mecanico o quimico, etc., siendo actos de
disposicion, seria necesario contar con la conformidad expresa
de todos los socios. (R. Gay de Montella, id., pp. 223-224;
Emphasis supplied).
Los poderes de los Administradores no tienen ante el silencio
del contrato otros limites que los sealados por el objeto de la
Sociedad y, por consiguiente, pueden llevar a cabo todas las
operaciones que sirven para aquel ejercicio, incluso cambiando
repetidas veces los propios acuerdos segun el interest
convenido de la Sociedad. Pueden contratar y despedir a los
empleados. tomar en arriendo almacenes y tiendas; expedir
cambiales, girarlas, avalarlas, dar en prenda o en hipoteca los
bienes de la sociedad y adquirir inmuebles destinados a su
explotacion o al empleo, estable de sus capitales. Pero no
podran ejecutar los actos que esten en contradiccion con la
explotacion que les fue confiada; no podran cambiar el objeto, el
domicilio, la razon social; fundir a la Sociedad en otro; ceder la
accion, y por tanto, el uso de la firma social a otro, renunciar
definitivamente el ejercicio de uno de otro ramo comercio que
se les haya confiado yenajenar o pignorar el taller o el banco
social, excepto que la venta o pignoracion tengan por el objeto
procurar los medios necesarios para la continuacion de la
empresa social. (Cesar Vivante, Tratado de Derecho Mercantil,
pp. 124-125, Vol. II, 1a. ed.; Emphasis supplied).
The act of one partner, to bind the firm, must be necessary for
the carrying one of its business. If all that can be said of it was
that it was convenient, or that it facilitated the transaction of
the business of the firm, that is not sufficient, in the absence of
evidence of sanction by other partners. Nor, it, seems, will
necessity itself be sufficient if it be an extraordinary necessity.
What is necessary for carrying on the business of the firm
under ordinary circumstances and in the usual way, is the test.
Lindl. Partn. Sec. 126. While, within this rule, one member of a
partnership may, in the usual and ordinary course of its
business, make a valid sale or pledge, by way of mortgage or
otherwise, of all or part of its effects intended for sale, to
a bona fidepurchaser of mortgagee, without the consent of the
other members of the firm, it is not within the scope of his
implied authority to make a final disposition of al of its effects,
including those employed as the means of carrying on its
business, the object and effect of which is to immediately
terminate the partnership, and place its property beyond its
control. Such a disposition, instead of being within the scope of
the partnership business, or in the usual and ordinary way of
carrying it on, is necessarily subversive of the object of the
partnership, and contrary to the presumed intention of the
partnership in its formation. (McGrath, et al. vs. Cowen, et al.,
49 N.E., 338, 343; Emphasis supplied).
Since Kong Chai Pin sold the partnership properties not in line with the
business of the partnership but to pay its obligation without first
obtaining the consent of the other partners the sale is invalid in excess of
her authority.
4. Finally, the sale under consideration was effected in a suspicious
manner as may be gleaned from the following circumstances:
(a) The properties subject of the instant sale which consist of three
parcels of land situated in the City of Davao have an area of 200 hectares
more or less, or 2,000,000 square meters. These properties were
purchased by the partnership for purposes of subdivision. According to
realtor Mata, who testified in court, these properties could command at
the time he testified a value of not less than P312,000.00, and according
to Dalton Chen, manager of the firm which took over the administration,
since the date of sale no improvement was ever made thereon precisely

because of this litigation. And yet, for said properties, aside from the sum
of P37,000.00 which was paid for the properties of the deceased and the
partnership, only the paltry sum of P66,529.91 was paid as a
consideration therefor, of which the sum of P46,116.75 was even paid in
Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid
reason to sell them if her purpose was only to pay the partnership
obligation. She could have negotiated a loan if she wanted to pay it by
placing the properties as security, but preferred to sell them even at such
low price because of her close relationship with the purchasers and
creditors who conveniently organized a partnership to exploit them, as
may be seen from the following relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a grandaughter of Jose
P. Yutivo, founder of the defendant Yutivo Sons Hardware Co.
YUTIVO SONS HARDWARE CO. and SING, YEE & CUAN CO.,
INC., alleged creditors, are owned by the heirs of Jose P. Yutivo
(Sing, Yee & Cuan are the three children of Jose). YU KHE THAI
is a grandson of the same Jose P. Yutivo, and president of the
two alleged creditors. He is the acknowledged head of the Yu
families. WASHINGTON Z. SYCIP, one of the original buyers, is
married to Ana Yu, a daughter of Yu Khe Thai. BETTY Y. LEE,
the other original buyer is also a daughter of Yu Khe Thai. The
INSULAR DEVELOPMENT CO., the ultimate buyer, was
organized for the specific purpose of buying the partnership
properties. Its incorporators were: Ana Yu and Betty Y. Lee,
Attys. Quisumbing and Salazar, the lawyers who studied the
papers of the sale and have been counsel for the Yutivo
interests; Dalton Chen, a brother-in-law of Yu Khe Thai and an
executive of Sing, Yee & Cuan Co; Lillian Yu, daughter of Yu Eng
Poh, an executive of Yutivo Sons Hardware, and Simeon
Daguiwag, a trusted employee of the Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were
close relatives of Kong Chai Pin, have already conceived the idea of
possessing the lands for purposes of subdivision, excluding Goquilolay
from their plan, and this is evident from the following sequence of
events;lawphil.net
Tan Sin An died in 1942 and intestate proceedings were
opened in 1944. In 1946, the creditors of the partnership filed
their claim against the partnership in the intestate
proceedings. The creditors studied ways and means of
liquidating the obligation of the partnership, leading to the
formation of the defendant Insular Development Co., composed
of members of the Yutivo family and the counsel of record of
the defendants, which subsequently bought the properties of
the partnership and assumed the obligation of the latter in
favor of the creditors of the partnership, Yutivo Sons Hardware
and Sing, Yee & Cuan, also of the Yutivo family. The buyers took
time to study the commercial potentialities of the partnership
properties and their lawyers carefully studied the document
and other papers involved in the transaction. All these steps
led finally to the sale of the three partnership properties.
UPON THE STRENGTH OF THE FOREGOING CONSIDERATIONS, I vote to
grant the motion for reconsideration.

his having introduced the petitioner to the employing company

(Tropical).
2. Galan would receive some kind of compensation in the form of some
percentages or commission; that Tropical, under the terms of the
contract, agreed to give petitioner the amount of P7,000.00 soon after the
construction began and thereafter, the amount of P6,000.00 every fifteen
(15) days during the construction to make a total sum of P25,000.00; that
on January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00
not to the plaintiff but to a stranger to the contract, Galan, who succeeded
in getting petitioner's indorsement on the same check persuading the
latter that the same be deposited in a joint account; that on January 26,
1967 when the second check for P6,000.00 was due, petitioner refused to
indorse said cheek presented to him by Galan but through later
manipulations, respondent Pons succeeded in changing the payee's name
from Elmo Muasque to Galan and Associates, thus enabling Galan to cash
the same at the Cebu Branch of the Philippine Commercial and Industrial
Bank (PCIB) placing the petitioner in great financial difficulty in his
construction business and subjecting him to demands of creditors to pay'
for construction materials, the payment of which should have been made
from the P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16,
1967 deadline; that because of the unauthorized disbursement by
respondents Tropical and Pons of the sum of P13,000.00 to Galan
petitioner demanded that said amount be paid to him by respondents
under the terms of the written contract between the petitioner and
respondent company.
3. The respondents answered the complaint by denying some and
admitting some of the material averments and setting up counterclaims.
4. During the pre-trial conference, the petitioners and respondents
agreed that the issues to be resolved are:
(1) Whether or not there existed a partners between
Celestino Galan and Elmo Muasque; and
(2) Whether or not there existed a justifiable cause
on the part of respondent Tropical to disburse
money to respondent Galan.
5. The business firms Cebu Southern Hardware Company and Blue
Diamond Glass Palace were allowed to intervene, both having legal
interest in the matter in litigation.
6. After trial, the court rendered judgment, the dispositive portion of
which states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant
Galan to pay jointly and severally the intervenors
Cebu and Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and
P2,213.51, respectively;

Labrador, Paredes, and Makalintal, JJ., concur.

(2) absolving the defendants Tropical Commercial

Company and Ramon Pons from any liability,

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

No damages awarded whatsoever.

ELMO MUASQUE, petitioner,

vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL
COMPANY and RAMON PONS,respondents.

7. The petitioner and intervenor Cebu Southern Company and its

proprietor, Tan Siu filed motions for reconsideration.
8. On January 15, 197 1, the trial court issued 'another order amending its
judgment to make it read as follows:

GUTTIERREZ, JR., J.:

IN VIEW WHEREOF, Judgment is hereby rendered:
In this petition for certiorari, the petitioner seeks to annul and set added
the decision of the Court of Appeals affirming the existence of a
partnership between petitioner and one of the respondents, Celestino
Galan and holding both of them liable to the two intervenors which
extended credit to their partnership. The petitioner wants to be excluded
from the liabilities of the partnership.
FACTS:
1. Petitioner Elmo Muasque filed a complaint for payment of sum of
money and damages against respondents Celestino Galan, Tropical
Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the
petitioner entered into a contract with respondent Tropical through its
Cebu Branch Manager Pons for remodelling a portion of its building
without exchanging or expecting any consideration from Galan although
the latter was casually named as partner in the contract; that by virtue of

(1) ordering plaintiff Muasque and defendant

Galan to pay jointly and severally the intervenors
Cebu Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and
P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay
Intervenor Cebu Southern Hardware Company and
Tan Siu jointly and severally interest at 12% per
annum of the sum of P6,229.34 until the amount is
fully paid;
(3) ordering plaintiff and defendant Galan to pay
P500.00 representing attorney's fees jointly and

severally to Intervenor Cebu Southern Hardware

Company:

committed grave abuse of discretion in holding that the payment made by

Tropical to Galan was "good" payment when the same gave occasion for
the latter to misappropriate the proceeds of such payment.

(4) absolving the defendants Tropical Commercial

Company and Ramon Pons from any liability,

RULING

No damages awarded whatsoever.

The contentions are without merit.

9. On appeal, the Court of Appeals affirmed the judgment of the trial court
with the sole modification that the liability imposed in the dispositive
part of the decision on the credit of Cebu Southern Hardware and Blue
Diamond Glass Palace was changed from "jointly and severally" to
"jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf of
the partnership of "Galan and Muasque" as Contractor entered into a
written contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of P25,000.00 was to
be paid under the contract for the entire services of the Contractor. The
terms of payment were as follows: thirty percent (30%) of the whole
amount upon the signing of the contract and the balance thereof divided
into three equal installments at the lute of Six Thousand Pesos
(P6,000.00) every fifteen (15) working days.
The first payment made by respondent Tropical was in the form of a
check for P7,000.00 in the name of the petitioner.Petitioner, however,
indorsed the check in favor of respondent Galan to enable the latter to
deposit it in the bank and pay for the materials and labor used in the
project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his
personal use so that when the second check in the amount of P6,000.00
came and Galan asked the petitioner to indorse it again, the petitioner
refused.
The check was withheld from the petitioner. Since Galan informed the
Cebu branch of Tropical that there was a"misunderstanding" between
him and petitioner, respondent Tropical changed the name of the payee
in the second check from Muasque to "Galan and Associates" which was
the duly registered name of the partnership between Galan and petitioner
and under which name a permit to do construction business was issued
by the mayor of Cebu City. This enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued
through his sole efforts. He stated that he borrowed some P12,000.00
from his friend, Mr. Espina and although the expenses had reached the
amount of P29,000.00 because of the failure of Galan to pay what was
partly due the laborers and partly due for the materials, the construction
work was finished ahead of schedule with the total expenditure reaching
P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were
subsequently given to the petitioner alone with the last check being given
pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of
money and damages against the respondents,seeking to recover the
following: the amounts covered by the first and second checks which fell
into the hands of respondent Galan, the additional expenses that the
petitioner incurred in the construction, moral and exemplary damages,
and attorney's fees.
Both the trial and appellate courts not only absolved respondents
Tropical and its Cebu Manager, Pons, from any liability but they also held
the petitioner together with respondent Galan, hable to the intervenors
Cebu Southern Hardware Company and Blue Diamond Glass Palace for
the credit which the intervenors extended to the partnership of petitioner
and Galan
In this petition the legal questions raised by the petitioner are as follows:
(1) Whether or not the appellate court erred in holding that a partnership
existed between petitioner and respondent Galan. (2) Assuming that
there was such a partnership, whether or not the court erred in not
finding Galan guilty of malversing the P13,000.00 covered by the first and
second checks and therefore, accountable to the petitioner for the said
amount; and (3) Whether or not the court committed grave abuse of
discretion in holding that the payment made by Tropical through its
manager Pons to Galan was "good payment, "
Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham
and a perfidious partner who misappropriated the amount of P13,000.00
due to the petitioner.Petitioner also contends that the appellate court

The records will show that the petitioner entered into a con-tract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muasque." This is readily seen in the first
paragraph of the contract where it states:
This agreement made this 20th day of December in
the year 1966 by Galan and Muasque hereinafter
called the Contractor, and Tropical Commercial Co.,
Inc., hereinafter called the owner do hereby for and
in consideration agree on the following: ... .
There is nothing in the records to indicate that the partner-ship
organized by the two men was not a genuine one. If there was a falling out
or misunderstanding between the partners, such does not convert the
partnership into a sham organization.
Likewise, when Muasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he indorsed the
check in favor of Galan. Respondent Tropical therefore, had every right to
presume that the petitioner and Galan were true partners. If they were
not partners as petitioner claims, then he has only himself to blame for
making the relationship appear otherwise, not only to Tropical but to
their other creditors as well. The payments made to the partnership
were, therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita G.
Saldajeno had acted in good faith, the appellees also
acted in good faith in extending credit to the
partnership. Where one of two innocent persons
must suffer, that person who gave occasion for the
damages to be caused must bear the consequences.
No error was committed by the appellate court in holding that the
payment made by Tropical to Galan was a good payment which binds
both Galan and the petitioner. Since the two were partners when the
debts were incurred, they, are also both liable to third persons who
extended credit to their partnership. In the case of George Litton v. Hill
and Ceron, et al, (67 Phil. 513, 514), we ruled:
There is a general presumption that each individual
partner is an authorized agent for the firm and that
he has authority to bind the firm in carrying on the
partnership transactions. (Mills vs. Riggle,112 Pan,
617).
The presumption is sufficient to permit third
persons to hold the firm liable on transactions
entered into by one of members of the firm acting
apparently in its behalf and within the scope of his
authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.),
391.)
Petitioner also maintains that the appellate court committed grave abuse
of discretion in not holding Galan liable for the amounts which he
"malversed" to the prejudice of the petitioner. He adds that although this
was not one of the issues agreed upon by the parties during the pretrial,
he, nevertheless, alleged the same in his amended complaint which was,
duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose
of impleading Ramon Pons in his personal capacity. Although the
petitioner made allegations as to the alleged malversations of Galan, these
were the same allegations in his original complaint. The malversation by
one partner was not an issue actually raised in the amended complaint
but the alleged connivance of Pons with Galan as a means to serve the
latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation of the
issues during the pre-trial because he himself agreed to the same.
In Permanent Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:
xxx xxx xxx

... The appellant is bound by the delimitation of the

issues contained in the trial court's order issued on
the very day the pre-trial conference was held. Such
an order controls the subsequent course of the
action, unless modified before trial to prevent
manifest injustice.In the case at bar, modification of
the pre-trial order was never sought at the instance
of any party.
Petitioner could have asked at least for a modification of the issues if he
really wanted to include the determination of Galan's personal liability to
their partnership but he chose not to do so, as he vehemently denied the
existence of the partnership. At any rate, the issue raised in this petition
is the contention of Muasque that the amounts payable to the
intervenors should be shouldered exclusively by Galan. We note that the
petitioner is not solely burdened by the obligations of their illstarred
partnership. The records show that there is an existing judgment against
respondent Galan, holding him liable for the total amount of P7,000.00 in
favor of Eden Hardware which extended credit to the partnership aside
from the P2, 000. 00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the
trial court's ordering petitioner and Galan to pay the credits of Blue
Diamond and Cebu Southern Hardware"jointly and severally" is plain
error since the liability of partners under the law to third persons for
contracts executed inconnection with partnership business is only pro
rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners,
including industrial ones, shall be liable prorate with all their property
and after all the partnership assets have been exhausted, for the contracts
which may be entered into the name and fm the account cd the
partnership, under its signature and by a person authorized to act for the
partner-ship. ...". this provision should be construed together with Article
1824 which provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under Articles
1822 and 1823." In short, while the liability of the partners are merely
joint in transactions entered into by the partnership, a third person who
transacted with said partnership can hold the partners solidarily liable
for the whole obligation if the case of the third person falls under Articles
1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of
any partner acting in the ordinary course of the
business of the partner-ship or with the authority of
his co-partners, loss or injury is caused to any
person, not being a partner in the partnership or any
penalty is incurred, the partnership is liable therefor
to the same extent as the partner so acting or
omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a
third person and misapplies it; and
(2) Where the partnership in the course of its
business receives money or property of a third
person and t he money or property so received is
misapplied by any partner while it is in the custody
of the partnership.
The obligation is solidary, because the law protects him, who in good faith
relied upon the authority of a partner, whether such authority is real or
apparent. That is why under Article 1824 of the Civil Code all partners,
whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to believe
that a partnership existed between the petitioner and Galan and no fault
or error can be imputed against it for making payments to "Galan and
Associates" and delivering the same to Galan because as far as it was
concerned, Galan was a true partner with real authority to transact on
behalf of the partnership with which it was dealing. This is even more
true in the cases of Cebu Southern Hardware and Blue Diamond Glass
Palace who supplied materials on credit to the partnership. Thus, it is but
fair that the consequences of any wrongful act committed by any of the
partners therein should be answered solidarily by all the partners and the
partnership as a whole
However. as between the partners Muasque and Galan,justice also
dictates that Muasque be reimbursed by Galan for the payments made
by the former representing the liability of their partnership to herein

intervenors, as it was satisfactorily established that Galan acted in bad

faith in his dealings with Muasque as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared
to be joint and solidary. Petitioner may recover from respondent Galan
any amount that he pays, in his capacity as a partner, to the above
intervenors,
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, De la Fuente and Patajo, JJ.,
concur.
Plana, J., took no part.
Relova, J., is on leave.

