Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General

Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa
Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.

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

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was

formed on 30 September 1947 by herein respondent William J. Suter as the
general partner, and Julia Spirig and Gustav Carlson, as the limited partners.
The partners contributed, respectively, P20,000.00, P18,000.00 and
P2,000.00 to the partnership. On 1 October 1947, the limited partnership
was registered with the Securities and Exchange Commission. The firm
engaged, among other activities, in the importation, marketing, distribution
and operation of automatic phonographs, radios, television sets and
amusement machines, their parts and accessories. It had an office and held
itself out as a limited partnership, handling and carrying merchandise, using
invoices, bills and letterheads bearing its trade-name, maintaining its own
books of accounts and bank accounts, and had a quota allocation with the
Central Bank.

In 1948, however, general partner Suter and limited partner Spirig got
married and, thereafter, on 18 December 1948, limited partner Carlson sold
his share in the partnership to Suter and his wife. The sale was duly
recorded with the Securities and Exchange Commission on 20 December
1948.

The limited partnership had been filing its income tax returns as a
corporation, without objection by the herein petitioner, Commissioner of
Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of P2,678.06
for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation

and withdrawal, as not in accordance with law, but his request was denied.
Unable to secure a reconsideration, he appealed to the Court of Tax Appeals,
which court, after trial, rendered a decision, on 11 November 1965,
reversing that of the Commissioner of Internal Revenue.

The present case is a petition for review, filed by the Commissioner of

Internal Revenue, of the tax court's aforesaid decision. It raises these
issues:

(a) Whether or not the corporate personality of the William J. Suter

"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig Suter
actually formed a single taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the
partners, respondent William J. Suter and Julia Spirig Suter and the
subsequent sale to them by the remaining partner, Gustav Carlson, of his
participation of P2,000.00 in the partnership for a nominal amount of P1.00.

The theory of the petitioner, Commissioner of Internal Revenue, is that the

marriage of Suter and Spirig and their subsequent acquisition of the
interests of remaining partner Carlson in the partnership dissolved the
limited partnership, and if they did not, the fiction of juridical personality of
the partnership should be disregarded for income tax purposes because the
spouses have exclusive ownership and control of the business; consequently
the income tax return of respondent Suter for the years in question should
have included his and his wife's individual incomes and that of the limited
partnership, in accordance with Section 45 (d) of the National Internal
Revenue Code, which provides as follows:

(d) Husband and wife. — In the case of married persons, whether

citizens, residents or non-residents, only one consolidated return for
the taxable year shall be filed by either spouse to cover the income of
both spouses; ....

In refutation of the foregoing, respondent Suter maintains, as the Court of

Tax Appeals held, that his marriage with limited partner Spirig and their
acquisition of Carlson's interests in the partnership in 1948 is not a ground
for dissolution of the partnership, either in the Code of Commerce or in the
New Civil Code, and that since its juridical personality had not been affected
and since, as a limited partnership, as contra distinguished from a duly
registered general partnership, it is taxable on its income similarly with
corporations, Suter was not bound to include in his individual return the
income of the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd.,
has been dissolved by operation of law because of the marriage of the only
general partner, William J. Suter to the originally limited partner, Julia Spirig
one year after the partnership was organized is rested by the appellant upon
the opinion of now Senator Tolentino in Commentaries and Jurisprudence on
Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as
follows:

A husband and a wife may not enter into a contract

of general copartnership, because under the Civil Code, which applies
in the absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from
entering into universal partnerships. (2 Echaverri 196) It follows that
the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)

The petitioner-appellant has evidently failed to observe the fact that William
J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but a particular
one. As appears from Articles 1674 and 1675 of the Spanish Civil Code, of
1889 (which was the law in force when the subject firm was organized in
1947), a universal partnership requires either that the object of the
association be all the present property of the partners, as contributed by
them to the common fund, or else "all that the partners may acquire by
their industry or work during the existence of the partnership". William J.
Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the
contributions of the partners were fixed sums of money, P20,000.00 by
William Suter and P18,000.00 by Julia Spirig and neither one of them was an
industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not
a partnership that spouses were forbidden to enter by Article 1677 of the
Civil Code of 1889.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in
his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says
with regard to the prohibition contained in the aforesaid Article 1677:

Los conyuges, segun esto, no pueden celebrar entre si el contrato de

sociedad universal, pero o podran constituir sociedad particular?
 Aunque el punto ha sido muy debatido, nos inclinamos a la tesis
permisiva de los contratos de sociedad particular entre esposos, ya
que ningun precepto de nuestro Codigo los prohibe, y hay que estar a
la norma general segun la que toda persona es capaz para contratar
mientras no sea declarado incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta misma tesis en su
resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en
la de 9 de marzo de 1943.

Nor could the subsequent marriage of the partners operate to dissolve it,
such marriage not being one of the causes provided for that purpose either
by the Spanish Civil Code or the Code of Commerce.

The appellant's view, that by the marriage of both partners the company
became a single proprietorship, is equally erroneous. The capital
contributions of partners William J. Suter and Julia Spirig were separately
owned and contributed by them before their marriage; and after they were
joined in wedlock, such contributions remained their respective separate
property under the Spanish Civil Code (Article 1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin"

Co., Ltd. did not become common property of both after their marriage in
1948.

It being a basic tenet of the Spanish and Philippine law that the partnership
has a juridical personality of its own, distinct and separate from that of its
partners (unlike American and English law that does not recognize such
separate juridical personality), the bypassing of the existence of the limited
partnership as a taxpayer can only be done by ignoring or disregarding clear
statutory mandates and basic principles of our law. The limited partnership's
separate individuality makes it impossible to equate its income with that of
the component members. True, section 24 of the Internal Revenue Code
merges registered general co-partnerships (compañias colectivas) with the
personality of the individual partners for income tax purposes. But this rule
is exceptional in its disregard of a cardinal tenet of our partnership laws, and
can not be extended by mere implication to limited partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs.

University of the Visayas, L-13554, Resolution of 30 October 1964, and
Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the
fiction of legal personality of the corporations involved therein are not
applicable to the present case. In the cited cases, the corporations were
already subject to tax when the fiction of their corporate personality was
pierced; in the present case, to do so would exempt the limited partnership
from income taxation but would throw the tax burden upon the partners-
spouses in their individual capacities. The corporations, in the cases cited,
merely served as business conduits or alter egos of the stockholders, a
factor that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited partnership
is not a mere business conduit of the partner-spouses; it was organized for
legitimate business purposes; it conducted its own dealings with its
customers prior to appellee's marriage, and had been filing its own income
tax returns as such independent entity. The change in its membership,
brought about by the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for withdrawing the
partnership from the coverage of Section 24 of the tax code, requiring it to
pay income tax. As far as the records show, the partners did not enter into
matrimony and thereafter buy the interests of the remaining partner with
the premeditated scheme or design to use the partnership as a business
conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to

require that income to be included in the individual tax return of respondent
Suter is to overstretch the letter and intent of the law. In fact, it would even
conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general
copartnership (compañia colectiva) and a limited partnership, when the code
plainly differentiates the two. Thus, the code taxes the latter on its income,
but not the former, because it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their individual capacities for any
dividend or share of the profit derived from the duly registered general
partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris. on the N.I.R.C., As
Amended, Vol. 1, pp. 88-89).lawphi1.nêt

But it is argued that the income of the limited partnership is actually or

constructively the income of the spouses and forms part of the conjugal
partnership of gains. This is not wholly correct. As pointed out in Agapito vs.
Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60
Phil. 167, the fruits of the wife's parapherna become conjugal only when no
longer needed to defray the expenses for the administration and
preservation of the paraphernal capital of the wife. Then again, the
appellant's argument erroneously confines itself to the question of the legal
personality of the limited partnership, which is not essential to the income
taxability of the partnership since the law taxes the income of even joint
accounts that have no personality of their own. 1 Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership of gains is a
taxable unit, which it is not. What is taxable is the "income of both spouses"
(Section 45 [d] in their individual capacities. Though the amount of income
(income of the conjugal partnership vis-a-vis the joint income of husband
and wife) may be the same for a given taxable year, their consequences
would be different, as their contributions in the business partnership are not
the same.

The difference in tax rates between the income of the limited partnership
being consolidated with, and when split from the income of the spouses, is
not a justification for requiring consolidation; the revenue code, as it
presently stands, does not authorize it, and even bars it by requiring the
limited partnership to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby

affirmed. No costs.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando,

Capistrano and Teehankee, JJ., concur.
Barredo, J., took no part.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-4935 May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER,

GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAÑOS, defendant-appellant.

Araneta and Araneta for appellee.

Jose A. Buendia for appellant.

REYES, J.:

This is an action originally brought in the Court of First Instance of Rizal,

Quezon City Branch, to recover possesion of registered land situated in
barrio Tatalon, Quezon City.

Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint
described the land as a portion of a lot registered in plaintiff's name under
Transfer Certificate of Title No. 37686 of the land record of Rizal Province
and as containing an area of 13 hectares more or less. But the complaint
was amended by reducing the area of 6 hectares, more or less, after the
defendant had indicated the plaintiff's surveyors the portion of land claimed
and occupied by him. The second amendment became necessary and was
allowed following the testimony of plaintiff's surveyors that a portion of the
area was embraced in another certificate of title, which was plaintiff's
Transfer Certificate of Title No. 37677. And still later, in the course of trial,
after defendant's surveyor and witness, Quirino Feria, had testified that the
area occupied and claimed by defendant was about 13 hectares, as shown in
his Exhibit 1, plaintiff again, with the leave of court, amended its complaint
to make its allegations conform to the evidence.

Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in
dispute) under claim of ownership, adverse to the entire world by defendant
and his predecessor in interest" from "time in-memorial". The answer further
alleges that registration of the land in dispute was obtained by plaintiff or its
predecessors in interest thru "fraud or error and without knowledge (of) or
interest either personal or thru publication to defendant and/or predecessors
in interest." The answer therefore prays that the complaint be dismissed
with costs and plaintiff required to reconvey the land to defendant or pay its
value.

After trial, the lower court rendered judgment for plaintiff, declaring
defendant to be without any right to the land in question and ordering him
to restore possession thereof to plaintiff and to pay the latter a monthly rent
of P132.62 from January, 1940, until he vacates the land, and also to pay
the costs.