G.R. No. L-3704 December 12, 1907

LA COMPAIA MARITIMA, plaintiff-appellant,
vs.
FRANCISCO MUOZ, ET AL., defendants-appellees.
Rosado, Sanz and Opisso, for appellant.
Haussermann, Cohn and Williams, for appellees.
WILLARD, J.:
FACTS:
1. The plaintiff brought this action in the Court of First Instance of Manila
against the partnership of Franciso Muoz & Sons, and against Francisco
Muoz de Bustillo, Emilio Muoz de Bustillo, and Rafael Naval to recover
the sum of P26,828.30, with interest and costs. Judgment was rendered in
the court below acquitting Emilio Muoz de Bustillo and Rafael Naval of
the complaint, and in favor of the plaintiff and against the defendant
partnership, Francisco Muoz & Sons, and Francisco Muoz de Bustillo
form the sum of P26,828.30 with interest at the rate of 8 per cent per
annum from the 31st day of March, 1905, and costs. From this judgment
the plaintiff appealed.
2. On the 31st day of March, 1905, the defendants Francisco Muoz,
Emilio Muoz, and Rafael Naval formed on ordinary general mercantile
partnership under the name of Francisco Muoz & Sons for the purpose
of carrying on the mercantile business in the Province of Albay which had
formerly been carried on by Francisco Muoz. Francisco Muoz was a
capitalist partner and Emilio Muoz and Rafael Naval were industrial
partners.
3. It is said in the decision of the court below that in the articles of
partnership it was called an ordinary, general mercantile partnership, but
that from the article it does not appear to be such a partnership. In the
brief of the appellees it is also claimed that it is not an ordinary, general
commercial partnership. We see nothing in the case to support either the
statement of the court below in its decision or the claim of the appellees
in their brief. In the articles of partnership signed by the partners it is
expressly stated that they have agreed to form, and do form, an ordinary,
general mercantile partnership. The object of the partnership, as stated in
the fourth paragraph of the articles, is a purely mercantile one and all the
requirements of the Code of Commerce in reference to such partnership
were complied with. The articles of partnership were recorded in the
mercantile registry in the Province of Albay. If it should be held that the
contract made in this case did not create an ordinary, general mercantile
partnership we do not see how one could be created.
4. The claim of the appellees that Emilio Muoz contributed nothing to
the partnership, either in property, money, or industry, can not be
sustained. He contributed as much as did the other industrial partner,
Rafael Naval, the difference between the two being that Rafael Naval was
entitled by the articles of agreement to a fixed salary of P2,500 as long as
he was in charge of the branch office established at Ligao. If he had left
that branch office soon after the partnership was organized, he would
have been in the same condition then that Emilio Muoz was from the
beginning. Such a change would have deprived him of the salary P2,500,
but would not have affected in any way the partnership nor have
produced the effect of relieving him from liability as a partner. The
argument of the appellees seems to be that, because no yearly or monthly
salary was assigned to Emilio Muoz, he contributed nothing to the
partnership and received nothing from it. By the articles themselves he

was to receive at the end of five years one-eighth of the profits. It can not
be said, therefore, that he received nothing from the partnership. The fact
that the receipt of this money was postponed for five years is not
important. If the contention of the appellees were sound, it would result
that, where the articles of partnership provided for a distribution of
profits at the end of each year, but did not assign any specific salary to an
industrial partner during that time, he would not be a member of the
partnership. Industrial partners, by signing the articles, agree to
contribute their work to the partnership and article 138 of the Code of
Commerce prohibits them from engaging in other work except by the
express consent of the partnership. With reference to civil partnerships,
section 1683 of the Civil Code relates to the same manner.
5. It is also said in the brief of the appellees that Emilio Muoz was
entirely excluded from the management of the business. It rather should
be said that he excluded himself from such management, for he signed the
articles of partnership by the terms of which the management was
expressly conferred by him and the others upon the persons therein
named. That partners in their articles can do this, admits of no doubt.
Article 125 of the Code of Commerce requires them to state the partners
to whom the management is intrusted. This right is recognized also in
article 132. In the case of Reyes vs. The Compania Maritima (3 Phil. Rep.,
519) the articles of association provided that the directors for the first
eight years should be certain persons named therein. This court not only
held that such provision was valid but also held that those directors could
not be removed from office during the eight years, even by a majority
vote of all the stockholders of the company.
ISSUE
Emilio Muoz was, therefore, a general partner, and the important
question in the case is whether, as such general partner, he is liable to
third persons for the obligations contracted by the partnership, or
whether he relieved from such liability, either because he is an industrial
partner or because he was so relieved by the express terms of the articles
of partnership.
Paragraph 12 of the articles of partnership is as follows:
Twelfth. All profits arising from mercantile transactions
carried on, as well as such as may be obtained from the sale of
property and other assets which constitute the corporate
capital, shall be distributed, on completion of the term of five
years agreed to for the continuation of the partnership, in the
following manner: Three-fourths thereof for the capitalist
partner Francisco Muoz de Bustillo and one-eighth thereof for
the industrial partner Emilio Muoz de Bustillo y Carpiso, and
the remaining one-eighth thereof for the partner Rafael Naval y
Garcia. If, in lieu of profits, losses should result in the winding
up of the partnership, the same shall be for the sole and
exclusive account of the capitalist partner Francisco Muoz de
Bustillo, without either of the two industrial partners
participating in such losses.
Articles 140 and 141 of the Code of Commerce are as follows:
ART. 140. Should there not have been stated in the articles of
copartnership the portion of the profits to be received by each
partner, said profits shall be divided pro rata, in accordance
with the interest each one has on the copartnership, partners
who have not contributed any capital, but giving their services,
receiving in the distribution the same amount as the partner
who contributed the smallest capital.
ART. 141. Losses shall be charged in the same proportion
among the partners who have contributed capital, without
including those who have not, unless by special agreement the
latter have been constituted as participants therein.
A comparison of these articles with the twelfth paragraph above quoted
will show that the latter is simply a statement of the rule laid down in the
former. The article do not, therefore, change the rights of the industrial
partners as they are declared by the code, and the question may be
reduced to the very simple one namely, Is an industrial partner in an
ordinary, general mercantile partnership liable to third persons for the
debts and obligations contracted by the partnership?
In limited partnership the Code of Commerce recognizes a difference
between general and special partners, but in a general partnership there
is no such distinction-- all the members are general partners. The fact
that some may be industrial and some capitalist partners does not make
the members of either of these classes alone such general partners. There
is nothing in the code which says that the industrial partners shall be the
only general partners, nor is there anything which says that the capitalist
partners shall be the only general partners.

Article 127 of the Code of Commerce is as follows:

All the members of the general copartnership, be they or be
they not managing partners of the same, are liable personally
and in solidum with all their property for the results of the
transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person
authorized to make use thereof.
Do the words "all the partners" found in this article include industrial
partners? The same expression is found in other articles of the code. In
article 129 it is said that, if the management of the partnership has not
been limited by special act to one of the partners, all shall have the right
to participate in the management. Does this mean that the capitalist
partners are the only ones who have that right, or does it include also
industrial partners? Article 132 provides that, when in the articles of
partnership the management has been intrusted to a particular person,
he can not be deprived of such management, but that in certain cases the
remaining partners may appoint a comanager. Does the phrase
"remaining partners" include industrial partners, or is it limited to
capitalist partners, and do industrial partners have no right to participate
in the selection of the comanager? Article 133 provides that all the
partners shall have the right to examine the books of the partnership.
Under this article are the capitalist partners the only ones who have such
right? Article 135 provides that the partners can not use the firm name in
their private business. Does this limitation apply only to capitalist
partners or does it extend also to industrial partners? Article 222
provides that a general partnership shall be dissolve by the death of one
of the general partners unless it is otherwise provided in the articles.
Would such a partnership continue if all the industrial partners should
die? Article 229 provides that upon a dissolution of a general partnership
it shall be liquidated by the former managers, but, if all the partners do
not agree to this, a general meeting shall be called, which shall determine
to whom the settlement of the affairs shall be intrusted. Does this phrase
"all the partners" include industrial partners, or are the capitalist
partners the only ones who have a voice in the selection of a manager
during a period of liquidation? Article 237 provides that the private
property of the general partners shall not be taken in payment of the
obligations of the partnership until its property has been exhausted. Does
the phrase "the general partners" include industrial partners?
In all of these articles the industrial partners must be included. It can not
have been intended that, in such a partnership as the one in question,
where there were two industrial and only one capitalist partner, the
industrial partners should have no voice in the management of the
business when the articles of partnership were silent on that subject; that
when the manager appointed mismanages the business the industrial
partners should have no right to appoint a comanager; that they should
have no right to examine the books; that they might use the firm name in
their private business; or that they have no voice in the liquidation of the
business after dissolution. To give a person who contributed no more
than, say, P500, these rights and to take them away from a person who
contributed his services, worth, perhaps, infinitely more than P500,
would be discriminate unfairly against industrial partners.
If the phrase "all the partners" as found in the articles other than article
127 includes industrial partners, then article 127 must include them and
they are liable by the terms thereof for the debts of the firm.
But it is said that article 141 expressly declares to the contrary. It is to be
noticed in the first place that this article does not say that they shall not
be liable for losses. Article 140 declares how the profits shall be
divided amongthe partners. This article simply declares how the losses
shall be divided among the partners. The use of the words se imputaran is
significant. The verb means abonar una partida a alguno en su cuenta o
deducirla de su debito. Article 141 says nothing about third persons and
nothing about the obligations of the partnership.
While in this section the word "losses" stand's alone, yet in other articles
of the code, where it is clearly intended to impose the liability to third
persons, it is not considered sufficient, but the word "obligations" is
added. Thus article 148, in speaking of the liability of limited partners,
uses the phrase las obligaciones y perdidas. There is the same use of the
two same words in article 153, relating to anonymous partnership. In
article 237 the word "obligations" is used and not the word "losses."
The claim of the appellees is that this article 141 fixes the liability of the
industrial partners to third persons for the obligations of the company. If
it does, then it also fixes the liability of the capitalist partners to the same
persons for the same obligations. If this article says that industrial
partners are not liable for the debts of the concern, it also says that the
capitalist partners shall be only liable for such debts in proportion to the
amount of the money which they have contributed to the partnership;
that is to say, that if there are only two capitalist partners, one of whom
has contributed two-thirds of the capital and the other one-third, the
latter is liable to a creditor of the company for only one-third of the debt
and the former for only two-thirds. It is apparent that, when given this
construction, article 141 is directly in conflict with article 127. It is not

disputed by the appellees that by the terms of article 127 each one of the
capitalist partners is liable for all of the debts, regardless of the amount of
his contribution, but the construction which they put upon article 141
makes such capitalist partners liable for only a proportionate part of the
debts.
There is no injustice in imposing this liability upon the industrial
partners. They have a voice in the management of the business, if no
manager has been named in the articles; they share in the profits and as
to third persons it is no more than right that they should share in the
obligations. It is admitted that if in this case there had been a capitalist
partner who had contributed only P100 he would be liable for this entire
debt of P26,000.
Our construction of the article is that it relates exclusively to the
settlement of the partnership affairs among the partners themselves and
has nothing to do with the liability of the partners to third persons; that
each one of the industrial partners is liable to third persons for the debts
of the firm; that if he has paid such debts out of his private property
during the life of the partnership, when its affairs are settled he is entitled
to credit for the amount so paid, and if it results that there is not enough
property in the partnership to pay him, then the capitalist partners must
pay him. In this particular case that view is strengthened by the
provisions of article 12, above quoted. There it is stated that if, when the
affairs of the partnership are liquidated that is, at the end of five years
it turns out that there had been losses instead of gains, then the
capitalist partner, Francisco Muoz, shall pay such losses that is, pay
them to the industrial partners if they have been compelled to disburse
their own money in payment of the debts of the partnership.
While this is a commercial partnership and must be governed therefore
by the rules of the Code of Commerce, yet an examination of the
provisions of the Civil Code in reference to partnerships may throw some
light upon the question here to be resolved. Articles 1689 and 1691
contain, in substance, the provisions of articles 140 and 141 of the Code
of Commerce. It is to be noticed that these articles are found in section 1
of Chapter II [Title VIII] of Book IV. That section treats of the obligations
of the partners between themselves. The liability of the partners as to
third persons is treated in a distinct section, namely, section 2,
comprising articles from 1697 to 1699.
If industrial partners in commercial partnerships are not responsible to
third persons for the debts of the firm, then industrial partners in civil
partnerships are not. Waiving the question as to whether there can be a
commercial partnership composed entirely of industrial partners, it
seems clear that there can be such civil partnership, for article 1678 of
the Civil Code provides as follows:
A particular partnership has for its object specified things only,
their use of profits, or a specified undertaking, or the exercise
of a profession or art.
It might very easily happen, therefor, that a civil partnership could be
composed entirely of industrial partners. If it were, according to the claim
of the appellees, there would be no personal responsibility whatever for
the debts of the partnership. Creditors could rely only upon the property
which the partnership had, which in the case of a partnership organized
for the practice of any art or profession would be practically nothing. In
the case of Agustin vs. Inocencio, 1 just decided by this court, it was
alleged in the complaint, and admitted by the answer
That is partnership has been formed without articles of
association or capital other than the personal work of each one
of the partners, whose profits are to be equally divided among
themselves.
Article 1675 of the Civil Code is as follows:
General partnership of profits include all that the partners may
acquire by their by their industry or work during the
continuation of the partnership.
Personal or real property which each of the partners may
possess at the time of the celebration of the agreement shall
continue to be their private property, the usufruct only passing
to the partnership.
It might very well happen in partnership of this kind that no one of the
partners would have any private property and that if they did the
usufruct thereof would be inconsiderable.
Having in mind these different cases which may arise in the practice, that
construction of the law should be avoided which would enable two
persons, each with a large amount of private property, to form and carry
on a partnership and, upon the bankruptcy of the latter, to say to its
creditors that they contributed no capital to the company but only their

services, and that their private property is not, therefore, liable for its
debts.
But little light is thrown upon this question by the authorities. No
judgment of the supreme court of Spain has been called to our attention,
and we have been able to find none which refers in any way to this
question. There is, therefore, no authority from the tribunal for saying
that an industrial partner is not liable to third persons for the debts of the
partnership.
In a work published by Lorenzo Benito in 1889 (Lecciones de derecho
mercantil) it is said that industrial partners are not liable for debts. The
author, at page 127, divides general partnership into ordinary and
irregular. The irregular partnership are those which include one or more
industrial partners. It may be said in passing that his views can not apply
to this case because the articles of partnership directly state that it is an
ordinary partnership and do not state that it is an irregular one. But his
view of the law seems to be derived from something other than the Code
of Commerce now in force. He says:
. . . but it has not been very fortunate in sketching the
characters of a regular collective partnership (since it says
nothing conclusive in reference to the irregular partnership) . .
. . (p. 127.)
And again:
This article would not need to be commented upon were it not
because the writer entirely overlooked the fact that there
might exist industrial partners who did not contribute with
capital in money, credits, or goods, which partners generally
participate in the profits but not in the losses, and whose
position must also be determined in the articles of
copartnership. (p. 128.)
And again: lawphil.net
The only defect that can be pointed out in this article is the fact
that it has been forgotten that in collective partnerships there
are industrial partners who, not being jointly liable for the
obligations of the copartnership, should not include their
names in that of the firm. (p. 129.)
As a logical result of his theory he says that an industrial partner has no
right to participate in the administration of the partnership and that his
name can not appear in the firm name. In this last respect his view is
opposed to that of Manresa, who says (Commentaries on the Spanish Civil
Code, vol. 11, p. 330):
It only remains to us to state that a partner who contributes his
industry to the concern can also confer upon it the name or the
corporate name under which such industry should be carried
on. In this case, so long as the copartnership lasts, it can enjoy
the credit, reputation, and name or corporate name under
which such industry is carried on; but upon dissolution thereof
the aforesaid name or corporate name pertains to the partner
who contributed the same, and he alone is entitled to use it,
because such a name or style is an accessory to the work of
industrial partner, and upon recovering his work or his
industry he also recovers his name or the style under which he
exercised his activity. It has thus been decided by the French
court of cassation in a decision dated June 6, 1859.
In speaking of limited partnerships Benito says (p. 144) that here are
found two kinds of partners, one with unlimited responsibility and the
other with limited responsibility, but adopting his view as to industrial
partners, it should be said that there are three kinds of partners, one with
unlimited responsibility, another with limited responsibility, and the
third, the industrial partner, with no responsibility at all. In Estasen's
recent publication on mercantile partnerships (Tratado de las Sociedades
Mercantiles) he quotes from the work of Benito, but we do not
understand that he commits himself to the doctrines therein laid down. In
fact, in his former treatise, Instituciones de Derecho Mercantil (vol. 3, pp.
1-99), we find nothing which recognizes the existence of these irregular
general partnerships, or the exemption from the liability to third persons
of the industrial partners. He says in his latter work (p. 186) that
according to Dr. Benito the irregular general partner originated from the
desire of the partnership to associate with itself some old clerk or
employee as a reward for his services and the interest which he had
shown in the affairs of the partnership, giving him in place of a fixed
salary a proportionate part of the profits of the business. Article 269 of
the Code of Commerce of 1829 relates to this subject and apparently
provides that such partners shall not be liable for debts. If this article was
the basis for Dr. Benito's view, it can be so no longer, for it does not
appear in the present code. We held in the case of Fortis vs. Gutirrez
Hermanos (6 Phil. Rep., 100) that a mere agreement of that kind does not
make the employee a partner.

An examination of the works of Manresa and Sanchez Roman on the Civil

Code, and of Blanco's Mercantile Law, will shows that no one of these
mentions in any way the irregular general partnership spoken of by Dr.
Benito, nor is there anything found in any one of these commentaries
which in any way indicates that an industrial partner is not liable to third
persons for the debts of the partnership. An examination of the French
law will also show that no distinction of that kind is therein anywhere
made and nothing can be found therein which indicates that the
industrial partners are not liable for the debts of the partnership. (FuzierHerman, Repertoire de Droit Francais, vol. 34, pp. 256, 361, 510, and 512.)
Our conclusion is upon this branch of the case that neither on principle
nor on authority can the industrial partner be relieved from liability to
third persons for the debts of the partnership.
It is apparently claimed by the appellee in his brief that one action can not
be maintained against the partnership and the individual partners, this
claim being based upon the provisions of article 237 of the Code of
Commerce which provides that the private property of the partners shall
not be taken until the partnership property has been exhausted. But this
article furnishes to argument in support of the appellee's claim. An action
can be maintained against the partnership and partners, but the
judgment should recognize the rights of the individual partners which are
secured by said article 237.lawphil.net
The judgment of the court below is reversed and judgment is ordered
against all of the defendants for the sum of P26,828.30, with interest
thereon at the rate of 8 per cent per annum since the 31st day of March,
1905, and for the cost of this action. Execution of such judgment shall not
issue against the private property of the defendants Francisco Muoz,
Emilio Muoz, or Rafael Naval until the property of the defendant
Francisco Muoz & Sons is exhausted. No costs will be allowed to their
party in this court. So ordered.
Torres, Johnson and Tracey, JJ., concur.
Separate Opinions
ARELLANO, C. J., dissenting:
I consider that the judgment appealed from is entirely in accordance with
the law.
The question set up in the majority decision, "In a regular collective
commercial company, is an industrial partner liable as to third persons by
reason of the debts and obligations contracted by the copartnership?" I
decide in a negative sense; he is not; by express provision of the law he
can not be held to be liable, save, of course, and agreement to the
contrary, which in such case would be a special law, and would set aside
the general law.
The basis for the contrary opinion and decision is article 127 of the Code
of Commerce:
All the members of the general copartnership, be they or be
they not managing partners of the same, are personally and in
solidum liable with all their property for the results of the
transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person
authorized to ake use thereof.
Now, do the words "all the members" found in this article include the
industrial partners?
At first it would appear that they do. In order to complete such reasoning
the following premise will be sufficient: That the industrial partners from
the collective partnership; therefore the industrial partners are
personally and jointly liable with all their property for the results of the
transactions made in the name and for account of the partnership.
But they form the collective partnership in the manner in which our laws
allows the same to be formed that is, by contributing with their
industry, not with property.
And the word all, in reference to property, which is common with the
three classes of partnership defined by the code, to wit, collective, limited
copartnership (comanditaria), and corporation (anonima), gives the rule
for such personal and joint liability, which is the purpose of the provision
in the above-quoted article.
The above three classes of partnership agree in that property must in
each of them be contributed. "The articles of general copartnership must
state . . . the capital which each partner contributes in cash, credits, or
property, stating the value given the latter or the basis on which their

appraisal is to be made." (Art. 125.) "The same statements shall be

included in articles of limited copartnerships (compaias en comandita)
which are required for those of general copartnerships" that is, among
other things, the capital which each partner contributes. (Art. 145.) "The
articles of incorporation (of corporations) must include . . . the corporate
capital, stating the value at which property, not cash, contributed has
been appraised, or the basis on which the appraisal is to be made; and the
number of shares into which the corporate capital is divided and
represented." (Art. 151.)
Now, then, "The liability of the members of a corporation for the
obligations and losses of the same shall be limited to the funds they
contributed or bound themselves to contribute to the corporate capital."
(Art. 153.) "The liability of special partners for the obligations and losses
of the copartnership shall be limited to the funds which they contributed
or bound themselves to contribute to the limited copartnership, with the
exception of the sense mentioned in article 147" that is, if any of them
include his name or permit its conclusion in the firm name. (Art. 148, par.
3.) However, in a collective partnership the liability is not limited to the
funds or property contributed, but extends to all the property which
partners may own within or without the copartnership.
In every mercantile copartnership it is the corporate capital that
responds for the obligations of the same; this is elemental. The members
of a joint stock, a limited, or a collective company respond
with their capital for the obligations of the association; in the joint stock
concerns, with their shares; in the limited class, with the amount
contributed; in the collective, with their constituted capital. An industrial
partner, with what principal sum, share, or quota in the corporate capital
does he or can he respond for the obligations of the collective
partnership? Evidently with none whatever.
If the capital of the association is exhausted, the extreme case
of losses incurred by the company arises, and third persons can not
recover the amount of the obligations of the company from the corporate
capital, because the latter is sufficient to recover them. Shareholders in
the case of a joint stock company, beyond the value of their stock, have no
longer to think of any ulterior subsidiary responsibility. Neither do the
partners of a limited company. In either case the partners are only liable
to the extent of their corporate capital. Collective partners have to
respond not only with their corporate capital but also with the whole of
their property outside of the association. And it is desired that the
industrial partner who, in a collective copartnership, did not primarily
respond with his corporate capital, because he had none, shall subsidiary
respond with such property as he may have outside of the company, and
with which nobody, either within or without the copartnership, had
counted upon, since both inside and outside of the company his industry
or work only had been reckoned with. Therefore, the word all, of article
127 cited above, simply denoted the extent of the ulterior or subsidiary
responsibility, and that which does not appear, which does not materially
exist, can hardly be made to apply.
An industrial partner can not engage in transactions of any class
whatever, otherwise he would be subject to serious consequences (art.
138), while a capitalist partner, as a rule, may so engage without
extending profits or liabilities to the company (arts. 134 and 136); an
industrial partner, as regards profits, can only receive in the distribution
the same amount as the partner who contributed the smallest amount of
capital (art. 140); in the case at bar, one-eighth goes to each of the two
industrial partners, three-fourths being for the capitalist, and even at the
expiration of the copartnership they run the risk of having the one-eighth
of the profits earned in former years absorbed by a total loss incurred
during the last year of the contract of copartnership; and it is claimed that
such industrial partner, so much delayed with regard to profits, who has
not the same rights, shall be under the sameobligations as regards
obligations because he is a collective partner? This seems neither just nor
logical.
And it is not so. Article 141 reads:lawphil.net "Losses shall be charged in
the same proportion among the partners who have contributed capital,
without including" the industrial partners (since they have not
the same rights), and they should not be included therein nor in the
corporation of the partner who contributed the smallest capital, simply
for the reason that the industrial partner has nothing to lose, he not
having contributed anything which the company may lose when the
losses of the copartnership are considered, either among the partners
thereof or with regard to third persons.
There need be no distinction made between obligations and losses.
During the existence of a company the gains or the losses are set off the
one against the other, and the difference is either in favor of or against
the concern. As to the industrial partner, in connection with the question
submitted, it is not a matter of striking a balance from time to time, but
one of the final adjustment of assets and liabilities, because the matter
under discussion refers only to his private property, which has nothing to
do with the company nor with losses in liquidating the same. Article 127
is affected by article 237: "The private property of the general partners
which is not included in the assets of the copartnership when it is
established can not be seized for the payment of the obligations

contracted by the copartnership until after the common assets have been
attached." And such condition is stated in the majority decision. As long
as there is property belonging to the company, obligations in favor of
third persons are covered by the primary and direct responsibility of the
company; the question arises when the assets of the company are
exhausted and it becomes necessary to appeal to the ulterior or
subsidiary liability of the private property of the partners; in this case
such obligations constitute the extreme losses in the liquidation of the
company.
The case at bar could only thus be set forth: Should an industrial partner
be responsible for such losses, for such obligations in favor of third
persons? Article 141 expressly states that he shall not. In order to state
the contrary it would be necessary to appeal to discriminations in the
wording of said article; and this is neither permitted where the law does
not make them nor would they lead to anything after all. In the aforesaid
article 237 the corroboration of the word all of article 127 may be found:
"The private property of the general partners which is not included in the
assets of the copartnership," differing from such as were included, can
not seized for the payment of obligations contracted by the
copartnership, until after the common assets have been attached; after
such attachment all the assets, according to article 127, such as were
included, and those that were not included, in this order, shall be subject
to the results of the transactions of the copartnership. An industrial
partner has not contributed any property whatever; he therefore offers
no subject for the principal and direct seizure when the assets of the
copartnership are attached. How is it possible to conceive any ulterior,
subsidiary, indirect responsibility over the property which it was not
even thought to be included, since he only contributed to the company his
industry and work, not property of any class whatever? It seems very
anomalous that one who has not obligated himself in the least should be
responsible or the greater part, that he who is not comprehended within
the explicit terms should be included by implication, and that he who
pledge nothing should be held to respond with his property.
As to the nature of the defendant company in this action, I take it to
be:lawphil.net
1. That the defendant company is really a collective one such as is
described in the Code of Commerce; the firm of "F. Muoz & Sons" and the
terms of the articles of association prove it so beyond all doubt.
2. That it is a regular collective company; the word regular means, as
employed in the Code of Commerce, that the collective company is the
rule, the standard in all commercial associations, the one combining all
the effects which are consequent upon this form of convention; and the
limited and the joint-stock companies are the exception.
3. That it is not irrelevant in view of the manner in which the present
Code of Commerce, like the former one of 1829, has defined the collective
company, that such a distinguished professor of law as Doctor Lorenzo de
Benito should have established in his "Lessons on Mercantile Law" a
difference between the regular collective associations and irregular
collective companies; "regular are those wherein, as article 122 reads, all
the members in a collective name and under a firm name bind themselves
to participate in the proportion which they may establish with the same
rights and obligations." "And irregular, those wherein one or more
members who, though not contributing toward the company with anything
but their industry, participate in the profits in the manner agreed to in the
articles of association or as determined by law, and ordinarily do not
share in the losses which the copartnership may sustain. Such members are
called industrial partners, and the collective copartnership having a
member of said class is also sometimes called an association of capital
and industry.
This is what the law says (he continues), but it has not been
very fortunate in sketching the characters of a regular
collective partnership (since in conclusion it says nothing in
reference to the irregular partnership), because precisely the
collective name and the corporate name are applicable to both
the collective and the limited companies; and as to the
covenant entered into by the partners to participate in the
proportion which they may establish with the same rights and
obligations, this is inherent to all partnerships without
distinction as to class. What characterizes this partnership
is that all the members, "with the exception of the industrial
partners," are jointly responsible and with all their property for
the corporate obligations.
4. That the code in force, by means of three articles, 138, 140, and 141,
among those which regulate collective partnerships, has involved this
association of capital and industry; whence irregularity necessarily
arises; the irregularity of such an irregular system is that in a collective
partnership wherein, besides the element property, common or generic to
the three aforesaid classes, there appears this one, to wit, industry, a
special features only in collective partnerships, according to the system of
the code.

Had the system adopted by the codes of Portugal, Brazil, and the
Argentine Republic been followed, a different classification would have
been made of the association of capital and industry which, according to
the last of the codes cited, is properly characterized by means of the
following articles:
435. Habilitacion or association of capital and industry is the
name given to the partnership formed on the one part by one
or more persons who furnish funds for a general business, or
for some particular commercial transaction, and on the other
part by one or more individuals who join the copartnership
with their industry alone.
438. The obligation of the partners who furnished capital is in
solidum, and extends beyond the capital contributed by them
to the concern.
439. The articles of association, besides the requirements
contained in article 395, must specify the obligations of the
industrial partner or partners and the share in the profits to
which they are entitled in the apportionment.
In the absence of such declaration, the industrial partner shall
draw from the profits a share equal to those of the partner who
furnished the smallest capital.
440. An industrial partner can not contract on behalf of the
partnership nor is he obligated with his own property toward
the creditors of the company.
Nevertheless, if besides his industry he should contribute some
capital toward the company either in money or thing of value,
the association shall then be considered as a collective one, and
the industrial partner, whatever might have been stipulated,
shall respond in solidum.
In my opinion it can not be denied that there is no substantial difference
between the three articles of our code and those transcribed from that of
the Argentine Republic as regards the rights and obligations of industrial
partners in conjunction with partners who furnish capital; there is no
difference except in the system, the code of the Argentine Republic
dealing with this class of association of capital and industry separately
from the only three defined in our code, all of them of capital only or
essentially of partners who furnish capital. Therefore, as said code has an
article almost literally identical with article 127 of our code, this question
can not possibly arise in that country. That code contains article 454,
which reads: "All those who form a collective commercial company,
whether managing the corporate funds or not, are obligated in
solidum (with all their property, as our code would state) for the results
of the transactions made in the name and for account of the partnership,"
etc. To the question, Do the words "all the partners" found in said article
include the industrial partners? undoubtedly the answer would be no.
And it would not suffice to say that the above article of the code of the
Argentine Republic, namely, "on collective copartnership," involves no
section which may refer to industrial partners, and that, therefore, there
can be no question as to the words "all the members;" it is because, by
reason of the nature thereof, whether under one system or another, the
provisions and the principles being identical, the conclusions can not
otherwise than identical. In a copartnership, and as the result of the
obligations thereunder, an industrial partner can not lose except what he
has actually contributed thereto for a limited or an unlimited purpose,
subject ultimately to company or personal obligations; this is all that law
and logic may demand of him; anything else would not come under the
law, but may be demanded of him by reason of his express covenant,
because he has consented to something beyond the character and the
effects of the contract of partnership of capital and industry entered into
by him, called collective; nothing else has been the subject of his consent
and obligation.
Manuel Duran y Bas, a former professor of the University of Barcelona, in
his addition to the work of Marti de Eixala, which is so generally and
specially consulted in that eminently commercial and industrial city, has
offered no remarks to the original text of said work which establish as an
elemental doctrine that "When the copartnership is purely a collective
one, each of its members is jointly obligated for the result of the
transactions which should be charged to the copartnership . . . . From the
general rule which we have just set up the industrial partners who
contract no obligation to secure the liabilities of the company should be
excepted, unless there be an express covenant to the contrary." (Art. 319
of the code of 1829, identical with art. 141 of the code now in force.)
During almost half a century no obligation has been raised by the
professors of law, the press, or the bar, to this doctrine regarding the
exemption, not merely with respect to losses but to company obligations
of the industrial partner, on the suppositions, which I do not admit, as
already shown, that it may be possible to discriminate between losses

and obligations in connection with an industrial partner, for whom there

are none but the final losses, such as absorb the assets of the company,
which can not be otherwise than outstanding obligations in favor of third
parties inasmuch as, so long as there are company assets, no recourse can
be held to the private property of any partner.