Appealing directly to this court because of the value of the property

involved, defendant makes the following assignment or errors:

I. The trial court erred in not dismissing the case on the ground that
the case was not brought by the real property in interest.

II. The trial court erred in admitting the third amended complaint.

III. The trial court erred in denying defendant's motion to strike.

IV. The trial court erred in including in its decision land not involved in
the litigation.

V. The trial court erred in holding that the land in dispute is covered by
transfer certificates of Title Nos. 37686 and 37677.

Vl. The trial court erred in not finding that the defendant is the true
and lawful owner of the land.

VII. The trial court erred in finding that the defendant is liable to pay
the plaintiff the amount of P132.62 monthly from January, 1940, until
he vacates the premises.

VIII. The trial court erred in not ordering the plaintiff to reconvey the
land in litigation to the defendant.

As to the first assigned error, there is nothing to the contention that the
present action is not brought by the real party in interest, that is, by J. M.
Tuason and Co., Inc. What the Rules of Court require is that an action be
brought in the name of, but not necessarily by, the real party in interest.
(Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the
action, that is to file the complaint, in the name of the plaintiff. That practice
appears to have been followed in this case, since the complaint is signed by
the law firm of Araneta and Araneta, "counsel for plaintiff" and commences
with the statement "comes now plaintiff, through its undersigned counsel." It
is true that the complaint also states that the plaintiff is "represented herein
by its Managing Partner Gregorio Araneta, Inc.", another corporation, but
there is nothing against one corporation being represented by another
person, natural or juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. can not act as managing partner for plaintiff on the theory that
it is illegal for two corporations to enter into a partnership is without merit,
for the true rule is that "though a corporation has no power to enter into a
partnership, it may nevertheless enter into a joint venture with another
where the nature of that venture is in line with the business authorized by
its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043,
citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the record to
indicate that the venture in which plaintiff is represented by Gregorio
Araneta, Inc. as "its managing partner" is not in line with the corporate
business of either of them.

Errors II, III, and IV, referring to the admission of the third amended
complaint, may be answered by mere reference to section 4 of Rule 17,
Rules of Court, which sanctions such amendment. It reads:

Sec. 4. Amendment to conform to evidence. — When issues not raised

by the pleadings are tried by express or implied consent of the parties,
they shall be treated in all respects, as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to
cause them to conform to the evidence and to raise these issues may
be made upon motion of any party at my time, even of the trial of
these issues. If evidence is objected to at the trial on the ground that
it is not within the issues made by the pleadings, the court may allow
the pleadings to be amended and shall be so freely when the
presentation of the merits of the action will be subserved thereby and
the objecting party fails to satisfy the court that the admission of such
evidence would prejudice him in maintaining his action or defense
upon the merits. The court may grant a continuance to enable the
objecting party to meet such evidence.

Under this provision amendment is not even necessary for the purpose of
rendering judgment on issues proved though not alleged. Thus, commenting
on the provision, Chief Justice Moran says in this Rules of Court:

Under this section, American courts have, under the New Federal Rules
of Civil Procedure, ruled that where the facts shown entitled plaintiff to
relief other than that asked for, no amendment to the complaint is
necessary, especially where defendant has himself raised the point on
 which recovery is based, and that the appellate court treat the
pleadings as amended to conform to the evidence, although the
pleadings were not actually amended. (I Moran, Rules of Court, 1952
ed., 389-390.)

Our conclusion therefore is that specification of error II, III, and IV are
without merit..

Let us now pass on the errors V and VI. Admitting, though his attorney, at
the early stage of the trial, that the land in dispute "is that described or
represented in Exhibit A and in Exhibit B enclosed in red pencil with the
name Quirino Bolaños," defendant later changed his lawyer and also his
theory and tried to prove that the land in dispute was not covered by
plaintiff's certificate of title. The evidence, however, is against defendant, for
it clearly establishes that plaintiff is the registered owner of lot No. 4-B-3-C,
situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square
meters, more or less, covered by transfer certificate of title No. 37686 of the
land records of Rizal province, and of lot No. 4-B-4, situated in the same
barrio, having an area of 74,789 square meters, more or less, covered by
transfer certificate of title No. 37677 of the land records of the same
province, both lots having been originally registered on July 8, 1914 under
original certificate of title No. 735. The identity of the lots was established by
the testimony of Antonio Manahan and Magno Faustino, witnesses for
plaintiff, and the identity of the portion thereof claimed by defendant was
established by the testimony of his own witness, Quirico Feria. The combined
testimony of these three witnesses clearly shows that the portion claimed by
defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-
B-4, and is well within the area covered by the two transfer certificates of
title already mentioned. This fact also appears admitted in defendant's
answer to the third amended complaint.

As the land in dispute is covered by plaintiff's Torrens certificate of title and

was registered in 1914, the decree of registration can no longer be
impugned on the ground of fraud, error or lack of notice to defendant, as
more than one year has already elapsed from the issuance and entry of the
decree. Neither court the decree be collaterally attacked by any person
claiming title to, or interest in, the land prior to the registration proceedings.
(Soroñgon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could title to that land in
derogation of that of plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46, Act No. 496.) Adverse,
notorious and continuous possession under claim of ownership for the period
fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI
of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that
the right to secure possession under a decree of registration does not
prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent
decision of this Court on this point is that rendered in the case of Jose
Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the alleged
errors V and VI.

As to error VII, it is claimed that `there was no evidence to sustain the

finding that defendant should be sentenced to pay plaintiff P132.62 monthly
from January, 1940, until he vacates the premises.' But it appears from the
record that that reasonable compensation for the use and occupation of the
premises, as stipulated at the hearing was P10 a month for each hectare and
that the area occupied by defendant was 13.2619 hectares. The total rent to
be paid for the area occupied should therefore be P132.62 a month. It is
appears from the testimony of J. A. Araneta and witness Emigdio Tanjuatco
that as early as 1939 an action of ejectment had already been filed against
defendant. And it cannot be supposed that defendant has been paying rents,
for he has been asserting all along that the premises in question 'have
always been since time immemorial in open, continuous, exclusive and
public and notorious possession and under claim of ownership adverse to the
entire world by defendant and his predecessors in interest.' This assignment
of error is thus clearly without merit.

Error No. VIII is but a consequence of the other errors alleged and needs for
further consideration.

During the pendency of this case in this Court appellant, thru other counsel,
has filed a motion to dismiss alleging that there is pending before the Court
of First Instance of Rizal another action between the same parties and for
the same cause and seeking to sustain that allegation with a copy of the
complaint filed in said action. But an examination of that complaint reveals
that appellant's allegation is not correct, for the pretended identity of parties
and cause of action in the two suits does not appear. That other case is one
for recovery of ownership, while the present one is for recovery of
possession. And while appellant claims that he is also involved in that order
action because it is a class suit, the complaint does not show that such is
really the case. On the contrary, it appears that the action seeks relief for
each individual plaintiff and not relief for and on behalf of others. The motion
for dismissal is clearly without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the
plaintiff.

Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador,

and Concepcion, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 120138 September 5, 1997

MANUEL A. TORRES, JR., (Deceased), GRACIANO J. TOBIAS,
RODOLFO L. JOCSON, JR., MELVIN S. JURISPRUDENCIA, AUGUSTUS
CESAR AZURA and EDGARDO D. PABALAN, petitioners,
vs.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION,
TORMIL REALTY & DEVELOPMENT CORPORATION, ANTONIO P.
TORRES, JR., MA. CRISTINA T. CARLOS, MA. LUISA T. MORALES and
DANTE D. MORALES, respondents.

DECISION
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Revised Rules of
Court, petitioners seek to annul the decision of the Court of Appeals in CA-
G.R. SP. No. 31748 dated 23 May 1994 and its subsequent resolution dated
10 May 1995 denying petitioners’ motion for reconsideration.
The present case involves two separate but interrelated conflicts. The facts
leading to the first controversy are as follows:
The late Manuel A. Torres, Jr. (Judge Torres for brevity) was the majority
stockholder of Tormil Realty & Development Corporation while private
respondents who are the children of Judge Torres’ deceased brother Antonio
A. Torres, constituted the minority stockholders. In particular, their
respective shareholdings and positions in the corporation were as follows:
Name of Stockholder Number of Percentage Position(s)
Shares
Manuel A. Torres, Jr. 100,120 57.21 Dir./Pres./Chair
Milagros P. Torres 33,430 19.10 Dir./Treasurer
Josefina P. Torres 8,290 4.73 Dir./Ass. Cor-Sec.
Ma. Cristina T. Carlos 8,290 4.73 Dir./Cor-Sec.
Antonio P. Torres, Jr. 8,290 4.73 Director
Ma. Jacinta P. Torres 8,290 4.73 Director
Ma. Luisa T. Morales 7,790 4.45 Director
Dante D. Morales 500 .28 Director 1

In 1984, Judge Torres, in order to make substantial savings in taxes,

adopted an “estate planning” scheme under which he assigned to Tormil
Realty & Development Corporation (Tormil for brevity) various real
properties he owned and his shares of stock in other corporations in
exchange for 225,972 Tormil Realty shares. Hence, on various dates in July
and August of 1984, ten (10) deeds of assignment were executed by the late
Judge Torres:
ASSIGNMENT DATE PROPERTY ASSIGNED LOCATION SHARES TO BE
ISSUED
1. July 13, 1984 TCT 81834 Quezon City 13,252
TCT 144240 Quezon City
2. July 13, 1984 TCT 77008 Manila
TCT 65689 Manila 78,493
TCT 109200 Manila
3. July 13, 1984 TCT 374079 Makati 8,307
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay 9,855
TCT 41529 Pasay
5. Aug. 06, 1984 El Hogar Filipino Stocks 2,000
6. Aug. 06, 1984 Manila Jockey Club Stocks 48,737
7. Aug. 07, 1984 San Miguel Corp. Stocks 50,283
8. Aug. 07, 1984 China banking Corp. Stocks 6,300
9. Aug. 20, 1984 Ayala Corp. Stocks 7,468
10. Aug. 29, 1984 Ayala Fund Stocks 1,322
———
225,972 2