The only issue for resolution is whether or not the dismissal of the
complaint to favor one of the general partners of a partnership increases
the joint and subsidiary liability of each of the remaining partners for the
obligations of the partnership.
RULING:

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

Article 1816 of the Civil Code provides:

Art. 1816. All partners including industrial ones,
shall be liable pro rata with all their property and
after all the partnership assets have been exhausted,
for the contracts which may be entered into in the
name and for the account of the partnership, under
its signature and by a person authorized to act for
the partnership. However, any partner may enter
into a separate obligation to perform a partnership
contract.

ISLAND SALES, INC., plaintiff-appellee,

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

In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:

CONCEPCION JR., J.:

The partnership of Yulo and Palacios was engaged in

the operation of a sugar estate in Negros. It was,
therefore, a civil partnership as distinguished from a
mercantile partnership. Being a civil partnership, by
the express provisions of articles l698 and 1137 of
the Civil Code, the partners are not liable each for
the whole debt of the partnership. The liability is pro
rata and in this case Pedro Yulo is responsible to
plaintiff for only one-half of the debt. The fact that
the other partner, Jaime Palacios, had left the
country cannot increase the liability of Pedro Yulo.

FACTS:
1. This is an appeal interposed by the defendant Benjamin C. Daco from
the decision of the Court of First Instance of Manila, Branch XVI, in Civil
Case No. 50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United
Pioneer General Construction Company to pay
plaintiff the sum of P7,119.07 with interest at the
rate of 12% per annum until it is fully paid, plus
attorney's fees which the Court fixes in the sum of
Eight Hundred Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona,
Noel C. Sim and Augusto Palisoc are sentenced to
pay the plaintiff in this case with the understanding
that the judgment against these individual
defendants shall be enforced only if the defendant
company has no more leviable properties with
which to satisfy the judgment against it. .
The individual defendants shall also pay the costs.
2. On April 22, 1961, the defendant company, a general partnership duly
registered under the laws of the Philippines, purchased from the plaintiff
a motor vehicle on the installment basis and for this purpose executed a
promissory note for P9,440.00, payable in twelve (12) equal monthly
installments of P786.63, the first installment payable on or before May
22, 1961 and the subsequent installments on the 22nd day of every
month thereafter, until fully paid, with the condition that failure to pay
any of said installments as they fall due would render the whole unpaid
balance immediately due and demandable.
3. Having failed to receive the installment due on July 22, 1961, the
plaintiff sued the defendant company for the unpaid balance amounting
to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B.
Lumauig, and Augusto Palisoc were included as co-defendants in their
capacity as general partners of the defendant company.
4. Daniel A. Guizona failed to file an answer and was consequently
declared in default.
5. Subsequently, on motion of the plaintiff, the complaint was dismissed
insofar as the defendant Romulo B. Lumauig is concerned. 2
7. When the case was called for hearing, the defendants and their
counsels failed to appear notwithstanding the notices sent to them.
Consequently, the trial court authorized the plaintiff to present its
evidence ex-parte 3 , after which the trial court rendered the decision
appealed from.
8. The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider
the decision claiming that since there are five (5) general partners, the
joint and subsidiary liability of each partner should not exceed one-fifth
( 1/ 5 ) of the obligations of the defendant company. But the trial court
denied the said motion notwithstanding the conformity of the plaintiff to
limit the liability of the defendants Daco and Sim to only one-fifth ( 1/ 5 ) of
the obligations of the defendant company. Hence, this appeal.
ISSUE:

In the instant case, there were five (5) general partners when the
promissory note in question was executed for and in behalf of the
partnership. Since the liability of the partners is pro rata, the liability of
the appellant Benjamin C. Daco shall be limited to only one-fifth ( 1/ 5 ) of
the obligations of the defendant company. The fact that the complaint
against the defendant Romulo B. Lumauig was dismissed, upon motion of
the plaintiff, does not unmake the said Lumauig as a general partner in
the defendant company. In so moving to dismiss the complaint, the
plaintiff merely condoned Lumauig's individual liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby
AFFIRMED, without pronouncement as to costs.
SO ORDERED.
Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur.
G.R. No. L-21438

September 28, 1966

AIR FRANCE, petitioner,

vs.
RAFAEL CARRASCOSO and the HONORABLE COURT OF
APPEALS, respondents.
Lichauco, Picazo and Agcaoili for petitioner.
Bengzon Villegas and Zarraga for respondent R. Carrascoso.
SANCHEZ, J.:
FACTS:
1. The Court of First Instance of Manila 1 sentenced petitioner to pay
respondent Rafael Carrascoso P25,000.00 by way of moral damages;
P10,000.00 as exemplary damages; P393.20 representing the difference
in fare between first class and tourist class for the portion of the trip
Bangkok-Rome, these various amounts with interest at the legal rate,
from the date of the filing of the complaint until paid; plus P3,000.00 for
attorneys' fees; and the costs of suit.
2. On appeal, the Court of Appeals slightly reduced the amount of refund
on Carrascoso's plane ticket from P393.20 to P383.10, and voted to affirm
the appealed decision "in all other respects", with costs against petitioner.
The case is now before us for review on certiorari.
3. The facts declared by the Court of Appeals as " fully supported by the
evidence of record", are:

Plaintiff, a civil engineer, was a member of a group of 48

Filipino pilgrims that left Manila for Lourdes on March 30,
1958.
On March 28, 1958, the defendant, Air France, through its
authorized agent, Philippine Air Lines, Inc., issued to plaintiff a
"first class" round trip airplane ticket from Manila to Rome.
From Manila to Bangkok, plaintiff travelled in "first class", but
at Bangkok, the Manager of the defendant airline forced
plaintiff to vacate the "first class" seat that he was occupying
because, in the words of the witness Ernesto G. Cuento, there
was a "white man", who, the Manager alleged, had a "better
right" to the seat. When asked to vacate his "first class" seat,
the plaintiff, as was to be expected, refused, and told
defendant's Manager that his seat would be taken over his
dead body; a commotion ensued, and, according to said
Ernesto G. Cuento, "many of the Filipino passengers got
nervous in the tourist class; when they found out that Mr.
Carrascoso was having a hot discussion with the white man
[manager], they came all across to Mr. Carrascoso and pacified
Mr. Carrascoso to give his seat to the white man" (Transcript,
p. 12, Hearing of May 26, 1959); and plaintiff reluctantly gave
his "first class" seat in the plane.3

said ticket did not represent the true and complete intent and agreement
of the parties; that said respondent knew that he did not have confirmed
reservations for first class on any specific flight, although he had tourist
class protection; that, accordingly, the issuance of a first class ticket was
no guarantee that he would have a first class ride, but that such would
depend upon the availability of first class seats.
These are matters which petitioner has thoroughly presented and
discussed in its brief before the Court of Appeals under its third
assignment of error, which reads: "The trial court erred in finding that
plaintiff had confirmed reservations for, and a right to, first class seats on
the "definite" segments of his journey, particularly that from Saigon to
Beirut". 21
And, the Court of Appeals disposed of this contention thus:
Defendant seems to capitalize on the argument that the
issuance of a first-class ticket was no guarantee that the
passenger to whom the same had been issued, would be
accommodated in the first-class compartment, for as in the
case of plaintiff he had yet to make arrangements upon arrival
at every station for the necessary first-class reservation. We
are not impressed by such a reasoning. We cannot understand
how a reputable firm like defendant airplane company could
have the indiscretion to give out tickets it never meant to
honor at all. It received the corresponding amount in payment
of first-class tickets and yet it allowed the passenger to be at
the mercy of its employees. It is more in keeping with the
ordinary course of business that the company should know
whether or riot the tickets it issues are to be honored or not.22

1. The trust of the relief petitioner now seeks is that we review "all the
findings" 4 of respondent Court of Appeals. Petitioner charges that
respondent court failed to make complete findings of fact on all the issues
properly laid before it. We are asked to consider facts favorable to
petitioner, and then, to overturn the appellate court's decision.
Coming into focus is the constitutional mandate that "No decision shall be
rendered by any court of record without expressing therein clearly and
distinctly the facts and the law on which it is based". 5 This is echoed in
the statutory demand that a judgment determining the merits of the case
shall state "clearly and distinctly the facts and the law on which it is
based"; 6 and that "Every decision of the Court of Appeals shall contain
complete findings of fact on all issues properly raised before it". 7
A decision with absolutely nothing to support it is a nullity. It is open to
direct attack. 8 The law, however, solely insists that a decision state the
"essential ultimate facts" upon which the court's conclusion is drawn. 9 A
court of justice is not hidebound to write in its decision every bit and
piece of evidence 10 presented by one party and the other upon the issues
raised. Neither is it to be burdened with the obligation "to specify in the
sentence the facts"which a party "considered as proved". 11 This is but a
part of the mental process from which the Court draws the essential
ultimate facts. A decision is not to be so clogged with details such that
prolixity, if not confusion, may result. So long as the decision of the Court
of Appeals contains the necessary facts to warrant its conclusions, it is no
error for said court to withhold therefrom "any specific finding of facts
with respect to the evidence for the defense". Because as this Court well
observed, "There is no law that so requires". 12 Indeed, "the mere failure
to specify (in the decision) the contentions of the appellant and the
reasons for refusing to believe them is not sufficient to hold the same
contrary to the requirements of the provisions of law and the
Constitution". It is in this setting that in Manigque, it was held that the
mere fact that the findings "were based entirely on the evidence for the
prosecution without taking into consideration or even mentioning the
appellant's side in the controversy as shown by his own testimony",
would not vitiate the judgment. 13 If the court did not recite in the
decision the testimony of each witness for, or each item of evidence
presented by, the defeated party, it does not mean that the court has
overlooked such testimony or such item of evidence. 14 At any rate, the
legal presumptions are that official duty has been regularly performed,
and that all the matters within an issue in a case were laid before the
court and passed upon by it. 15
Findings of fact, which the Court of Appeals is required to make, maybe
defined as "the written statement of the ultimate facts as found by the
court ... and essential to support the decision and judgment rendered
thereon". 16They consist of the court's "conclusions" with respect to the
determinative facts in issue". 17 A question of law, upon the other hand, has
been declared as "one which does not call for an examination of the
probative value of the evidence presented by the parties." 18
2. By statute, "only questions of law may be raised" in an appeal by
certiorari from a judgment of the Court of Appeals. 19 That judgment is
conclusive as to the facts. It is not appropriately the business of this Court
to alter the facts or to review the questions of fact. 20
With these guideposts, we now face the problem of whether the findings
of fact of the Court of Appeals support its judgment.
3. Was Carrascoso entitled to the first class seat he claims?
It is conceded in all quarters that on March 28, 1958 he paid to and
received from petitioner a first class ticket. But petitioner asserts that

Not that the Court of Appeals is alone. The trial court similarly disposed
of petitioner's contention, thus:
On the fact that plaintiff paid for, and was issued a "First class" ticket,
there can be no question. Apart from his testimony, see plaintiff's Exhibits
"A", "A-1", "B", "B-1," "B-2", "C" and "C-1", and defendant's own witness,
Rafael Altonaga, confirmed plaintiff's testimony and testified as follows:
Q. In these tickets there are marks "O.K." From what you know,
what does this OK mean?
A. That the space is confirmed.
Q. Confirmed for first class?
A. Yes, "first class". (Transcript, p. 169)
xxx

xxx

xxx

Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga

and Rafael Altonaga that although plaintiff paid for, and was issued a
"first class" airplane ticket, the ticket was subject to confirmation in
Hongkong. The court cannot give credit to the testimony of said
witnesses. Oral evidence cannot prevail over written evidence, and
plaintiff's Exhibits "A", "A-l", "B", "B-l", "C" and "C-1" belie the testimony
of said witnesses, and clearly show that the plaintiff was issued, and paid
for, a first class ticket without any reservation whatever.
Furthermore, as hereinabove shown, defendant's own witness Rafael
Altonaga testified that the reservation for a "first class" accommodation
for the plaintiff was confirmed. The court cannot believe that after such
confirmation defendant had a verbal understanding with plaintiff that the
"first class" ticket issued to him by defendant would be subject to
confirmation in Hongkong. 23
We have heretofore adverted to the fact that except for a slight difference
of a few pesos in the amount refunded on Carrascoso's ticket, the decision
of the Court of First Instance was affirmed by the Court of Appeals in all
other respects. We hold the view that such a judgment of affirmance has
merged the judgment of the lower court. 24Implicit in that affirmance is a
determination by the Court of Appeals that the proceeding in the Court of
First Instance was free from prejudicial error and "all questions raised by
the assignments of error and all questions that might have been raised
are to be regarded as finally adjudicated against the appellant". So also,
the judgment affirmed "must be regarded as free from all error". 25 We
reached this policy construction because nothing in the decision of the
Court of Appeals on this point would suggest that its findings of fact are in
any way at war with those of the trial court. Nor was said affirmance by
the Court of Appeals upon a ground or grounds different from those
which were made the basis of the conclusions of the trial court. 26
If, as petitioner underscores, a first-class-ticket holder is not entitled to a
first class seat, notwithstanding the fact that seat availability in specific
flights is therein confirmed, then an air passenger is placed in the hollow

of the hands of an airline. What security then can a passenger have? It will
always be an easy matter for an airline aided by its employees, to strike
out the very stipulations in the ticket, and say that there was a verbal
agreement to the contrary. What if the passenger had a schedule to fulfill?
We have long learned that, as a rule, a written document speaks a
uniform language; that spoken word could be notoriously unreliable. If
only to achieve stability in the relations between passenger and air
carrier, adherence to the ticket so issued is desirable. Such is the case
here. The lower courts refused to believe the oral evidence intended to
defeat the covenants in the ticket.
The foregoing are the considerations which point to the conclusion that
there are facts upon which the Court of Appeals predicated the finding
that respondent Carrascoso had a first class ticket and was entitled to a
first class seat at Bangkok, which is a stopover in the Saigon to Beirut leg
of the flight. 27 We perceive no "welter of distortions by the Court of
Appeals of petitioner's statement of its position", as charged by
petitioner. 28 Nor do we subscribe to petitioner's accusation that
respondent Carrascoso "surreptitiously took a first class seat to provoke
an issue". 29 And this because, as petitioner states, Carrascoso went to see
the Manager at his office in Bangkok "to confirm my seat and because
from Saigon I was told again to see the Manager". 30 Why, then, was he
allowed to take a first class seat in the plane at Bangkok, if he had no seat?
Or, if another had a better right to the seat?
4. Petitioner assails respondent court's award of moral damages.
Petitioner's trenchant claim is that Carrascoso's action is planted upon
breach of contract; that to authorize an award for moral damages there
must be an averment of fraud or bad faith;31 and that the decision of the
Court of Appeals fails to make a finding of bad faith. The pivotal
allegations in the complaint bearing on this issue are:
3. That ... plaintiff entered into a contract of air carriage with
the Philippine Air Lines for a valuable consideration, the latter
acting as general agents for and in behalf of the defendant,
under which said contract, plaintiff was entitled to, as
defendant agreed to furnish plaintiff, First Class passage on
defendant's plane during the entire duration of plaintiff's tour
of Europe with Hongkong as starting point up to and until
plaintiff's return trip to Manila, ... .
4. That, during the first two legs of the trip from Hongkong to
Saigon and from Saigon to Bangkok, defendant furnished to the
plaintiff First Class accommodation but only after
protestations, arguments and/or insistence were made by the
plaintiff with defendant's employees.
5. That finally, defendant failed to provide First Class passage,
but
instead
furnished
plaintiff
only TouristClass
accommodations from Bangkok to Teheran and/or Casablanca,
... the plaintiff has been compelled by defendant's employees to
leave the First Class accommodation berths at Bangkok after he
was already seated.
6. That consequently, the plaintiff, desiring no repetition of the
inconvenience and embarrassments brought by defendant's
breach of contract was forced to take a Pan American World
Airways plane on his return trip from Madrid to Manila.32
xxx