Consequently, the aforelisted properties were duly recorded in the inventory

of assets of Tormil Realty and the revenues generated by the said properties
were correspondingly entered in the corporation’s books of account and
financial records.
Likewise, all the assigned parcels of land were duly registered with the
respective Register of Deeds in the name of Tormil Realty, except for the
ones located in Makati and Pasay City.
At the time of the assignments and exchange, however, only 225,000 Tormil
Realty shares remained unsubscribed, all of which were duly issued to and
received by Judge Torres (as evidenced by stock certificates Nos. 17, 18, 19,
20, 21, 22, 23, 24 & 25). 3
Due to the insufficient number of shares of stock issued to Judge Torres and
the alleged refusal of private respondents to approve the needed increase in
the corporation’s authorized capital stock (to cover the shortage of 972
shares due to Judge Torres under the “estate planning” scheme), on 11
September 1986, Judge Torres revoked the two (2) deeds of assignment
covering the properties in Makati and Pasay City. 4
Noting the disappearance of the Makati and Pasay City properties from the
corporation’s inventory of assets and financial records private respondents,
on 31 March 1987, were constrained to file a complaint with the Securities
and Exchange Commission (SEC) docketed as SEC Case No. 3153 to compel
Judge Torres to deliver to Tormil corporation the two (2) deeds of
assignment covering the aforementioned Makati and Pasay City properties
which he had unilaterally revoked and to cause the registration of the
corresponding titles in the name of Tormil. Private respondents alleged that
following the disappearance of the properties from the corporation’s
inventory of assets, they found that on October 24, 1986, Judge Torres,
together with Edgardo Pabalan and Graciano Tobias, then General Manager
and legal counsel, respectively, of Tormil, formed and organized a
corporation named “Torres-Pabalan Realty and Development Corporation”
and that as part of Judge Torres’ contribution to the new corporation, he
executed in its favor a Deed of Assignment conveying the same Makati and
Pasay City properties he had earlier transferred to Tormil.
The second controversy — involving the same parties — concerned the
election of the 1987 corporate board of directors.
The 1987 annual stockholders meeting and election of directors of Tormil
corporation was scheduled on 25 March 1987 in compliance with the
provisions of its by-laws.
Pursuant thereto, Judge Torres assigned from his own shares, one (1) share
each to petitioners Tobias, Jocson, Jurisprudencia, Azura and Pabalan. These
assigned shares were in the nature of “qualifying shares,” for the sole
purpose of meeting the legal requirement to be able to elect them (Tobias
and company) to the Board of Directors as Torres’ nominees.
The assigned shares were covered by corresponding Tormil Stock
Certificates Nos. 030, 029, 028, 027, 026 and at the back of each certificate
the following inscription is found:
The present certificate and/or the one share it represents, conformably to
the purpose and intention of the Deed of Assignment dated March 6, 1987,
is not held by me under any claim of ownership and I acknowledge that I
hold the same merely as trustee of Judge Manuel A. Torres, Jr. and for the
sole purpose of qualifying me as Director;
(Signature of Assignee) 5
The reason behind the aforestated action was to remedy the “inequitable
lopsided set-up obtaining in the corporation, where, notwithstanding his
controlling interest in the corporation, the late Judge held only a single seat
in the nine-member Board of Directors and was, therefore, at the mercy of
the minority, a combination of any two (2) of whom would suffice to overrule
the majority stockholder in the Board’s decision making functions.” 6
On 25 March 1987, the annual stockholders meeting was held as scheduled.
What transpired therein was ably narrated by Attys. Benito Cataran and
Bayani De los Reyes, the official representatives dispatched by the SEC to
observe the proceedings (upon request of the late Judge Torres) in their
report dated 27 March 1987:
xxx xxx xxx
The undersigned arrived at 1:55 p.m. in the place of the meeting, a
residential bungalow in Urdaneta Village, Makati, Metro Manila. Upon arrival,
Josefina Torres introduced us to the stockholders namely: Milagros Torres,
Antonio Torres, Jr., Ma. Luisa Morales, Ma. Cristina Carlos and Ma. Jacinta
Torres. Antonio Torres, Jr. questioned our authority and personality to
appear in the meeting claiming subject corporation is a family and private
firm. We explained that our appearance there was merely in response to the
request of Manuel Torres, Jr. and that SEC has jurisdiction over all registered
corporations. Manuel Torres, Jr., a septuagenarian, argued that as holder of
the major and controlling shares, he approved of our attendance in the
meeting.
At about 2:30 p.m., a group composed of Edgardo Pabalan, Atty. Graciano
Tobias, Atty. Rodolfo Jocson, Jr., Atty. Melvin Jurisprudencia, and Atty.
Augustus Cesar Azura arrived. Atty. Azura told the body that they came as
counsels of Manuel Torres, Jr. and as stockholders having assigned
qualifying shares by Manuel Torres, Jr.
The stockholders’ meeting started at 2:45 p.m. with Mr. Pabalan presiding
after verbally authorized by Manuel Torres, Jr., the President and Chairman
of the Board. The secretary when asked about the quorum, said that there
was more than a quorum. Mr. Pabalan distributed copies of the president’s
report and the financial statements. Antonio Torres, Jr. requested time to
study the said reports and brought out the question of auditing the finances
of the corporation which he claimed was approved previously by the board.
Heated arguments ensued which also touched on family matters. Antonio
Torres, Jr. moved for the suspension of the meeting but Manuel Torres,
Jr. voted for the continuation of the proceedings.
Mr. Pabalan suggested that the opinion of the SEC representatives be asked
on the propriety of suspending the meeting but Antonio Torres, Jr. objected
reasoning out that we were just observers.
When the Chairman called for the election of directors, the Secretary refused
to write down the names of nominees prompting Atty. Azura to initiate the
appointment of Atty. Jocson, Jr. as Acting Secretary.
Antonio Torres, Jr. nominated the present members of the Board. At this
juncture, Milagros Torres cried out and told the group of Manuel Torres, Jr.
to leave the house.
Manuel Torres, Jr., together with his lawyers-stockholders went to the
residence of Ma. Jacinta Torres in San Miguel Village, Makati, Metro Manila.
The undersigned joined them since the group with Manuel Torres, Jr. the one
who requested for S.E.C. observers, represented the majority of the
outstanding capital stock and still constituted a quorum.
At the resumption of the meeting, the following were nominated and elected
as directors for the year 1987-1988:
1. Manuel Torres, Jr.
2. Ma. Jacinta Torres
3. Edgardo Pabalan
4. Graciano Tobias
5. Rodolfo Jocson, Jr.
6. Melvin Jurisprudencia
7. Augustus Cesar Azura
8. Josefina Torres
9. Dante Morales
After the election, it was resolved that after the meeting, the new board of
directors shall convene for the election of officers.
xxx xxx xxx 7
Consequently, on 10 April 1987, private respondents instituted a complaint
with the SEC (SEC Case No. 3161) praying in the main, that the election of
petitioners to the Board of Directors be annulled.
Private respondents alleged that the petitioners-nominees were not
legitimate stockholders of Tormil because the assignment of shares to them
violated the minority stockholders’ right of pre-emption as provided in the
corporation’s articles and by-laws.
Upon motion of petitioners, SEC Cases Nos. 3153 and 3161 were
consolidated for joint hearing and adjudication.
On 6 March 1991, the Panel of Hearing Officers of the SEC rendered a
decision in favor of private respondents. The dispositive portion thereof
states, thus:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering and directing the respondents, particularly respondent Manuel A.
Torres, Jr., to turn over and deliver to TORMIL through its Corporate
Secretary, Ma. Cristina T. Carlos: (a) the originals of the Deeds of
Assignment dated July 13 and 24, 1984 together with the owner’s duplicates
of Transfer Certificates of Title Nos. 374079 of the Registry of Deeds for
Makati, and 41527, 41528 and 41529 of the Registry of Deeds for Pasay City
and/or to cause the formal registration and transfer of title in and over such
real properties in favor of TORMIL with the proper government agency; (b)
all corporate books of account, records and papers as may be necessary for
the conduct of a comprehensive audit examination, and to allow the
examination and inspection of such accounting books, papers and records by
any or all of the corporate directors, officers and stockholders and/or their
duly authorized representatives or auditors;
2. Declaring as permanent and final the writ of preliminary injunction issued
by the Hearing Panel on February 13, 1989;
3. Declaring as null and void the election and appointment of respondents to
the Board of Directors and executive positions of TORMIL held on March 25,
1987, and all their acts and resolutions made for and in behalf of TORMIL by
authority of and pursuant to such invalid appointment & election held on
March 25, 1987;
4. Ordering the respondents jointly and severally, to pay the complainants
the sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) as and by way
of attorney’s fees. 8
Petitioners promptly appealed to the SEC en banc (docketed as SEC-AC No.
339). Thereafter, on 3 April 1991, during the pendency of said appeal,
petitioner Manuel A. Torres, Jr. died. However, notice thereof was brought to
the attention of the SEC not by petitioners’ counsel but by private
respondents in a Manifestation dated 24 April 1991. 9
On 8 June 1993, petitioners filed a Motion to Suspend Proceedings on
grounds that no administrator or legal representative of the late Judge
Torres’ estate has yet been appointed by the Regional Trial Court of Makati
where Sp. Proc. No. M-1768 (“In Matter of the Issuance of the Last Will and
Testament of Manuel A Torres, Jr.”) was pending. Two similar motions for
suspension were filed by petitioners on 28 June 1993 and 9 July 1993.
On 19 July 1993, the SEC en banc issued an Order denying petitioners’
aforecited motions on the following ground:
Before the filing of these motions, the Commission en banc had already
completed all proceedings and had likewise ruled on the merits of the
appealed cases. Viewed in this light, we thus feel that there is nothing left to
be done except to deny these motions to suspend proceedings. 10
On the same date, the SEC en banc rendered a decision, the dispositive
portion of which reads, thus:
WHEREFORE, premises considered, the appealed decision of the hearing
panel is hereby affirmed and all motions pending before us incident to this
appealed case are necessarily DISMISSED.
SO ORDERED. 11

Undaunted, on 10 August 1993, petitioners proceeded to plead its cause to

the Court of Appeals by way of a petition for review (docketed as CA-G.R. SP
No. 31748).
On 23 May 1994, the Court of Appeals rendered a decision, the dispositive
portion of which states:
WHEREFORE, the petition for review is DISMISSED and the appealed
decision is accordingly affirmed.
SO ORDERED. 12