xxx

xxx

2. That likewise, as a result of defendant's failure to furnish First Class

accommodations
aforesaid,
plaintiff
suffered
inconveniences,
embarrassments, and humiliations, thereby causing plaintiff mental
anguish, serious anxiety, wounded feelings, social humiliation, and the
like injury, resulting in moral damages in the amount of P30,000.00. 33
xxx

xxx

xxx

The foregoing, in our opinion, substantially aver: First, That there was a
contract to furnish plaintiff a first class passage covering, amongst others,
the Bangkok-Teheran leg; Second, That said contract was breached when
petitioner failed to furnish first class transportation at Bangkok;
and Third, that there was bad faith when petitioner's employee compelled
Carrascoso to leave his first class accommodation berth "after he was
already, seated" and to take a seat in the tourist class, by reason of which
he suffered inconvenience, embarrassments and humiliations, thereby
causing him mental anguish, serious anxiety, wounded feelings and social
humiliation, resulting in moral damages. It is true that there is no specific
mention of the term bad faith in the complaint. But, the inference of bad
faith is there, it may be drawn from the facts and circumstances set forth
therein. 34 The contract was averred to establish the relation between the
parties. But the stress of the action is put on wrongful expulsion.
Quite apart from the foregoing is that (a) right the start of the trial,
respondent's counsel placed petitioner on guard on what Carrascoso

intended to prove: That while sitting in the plane in Bangkok, Carrascoso

was oustedby petitioner's manager who gave his seat to a white
man; 35 and (b) evidence of bad faith in the fulfillment of the contract was
presented without objection on the part of the petitioner. It is, therefore,
unnecessary to inquire as to whether or not there is sufficient averment
in the complaint to justify an award for moral damages. Deficiency in the
complaint, if any, was cured by the evidence. An amendment thereof to
conform to the evidence is not even required. 36 On the question of bad
faith, the Court of Appeals declared:
That the plaintiff was forced out of his seat in the first class
compartment of the plane belonging to the defendant Air
France while at Bangkok, and was transferred to the tourist
class not only without his consent but against his will, has been
sufficiently established by plaintiff in his testimony before the
court, corroborated by the corresponding entry made by the
purser of the plane in his notebook which notation reads as
follows:
"First-class passenger was forced to go to the tourist
class against his will, and that the captain refused to
intervene",
and by the testimony of an eye-witness, Ernesto G. Cuento, who
was a co-passenger. The captain of the plane who was asked by
the manager of defendant company at Bangkok to intervene
even refused to do so. It is noteworthy that no one on behalf of
defendant ever contradicted or denied this evidence for the
plaintiff. It could have been easy for defendant to present its
manager at Bangkok to testify at the trial of the case, or yet to
secure his disposition; but defendant did neither. 37
The Court of appeals further stated
Neither is there evidence as to whether or not a prior
reservation was made by the white man. Hence, if the
employees of the defendant at Bangkok sold a first-class ticket
to him when all the seats had already been taken, surely the
plaintiff should not have been picked out as the one to suffer
the consequences and to be subjected to the humiliation and
indignity of being ejected from his seat in the presence of
others. Instead of explaining to the white man the
improvidence committed by defendant's employees, the
manager adopted the more drastic step of ousting the plaintiff
who was then safely ensconsced in his rightful seat. We are
strengthened in our belief that this probably was what
happened there, by the testimony of defendant's witness Rafael
Altonaga who, when asked to explain the meaning of the letters
"O.K." appearing on the tickets of plaintiff, said "that the space
is confirmed for first class. Likewise, Zenaida Faustino, another
witness for defendant, who was the chief of the Reservation
Office of defendant, testified as follows:
"Q How does the person in the ticket-issuing office
know what reservation the passenger has arranged
with you?
A They call us up by phone and ask for the
confirmation." (t.s.n., p. 247, June 19, 1959)
In this connection, we quote with approval what the trial Judge
has said on this point:
Why did the, using the words of witness Ernesto G.
Cuento, "white man" have a "better right" to the seat
occupied by Mr. Carrascoso? The record is silent.
The defendant airline did not prove "any better",
nay, any right on the part of the "white man" to the
"First class" seat that the plaintiff was occupying and
for which he paid and was issued a corresponding
"first class" ticket.
If there was a justified reason for the action of the
defendant's Manager in Bangkok, the defendant
could have easily proven it by having taken the
testimony of the said Manager by deposition, but
defendant did not do so; the presumption is that
evidence willfully suppressed would be adverse if
produced [Sec. 69, par (e), Rules of Court]; and,
under the circumstances, the Court is constrained to
find, as it does find, that the Manager of the
defendant airline in Bangkok not merely asked but
threatened the plaintiff to throw him out of the
plane if he did not give up his "first class" seat
because the said Manager wanted to accommodate,
using the words of the witness Ernesto G. Cuento,
the "white man".38

It is really correct to say that the Court of Appeals in the quoted

portion first transcribed did not use the term "bad faith". But
can it be doubted that the recital of facts therein points to bad
faith? The manager not only prevented Carrascoso from
enjoying his right to a first class seat; worse, he imposed his
arbitrary will; he forcibly ejected him from his seat, made him
suffer the humiliation of having to go to the tourist class
compartment - just to give way to another passenger whose
right thereto has not been established. Certainly, this is bad
faith. Unless, of course, bad faith has assumed a meaning
different from what is understood in law. For, "bad faith"
contemplates a "state of mind affirmatively operating with
furtive design or with some motive of self-interest or will or for
ulterior purpose." 39
And if the foregoing were not yet sufficient, there is the express
finding of bad faith in the judgment of the Court of First
Instance, thus:
The evidence shows that the defendant violated its
contract of transportation with plaintiff in bad faith,
with the aggravating circumstances that defendant's
Manager in Bangkok went to the extent of
threatening the plaintiff in the presence of many
passengers to have him thrown out of the airplane
to give the "first class" seat that he was occupying to,
again using the words of the witness Ernesto G.
Cuento, a "white man" whom he (defendant's
Manager) wished to accommodate, and the
defendant has not proven that this "white man" had
any "better right" to occupy the "first class" seat that
the plaintiff was occupying, duly paid for, and for
which the corresponding "first class" ticket was
issued by the defendant to him.40
5. The responsibility of an employer for the tortious act of its employees
need not be essayed. It is well settled in law. 41 For the willful malevolent
act of petitioner's manager, petitioner, his employer, must answer. Article
21 of the Civil Code says:
ART. 21. Any person who willfully causes loss or injury to
another in a manner that is contrary to morals, good customs
or public policy shall compensate the latter for the damage.
In parallel circumstances, we applied the foregoing legal precept; and, we
held that upon the provisions of Article 2219 (10), Civil Code, moral
damages are recoverable. 42
6. A contract to transport passengers is quite different in kind and degree
from any other contractual relation. 43And this, because of the relation
which an air-carrier sustains with the public. Its business is mainly with
the travelling public. It invites people to avail of the comforts and
advantages it offers. The contract of air carriage, therefore, generates a
relation attended with a public duty. Neglect or malfeasance of the
carrier's employees, naturally, could give ground for an action for
damages.
Passengers do not contract merely for transportation. They have a right
to be treated by the carrier's employees with kindness, respect, courtesy
and due consideration. They are entitled to be protected against personal
misconduct, injurious language, indignities and abuses from such
employees. So it is, that any rule or discourteous conduct on the part of
employees towards a passenger gives the latter an action for damages
against the carrier. 44
Thus, "Where a steamship company 45 had accepted a passenger's check,
it was a breach of contract and a tort, giving a right of action for its agent
in the presence of third persons to falsely notify her that the check was
worthless and demand payment under threat of ejection, though the
language used was not insulting and she was not ejected." 46 And this,
because, although the relation of passenger and carrier is "contractual
both in origin and nature" nevertheless "the act that breaks the contract
may be also a tort". 47 And in another case, "Where a passenger on a
railroad train, when the conductor came to collect his fare tendered him
the cash fare to a point where the train was scheduled not to stop, and
told him that as soon as the train reached such point he would pay the
cash fare from that point to destination, there was nothing in the conduct
of the passenger which justified the conductor in using insulting language
to him, as by calling him a lunatic," 48 and the Supreme Court of South
Carolina there held the carrier liable for the mental suffering of said
passenger.1awphl.nt
Petitioner's contract with Carrascoso is one attended with public duty.
The stress of Carrascoso's action as we have said, is placed upon his
wrongful expulsion. This is a violation of public duty by the petitioner air
carrier a case of quasi-delict. Damages are proper.

7. Petitioner draws our attention to respondent Carrascoso's testimony,

thus
Q You mentioned about an attendant. Who is that attendant
and purser?
A When we left already that was already in the trip I
could not help it. So one of the flight attendants approached me
and requested from me my ticket and I said, What for? and she
said, "We will note that you transferred to the tourist class". I
said, "Nothing of that kind. That is tantamount to accepting my
transfer." And I also said, "You are not going to note anything
there because I am protesting to this transfer".
Q Was she able to note it?
A No, because I did not give my ticket.
Q About that purser?
A Well, the seats there are so close that you feel uncomfortable
and you don't have enough leg room, I stood up and I went to
the pantry that was next to me and the purser was there. He
told me, "I have recorded the incident in my notebook." He
read it and translated it to me because it was recorded in
French "First class passenger was forced to go to the tourist
class against his will, and that the captain refused to
intervene."
Mr. VALTE
I move to strike out the last part of the testimony of the
witness because the best evidence would be the notes. Your
Honor.
COURT
I will allow that as part of his testimony. 49
Petitioner charges that the finding of the Court of Appeals that the purser
made an entry in his notebook reading "First class passenger was forced
to go to the tourist class against his will, and that the captain refused to
intervene" is predicated upon evidence [Carrascoso's testimony above]
which is incompetent. We do not think so. The subject of inquiry is not
the entry, but the ouster incident. Testimony on the entry does not come
within the proscription of the best evidence rule. Such testimony is
admissible. 49a
Besides, from a reading of the transcript just quoted, when the dialogue
happened, the impact of the startling occurrence was still fresh and
continued to be felt. The excitement had not as yet died down. Statements
then, in this environment, are admissible as part of the res gestae. 50 For,
they grow "out of the nervous excitement and mental and physical
condition of the declarant". 51 The utterance of the purser regarding his
entry in the notebook was spontaneous, and related to the circumstances
of the ouster incident. Its trustworthiness has been guaranteed. 52 It thus
escapes the operation of the hearsay rule. It forms part of the res gestae.
At all events, the entry was made outside the Philippines. And, by an
employee of petitioner. It would have been an easy matter for petitioner
to have contradicted Carrascoso's testimony. If it were really true that no
such entry was made, the deposition of the purser could have cleared up
the matter.
We, therefore, hold that the transcribed testimony of Carrascoso is
admissible in evidence.
8. Exemplary damages are well awarded. The Civil Code gives the court
ample power to grant exemplary damages in contracts and quasicontracts. The only condition is that defendant should have "acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner." 53 The
manner of ejectment of respondent Carrascoso from his first class seat
fits into this legal precept. And this, in addition to moral damages. 54
9. The right to attorney's fees is fully established. The grant of exemplary
damages justifies a similar judgment for attorneys' fees. The least that can
be said is that the courts below felt that it is but just and equitable that
attorneys' fees be given. 55 We do not intend to break faith with the
tradition that discretion well exercised as it was here should not be
disturbed.
10. Questioned as excessive are the amounts decreed by both the trial
court and the Court of Appeals, thus: P25,000.00 as moral damages;

P10,000.00, by way of exemplary damages, and P3,000.00 as attorneys'

fees. The task of fixing these amounts is primarily with the trial
court. 56 The Court of Appeals did not interfere with the same. The
dictates of good sense suggest that we give our imprimatur thereto.
Because, the facts and circumstances point to the reasonableness
thereof.57
On balance, we say that the judgment of the Court of Appeals does not
suffer from reversible error. We accordingly vote to affirm the same.
Costs against petitioner. So ordered.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar
and
Castro,
JJ.,
concur.
Bengzon, J.P., J., took no part.
G.R. No. L-12164

May 22, 1959

BENITO LIWANAG and MARIA LIWANAG REYES, petitionersappellants,

vs.
WORKMEN'S COMPENSATION COMMISSION, ET AL., respondentsappellees.
J. de Guia for appellants.
Estanislao R. Bayot for appellees.

ART. 1712. If the death or injury is due to the negligence of a

fellow-worker, the latter and the employer shall be solidarily
liable for compensation. . . . .
And section 2 of the Workmen's Compensation Act, as amended reads in
part as follows:
. . . The right to compensation as provided in this Act shall not
be defeated or impaired on the ground that the death, injury or
disease was due to the negligence of a fellow servant or
employee, without prejudice to the right of the employer to
proceed against the negligence party.
The provisions of the new Civil Code above quoted taken together with
those of Section 2 of the Workmen's Compensation Act, reasonably
indicate that in compensation cases, the liability of business partners, like
appellants, should be solidary; otherwise, the right of the employee may
be defeated, or at least crippled. If the responsibility of appellants were to
be merely joint and solidary, and one of them happens to be insolvent, the
amount awarded to the appellees would only be partially satisfied, which
is evidently contrary to the intent and purposes of the Act. In the previous
cases we have already held that the Workmen's Compensation Act should
be construed fairly, reasonably and liberally in favor of and for the benefit
of the employee and his dependents; that all doubts as to the right of
compensation resolved in his favor; and that it should be interpreted to
promote its purpose. Accordingly, the present controversy should be
decided in favor of the appellees.

ENDENCIA, J.:
Moreover, Art. 1207 of the new Civil Code provides:
FACTS:
1. Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of
Liwanag Auto Supply, a commercial guard who while in line of duty, was
skilled by criminal hands. His widow Ciriaca Vda. de Balderama and
minor children Genara, Carlos and Leogardo, all surnamed Balderama, in
due time filed a claim for compensation with the Workmen's
Compensation Commission, which was granted in an award worded as
follows:
WHEREFORE, the order of the referee under consideration
should be, as it is hereby, affirmed and respondents Benito
Liwanag and Maria Liwanag Reyes, ordered.
1. To pay jointly and severally the amount of three thousand
Four Hundred Ninety Four and 40/100 (P3,494.40) Pesos to
the claimants in lump sum; and
To pay to the Workmen's Compensation Funds the sum of
P4.00 (including P5.00 for this review) as fees, pursuant to
Section 55 of the Act.
ISSUE

. . . . There is solidary liability only when the obligation

expressly so states, or when the law or the nature of the
obligation requires solidarity.
Since the Workmen's Compensation Act was enacted to give full
protection to the employee, reason demands that the nature of the
obligation of the employers to pay compensation to the heirs of their
employee who died in line of duty, should be solidary; otherwise, the
purpose of the law could not be attained.
Wherefore, finding no error in the award appealed from, the same is
hereby affirmed, with costs against appellants.
Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, and
Concepcion, JJ., concur.

Separate Opinions
REYES, A., J., dissenting:

In appealing the case to this Tribunal, appellants do not question the right
of appellees to compensation nor the amount awarded. They only claim
that, under the Workmen's Compensation Act, the compensation is
divisible, hence the commission erred in ordering appellants to
pay jointly and severally the amount awarded. They argue that there is
nothing in the compensation Act which provides that the obligation of an
employer arising from compensable injury or death of an employee
should be solidary obligation, the same should have been specifically
provided, and that, in absence of such clear provision, the responsibility
of appellants should not be solidary but merely joint.
RULING
At first blush appellants' contention would seem to be well, for ordinarily,
the liability of the partners in a partnership is not solidary; but the law
governing the liability of partners is not applicable to the case at bar
wherein a claim for compensation by dependents of an employee who
died in line of duty is involved. And although the Workmen's
Compensation Act does not contain any provision expressly declaring
solidary obligation of business partners like the herein appellants, there
are other provisions of law from which it could be gathered that their
liability must be solidary. Arts. 1711 and 1712 of the new Civil Code
provide:
ART. 1711. Owners of enterprises and other employers are
obliged to pay compensation for the death of or injuries to
their laborers, workmen, mechanics or other employees, even
though the event may have been purely accidental or entirely
due to a fortuitous cause, if the death or personal injury arose
out of and in the course of the employment. . . . .