From the said decision, petitioners filed a motion for reconsideration which
was denied in a resolution issued by the Court of Appeals dated 10 May
1995. 13
Insisting on their cause, petitioners filed the present petition for review
alleging that the Court of Appeals committed the following errors in its
decision:
(1)
WHEN IT RENDERED THE MAY 23, 1994 DECISION, WHICH IS A FULL
LENGTH DECISION, WITHOUT THE EVIDENCE AND THE ORIGINAL RECORD
OF S.E.C. — AC NO. 339 BEING PROPERLY BROUGHT BEFORE IT FOR
REVIEW AND RE-EXAMINATION, AN OMISSION RESULTING IN A CLEAR
TRANSGRESSION OR CURTAILMENT OF THE RIGHTS OF THE HEREIN
PETITIONERS TO PROCEDURAL DUE PROCESS;
(2)
WHEN IT SANCTIONED THE JULY 19, 1993 DECISION OF THE RESPONDENT
S.E.C., WHICH IS VOID FOR HAVING BEEN RENDERED WITHOUT THE
PROPER SUBSTITUTION OF THE DECEASED PRINCIPAL PARTY-RESPONDENT
IN S.E.C.-AC NO. 339 AND CONSEQUENTLY, FOR WANT OF JURISDICTION
OVER THE SAID DECEASED’S TESTATE ESTATE, AND MOREOVER, WHEN IT
SOUGHT TO JUSTIFY THE NON-SUBSTITUTION BY ITS APPLICATION OF THE
CIVIL LAW CONCEPT OF NEGOTIORUM GESTIO;
(3)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE
ORIGINAL RECORD OF S.E.C. — AC NO. 339 NOT HAVING ACTUALLY BEEN
RE-EXAMINED, THAT S.E.C. CASE NO. 3153 INVOLVED A SITUATION
WHERE PERFORMANCE WAS IMPOSSIBLE (AS CONTEMPLATED UNDER
ARTICLE 1191 OF THE CIVIL CODE) AND WAS NOT A MERE CASE OF LESION
OR INADEQUACY OF CAUSE (UNDER ARTICLE 1355 OF THE CIVIL CODE) AS
SO ERRONEOUSLY CHARACTERIZED BY THE RESPONDENT S.E.C.; and,
(4)
WHEN IT FAILED TO SEE, AS A CONSEQUENCE OF THE EVIDENCE AND THE
ORIGINAL RECORD OF S.E.C. — AC NO. 339 NOT HAVING ACTUALLY BEEN
EXAMINED, THAT THE RECORDING BY THE LATE JUDGE MANUEL A.
TORRES, JR. OF THE QUESTIONED ASSIGNMENT OF QUALIFYING SHARES
TO HIS NOMINEES, WAS AFFIRMED IN THE STOCK AND TRANSFER BOOK BY
AN ACTING CORPORATE SECRETARY AND MOREOVER, THAT ACTUAL
NOTICE OF SAID ASSIGNMENT WAS TIMELY MADE TO THE OTHER
STOCKHOLDERS. 14
We shall resolve the issues in seriatim.
I
Petitioners insist that the failure to transmit the original records to the Court
of Appeals deprived them of procedural due process. Without the evidence
and the original records of the proceedings before the SEC, the Court of
Appeals, petitioners adamantly state, could not have possibly made a proper
appreciation and correct determination of the issues, particularly the factual
issues, they had raised on appeal. Petitioners also assert that since the
Court of Appeals allegedly gave due course to their petition, the original
records should have been forwarded to said court.
Petitioners anchor their argument on Secs. 8 and 11 of SC Circular 1-91
(dated 27 February 1991) which provides that:
8. WHEN PETITION GIVEN DUE COURSE. — The Court of Appeals shall give
due course to the petition only when it shows prima facie that the court,
commission, board, office or agency concerned has committed errors of fact
or law that would warrant reversal or modification of the order, ruling or
decision sought to be reviewed. The findings of fact of the court commission,
board, office or agency concerned when supported by substantial evidence
shall be final.
xxx xxx xxx
11. TRANSMITTAL OF RECORD. — Within fifteen (15) days from notice that
the petition has been given due course, the court, commission, board, office
or agency concerned shall transmit to the Court of Appeals the original or a
certified copy of the entire record of the proceeding under review. The
record to be transmitted may be abridged by agreement of all parties to the
proceeding. The Court of Appeals may require or permit subsequent
correction or addition to the record.
Petitioners contend that the Court of Appeals had given due course to their
petition as allegedly indicated by the following acts:
a) it granted the restraining order applied for by the herein petitioners, and
after hearing, also the writ of preliminary injunction sought by them; under
the original SC Circular No. 1-91, a petition for review may be given due
course at the onset (paragraph 8) upon a mere prima facie finding of errors
of fact or law having been committed, and such prima facie finding is but
consistent with the grant of the extra-ordinary writ of preliminary injunction;
b) it required the parties to submit “simultaneous memoranda” in its
resolution dated October 15, 1993 (this is in addition to the comment
required to be filed by the respondents) and furthermore declared in the
same resolution that the petition will be decided “on the merits,” instead of
outrightly dismissing the same;
c) it rendered a full length decision, wherein: (aa) it expressly declared the
respondent S.E.C. as having erred in denying the pertinent motions to
suspend proceedings; (bb) it declared the supposed error as having become
a non-issue when the respondent C.A. “proceeded to hear (the) appeal”;
(cc) it formulated and applied its own theory of negotiorum gestio in
justifying the non-substitution of the deceased principal party in S.E.C. — AC
No. 339 and moreover, its theory of di minimis non curat lex (this, without
first determining the true extent of and the correct legal characterization of
the so-called “shortage” of Tormil shares; and, (dd) it expressly affirmed the
assailed decision of respondent S.E.C. 15
Petitioners’ contention is unmeritorious.
There is nothing on record to show that the Court of Appeals gave due
course to the petition. The fact alone that the Court of Appeals issued a
restraining order and a writ of preliminary injunction and required the
parties to submit their respective memoranda does not indicate that the
petition was given due course. The office of an injunction is merely to
preserve the status quo pending the disposition of the case. The court can
require the submission of memoranda in support of the respective claims
and positions of the parties without necessarily giving due course to the
petition. The matter of whether or not to give due course to a petition lies in
the discretion of the court.
It is worthy to mention that SC Circular No. 1-91 has been replaced by
Revised Administrative Circular No. 1-95 (which took effect on 1 June 1995)
wherein the procedure for appeals from quasi-judicial agencies to the Court
of Appeals was clarified thus:
10. Due course. — If upon the filing of the comment or such other pleadings
or documents as may be required or allowed by the Court of Appeals or upon
the expiration of the period for the filing thereof, and on the bases of the
petition or the record the Court of Appeals finds prima facie that the court or
agency concerned has committed errors of fact or law that would warrant
reversal or modification of the award, judgment, final order or resolution
sought to be reviewed, it may give due course to the petition; otherwise, it
shall dismiss the same. The findings of fact of the court or agency
concerned, when supported by substantial evidence, shall be binding on the
Court of Appeals.
11. Transmittal of record. — Within fifteen (15) days from notice that the
petition has been given due course, the Court of Appeals may require the
court or agency concerned to transmit the original or a legible certified true
copy of the entire record of the proceeding under review. The record to be
transmitted may be abridged by agreement of all parties to the proceeding.
The Court of Appeals may require or permit subsequent correction of or
addition to the record. (Emphasis ours.)
The aforecited circular now formalizes the correct practice and clearly states
that in resolving appeals from quasi judicial agencies, it is within the
discretion of the Court of Appeals to have the original records of the
proceedings under review be transmitted to it. In this connection petitioners’
claim that the Court of Appeals could not have decided the case on the
merits without the records being brought before it is patently lame.
Indubitably, the Court of Appeals decided the case on the basis of the
uncontroverted facts and admissions contained in the pleadings, that is, the
petition, comment, reply, rejoinder, memoranda, etc. filed by the parties.
II
Petitioners contend that the decisions of the SEC and the Court of Appeals
are null and void for being rendered without the necessary substitution of
parties (for the deceased petitioner Manuel A. Torres, Jr.) as mandated by
Sec. 17, Rule 3 of the Revised Rules of Court, which provides as follows:
Sec. 17. Death of party. — After a party dies and the claim is not thereby
extinguished, the court shall order, upon proper notice, the legal
representative of the deceased to appear and to be substituted for the
deceased, within a period of thirty (30) days, or within such time as may be
granted. If the legal representative fails to appear within said time, the court
may order the opposing party to procure the appointment of a legal
representative of the deceased within a time to be specified by the court,
and the representative shall immediately appear for and on behalf of the
interest of the deceased. The court charges involved in procuring such
appointment, if defrayed by the opposing party, may be recovered as costs.
The heirs of the deceased may be allowed to be substituted for the
deceased, without requiring the appointment of an executor or administrator
and the court may appoint guardian ad litem for the minor heirs.
Petitioners insist that the SEC en banc should have granted the motions to
suspend they filed based as they were on the ground that the Regional Trial
Court of Makati, where the probate of the late Judge Torres’ will was
pending, had yet to appoint an administrator or legal representative of his
estate.
We are not unaware of the principle underlying the aforequoted provision:
It has been held that when a party dies in an action that survives, and no
order is issued by the Court for the appearance of the legal representative or
of the heirs of the deceased to be substituted for the deceased, and as a
matter of fact no such substitution has ever been effected, the trial held by
the court without such legal representative or heirs, and the judgment
rendered after such trial, are null and void because the court acquired no
jurisdiction over the persons of the legal representative or of the heirs upon
whom the trial and the judgment are not binding. 16
As early as 8 April 1988, Judge Torres instituted Special Proceedings No. M-
1768 before the Regional Trial Court of Makati for the ante-mortem probate
of his holographic will which he had executed on 31 October 1986. Testifying
in the said proceedings, Judge Torres confirmed his appointment of
petitioner Edgardo D. Pabalan as the sole executor of his will and
administrator of his estate. The proceedings, however, were opposed by the
same parties, herein private respondents Antonio P. Torres, Jr., Ma. Luisa T.
Morales and Ma. Cristina T. Carlos, 17 who are nephew and nieces of Judge
Torres, being the children of his late brother Antonio A. Torres.
It can readily be observed therefore that the parties involved in the present
controversy are virtually the same parties fighting over the representation of
the late Judge Torres’ estate. It should be recalled that the purpose behind
the rule on substitution of parties is the protection of the right of every party
to due process. It is to ensure that the deceased party would continue to be
properly represented in the suit through the duly appointed legal
representative of his estate. In the present case, this purpose has been
substantially fulfilled (despite the lack of formal substitution) in view of the
peculiar fact that both proceedings involve practically the same parties. Both
parties have been fiercely fighting in the probate proceedings of Judge
Torres’ holographic will for appointment as legal representative of his estate.
Since both parties claim interests over the estate, the rights of the estate
were expected to be fully protected in the proceedings before the SEC en
banc and the Court of Appeals. In either case, whoever shall be appointed
legal representative of Judge Torres’ estate (petitioner Pabalan or private
respondents) would no longer be a stranger to the present case, the said
parties having voluntarily submitted to the jurisdiction of the SEC and the
Court of Appeals and having thoroughly participated in the proceedings.
The foregoing rationale finds support in the recent case of Vda. de Salazar
v. CA, 18 wherein the Court expounded thus:
The need for substitution of heirs is based on the right to due process
accruing to every party in any proceeding. The rationale underlying this
requirement in case a party dies during the pendency of proceedings of a
nature not extinguished by such death, is that . . . the exercise of judicial
power to hear and determine a cause implicitly presupposes in the trial
court, amongst other essentials, jurisdiction over the persons of the parties.
That jurisdiction was inevitably impaired upon the death of the protestee
pending the proceedings below such that unless and until a legal
representative is for him duly named and within the jurisdiction of the trial
court, no adjudication in the cause could have been accorded any validity or
binding effect upon any party, in representation of the deceased, without
trenching upon the fundamental right to a day in court which is the very
essence of the constitutionally enshrined guarantee of due process.
We are not unaware of several cases where we have ruled that a party
having died in an action that survives, the trial held by the court without
appearance of the deceased’s legal representative or substitution of heirs
and the judgment rendered after such trial, are null and void because the
court acquired no jurisdiction over the persons of the legal representatives
or of the heirs upon whom the trial and the judgment would be binding. This
general rule notwithstanding, in denying petitioner’s motion for
reconsideration, the Court of Appeals correctly ruled that formal substitution
of heirs is not necessary when the heirs themselves voluntarily appeared,
participated in the case and presented evidence in defense of deceased
defendant. Attending the case at bench, after all, are these particular
circumstances which negate petitioner’s belated and seemingly ostensible
claim of violation of her rights to due process. We should not lose sight of
the principle underlying the general rule that formal substitution of heirs
must be effectuated for them to be bound by a subsequent judgment. Such
had been the general rule established not because the rule on substitution of
heirs and that on appointment of a legal representative are jurisdictional
requirements per se but because non-compliance therewith results in the
undeniable violation of the right to due process of those who, though not
duly notified of the proceedings, are substantially affected by the decision
rendered therein . . . .
It is appropriate to mention here that when Judge Torres died on April 3,
1991, the SEC en banc had already fully heard the parties and what
remained was the evaluation of the evidence and rendition of the judgment.
Further, petitioners filed their motions to suspend proceedings only after
more than two (2) years from the death of Judge Torres. Petitioners’ counsel
was even remiss in his duty under Sec. 16, Rule 3 of the Revised Rules of
Court. 19 Instead, it was private respondents who informed the SEC of Judge
Torres’ death through a manifestation dated 24 April 1991.
For the SEC en banc to have suspended the proceedings to await the
appointment of the legal representative by the estate was impractical and
would have caused undue delay in the proceedings and a denial of justice.
There is no telling when the probate court will decide the issue, which may
still be appealed to the higher courts.
In any case, there has been no final disposition of the properties of the late
Judge Torres before the SEC. On the contrary, the decision of the SEC en
banc as affirmed by the Court of Appeals served to protect and preserve his
estate. Consequently, the rule that when a party dies, he should be
substituted by his legal representative to protect the interests of his estate
in observance of due process was not violated in this case in view of its
peculiar situation where the estate was fully protected by the presence of
the parties who claim interests therein either as directors, stockholders or
heirs.
Finally, we agree with petitioners’ contention that the principle of negotiorum
gestio 20 does not apply in the present case. Said principle explicitly covers
abandoned or neglected property or business.
III
Petitioners find legal basis for Judge Torres’ act of revoking the assignment
of his properties in Makati and Pasay City to Tormil corporation by relying on
Art. 1191 of the Civil Code which provides that:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.
Petitioners’ contentions cannot be sustained. We see no justifiable reason to
disturb the findings of SEC, as affirmed by the Court of Appeals:
We sustain the ruling of respondent SEC in the decision appealed from
(Rollo, pp. 45-46) that —
. . . the shortage of 972 shares would not be valid ground for respondent
Torres to unilaterally revoke the deeds of assignment he had executed on
July 13, 1984 and July 24, 1984 wherein he voluntarily assigned to TORMIL
real properties covered by TCT No. 374079 (Makati) and TCT No. 41527,
41528 and 41529 (Pasay) respectively.
A comparison of the number of shares that respondent Torres received from
TORMIL by virtue of the “deeds of assignment” and the stock certificates
issued by the latter to the former readily shows that TORMIL had
substantially performed what was expected of it. In fact, the first two
issuances were in satisfaction to the properties being revoked by respondent
Torres. Hence, the shortage of 972 shares would never be a valid ground for
the revocation of the deeds covering Pasay and Quezon City properties.
In Universal Food Corp. vs. CA, the Supreme Court held:
The general rule is that rescission of a contract will not be permitted for a
slight or carnal breach, but only for such substantial and fundamental breach
as would defeat the very object of the parties in making the agreement.
The shortage of 972 shares definitely is not substantial and fundamental
breach as would defeat the very object of the parties in entering into
contract. Art. 1355 of the Civil Code also provides: “Except in cases specified
by law, lesion or inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influences.” There being no fraud,
mistake or undue influence exerted on respondent Torres by TORMIL and the
latter having already issued to the former of its 225,000 unissued shares,
the most logical course of action is to declare as null and void the deed of
revocation executed by respondent Torres. (Rollo, pp. 45-46.) 21
The aforequoted Civil Code provision does not apply in this particular
situation for the obvious reason that a specific number of shares of stock (as
evidenced by stock certificates) had already been issued to the late Judge
Torres in exchange for his Makati and Pasay City properties. The records
thus disclose:
DATE OF PROPERTY LOCATION NO. OF SHARES ORDER OF
ASSIGNMENT ASSIGNED TO BE ISSUED COMPLIANCE*
1. July 13, 1984 TCT 81834 Quezon City) 13,252 3rd
TCT 144240 Quezon City)
2. July 13, 1984 TCT 77008 Manila)
TCT 65689 Manila) 78,493 2nd
TCT 102200 Manila)
3. July 13, 1984 TCT 374079 Makati 8,307 1st
4. July 24, 1984 TCT 41527 Pasay
TCT 41528 Pasay) 9,855 4th
TCT 41529 Pasay)
5. August 6, 1984 El Hogar Filipino Stocks 2,000 7th
6. August 6, 1984 Manila Jockey Club Stocks 48,737 5th
7. August 7, 1984 San Miguel Corp. Stocks 50,238 8th
8. August 7, 1984 China Banking Corp. Stocks 6,300 6th
9. August 20, 1984 Ayala Corp. Stocks 7,468.2) 9th
10. August 29, 1984 Ayala Fund Stocks 1,322.1)
—————
TOTAL 225,972.3