Whether the defendants herein be regarded as co-partners or as mere coowners, their liability for the indemnity due their deceased employee
would not be solidary but only pro rata (Arts. 485 and 1815, new Civil
Code). The Workmen's Compensation Act does not change the nature of
that liability either expressly or by intendment. To hold that it does, is to
read into the Act something that is not there. For this Court, therefore, to
declare that under the said Act the defendants herein are liable solidarily
is to play the role of legislator.
The injustice of the rule sought to be established in the majority opinion
may readily be made obvious with an example. Suppose that one of two
co-partners or co-owners owns 99 percent of the business while his copartner or co-owners own only 1 percent. To hold that in such case the
latter's liability may run up to 100 percent although his interest is only 1
percent would not only be illogical but also inequitable.
For the foregoing reasons, I have no choice but to dissent.
G.R. No. L-26937

October 5, 1927

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

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

FACTS:

I. The trial court erred in finding that article 126 of the Code of
Commerce at present in force is not mandatory.

1. On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey

Ling, together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and
Co Sieng Peng formed a commercial partnership under the name of "Tai
Sing and Co.," with a capital of P40,000 contributed by said partners. In
the articles of copartnership, Exhibit A, it appears that the partnership
was to last for five years from after the date of its organization, and that
its purpose was to do business in the City of Iloilo, Province of Iloilo, or in
any other part of the Philippine Islands the partners might desire, under
the name of "Tai Sing & Co.," for the purchase and sale of merchandise,
goods, and native, as well as Chinese and Japanese, products, and to carry
on such business and speculations as they might consider profitable. One
of the partners, J. A. Say Lian Ping was appointed general manager of the
partnership, with the appointed general manager of the partnership, with
the powers specified in said articles of copartnership.

II. The trial court erred in finding that the partnership

agreement of "Tai Sing & Co., (Exhibit A), is in accordance with
the requirements of article 125 of the Code of Commerce for
the organization of a regular partnership.
III. The trial court erred in not admitting J. A. Sai Lian Ping's
death in China in November, 1917, as a proven fact.
IV. The trial court erred in finding that the death of J. A. Say
Lian Ping cannot extinguish the defendants' obligation to the
plaintiff bank, because the last debt incurred by the
commercial partnership "Tai Sing & Co., was that evidence by
Exhibit F, signed by Sy Tit as attorney-in-fact of the members
of "Tai Sing & Co., by virtue of Exhibit G.

2. On June 4, 1917, general manager A. Say Lian Ping executed a power of

attorney (Exhibit C-1) in favor of A. Y. Kelam, authorizing him to act in his
stead as manager and administrator of "Tai Sing & Co.," on July 26, 1918,
for, and obtained a loan of P8,000 in current account from the plaintiff
bank. (Exhibit C). As security for said loan, he mortgaged certain personal
property of "Tai Sing & Co.,

V. The trial court erred in not finding that plaintiff bank was
not able to collect its credit from the goods of "Tai Sing & Co.,
given as security therefor through its own fault and negligence;
and that the action brought by plaintiff is a manifest violation
of article 237 of the present Code of Commerce.

3. This credit was renew several times and on March 25, 1919, A. Y.
Kelam, as attorney-in-fact of "Tai Sing & Co., executed a chattel mortgage
in favor of plaintiff bank as security for a loan of P20,000 with interest
(Exhibit D). This mortgage was again renewed on April 16, 1920 and A. Y.
Kelam, as attorney-in-fact of "Tai Sing & Co., executed another chattel
mortgage for the said sum of P20,000 in favor of plaintiff bank. (Exhibit
E.) According to this mortgage contract, the P20,000 loan was to earn 9
per cent interest per annum.

VI. The trial court erred in finding that the current account of
"Tai Sing & Co. with plaintiff bank shows a debit balance of
P16,518.74, which in addition to interest at 9 per cent per
annum from July 29, 1926, amount to P16,595.26, with a daily
interest of P4.14 on the sum of P16,518.74.
VII. The trial court erred in ordering the defendants appellants
to pay jointly and severally to the Philippine National Bank the
sum of P22,727.74 up to August 31, 1926, and interest on
P16,518.74 from that date until fully paid, with the costs of the
action.

4. On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng
Khey Ling, the latter represented by M. Pineda Tayenko, executed a
power of attorney in favor of Sy Tit by virtue of which Sy Tit, representing
"Tai Sing & Co., obtained a credit of P20,000 from plaintiff bank on
January 7, 1921, executing a chattel mortgage on certain personal
property belonging to "Tai Sing & Co.
5. Defendants had been using this commercial credit in a current account
with the plaintiff bank, from the year 1918, to May 22, 1921, and the debit
balance of this account, with interest to December 31, 1924, is as follows:

VIII. The trial court erred in denying the motion for a new trial
filed by defendants-appellants.
RULING

Appellants admit, and it appears from the context of Exhibit A, that the
defendant association formed by the defendants is a general partnership,
TAI SING & CO.
as defined in article 126 of the Code Commerce. This partnership was
registered in the mercantile register of the Province of Iloilo. The only
To your outstanding account (C. O. D.) with us on June 30, 1922
P16,518.74
anomaly noted
in its organization is that instead of adopting for their firm
name the names of all of the partners, of several of them, or only one of
Interest on same from June 30, 1922 to December 31,1924, at 9 per cent per
them, to be followed in the last two cases, by the words "and to be
annum
3,720.86
followed in the last two cases, by the words "and company" the partners
agreed upon "Tai Sing & Co." as the firm name.
Total

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

20, 239.00
In the case=========
of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs.
Kieng-Chiong-Seng, cited by appellants, this court held that, as the
company formed by defendants had existed in fact, though not in law due
to the fact that it was not recorded in the register, and having operated
and contracted debts in favor of the plaintiff, the same must be paid by
someone. This applies more strongly to the obligations contracted by the
defendants, for they formed a partnership which was registered in the
mercantile register, and carried on business contracting debts with the
plaintiff bank. The anomalous adoption of the firm name above noted
does not affect the liability of the general partners to third parties under
article 127 of the Code of Commerce. And the Supreme Court so held in
the case of Jo Chung Cang vs. Pacific Commercial Co., (45 Phil., 142), in
which it said that the object of article 126 of the Code of Commerce in
requiring a general partnership to transact business under the name of all
its members, of several of them, or of one only, is to protect the public
from imposition and fraud; and that the provision of said article 126 is for
the protection of the creditors rather than of the partners themselves.
And consequently the doctrine was enunciated that the law must be
unlawful and unenforceable only as between the partners and at the
instance of the violating party, but not in the sense of depriving innocent
parties of their rights who may have dealt with the offenders in ignorance
of the latter having violated the law; and that contracts entered into by
commercial associations defectively organized are valid when voluntarily
executed by the parties, and the only question is whether or not they
complied with the agreement. Therefore, the defendants cannot invoke in
their defense the anomaly in the firm name which they themselves
adopted.
As to the alleged death of the manager of the company, Say Lian Ping,
before the attorney-in-fact Ou Yong Kelam executed Exhibits C, D and E,
the trial court did not find this fact proven at the hearing. But even
supposing that the court had erred, such an error would not justify the
reversal of the judgment, for two reasons at least: (1) Because Ou Yong
Kelam was a partner who contracted in the name of the partnership,
without any objection of the other partners; and (2) because it appears in

the record that the appellant-partners Severo Eugenio Lo, Ng Khey Ling
and Yap Seng, appointed Sy Tit as manager, and he obtained from the
plaintiff bank the credit in current account, the debit balance of which is
sought to be recovered in this action.
Appellants allege that such of their property as is not included in the
partnership assets cannot-be seized for the payment of the debts
contracted by the partnership until after the partnership property has
been exhausted. The court found that the partnership property described
in the mortgage Exhibit F no loner existed at the time of the filing of the
herein complaint nor has its existence been proven, nor was it offered to
the plaintiff for sale. We find no just reason to reverse this conclusion of
the trial court, and this being so, it follows that article 237 of the Code of
Commerce, invoked by the appellant, can in no way have any application
here.
Appellants also assign error to the action of the trial court in ordering
them to pay plaintiff, jointly and severally, the sums claimed with 9 per
cent interest on P16,518.74, owing from them.
The judgment against the appellants is in accordance with article 127 of
the Code of Commerce which provides that all the members of a general
partnership, be they managing partners thereof or not, shall be
personally and solidarily liable with all their property, for the results of
the transactions made in the name and for the account of the partnership,
under the signature of the latter, and by a person authorized to use it.
As to the amount of the interest suffice it to remember that the credit in
current account sued on in this case as been renewed by the parties in
such a way that while it appears in the mortgage Exhibit D executed on
March 25, 1919 by the attorney-in-fact Ou Yong Kelam that the P20,000
credit would earn 8 per cent interest annually, yet from that executed on
April 16, 1920, Exhibit E, it appears that the P20,000 would earn 9 per
cent interest per annum. The credit was renewed in January, 1921, and in
the deed of pledge, Exhibit F, executed by "Tai Sing & Co., represented by
the attorney-in-fact Sy Tit, it appears that this security is for the payment
of the sums received by the partnership, not to exceed P20,000 with
interest and collection fees. There can be no doubt that the parties agreed
upon the rate of interest fixed in the document Exhibit E, namely 9 per
cent per annum.
The judgment appealed from is in accordance with the law, and must
therefore be, as it is hereby, affirmed with costs against the appellants. So
ordered.
Avancea, C.J., Johnson, Street, Malcolm, Johns and Romualdez, JJ., concur.
G.R. No. L-4776

March 18, 1909

MANUEL ORMACHEA TIN-CONGCO, deceased, represented by the

Chinaman Tiu Tusay, judicial administrator of his estate, plaintiffappellee,
vs.
SANTIAGO TRILLANA, defendant-appellant.
A. Velarde, and E. Paguia for appellant.
T. L. McGirr for appellee.
TORRES, J.:
FACTS:
1. On the 15th of January, 1904, Manuel Ormachea Tin-Congco, a
Chinaman, presented an amended complaint against Santiago Trillana,
alleging that the plaintiff Ormachea and Luis Vizmanos Ong Queco were
engaged in business in the pueblos of Hagonoy, Malolos, and other places
in the Province of Bulacan, and that in the course thereof the defendant
purchased from them merchandise to the value of 4,000 pesos, local
currency; that two years prior to that date, a little more or less, the
partnership was dissolved and the business was divided up between the
partners, all accounts and debts of the defendant were alloted to the
plaintiff, and became the individual property of Ormachea Tin-Congco;
the indebtedness is proven by the documents signed by the defendant or
his agents in favor of Ormachea or of Vizmanos Ong Queco or their agent
named Lawa in charge of the business.
2. The documents of indebtedness are inserted in the complaint and duly
numbered. They aggregate 135 documents, some of which are written in
Tagalog with corresponding translations; that the legal interest on the
said 4,000 pesos is 1,500 pesos which makes the total debt amount to
5,500 pesos, and the same has not been paid by the defendant. Therefore,
the plaintiff prays that judgment be entered ordering the defendant,
Santiago Trillana, to pay the said 5,500 pesos with costs.

3. The defendant filed a written answer on November 15, 1904, setting

forth: That he admitted the first statement of the complaint, but had no
knowledge as to the second as it appears therein; that he did not admit
the same, nor the other allegations in the complaint in the sense in which
they are set out; that as a special defense, the defendant alleges that he
had already settled his accounts and obligations contracted in the
business to which the complaint refers, by means of periodical payments
in tuba or the liquor of the nipa palm, and that if any accounts are still
pending, the same should, owing to their character and the manner in
which they were constituted, be paid in kind and not in money as the
plaintiff claims in his complaint, and should be paid at the time and under
the circumstances which, as is customary in Hagonoy, such class of
obligations are settled; he therefore asked the court below to enter
judgment absolving the defendant of the complaint, with the costs against
the plaintiff.
4. After hearing the evidence presented by the parties, the trial judge, on
February 27, 1907, rendered judgment ordering the defendant, Santiago
Trillana, to pay to the Chinaman Florentino Tiu Tusay, the judicial
administrator of the estate of the deceased plaintiff, Ormachea TinCongco, the sum of P2,832.22, in tuba, under the same conditions
stipulated between the debtor and the copartnership for the working of
the distillery of Luis Vizmanos and the late Chinaman Manuel Ormachea,
with costs.
5. The representative of the defendant excepted to the above judgment,
and announced his intention to appeal by means of a bill of exceptions;
and by a writing dated March 22, 1907, he prayed the lower court to
revoke or amend its former decision of the 27th of February, and to order
a new trial as the evidence adduced at the hearing was not sufficient to
justify said decision, because the vale No. 88 is subscribed by another
person who is not the defendant, and for said reason its value can not be
demanded from him; that vales numbered 31, 87, 91, 93, 94, 96, and 97
are in the same condition; that the vales Nos. 5, 6, 7, 32, 33, 35, 40, 41, 44,
48, 54, 63, 104, 105, 127, 132, and 133 offered by the plaintiff in evidence
and signed by the defendant, clearly express on whose account they were
issued, and for said reason the obligations contained in said vales are not
those of the defendant, Santiago Trillana, and can not stand as evidence
against him; that the vales Nos. 109, 112, 113, 115, 116, 118, 12, and 15
by themselves do not prove, nor can they prove that the amount of money
which they represent should form part of the defendant's debt, because it
does not appear that there was ever a lawful transfer, cession or
indorsement made between the person in whose favor they are made out
and the so-called creditor, nor between said person and the successor of
the said entity, that is to say, the representative of the plaintiff;
that vale No. 113 is made out as a mere recommendation of the
defendant, and for account of a third person; that vale No. 1 does not state
the year, and No. 135 bears no date at all, therefore, they do not
constitute sufficient proof to justify the condemnatory judgment with
respect to the amount which they represent because the time when said
respective obligations were contracted is not determined; that
the vales which are date previously to vale No. 98 are invalidated by the
note of general liquidation between the creditor Manuel Ormachea, and
the debtor Santiago Trillana written on the back of the said vale No. 98 in
Chinese characters and explained by the witness Jose R. Lopez Lawa, and,
notwithstanding said liquidation, the said vales are reputed as unpaid;
and finally, that if the debt is payable in tuba, unless it is shown and it
does not so appear that the defendant refused to pay it in that manner or
has failed to comply with his obligations, there is no reason to compel
him to pay, therefore he should not be ordered to do so, much less to pay
the costs.
6. At the hearing, the trial judge, on the 7th of May, 1907, overruled the
motion to modify his former decision as far as it referred to the amount of
the indebtedness found against the defendant and the said judgment was
modified by adding the provision that the defendant should make
payment in tuba which he should deliver at the plaintiff's distillery in the
town of Hagonoy within the term of six months, but that, if said term
should expire without such payment, whatever might be the cause, he
should be obliged to pay his debt in cash.
7. The defendant requested a decision in his motion for a new trial in
which he contended that the evidence was not sufficient to justify the
judgment of February 27, and on the 12th of November the court below
held that, by its order of May 7, last, the motion for a new trial was
denied, and said denial was reproduced as explanation of the ruling of
May 7. The defendant excepted to the foregoing decision and presented
the corresponding amended bill of exceptions; when approving the bill of
exceptions, the court below ordered the suspension of the execution
providing that the defendant furnish bond in the sum of P4,000.
8. As Manuel Ormachea Tin-Congco claimed from Santiago Trillana the
payment of the sum which, as capital and interest thereon, he owed the
former for amounts in cash and in goods which he took from the creditor
and his partner, Luis Vizmanos Ong Queco, as shown by the
135 vales which are attached to the complaint and which were admitted
as authentic by the defendant, with the exception of eight of them signed
by the other persons, aggregating P173, the court below, in view of the