*Order of stock certificate issuances by TORMIL to respondent Torres

relative to the Deeds of Assignment he executed sometime in July and
August, 1984. 22 (Emphasis ours.)
Moreover, we agree with the contention of the Solicitor General that the
shortage of shares should not have affected the assignment of the Makati
and Pasay City properties which were executed in 13 and 24 July 1984 and
the consideration for which have been duly paid or fulfilled but should have
been applied logically to the last assignment of property — Judge Torres’
Ayala Fund shares — which was executed on 29 August 1984. 23
IV
Petitioners insist that the assignment of “qualifying shares” to the nominees
of the late Judge Torres (herein petitioners) does not partake of the real
nature of a transfer or conveyance of shares of stock as would call for the
“imposition of stringent requirements (with respect to the) recording of the
transfer of said shares.” Anyway, petitioners add, there was substantial
compliance with the above-stated requirement since said assignments were
entered by the late Judge Torres himself in the corporation’s stock and
transfer book on 6 March 1987, prior to the 25 March 1987 annual
stockholders meeting and which entries were confirmed on 8 March 1987 by
petitioner Azura who was appointed Assistant Corporate Secretary by Judge
Torres.
Petitioners further argue that:
10.10. Certainly, there is no legal or just basis for the respondent S.E.C. to
penalize the late Judge Torres by invalidating the questioned entries in the
stock and transfer book, simply because he initially made those entries (they
were later affirmed by an acting corporate secretary) and because the stock
and transfer book was in his possession instead of the elected corporate
secretary, if the background facts herein-before narrated and the serious
animosities that then reigned between the deceased Judge and his relatives
are to be taken into account;
xxx xxx xxx
10.12. Indeed it was a practice in the corporate respondent, a family
corporation with only a measly number of stockholders, for the late judge to
have personal custody of corporate records; as president, chairman and
majority stockholder, he had the prerogative of designating an acting
corporate secretary or to himself make the needed entries, in instances
where the regular secretary, who is a mere subordinate, is unavailable or
intentionally defaults, which was the situation that obtained immediately
prior to the 1987 annual stockholders meeting of Tormil, as the late Judge
Torres had so indicated in the stock and transfer book in the form of the
entries now in question;
10.13. Surely, it would have been futile nay foolish for him to have insisted
under those circumstances, for the regular secretary, who was then part of a
group ranged against him, to make the entries of the assignments in favor
of his nominees; 24
Petitioners’ contentions lack merit.
It is precisely the brewing family discord between Judge Torres and private
respondents — his nephew and nieces that should have placed Judge Torres
on his guard. He should have been more careful in ensuring that his actions
(particularly the assignment of qualifying shares to his nominees) comply
with the requirements of the law. Petitioners cannot use the flimsy excuse
that it would have been a vain attempt to force the incumbent corporate
secretary to register the aforestated assignments in the stock and transfer
book because the latter belonged to the opposite faction. It is the corporate
secretary’s duty and obligation to register valid transfers of stocks and if said
corporate officer refuses to comply, the transferor-stockholder may rightfully
bring suit to compel performance.25 In other words, there are remedies
within the law that petitioners could have availed of, instead of taking the
law in their own hands, as the cliché goes.
Thus, we agree with the ruling of the SEC en banc as affirmed by the Court
of Appeals:
We likewise sustain respondent SEC when it ruled, interpreting Section 74 of
the Corporation Code, as follows (Rollo, p. 45):
In the absence of (any) provision to the contrary, the corporate secretary is
the custodian of corporate records. Corollarily, he keeps the stock and
transfer book and makes proper and necessary entries therein.
Contrary to the generally accepted corporate practice, the stock and transfer
book of TORMIL was not kept by Ms. Maria Cristina T. Carlos, the corporate
secretary but by respondent Torres, the President and Chairman of the
Board of Directors of TORMIL. In contravention to the above cited provision,
the stock and transfer book was not kept at the principal office of the
corporation either but at the place of respondent Torres.
These being the obtaining circumstances, any entries made in the stock and
transfer book on March 8, 1987 by respondent Torres of an alleged transfer
of nominal shares to Pabalan and Co. cannot therefore be given any valid
effect. Where the entries made are not valid, Pabalan and Co. cannot
therefore be considered stockholders of record of TORMIL. Because they are
not stockholders, they cannot therefore be elected as directors of TORMIL.
To rule otherwise would not only encourage violation of clear mandate of
Sec. 74 of the Corporation Code that stock and transfer book shall be kept in
the principal office of the corporation but would likewise open the flood gates
of confusion in the corporation as to who has the proper custody of the stock
and transfer book and who are the real stockholders of records of a certain
corporation as any holder of the stock and transfer book, though not the
corporate secretary, at pleasure would make entries therein.
The fact that respondent Torres holds 81.28% of the outstanding capital
stock of TORMIL is of no moment and is not a license for him to arrogate
unto himself a duty lodged to (sic) the corporate secretary. 26
All corporations, big or small, must abide by the provisions of the
Corporation Code. Being a simple family corporation is not an exemption.
Such corporations cannot have rules and practices other than those
established by law.
WHEREFORE, premises considered, the petition for review on certiorari is
hereby DENIED.
SO ORDERED.
Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.
 FIRST DIVISION

[G.R. No. 142612. July 29, 2005]

OSCAR ANGELES and EMERITA ANGELES, petitioners, vs. THE HON.

SECRETARY OF JUSTICE and FELINO MERCADO, respondents.

DECISION
CARPIO, J.:

The Case

This is a petition for certiorari[1] to annul the letter-resolution[2] dated 1

February 2000 of the Secretary of Justice in Resolution No. 155. [3] The
Secretary of Justice affirmed the resolution[4] in I.S. No. 96-939 dated 28
February 1997 rendered by the Provincial Prosecution Office of the
Department of Justice in Santa Cruz, Laguna (Provincial Prosecution Office).
The Provincial Prosecution Office resolved to dismiss the complaint for estafa
filed by petitioners Oscar and Emerita Angeles (Angeles spouses) against
respondent Felino Mercado (Mercado).

Antecedent Facts

On 19 November 1996, the Angeles spouses filed a criminal complaint for

estafa under Article 315 of the Revised Penal Code against Mercado before
the Provincial Prosecution Office. Mercado is the brother-in-law of the
Angeles spouses, being married to Emerita Angeles sister Laura.
In their affidavits, the Angeles spouses claimed that in November 1992,
Mercado convinced them to enter into a contract of antichresis,[5] colloquially
known as sanglaang-perde, covering eight parcels of land (subject land)
planted with fruit-bearing lanzones trees located in Nagcarlan, Laguna and
owned by Juana Suazo. The contract of antichresis was to last for five years
with P210,000 as consideration. As the Angeles spouses stay in Manila
during weekdays and go to Laguna only on weekends, the parties agreed
that Mercado would administer the lands and complete the necessary
paperwork.[6]
 After three years, the Angeles spouses asked for an accounting from
Mercado. Mercado explained that the subject land earned P46,210 in 1993,
which he used to buy more lanzones trees. Mercado also reported that the
trees bore no fruit in 1994. Mercado gave no accounting for 1995. The
Angeles spouses claim that only after this demand for an accounting did they
discover that Mercado had put the contract of sanglaang-perde over the
subject land under Mercado and his spouses names.[7] The relevant portions
of the contract of sanglaang-perde, signed by Juana Suazo alone, read:

xxx

Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO

(P210,000), salaping gastahin, na aking tinanggap sa mag[-]asawa nila G.
AT GNG. FELINO MERCADO, mga nasa hustong gulang, Filipino, tumitira at
may pahatirang sulat sa Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng
Laguna, ay aking ipinagbili, iniliwat at isinalin sa naulit na halaga, sa
nabanggit na mag[-] asawa nila G. AT GNG. FELINO MERCADO[,] sa kanila
ay magmamana, kahalili at ibang dapat pagliwatan ng kanilang karapatan,
ang lahat na ibubunga ng lahat na puno ng lanzones, hindi kasama ang
ibang halaman na napapalooban nito, ng nabanggit na WALONG (8) Lagay
na Lupang Cocal-Lanzonal, sa takdang LIMA (5) NA [sic] TAON,
magpapasimula sa taong 1993, at magtatapos sa taong 1997, kayat
pagkatapos ng lansonesan sa taong 1997, ang pamomosision at
pakikinabang sa lahat na puno ng lanzones sa nabanggit na WALONG (8)
Lagay na Lupang Cocal-Lanzonal ay manunumbalik sa akin, sa akin ay
magmamana, kahalili at ibang dapat pagliwatan ng aking karapatan na ako
ay walang ibabalik na ano pa mang halaga, sa mag[-] asawa nila G. AT
GNG. FELINO MERCADO.

Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay

nagkasundo na ako ay bibigyan nila ng LIMA (5) na [sic] kaing na lanzones
taon-taon sa loob ng LIMA (5) na [sic] taon ng aming kasunduang ito.

Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay

nagkasundo na silang mag[-]asawa nila G. AT GNG. FELINO MERCADO ang
magpapaalis ng dapo sa puno ng lansones taon-taon [sic] sa loob ng LIMA
(5) [sic] taonng [sic] aming kasunduang ito.[8]

In his counter-affidavit, Mercado denied the Angeles spouses allegations.

Mercado claimed that there exists an industrial partnership, colloquially
known as sosyo industrial, between him and his spouse as industrial
partners and the Angeles spouses as the financiers. This industrial
partnership had existed since 1991, before the contract of antichresis over
the subject land. As the years passed, Mercado used his and his spouses
earnings as part of the capital in the business transactions which he entered
into in behalf of the Angeles spouses. It was their practice to enter into
business transactions with other people under the name of Mercado because
the Angeles spouses did not want to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of Emerita
Angeles and contracts under his name for the Angeles spouses. Mercado also
attached the minutes of the barangay conciliation proceedings held on 7
September 1996. During the barangay conciliation proceedings, Oscar
Angeles stated that there was a written sosyo industrial agreement: capital
would come from the Angeles spouses while the profit would be divided
evenly between Mercado and the Angeles spouses.[9]

The Ruling of the Provincial Prosecution Office

On 3 January 1997, the Provincial Prosecution Office issued a resolution

recommending the filing of criminal information for estafa against Mercado.
This resolution, however, was issued without Mercados counter-affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On
receiving the 3 January 1997 resolution, Mercado moved for its
reconsideration. Hence, on 26 February 1997, the Provincial Prosecution
Office issued an amended resolution dismissing the Angeles spouses
complaint for estafa against Mercado.
The Provincial Prosecution Office stated thus:

The subject of the complaint hinges on a partnership gone sour. The

partnership was initially unsaddled [with] problems. Management became
the source of misunderstanding including the accounting of profits, which led
to further misunderstanding until it was revealed that the contract with the
orchard owner was only with the name of the respondent, without the
names of the complainants.

The accusation of estafa here lacks enough credible evidentiary support to

sustain a prima facie finding.

Premises considered, it is respectfully recommended that the complaint for

estafa be dismissed.

RESPECTFULLY SUBMITTED.[10]

The Angeles spouses filed a motion for reconsideration, which the

Provincial Prosecution Office denied in a resolution dated 4 August 1997.
 The Ruling of the Secretary of Justice

On appeal to the Secretary of Justice, the Angeles spouses emphasized

that the document evidencing the contract of sanglaang-perde with Juana
Suazo was executed in the name of the Mercado spouses, instead of the
Angeles spouses. The Angeles spouses allege that this document alone
proves Mercados misappropriation of their P210,000.
The Secretary of Justice found otherwise. Thus:

Reviewing the records of the case, we are of the opinion that the indictment
of [Mercado] for the crime of estafa cannot be sustained. [The Angeles
spouses] failed to show sufficient proof that [Mercado] deliberately deceived
them in the sanglaang perde transaction. The document alone, which was in
the name of [Mercado and his spouse], failed to convince us that there was
deceit or false representation on the part of [Mercado] that induced the
[Angeles spouses] to part with their money. [Mercado] satisfactorily
explained that the [Angeles spouses] do not want to be revealed as the
financiers. Indeed, it is difficult to believe that the [Angeles spouses] would
readily part with their money without holding on to some document to
evidence the receipt of money, or at least to inspect the document involved
in the said transaction. Under the circumstances, we are inclined to believe
that [the Angeles spouses] knew from the very start that the questioned
document was not really in their names.

In addition, we are convinced that a partnership truly existed between the

[Angeles spouses] and [Mercado]. The formation of a partnership was clear
from the fact that they contributed money to a common fund and divided
the profits among themselves. Records would show that [Mercado] was able
to make deposits for the account of the [Angeles spouses]. These deposits
represented their share in the profits of their business venture. Although the
[Angeles spouses] deny the existence of a partnership, they, however, never
disputed that the deposits made by [Mercado] were indeed for their account.