evidence, found that the debt which could be claimed from the defendant,
after deducting the said P173, amounted only to P2,832.22 4/8.
9. The record shows that the amounts advanced to the debtor, Santiago
Trillana, and to the others by means of the said vales, and most of which
were addressed to Lopez Lawa, and some to other persons, were
delivered by the said Lopez Lawa who, from the years 1894 or by 1895 to
1901, was the manager of the distillery situated in the barrio of San
Sebastian, municipality of Hagonoy, Bulacan, and owned in partnership
by Ormachea and Vizmanos, but the money furnished by the manager to
Trillana and to the others on account of the tuba or liquor of the nipapalm
which the defendant had engaged to supply to said distillery belonged to
the two owners of the same, not to the manager, Jose Lopez Lawa.
10. It has also been fully proven that, when in June or July, 1901, the
aforesaid Ormachea Tin-Congco and Vizmanos Ong Queco withdrew from
the business, Lawa ceased to act as manager of the distillery, and then,
among other things that belonged to the two partners, they divided
between them the credits that they held against third persons, those that
stood against Santiago Trillana as evidenced by the said 135 vales, having
gone to Manuel Ormachea Tin-Congco. This is affirmed by Luis Vizmanos
Ong Queco, Syo Bunchad, by Jose R. Lopez Lawa himself, and, as
stipulated between the parties, by Tiu Langco, a Chinaman who was at the
time employed as mixer in said distillery. It should be noted that, while
this litigation was pending, the plaintiff, Manuel Ormachea, died, and
Florentino Tiu Tusay was appointed administrator of his estate; letters of
administration in favor of the latter were issued on the 9th of October,
1905. (Folio 56.)
11. As has been seen, the defendant stated that he had already paid his
accounts and obligations contracted in favor of the said Ormachea and
Vizmanos by means of periodical deliveries of tuba or liquor of
the nipa palm, and alleged that, if any amount was still pending payment,
it should be paid not in money but in tuba, at such time and under such
circumstances as are customary in the town of Hagonoy. In evidence of
this, while testifying under oath, he introduced the following document
marked "A" which appears at folio 248:
I, Jose R. Lopez (Lawa), a Christian Chinese, do hereby declare
that D. Santiago Trillana has no outstanding debt whatever
with the distillery situated in the barrio of San Sebastian in this
town, which in past times was under my management. What I
have stated is the truth. Hagonoy, November 19, 1903.
Jose R. Lopez.
12. The debtor explained how and in what manner he obtained the
foregoing document from Lawa, and stated: That in November, 1903, he
received a letter from Mr. McGirr, the plaintiff's attorney, requesting him
to settle his account with Lawa, for which reason he called on the latter
and asked him whether he still owed him anything on account of the
distillery in San Sebastian; Lawa replied that he no longer owed anything;
thereupon the requested Lawa to issue the said document, and under
Lawa's direction the debtor wrote out the document, and the former,
upon being informed of its contents, signed it; for said reason the witness
believed that he no longer owed anything.
13. However, Lopez Lawa affirms that he gave the said document marked
as Exhibit A" to the debtor, Santiago Trillana, because the latter was
indebted to him but to Manuel Ormachea, to whom the credits standing
against Trillana were transferred when Ormachea withdrew from the
above-mentioned partnership with Vizmanos Ong Queco. When drawing
up the preinserted document, it was not his intention to annul and set
aside the vales which represented the indebtedness of the defendant,
Trillana.
If the business jointly carried on by Ormachea and Vizmanos was
dissolved, and its transactions ceased in 1901 Jose Lopez Lawa, who
managed the distillery on behalf of the owners of the same, also ceased to
act as such manager in said year, and for said reason the document
Exhibit A, which he issued to the debtor on the 19th of November, 1903,
two years after ceasing to be manager, can not serve to relieve the debtor
from paying what he owed by virtue of the documents or vales that he
had issued in order to obtain money from the owners of the said
distillery; that is to say, as agreed upon by them, the right to recover the
debts of the defendant still belonged to Ormachea when the business was
dissolved, as Lawa was not authorized by Ormachea to deliver to the
debtor an acquittance releasing him from the obligations that he had
contracted, to the prejudice of the real creditor, the only person entitled
to condone a debt in the event of waiving the right to recover the same.
If the document marked "A" had been issued by Jose Lopez Lawa while
still at the head of the business of the distillery, as representative of the
owners thereof, the aforesaid Ormachea and Vizmanos, prior to their
withdrawal from business, perhaps it might have served as a foundation
for the debtor to allege that his obligations evidenced by said vales had
been settled, although, if such was the case, the said vales should have
been returned to him by Lawa, or by the owners of the distillery; but, as
the document was made out and issued two years afterwards, without a

previous payment of the amounts secured on the said vales, when the
business no longer existed, when the owners had entirely withdrawn
from it, and when Lawa, who then acted as manager of the distillery, had
no express authority to issue such a document, with the further
circumstance of its being written in Spanish, a language with which the
Chinaman who signed it was probably not well acquainted and the fact
that it was written by the defendant, Santiago Trillana himself; it is not
proper nor lawful to admit the said document as possessing a force and
effect that would fully exempt the defendant from the payment of his
obligation, and with greater reason if it is considered that it has not been
shown that Lawa was authorized to liquidate accounts, or issue an
acquittance releasing the debtor from the payment of his debt. (Arts.
1714 and 1719, Civil Code.)
Article 1162 of said code reads:
Payment must be made to the person in whose favor an
obligation is constituted, or to another authorized to receive it
in his name.
After the close of the business of the distillery owned by Ormachea and
Vizmanos, and after Lawa had ceased for two years to act in the
administration and management thereof, he was not authorized to sign
the document marked "A," made out by the debtor, by which the credit of
Ormachea should be considered as settled, and the obligation contracted
by Santiago Trillana, as shown by the vales which appear in the record,
extinguished.
Since the vales existed, and were in the possession of the creditor, it was
because the amounts they called for had not presumed to have been
fulfilled when the proofs of its existence have been returned to the
debtor. (Sec. 334, par. 8, Code of Civil Procedure.) Seeing that the
amounts stated in the vales acknowledged by the debtor were advanced
to him in part payment of the price of certain quantities of tuba or liquor
of the nipa palm which he had contracted to deliver at the distillery, and
as long as he is able to comply with these stipulations within a reasonable
time, the defendant can not be compelled to pay his debt in cash. The
amounts stated in the valeswere advanced under the condition that the
same would be paid or satisfied with the value of the tuba received by the
distillery; therefore, the decision of the court below, which moreover
appears to have been acquiesced in by the appellee for the reason that it
was undoubtedly so stipulated, is in accordance with the law. (Art. 1278,
Civil Code.)
In view of the forgoing, and accepting the conclusions contained in the
judgment of February 27, 1907, appealed from, it is our opinion that the
same should be affirmed, and we hereby affirm it, with the addition made
in the order of May 7 of the same year, with the costs against the
appellant. So ordered.
Arellano, C. J., Mapa, Johnson, Carson, and Willard, JJ., concur

G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG
YIU, respondents.

respondent the receipt (Exhibit G) and the Equitable Banking

Corporation's Check No. 13389470 B in the amount of P12,000.00
(Exhibit B).
As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Hence, the court ruled in favor of the
private respondent. The dispositive portion of the decision reads:

FACTS:
1. 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.
2. 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.
3. The Sun Wah Panciteria, a restaurant, located at Florentino Torres
Street, Sta. Cruz, Manila, was established sometime in October, 1955. It
was registered as a single proprietorship and its licenses and permits
were issued to and in favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced evidence during the trial of
the case to show that Sun Wah Panciteria was actually a partnership and
that he was one of the partners having contributed P4,000.00 to its initial
establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the
private respondent gave P4,000.00 as his contribution to the partnership.
This is evidenced by a receipt identified as Exhibit "A" wherein the
petitioner acknowledged his acceptance of the P4,000.00 by affixing his
signature thereto. The receipt was written in Chinese characters so that
the trial court commissioned an interpreter in the person of Ms. Florence
Yap to translate its contents into English. Florence Yap issued a
certification and testified that the translation to the best of her knowledge
and belief was correct. The private respondent identified the signature on
the receipt as that of the petitioner (Exhibit A-3) because it was affixed by
the latter in his (private respondents') presence. Witnesses So Sia and
Antonio Ah Heng corroborated the private respondents testimony to the
effect that they were both present when the receipt (Exhibit "A") was
signed by the petitioner. So Sia further testified that he himself received
from the petitioner a similar receipt (Exhibit D) evidencing delivery of his
own investment in another amount of P4,000.00 An examination was
conducted by the PC Crime Laboratory on orders of the trial court
granting the private respondents motion for examination of certain
documentary exhibits. The signatures in Exhibits "A" and 'D' when
compared to the signature of the petitioner appearing in the pay
envelopes of employees of the restaurant, namely Ah Heng and Maria
Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two
receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation of
the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the
Savings Department of the China Banking Corporation testified that said
check (Exhibit B) was deposited by and duly credited to the private
respondents savings account with the bank after it was cleared by the
drawee bank, the Equitable Banking Corporation. Another witness Elvira
Rana of the Equitable Banking Corporation testified that the check in
question was in fact and in truth drawn by the petitioner and debited
against his own account in said bank. This fact was clearly shown and
indicated in the petitioner's statement of account after the check (Exhibit
B) was duly cleared. Rana further testified that upon clearance of the
check and pursuant to normal banking procedure, said check was
returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the
amount of P4,000.00. He contested and impugned the genuineness of the
receipt (Exhibit D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the
Sun Wah Panciteria. He used his savings from his salaries as an employee
at Camp Stotsenberg in Clark Field and later as waiter at the Toho
Restaurant amounting to a little more than P2,000.00 as capital in
establishing Sun Wah Panciteria. To bolster his contention that he was
the sole owner of the restaurant, the petitioner presented various
government licenses and permits showing the Sun Wah Panciteria was
and still is a single proprietorship solely owned and operated by himself
alone. Fue Leung also flatly denied having issued to the private

WHEREFORE, judgment is hereby rendered in favor

of the plaintiff and against the defendant, ordering
the latter to deliver and pay to the former, the sum
equivalent to 22% of the annual profit derived from
the operation of Sun Wah Panciteria from October,
1955, until fully paid, and attorney's fees in the
amount of P5,000.00 and cost of suit. (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the
nature of a motion for new trial and, as supplement to the said motion, he
requested that the decision rendered should include the net profit of the
Sun Wah Panciteria which was not specified in the decision, and allow
private respondent to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After
hearing the trial court rendered an amended decision, the dispositive
portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the
motion for reconsideration filed by the plaintiff,
which was granted earlier by the Court, is hereby
reiterated and the decision rendered by this Court
on September 30, 1980, is hereby amended. The
dispositive portion of said decision should read now
as follows:
WHEREFORE, judgment is hereby rendered,
ordering the plaintiff (sic) and against the
defendant, ordering the latter to pay the former the
sum equivalent to 22% of the net profit of P8,000.00
per day from the time of judicial demand, until fully
paid, plus the sum of P5,000.00 as and for attorney's
fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further
modified by the appellate court. The dispositive portion of the appellate
court's decision reads:
WHEREFORE, the decision appealed from is
modified, the dispositive portion thereof reading as
follows:
1. Ordering the defendant to pay the plaintiff by way
of temperate damages 22% of the net profit of
P2,000.00 a day from judicial demand to May 15,
1971;
2. Similarly, the sum equivalent to 22% of the net
profit of P8,000.00 a day from May 16, 1971 to
August 30, 1975;
3. And thereafter until fully paid the sum equivalent
to 22% of the net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is
affirmed in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and
affirmed the lower court's decision. The dispositive portion of the
resolution reads:
WHEREFORE, the dispositive portion of the
amended judgment of the court a quo reading as
follows:
WHEREFORE, judgment is rendered in favor of the
plaintiff and against the defendant, ordering the
latter to pay to the former the sum equivalent to
22% of the net profit of P8,000.00 per day from the
time of judicial demand, until fully paid, plus the
sum of P5,000.00 as and for attorney's fees and costs
of suit.

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

and admitted as evidence for the private respondent over the vigorous
objection of the petitioner's counsel.

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

was denied.

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.

Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and operations
of the panciteria. While the dispositive portions merely ordered the
payment of the respondents share, there is no question from the factual
findings that the respondent invested in the business as a partner. Hence,
the two courts declared that the private petitioner is entitled to a share of
the annual profits of the restaurant. The petitioner, however, claims that
this factual finding is erroneous. Thus, the petitioner argues: "The
complaint avers that private respondent extended 'financial assistance' to
herein petitioner at the time of the establishment of the Sun Wah
Panciteria, in return of which private respondent allegedly will receive a
share in the profits of the restaurant. The same complaint did not claim
that private respondent is a partner of the business. It was, therefore, a
serious error for the lower court and the Hon. Intermediate Appellate
Court to grant a relief not called for by the complaint. It was also error for
the Hon. Intermediate Appellate Court to interpret or construe 'financial
assistance' to mean the contribution of capital by a partner to a
partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September,
1955, defendant sought the financial assistance of
plaintiff in operating the defendant's eatery known
as Sun Wah Panciteria, located in the given address
of defendant; as a return for such financial
assistance. plaintiff would be entitled to twenty-two
percentum (22%) of the annual profit derived from
the operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the
defendant the sum of four thousand pesos
(P4,000.00), Philippine Currency, of which copy for
the receipt of such amount, duly acknowledged by
the defendant is attached hereto as Annex "A", and
form an integral part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria
was established, he gave P4,000.00 to the petitioner with the
understanding that he would be entitled to twenty-two percent (22%) of
the annual profit derived from the operation of the said panciteria. These
allegations, which were proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah Panciteria because
Article 1767 of the Civil Code provides that "By the contract of
partnership two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the
profits among themselves".
Therefore, the lower courts did not err in construing the complaint as one
wherein the private respondent asserted his rights as partner of the
petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We
agree with the appellate court's observation to the effect that "... given its
ordinary meaning, financial assistance is the giving out of money to
another without the expectation of any returns therefrom'. It connotes
an ex gratia dole out in favor of someone driven into a state of destitution.
But this circumstance under which the P4,000.00 was given to the
petitioner does not obtain in this case.' (p. 99, Rollo) The complaint
explicitly stated that "as a return for such financial assistance, plaintiff
(private respondent) would be entitled to twenty-two percentum (22%)
of the annual profit derived from the operation of the said panciteria.' (p.
107, Rollo) The well-settled doctrine is that the '"... nature of the action
filed in court is determined by the facts alleged in the complaint as
constituting the cause of action." (De Tavera v. Philippine Tuberculosis
Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135
SCRA 37).
The appellate court did not err in declaring that the main issue in the
instant case was whether or not the private respondent is a partner of the
petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in
giving probative value to the PC Crime Laboratory Report (Exhibit "J") on
the ground that the alleged standards or specimens used by the PC Crime
Laboratory in arriving at the conclusion were never testified to by any
witness nor has any witness identified the handwriting in the standards or
specimens belonging to the petitioner. The supposed standards or
specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24"

The records also show that when the pay envelopes (Exhibits "H", "H-1"
to "H-24") were presented by the private respondent for marking as
exhibits, the petitioner did not interpose any objection. Neither did the
petitioner file an opposition to the motion of the private respondent to
have these exhibits together with the two receipts examined by the PC
Crime Laboratory despite due notice to him. Likewise, no explanation has
been offered for his silence nor was any hint of objection registered for
that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be
rejected or ignored. The records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not resolving
the issue of prescription in favor of petitioner. The alleged receipt is
dated October 1, 1955 and the complaint was filed only on July 13, 1978
or after the lapse of twenty-two (22) years, nine (9) months and twelve
(12) days. From October 1, 1955 to July 13, 1978, no written
demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code
which provides:
Art. 1144. The following actions must be brought
within ten years from the time the right of action
accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted
when they are filed before the court, when there is a
written extra-judicial demand by the creditor, and
when there is any written acknowledgment of the
debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah
Panciteria. The requisites of a partnership which are 1) two or more
persons bind themselves to contribute money, property, or industry to a
common fund; and 2) intention on the part of the partners to divide the
profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao
Cheng, 106 Phil. 110)-have been established. As stated by the respondent,
a partner shares not only in profits but also in the losses of the firm. If
excellent relations exist among the partners at the start of business and
all the partners are more interested in seeing the firm grow rather than
get immediate returns, a deferment of sharing in the profits is perfectly
plausible. It would be incorrect to state that if a partner does not assert
his rights anytime within ten years from the start of operations, such
rights are irretrievably lost. The private respondent's cause of action is
premised upon the failure of the petitioner to give him the agreed profits
in the operation of Sun Wah Panciteria. In effect the private respondent
was asking for an accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and
1155 which is applicable. Article 1842 states:
The right to an account of his interest shall accrue to
any partner, or his legal representative as against
the winding up partners or the surviving partners or
the person or partnership continuing the business,
at the date of dissolution, in the absence or any
agreement to the contrary.

Regarding the prescriptive period within which the private respondent

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

Q Now more or less, do you

know the cost of the catering
service?
A Yes, because I am the one
who receives the payment also
of the catering.

Finally, the petitioner assails the appellate court's monetary awards in

favor of the private respondent for being excessive and unconscionable
and above the claim of private respondent as embodied in his complaint
and testimonial evidence presented by said private respondent to
support his claim in the complaint.

Q How much is that?

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

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.

Q Per service?

Mrs. Licup stated:

A Per service, Per catering.

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

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?

Q Mrs. Witness, you stated that

among your duties was that
you were in charge of the
custody of the cashier's box, of
the money, being the cashier, is
that correct?

A Yes.

A Yes, sir.

Q And ten thousand pesos

during pay day.?

Q So that every time there is a

customer who pays, you were
the one who accepted the
money and you gave the
change, if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.)
which is the closing time as you
said, what do you do with the
money?

(TSN, pp. 53 to 59, inclusive,

November 15,1978)
xxx xxx xxx
COURT:
Any cross?

A We balance it with the

manager, Mr. Dan Fue Leung.

ATTY.
UY
defendant):

ATTY. HIPOLITO:

No cross-examination, Your
Honor. (T.S.N. p. 65, November
15, 1978). (Rollo, pp. 127-128)

I see.
Q So, in other words, after your
job, you huddle or confer
together?
A Yes, count it all. I total it. We
sum it up.
Q Now, Mrs. Witness, in an
average day, more or less, will
you please tell us, how much is
the gross income of the
restaurant?
A For regular days, I received
around P7,000.00 a day during
my shift alone and during pay
days I receive more than
P10,000.00. That is excluding
the catering outside the place.
Q What about the catering
service, will you please tell the
Honorable Court how many
times a week were there
catering services?
A Sometimes three times a
month; sometimes two times a
month or more.
xxx xxx xxx

A Yes.

(counsel

for

The statements of the cashier were not rebutted. Not only did the
petitioner's counsel waive the cross-examination on the matter of income
but he failed to comply with his promise to produce pertinent records.
When a subpoenaduces tecum was issued to the petitioner for the
production of their records of sale, his counsel voluntarily offered to
bring them to court. He asked for sufficient time prompting the court to
cancel all hearings for January, 1981 and reset them to the later part of
the following month. The petitioner's counsel never produced any books,
prompting the trial court to state:
Counsel for the defendant admitted that the sales of
Sun Wah were registered or recorded in the daily
sales book. ledgers, journals and for this purpose,
employed a bookkeeper. This inspired the Court to
ask counsel for the defendant to bring said records
and counsel for the defendant promised to bring
those that were available. Seemingly, that was the
reason why this case dragged for quite sometime. To
bemuddle the issue, defendant instead of presenting
the books where the same, etc. were recorded,
presented witnesses who claimed to have supplied
chicken, meat, shrimps, egg and other poultry
products which, however, did not show the gross
sales nor does it prove that the same is the best
evidence. This Court gave warning to the
defendant's counsel that if he failed to produce the
books, the same will be considered a waiver on the
part of the defendant to produce the said books
inimitably showing decisive records on the income
of the eatery pursuant to the Rules of Court (Sec.
5(e) Rule 131). "Evidence willfully suppressed
would be adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due
process to the petitioner.

The defendant was given all the chance to present

all conceivable witnesses, after the plaintiff has
rested his case on February 25, 1981, however, after
presenting several witnesses, counsel for defendant
promised that he will present the defendant as his
last witness. Notably there were several
postponement asked by counsel for the defendant
and the last one was on October 1, 1981 when he
asked that this case be postponed for 45 days
because said defendant was then in Hongkong and
he (defendant) will be back after said period. The
Court acting with great concern and understanding
reset the hearing to November 17, 1981. On said
date, the counsel for the defendant who again failed
to present the defendant asked for another
postponement, this time to November 24, 1981 in
order to give said defendant another judicial
magnanimity and substantial due process. It was
however a condition in the order granting the
postponement to said date that if the defendant
cannot be presented, counsel is deemed to have
waived the presentation of said witness and will
submit his case for decision.
On November 24, 1981, there being a typhoon
prevailing in Manila said date was declared a partial
non-working holiday, so much so, the hearing was
reset to December 7 and 22, 1981. On December 7,
1981, on motion of defendant's counsel, the same
was again reset to December 22, 1981 as previously
scheduled which hearing was understood as
intransferable in character. Again on December 22,
1981, the defendant's counsel asked for
postponement on the ground that the defendant was
sick. the Court, after much tolerance and judicial
magnanimity, denied said motion and ordered that
the case be submitted for resolution based on the
evidence on record and gave the parties 30 days
from December 23, 1981, within which to file their
simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila
in front of the Republic Supermarket. It is near the corner of Claro M.
Recto Street. According to the trial court, it is in the heart of Chinatown
where people who buy and sell jewelries, businessmen, brokers,
manager, bank employees, and people from all walks of life converge and
patronize Sun Wah.
There is more than substantial evidence to support the factual findings of
the trial court and the appellate court. If the respondent court awarded
damages only from judicial demand in 1978 and not from the opening of
the restaurant in 1955, it is because of the petitioner's contentions that all
profits were being plowed back into the expansion of the business. There
is no basis in the records to sustain the petitioners contention that the
damages awarded are excessive. Even if the Court is minded to modify
the factual findings of both the trial court and the appellate court, it
cannot refer to any portion of the records for such modification. There is
no basis in the records for this Court to change or set aside the factual
findings of the trial court and the appellate court. The petitioner was
given every opportunity to refute or rebut the respondent's submissions
but, after promising to do so, it deliberately failed to present its books
and other evidence.
The resolution of the Intermediate Appellate Court ordering the payment
of the petitioner's obligation shows that the same continues until fully
paid. The question now arises as to whether or not the payment of a
share of profits shall continue into the future with no fixed ending date.
Considering the facts of this case, the Court may decree a dissolution of
the partnership under Article 1831 of the Civil Code which, in part,
provides:
Art. 1831. On application by or for a partner the
court shall decree a dissolution whenever:

xxx xxx xxx

(6) Other circumstances render a dissolution
equitable.
There shall be a liquidation and winding up of partnership affairs, return
of capital, and other incidents of dissolution because the continuation of
the partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of
merit. The decision of the respondent court is AFFIRMED with a
MODIFICATION that as indicated above, the partnership of the parties is
ordered dissolved.
SO ORDERED.
G.R. No. L-5963

May 20, 1953

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

vs.
SULPICIO V. CEA, in his capacity as Judge of the Court of First
Instance of Leyte and OLEGARIO LASTRILLA, respondents.
BENGZON, J.:
Labaled "Certiorari and Prohibition with preliminary Injunction" this
petition prays for the additional writ of mandamus to compel the
respondent judge to give due course to petitioners' appeal from his order
taxing costs. However, inasmuch as according to the answer, petitioners
through their attorney withdrew their cash appeal bond of P60 after the
record on appeal had been rejected, the matter of mandamus may be
summarily be dropped without further comment.
FACTS:
- In civil case No. 193 of the Court of First Instance of Leyte, which is a
suit for damages by the Leyte-Samar Sales Co. (LESSCO) and Raymond
Tomassi against the Far Eastern Lumber & Commercial Co. (unregistered
commercial partnership hereinafter called FELCO), Arnold Hall, Fred
Brown and Jean Roxas, judgment against defendants jointly and severally
for the amount of P31,589.14 plus costs was rendered on October 29,
1948.
-The Court of Appeals confirmed the award in November 1950, minus
P2,000 representing attorney's fees mistakenly included. The decision
having become final, the sheriff sold at auction on June 9, 1951 to Robert
Dorfe and Pepito Asturias "all the rights, interests, titles and
participation" of the defendants in certain buildings and properties
described in the certificate, for a total price of eight thousand and one
hundred pesos.
-But on June 4, 1951 Olegario Lastrilla filed in the case a motion, wherein
he claimed to be the owner by purchase on September 29, 1949, of all the
"shares and interests" of defendant Fred Brown in the FELCO, and
requested "under the law of preference of credits" that the sheriff be
required to retain in his possession so much of the deeds of the auction
sale as may be necessary "to pay his right".
-Over the plaintiffs' objection the judge in his order of June 13, 1951,
granted Lastrilla's motion by requiring the sheriff to retain 17 per cent of
the money "for delivery to the assignee, administrator or receiver" of the
FELCO.
-And on motion of Lastrilla, the court on August 14, 1951, modified its
order of delivery and merely declared that Lastrilla was entitled to 17 per
cent of the properties sold.
- It is from this declaration and the subsequent orders to enforce it that
the petitioners seek relief by certiorari, their position being such orders
were null and void for lack of jurisdiction. At their request a writ of
preliminary injunction was issued here.

xxx xxx xxx

RULING:
(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;

The record is not very clear, but there are indications, and we shall
assume for the moment, that Fred Brown (like Arnold Hall and Jean
Roxas) was a partner of the FELCO, was defendant in Civil Case No. 193 as
such partner,and that the properties sold at auction actually belonged to
the FELCO partnership and the partners. We shall also assume that the
sale made to Lastrilla on September 29, 1949, of all the shares of Fred
Brown in the FELCO was valid. (Remember that judgment in this case was
entered in the court of first instance a year before.)

The result then, is that on June 9, 1951 when the sale was effected of the
properties of FELCO to Roberto Dorfe and Pepito Asturias, Lastilla was
already a partner of FELCO.
Now, does Lastrilla have any proper claim to the proceeds of the sale? If
he was a creditor of the FELCO, perhaps or maybe. But he was no. The
partner of a partnership is not a creditor of such partnership for the
amount of his shares. That is too elementary to need elaboration.
Lastrilla's theory, and the lower court's seems to be: inasmuch as Lastrilla
had acquired the shares of Brown is September, 1949, i.e., before the
auction sale and he was not a party to the litigation, such shares could not
have been transferred to Dorfe and Austrilla.
Granting arguendo that the auction sale and not included the interest or
portion of the FELCO properties corresponding to the shares of Lastrilla
in the same partnership (17%), the resulting situation would be at
most that the purchasers Dorfe and Austrias will have to recognized
dominion of Lastrillas over 17 per cent of the properties awarded to
them.2 So Lastrilla acquired no right to demand any part of the money
paid by Dorfe and Austrias to he sheriff any part of the money paid by
Dorfe and Austrias to the sheriff for the benefit of FELCO and Tomassi,
the plaintiffs in that case, for the reason that, as he says, his shares
(acquired from Brown) could not have been and were not auctioned off to
Dorfe and Austrias.
Supposing however that Lastrillas shares have been actually (but
unlawfully) sold by the sheriff (at the instance of plaintiffs) to Dorfe and
Austrias, what is his remedy? Section 15, Rule 39 furnishes the answer.
Precisely, respondents argue, Lastrilla vindicated his claim by proper
action, i.e., motion in the case. We ruled once that "action" in this section
means action as defined in section 1, Rule 2.3 Anyway his remedy is to
claim "the property", not the proceeds of the sale, which the sheriff is
directed by section 14, Rule 39 to deliver unto the judgment creditors.
In other words, the owner of property wrongfully sold may not
voluntarily come to court, and insist, "I approve the sale, therefore give
me the proceeds because I am the owner". The reason is that the sale was
made for the judgment creditor (who paid for the fees and notices), and
not for anybody else.
On this score the respondent judge's action on Lastrilla's motion should
be declared as in excess of jurisdiction, which even amounted to want of
jurisdiction, which even amounted to want of jurisdiction, considering
specially that Dorfe and Austrias, and the defendants themselves, had
undoubtedly the right to be heardbut they were not notified.4
Why was it necessary to hear them on the merits of Lastrilla's motion?
Because Dorfe and Austrillas might be unwilling to recognized the
validity of Lastrilla's purchase, or, if valid, they may want him not to
forsake the partnership that might have some obligations in connection
with the partnership properties. And what is more important, if the
motion is granted, when the time for redemptioner seventeen per cent
(178%) less than amount they had paid for the same properties.
The defendants Arnold Hall and Jean Roxas, eyeing Lastrilla's financial
assets, might also oppose the substitution by Lastrilla of Fred Brown, the
judgment against them being joint and several. They might entertain
misgivings about Brown's slipping out of their common predicament
through the disposal of his shares.
Lastly, all the defendants would have reasonable motives to object to the
delivery of 17 per cent of the proceeds to Lustrial, because it is so much
money deducted, and for which the plaintiffs might as another levy on
their other holdings or resources. Supposing of course, there was no
fraudulent collusion among them.
Now, these varied interest of necessity make Dorfe, Asturias and the
defendants indispensable parties to the motion of Lastrilla granting it
was step allowable under our regulations on execution. Yet these parties
were not notified, and obviously took no part in the proceedings on the
motion.
A valid judgment cannot be rendered where there is a want of
necessary parties, and a court cannot properly adjudicate
matters involved in a suit when necessary and indispensable
parties to the proceedings are not before it. (49 C.J.S., 67.)
Indispensable parties are those without whom the action
cannot be finally determined. In a case for recovery of real
property, the defendant alleged in his answer that he was
occupying the property as a tenant of a third person. This third
person is an indispensable party, for, without him, any

judgment which the plaintiff might obtain against the

tenant would have no effectiveness, for it would not be binding
upon, and cannot be executed against, the defendant's
landlord, against whom the plaintiff has to file another action if
he desires to recover the property effectively. In an action for
partition of property, each co-owner is an indispensable party.
(Moran, Comments, 1952 ed. Vol. I, p. 56.) (Emphasis supplied.)
Wherefore, the orders of the court recognizing Lastrilla's right and
ordering payment to him of a part of the proceeds were patently
erroneous, because promulgated in excess or outside of its jurisdiction.
For this reason the respondents' argument resting on plaintiffs' failure to
appeal from the orders on time, although ordinarily decisive, carries no
persuasive force in this instance.
For as the former Chief Justice Dr. Moran has summarized in his
Comments, 1952 ed. Vol. II, p. 168
. . . And in those instances wherein the lower court has acted
without jurisdiction over the subject-matter, or where the
order or judgment complained of is a patent nullity, courts
have gone even as far as to disregard completely the questions
of petitioner's fault, the reason being, undoubtedly, that acts
performed with absolute want of jurisdiction over the subjectmatter are void ab initio and cannot be validated by consent,
express or implied, of the parties. Thus, the Supreme Court
granted a petition for certiorari and set aside an order
reopening a cadastral case five years after the judgment
rendered therein had become final. In another case, the Court
set aside an order amending a judgment acquired a definitive
character. And still in another case, an order granting a review
of a decree of registration issued more than a year ago had
been declared null void. In all these case the existence of the
right to appeal has been recitals was rendered without any
trial or hearing, and the Supreme Court, in
granting certiorari, said that the judgment was by its own
recitals a patent nullity, which should be set aside though an
appeal was available but was not availed of. . . .
Invoking our ruling in Melocotones vs. Court of First Instance, (57 Phil.,
144), wherein we applied the theory of laches to petitioners' 3-years
delay in requesting certiorari, respondents point out that whereas the
orders complained of herein were issued in June 13, 1951 and August 14,
1951 this special civil action was not filed until August 1952. It should be
observed that the order of June 13 was superseded by that of August 14,
1951. The last order merely declared "que el 17 por ciento de la
propiedades vendidas en publica subasta pertenece at Sr. Lastrilla y este
tiene derecho a dicha porcion." This does not necessarily mean that 17
per cent of the money had to be delivered to him. It could mean, as
hereinbefore indicated, that the purchasers of the property (Dorfe and
Asturias) had to recognize Lastrilla's ownership. It was only on April 16,
1952 (Annex N) that the court issued an order directing the sheriff "to tun
over" to Lastrilla "17 per cent of the total proceeds of the auction sale".
There is the order that actually prejudiced the petitioners herein, and
they fought it until the last order of July 10,. 1952 (Annex Q). Surely a
month's delay may not be regarded as laches.
In view of the foregoing, it is our opinion, and we so hold, that all orders
of the respondents judge requiring delivery of 17 per cent of the proceeds
of the auction sale to respondent Olegario Lastrilla are null and void; and
the costs of this suit shall be taxed against the latter. The preliminary
injunction heretofore issued is made permanent. So ordered.
Paras, C.J., Feria, Pablo, Tuason, Montemayor, Reyes, Jugo, Bautista Angelo
and Labrador, JJ., concur.