The transcript of notes on the dialogue between the [Angeles spouses] and
[Mercado] during the hearing of their barangay conciliation case reveals that
the [Angeles spouses] acknowledged their joint business ventures with
[Mercado] although they assailed the manner by which [Mercado] conducted
the business and handled and distributed the funds. The veracity of this
transcript was not raised in issued [sic] by [the Angeles spouses]. Although
the legal formalities for the formation of a partnership were not adhered to,
the partnership relationship of the [Angeles spouses] and [Mercado] is
evident in this case. Consequently, there is no estafa where money is
delivered by a partner to his co-partner on the latters representation that
the amount shall be applied to the business of their partnership. In case of
misapplication or conversion of the money received, the co-partners liability
is civil in nature (People v. Clarin, 7 Phil. 504)

WHEREFORE, the appeal is hereby DISMISSED.[11]

Hence, this petition.

Issues

The Angeles spouses ask us to consider the following issues:

1. Whether the Secretary of Justice committed grave abuse of
discretion amounting to lack of jurisdiction in dismissing the appeal
of the Angeles spouses;
2. Whether a partnership existed between the Angeles spouses and
Mercado even without any documentary proof to sustain its
existence;
3. Assuming that there was a partnership, whether there was
misappropriation by Mercado of the proceeds of the lanzones after
the Angeles spouses demanded an accounting from him of the
income at the office of the barangay authorities on 7 September
1996, and Mercado failed to do so and also failed to deliver the
proceeds to the Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the
information for estafa against Mercado.[12]

The Ruling of the Court

The petition has no merit.

Whether the Secretary of Justice Committed

Grave Abuse of Discretion

An act of a court or tribunal may constitute grave abuse of

discretion when the same is performed in a capricious or whimsical exercise
of judgment amounting to lack of jurisdiction. The abuse of discretion must
be so patent and gross as to amount to an evasion of positive duty, or to a
virtual refusal to perform a duty enjoined by law, as where the power is
exercised in an arbitrary and despotic manner because of passion or
personal hostility.[13]
The Angeles spouses fail to convince us that the Secretary of Justice
committed grave abuse of discretion when he dismissed their appeal.
Moreover, the Angeles spouses committed an error in procedure when they
failed to file a motion for reconsideration of the Secretary of Justices
resolution. A previous motion for reconsideration before the filing of a
petition for certiorari is necessary unless: (1) the issue raised is one purely
of law; (2) public interest is involved; (3) there is urgency; (4) a question of
jurisdiction is squarely raised before and decided by the lower court; and (5)
the order is a patent nullity.[14] The Angeles spouses failed to show that their
case falls under any of the exceptions. In fact, this present petition
for certiorari is dismissible for this reason alone.

Whether a Partnership Existed

Between Mercado and the Angeles Spouses

The Angeles spouses allege that they had no partnership with Mercado.
The Angeles spouses rely on Articles 1771 to 1773 of the Civil Code, which
state that:

Art. 1771. A partnership may be constituted in any form, except where

immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand

pesos or more, in money or property, shall appear in a public instrument,
which must be recorded in the Office of the Securities and Exchange
Commission.

Failure to comply with the requirements of the preceding paragraph shall not
affect the liability of the partnership and the members thereof to third
persons.

Art. 1773. A contract of partnership is void, whenever immovable property is

contributed thereto, if an inventory of said property is not made, signed by
the parties, and attached to the public instrument.

The Angeles spouses position that there is no partnership because of the

lack of a public instrument indicating the same and a lack of registration with
the Securities and Exchange Commission (SEC) holds no water. First, the
Angeles spouses contributed money to the partnership and not immovable
property. Second, mere failure to register the contract of partnership with
the SEC does not invalidate a contract that has the essential requisites of a
partnership. The purpose of registration of the contract of partnership is to
give notice to third parties. Failure to register the contract of partnership
does not affect the liability of the partnership and of the partners to third
persons. Neither does such failure to register affect the partnerships juridical
personality. A partnership may exist even if the partners do not use the
words partner or partnership.
Indeed, the Angeles spouses admit to facts that prove the existence of a
partnership: a contract showing a sosyo industrial or industrial partnership,
contribution of money and industry to a common fund, and division of profits
between the Angeles spouses and Mercado.

Whether there was

Misappropriation by Mercado

The Secretary of Justice adequately explained the alleged

misappropriation by Mercado: The document alone, which was in the name
of [Mercado and his spouse], failed to convince us that there was deceit or
false representation on the part of [Mercado] that induced the [Angeles
spouses] to part with their money. [Mercado] satisfactorily explained that
the [Angeles spouses] do not want to be revealed as the financiers.[15]
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which
decided the civil case for damages, injunction and restraining order filed by
the Angeles spouses against Mercado and Leo Cerayban, stated:

xxx [I]t was the practice to have all the contracts of antichresis of their
partnership secured in [Mercados] name as [the Angeles spouses] are
apprehensive that, if they come out into the open as financiers of said
contracts, they might be kidnapped by the New Peoples Army or their
business deals be questioned by the Bureau of Internal Revenue or worse,
their assets and unexplained income be sequestered, as xxx Oscar Angeles
was then working with the government.[16]

Furthermore, accounting of the proceeds is not a proper subject for the

present case. For these reasons, we hold that the Secretary of Justice did
not abuse his discretion in dismissing the appeal of the Angeles spouses.
WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The
present petition for certiorari is DISMISSED. SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna,
JJ., concur.
 SECOND DIVISION
[G.R. No. 30616 : December 10, 1990.]
192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B.
MAGLANA,Defendant-Appellee.

DECISION

PARAS, J.:

This is a direct appeal to this Court from a decision ** of the then Court of
First Instance of Davao, Seventh Judicial District, Branch III, in Civil Case
No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-
Partnership (Exhibit "A") called Eastcoast Development Enterprises (EDE)
with only the two of them as partners. The partnership EDE with an
indefinite term of existence was duly registered on January 21, 1955 with
the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or
secure timber and/or minor forests products licenses and concessions over
public and/or private forest lands and to operate, develop and promote such
forests rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an
application for a timber concession covering the area located at Cateel and
Baganga, Davao with the Bureau of Forestry which was approved and
Timber License No. 35-56 was duly issued and became the basis of
subsequent renewals made for and in behalf of the duly registered
partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the
business affairs of the partnership, including marketing and handling of cash
and is authorized to sign all papers and instruments relating to the
partnership, while appellant Rojas shall be the logging superintendent and
shall manage the logging operations of the partnership. It is also provided in
the said articles of co-partnership that all profits and losses of the
partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no
operation of said partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail
of the services of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their
Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name
EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight
difference in the purpose of the second partnership which is to hold and
secure renewal of timber license instead of to secure the license as in the
first partnership and the term of the second partnership is fixed to thirty
(30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started
operation on May 1, 1956, and was able to ship logs and realize profits. An
income was derived from the proceeds of the logs in the sum of P643,633.07
(Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document
entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP,
EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing
among themselves that Maglana and Rojas shall purchase the interest, share
and participation in the Partnership of Pahamotang assessed in the amount
of P31,501.12. It was also agreed in the said instrument that after payment
of the sum of P31,501.12 to Pahamotang including the amount of loan
secured by Pahamotang in favor of the partnership, the two (Maglana and
Rojas) shall become the owners of all equipment contributed by Pahamotang
and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to
the second partnership, be dissolved. Pahamotang was paid in fun on August
31, 1957. No other rights and obligations accrued in the name of the second
partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by
Maglana and Rojas without the benefit of any written agreement or
reconstitution of their written Articles of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with
another logging enterprise, the CMS Estate, Inc. He left and abandoned the
partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for
use in the newly acquired area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first
partnership and was transferred to CMS Estate, Inc. by way of chattel
mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his
obligation to contribute, either in cash or in equipment, to the capital
investments of the partnership as well as his obligation to perform his duties
as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able
to comply with the promised contributions and he will not work as logging
superintendent. Maglana then told Rojas that the latter's share will just be
20% of the net profits. Such was the sharing from 1957 to 1959 without
complaint or dispute (Decision, R.A. 949).: nad
Meanwhile, Rojas took funds from the partnership more than his
contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10")
Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of
Davao against Maglana for the recovery of properties, accounting,
receivership and damages, docketed as Civil Case No. 3518 (Record on
Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed
commissioners to examine the long and voluminous accounts of the
Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961
(Ibid., pp. 102-114) was denied by Judge Romero for want of merit (Ibid., p.
125). Judge Romero also required the inclusion of the entire year 1961 in
the report to be submitted by the commissioners (Ibid., pp. 138-143).
Accordingly, the commissioners started examining the records and
supporting papers of the partnership as well as the information furnished
them by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his
answer with counterclaim, attaching thereto the amended answer (Ibid., pp.
26-336), which was granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted
Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order
dated May 27, 1964 approving the report of the commissioners which was
opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied
(Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the
following issues were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and
Rojas after the dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or
share and share alike;
 (c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana
dissolving the partnership (Decision, R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968, the
dispositive portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is
hereby rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana
and Rojas after Pahamotang retired from the second partnership, that
is, after August 31, 1957, when Pahamotang was finally paid his share
— the partnership of the defendant and the plaintiff is one of a de
facto and at will;
"2. Whether the sharing of partnership profits should be on the basis
of computation, that is the ratio and proportion of their respective
contributions, or on the basis of share and share alike — this covered
by actual contributions of the plaintiff and the defendant and by their
verbal agreement; that the sharing of profits and losses is on the basis
of actual contributions; that from 1957 to 1959, the sharing is on the
basis of 80% for the defendant and 20% for the plaintiff of the profits,
but from 1960 to the date of dissolution, February 23, 1961, the
plaintiff's share will be on the basis of his actual contribution and,
considering his indebtedness to the partnership, the plaintiff is not
entitled to any share in the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant
and placed in his or in his wife's name were acquired with partnership
funds or with funds of the defendant and — the Court declares that
there is no evidence that these properties were acquired by the
partnership funds, and therefore the same should not belong to the
partnership;
"4. As to whether damages were suffered and, if so, how much, and
who caused them and who should be liable for them — the Court
declares that neither parties is entitled to damages, for as already
stated above it is not a wise policy to place a price on the right of a
person to litigate and/or to come to Court for the assertion of the
rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the
plaintiff dated February 23, 1961; did it dissolve the partnership or not
— the Court declares that the letter of the defendant to the plaintiff
dated February 23, 1961, in effect dissolved the partnership;
 "6. Further, the Court relative to the canteen, which sells foodstuffs,
supplies, and other merchandise to the laborers and employees of the
Eastcoast Development Enterprises, — the COURT DECLARES THE
SAME AS NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by
Pablo Angeles David — is VALID AND BINDING UPON THE PARTIES
AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S
CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn
over to the partnership the amount of P69,000.00 the profits he
received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further
sum of P85,000.00 which according to him he is still entitled to receive
from the CMS Estate, Inc. is hereby denied considering that it has not
yet been actually received, and further the receipt is merely based
upon an expectancy and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of
P62,988.19 his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00
the amount he should have received as logging superintendent, and
which was not paid to him, and this should be considered as part of
Maglana's contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the
plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal
relationship of the Maglana-Rojas after Pahamotang retired from the second
partnership.
The lower court is of the view that the second partnership superseded the
first, so that when the second partnership was dissolved there was no
written contract of co-partnership; there was no reconstitution as provided
for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the
partnership which was carried on by Rojas and Maglana after the dissolution
of the second partnership was a de facto partnership and at will. It was
considered as a partnership at will because there was no term, express or
implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-
963).
On the other hand, Rojas insists that the registered partnership under the
firm name of Eastcoast Development Enterprises (EDE) evidenced by the
Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not been
novated, superseded and/or dissolved by the unregistered articles of co-
partnership among appellant Rojas, appellee Maglana and Agustin
Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms
and stipulations of said registered Articles of Co-Partnership (Exhibit "A")
should govern the relations between him and Maglana. Upon withdrawal of
Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the
legally constituted partnership EDE (Exhibit "A") continues to govern the
relations between them and it was legal error to consider a de facto
partnership between said two partners or a partnership at will. Hence, the
letter of appellee Maglana dated February 23, 1961, did not legally dissolve
the registered partnership between them, being in contravention of the
partnership agreement agreed upon and stipulated in their Articles of Co-
Partnership (Exhibit "A"). Rather, appellant is entitled to the rights
enumerated in Article 1837 of the Civil Code and to the sharing profits
between them of "share and share alike" as stipulated in the registered
Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas
and Maglana, it appears evident that it was not the intention of the partners
to dissolve the first partnership, upon the constitution of the second one,
which they unmistakably called an "Additional Agreement" (Exhibit "9-B")
(Brief for Defendant-Appellee, pp. 24-25). Except for the fact that they took
in one industrial partner; gave him an equal share in the profits and fixed
the term of the second partnership to thirty (30) years, everything else was
the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT
ENTERPRISES, they pursued the same purposes and the capital
contributions of Rojas and Maglana as stipulated in both partnerships call for
the same amounts. Just as important is the fact that all subsequent renewals
of Timber License No. 35-36 were secured in favor of the First Partnership,
the original licensee. To all intents and purposes therefore, the First Articles
of Partnership were only amended, in the form of Supplementary Articles of
Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-
Appellant, p. 5). Otherwise stated, even during the existence of the second
partnership, all business transactions were carried out under the duly
registered articles. As found by the trial court, it is an admitted fact that
even up to now, there are still subsisting obligations and contracts of the
latter (Decision, R.A. pp. 950-957). No rights and obligations accrued in the
name of the second partnership except in favor of Pahamotang which was
fully paid by the duly registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was
dissolved by common consent. Said dissolution did not affect the first
partnership which continued to exist. Significantly, Maglana and Rojas
agreed to purchase the interest, share and participation in the second
partnership of Pahamotang and that thereafter, the two (Maglana and Rojas)
became the owners of equipment contributed by Pahamotang. Even more
convincing, is the fact that Maglana on March 17, 1957, wrote Rojas,
reminding the latter of his obligation to contribute either in cash or in
equipment, to the capital investment of the partnership as well as his
obligation to perform his duties as logging superintendent. This reminder
cannot refer to any other but to the provisions of the duly registered Articles
of Co-Partnership. As earlier stated, Rojas replied that he will not be able to
comply with the promised contributions and he will not work as logging
superintendent. By such statements, it is obvious that Roxas understood
what Maglana was referring to and left no room for doubt that both
considered themselves governed by the articles of the duly registered
partnership.
Under the circumstances, the relationship of Rojas and Maglana after the
withdrawal of Pahamotang can neither be considered as a De Facto
Partnership, nor a Partnership at Will, for as stressed, there is an existing
partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the
partnership in the case at bar, the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he
dissolved the partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term,
one partner can cause its dissolution by expressly withdrawing even before
the expiration of the period, with or without justifiable cause. Of course, if
the cause is not justified or no cause was given, the withdrawing partner is
liable for damages but in no case can he be compelled to remain in the firm.
With his withdrawal, the number of members is decreased, hence, the
dissolution. And in whatever way he may view the situation, the conclusion
is inevitable that Rojas and Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly registered Articles of Co-
Partnership; that is, all profits and losses of the partnership shall be divided
"share and share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the
trial court and accomplished by the commissioners appointed for the
purpose.
On the basis of the Commissioners' Report, the corresponding contribution of
the partners from 1956-1961 are as follows: Eufracio Rojas who should have
contributed P158,158.00, contributed only P18,750.00 while Maglana who
should have contributed P160,984.00, contributed P267,541.44 (Decision,
R.A. p. 976). It is a settled rule that when a partner who has undertaken to
contribute a sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to contribute (Article 1786,
Civil Code) and for interests and damages from the time he should have
complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of
Appeals, 133 SCRA 94 [1984]). Being a contract of partnership, each partner
must share in the profits and losses of the venture. That is the essence of a
partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any
profits. In their voluminous reports which was approved by the trial court,
they showed that on 50-50% basis, Rojas will be liable in the amount of
P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the
basis of actual capital contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the
withdrawal of Pahamotang which is unquestionably a continuation of the
duly registered partnership and the sharing of profits and losses which
should be on the basis of share and share alike as provided for in the duly
registered Articles of Co-Partnership, no plausible reason could be found to
disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it
will be recalled that after the withdrawal of Pahamotang, Rojas entered into
a management contract with another logging enterprise, the CMS Estate,
Inc., a company engaged in the same business as the partnership. He
withdrew his equipment, refused to contribute either in cash or in equipment
to the capital investment and to perform his duties as logging
superintendent, as stipulated in their partnership agreement. The records
also show that Rojas not only abandoned the partnership but also took funds
in an amount more than his contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he
be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance
of Davao, Branch III, is hereby MODIFIED in the sense that the duly
registered partnership of Eastcoast Development Enterprises continued to
exist until liquidated and that the sharing basis of the partners should be on
share and share alike as provided for in its Articles of Partnership, in
accordance with the computation of the commissioners. We also hereby
AFFIRM the decision of the trial court in all other respects.: nad
SO ORDERED.
Melencio-Herrera, Sarmiento and Regalado, JJ., concur.
Padilla, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant,

vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-
appellees.

Angeles, Maskarino and Associates for plaintiff-appellant.

Victorio S. Advincula for defendants-appellees.

CONCEPCION, C.J.:

In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of

the Court of First Instance of Davao, we are called upon to determine the
applicability of Article 1773 of our Civil Code to the contract of partnership
on which the complaint herein is based.

Alleging that he and defendant Severino Mabato are — pursuant to a public

instrument dated August 29, 1952, copy of which is attached to the
complaint as Annex "A" — partners in a fishpond business, to the capital of
which Agad contributed P1,000, with the right to receive 50% of the profits;
that from 1952 up to and including 1956, Mabato who handled the
partnership funds, had yearly rendered accounts of the operations of the
partnership; and that, despite repeated demands, Mabato had failed and
refused to render accounts for the years 1957 to 1963, Agad prayed in his
complaint against Mabato and Mabato & Agad Company, filed on June 9,
1964, that judgment be rendered sentencing Mabato to pay him (Agad) the
sum of P14,000, as his share in the profits of the partnership for the period
from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering
the dissolution of the partnership, as well as the winding up of its affairs by
a receiver to be appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and
denied the existence of said partnership, upon the ground that the contract
therefor had not been perfected, despite the execution of Annex "A",
because Agad had allegedly failed to give his P1,000 contribution to the
partnership capital. Mabato prayed, therefore, that the complaint be
dismissed; that Annex "A" be declared void ab initio; and that Agad be
sentenced to pay actual, moral and exemplary damages, as well as
attorney's fees.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the
complaint states no cause of action and that the lower court had no
jurisdiction over the subject matter of the case, because it involves
principally the determination of rights over public lands. After due hearing,
the court issued the order appealed from, granting the motion to dismiss the
complaint for failure to state a cause of action. This conclusion was
predicated upon the theory that the contract of partnership, Annex "A", is
null and void, pursuant to Art. 1773 of our Civil Code, because an inventory
of the fishpond referred in said instrument had not been attached thereto. A
reconsideration of this order having been denied, Agad brought the matter
to us for review by record on appeal.

Articles 1771 and 1773 of said Code provide:

Art. 1771. A partnership may be constituted in any form, except where

immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary.

Art. 1773. A contract of partnership is void, whenever immovable property is

contributed thereto, if inventory of said property is not made, signed by the
parties; and attached to the public instrument.

The issue before us hinges on whether or not "immovable property or real

rights" have been contributed to the partnership under consideration.
Mabato alleged and the lower court held that the answer should be in the
affirmative, because "it is really inconceivable how a partnership engaged in
the fishpond business could exist without said fishpond property (being)
contributed to the partnership." It should be noted, however, that, as stated
in Annex "A" the partnership was established "to operate a fishpond", not to
"engage in a fishpond business". Moreover, none of the partners contributed
either a fishpond or a real right to any fishpond. Their contributions were
limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A"
provides:
That the capital of the said partnership is Two Thousand (P2,000.00) Pesos
Philippine Currency, of which One Thousand (P1,000.00) pesos has been
contributed by Severino Mabato and One Thousand (P1,000.00) Pesos has
been contributed by Mauricio Agad.

xxx xxx xxx

The operation of the fishpond mentioned in Annex "A" was the purpose of
the partnership. Neither said fishpond nor a real right thereto was
contributed to the partnership or became part of the capital thereof, even if
a fishpond or a real right thereto could become part of its assets.

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point
and that, the order appealed from should be, as it is hereby set aside and
the case remanded to the lower court for further proceedings, with the costs
of this instance against defendant-appellee, Severino Mabato. It is so
ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and

Fernando, JJ., concur.