G.R. No.

109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents.

VITUG, J.:

The instant petition seeks a review of the decision rendered by the Court of
Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648
affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC
254.

The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate
court in its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August
1948. The SEC records show that there were several subsequent amendments to the articles of partnership
on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . .
. to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas
O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:

I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of
this month.

"I trust that the accountants will be instructed to make the proper liquidation of my
participation in the firm."

On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

"Further to my letter to you today, I would like to have a meeting with all of you with regard to
the mechanics of liquidation, and more particularly, my interest in the two floors of this
building. I would like to have this resolved soon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:

"The partnership has ceased to be mutually satisfactory because of the working conditions of
our employees including the assistant attorneys. All my efforts to ameliorate the below
subsistence level of the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases to the employees, even
attorneys, are dressed down publicly in a loud voice in a manner that deprived them of their
self-respect. The result of such policies is the formation of the union, including the assistant
attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department
(SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that
the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of)
Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets
plus the profits, rent or interest attributable to the use of his right in the assets of the
dissolved partnership;
 "3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their
correspondence, checks and pleadings and to pay petitioners damages for the use thereof
despite the dissolution of the partnership in the amount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of
litigation in such amounts as maybe proven during the trial and which the Commission may
deem just and equitable under the premises but in no case less than ten (10%) per cent of
the value of the shares of petitioner or P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00
and exemplary damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the Commission may deem
just and equitable under the premises."

On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law
partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the
provisions of the Agreement relative to the matter governing the liquidation of the shares of
any retiring or withdrawing partner in the partnership interest."1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney
Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a
partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom,
regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. In
its decision, dated 17 January 1990, the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as
it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination of the respective rights and obligations of the parties.2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of
a receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On
4 April 1991, respondent SEC issued an order denying reconsideration, as well as rejecting the petition for
receivership, and reiterating the remand of the case to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No.
24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both
died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the
admission of new partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA
G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The
other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC
decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that
Atty. Misa's withdrawal from the partnership had changed the relation of the parties and inevitably caused the
dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the
extent of Attorney Misa's interest or participation in the partnership which could be computed and paid in the manner
stipulated in the partnership agreement; (d) that the case should be remanded to the SEC Hearing Officer for the
corresponding determination of the value of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the partnership
assets were in any such danger of being lost, removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now
Bito, Lozada, Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith; and
 3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in bad faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now
"Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with
approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or
undertaking. The "DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the
death or legal incapacity of one of the partners, shall be continued by the surviving partners."

The hearing officer however opined that the partnership is one for a specific undertaking and hence not a
partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or
other lawful businesses and occupations; to counsel and advise such persons and entities
with respect to their legal and other affairs; and to appear for and represent their principals
and client in all courts of justice and government departments and offices in the Philippines,
and elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite
undertaking. There would therefore be no need to provide for articles on partnership at will as none would so
exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or
definable period of completion.3

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to
choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's
capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the
partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good
faith, not that the attendance of bad faith can prevent the dissolution of the partnership4 but that it can result in a
liability for damages.5

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose
for its creation prevent the dissolution of any partnership by an act or will of a partner.6 Among partners,7 mutual
agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily
theright, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for
damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be
associated in the carrying on, as might be distinguished from the winding up of, the business.8 Upon its dissolution,
the partnership continues and its legal personality is retained until the complete winding up of its business
culminating in its termination.9

The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil
Code; 10 however, an agreement of the partners, like any other contract, is binding among them and normally takes
precedence to the extent applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated
and paid in accordance with the existing agreements and his partnership participation shall revert to the
Senior Partners for allocation as the Senior Partners may determine; provided, however, that with respect to
the two (2) floors of office condominium which the partnership is now acquiring, consisting of the 5th and the
6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at
the time of such death or retirement shall be determined by two (2) independent appraisers, one to be
appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased partner, as the
case may be. In the event of any disagreement between the said appraisers a third appraiser will be
appointed by them whose decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation above
mentioned which shall be paid monthly within the first ten (10) days of every month in installments of not
less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and
P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the
dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it.

On the third and final issue, we accord due respect to the appellate court and respondent Commission on their
common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to
have been spurred by "interpersonal conflict" among the partners. It would not be right, we agree, to let any of the
partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will. 12 Indeed,
for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the
purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act.
Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to
do a wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

Feliciano, Romero, Melo and Francisco, JJ., concur.

 [G.R. No. 136448. November 3, 1999]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES,

INC., respondent.

DECISION
PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and
to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any
capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partners, they are all liable for debts incurred by or on behalf of the
partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that
contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of
the Court of Appeals in CA-GR CV 41477,[1] which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.[2]

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA,
reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September
20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the
modifications as hereinafter made by reason of the special and unique facts and circumstances and
the proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the
Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said
Agreement;

b. 12% interest per annum counted from date of plaintiffs invoices and computed on their
respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;

ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in
court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from
September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale);

e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the unpaid price of
nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount
of P600,045.00, this Court noted that these items were attached to guarantee any judgment that may
be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further
deterioration of the nets during the pendency of this case, it was ordered sold at public auction for
not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of
the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced
the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case
with the ownership and possession of the nets and floats awarded and delivered by the sheriff to
plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the
nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices;
hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court
earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be
cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor
of defendants.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled
to in this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the
attached nets and floats. Considering, however, that the total judgment obligation as computed
above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the
excess to the defendants who are not entitled to damages and who did not put up a single centavo to
raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and
floats. For this reason, the defendants are hereby relieved from any and all liabilities arising from
the monetary judgment obligation enumerated above and for plaintiff to retain possession and
ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with
the Clerk of Court.

SO ORDERED. [3]

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract
dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear
Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner
Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted
to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a
collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as general partners, on the allegation that
Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a Certification from the Securities
and Exchange Commission.[5] On September 20, 1990, the lower court issued a Writ of Preliminary Attachment,
which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the
Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned over to respondent some of the nets which were in his
possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim
Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of
the Writ of Attachment.[6] The trial court maintained the Writ, and upon motion of private respondent, ordered
the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited
with the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries
was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to
pay respondent.[8]
 The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of
the witnesses presented and (2) on a Compromise Agreement executed by the three[9] in Civil Case No. 1492-
MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of
nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats;
(d) an injunction and (e) damages.[10] The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount
of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment
for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00
whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter
Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be
shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but
that joint liability could be presumed from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business
and may thus be held liable as a such for the fishing nets and floats purchased by and for the use of the
partnership. The appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a
partnership for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate undertaking
of the defendants was to divide the profits among themselves which is what a partnership essentially is x x
x. By a contract of partnership, two or more persons bind themselves to contribute money, property or industry
to a common fund with the intention of dividing the profits among themselves (Article 1767, New Civil
Code).[13]

Hence, petitioner brought this recourse before this Court.[14]

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following
grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE

AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A
SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR
OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIMS GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats purchased from
respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to
have entered into a partnership.
 This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that
the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct
participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only,
and that he has not even met the representatives of the respondent company.Petitioner further argues that he was
a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated February 1, 1990, showed that he had
merely leased to the two the main asset of the purported partnership -- the fishing boat F/B Lourdes. The lease
was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly
showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code
which provides:

Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following
factual findings:[15]

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to
join him, while Antonio Chua was already Yaos partner;

(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing
boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to
finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over
these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan
extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and
other expenses for the boats would be shouldered by Chua and Yao;

(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership
in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the
ownership papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong
Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their
purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by
Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial
documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4)
injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the
parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in
a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from
Jesus Lim who was petitioners brother. In their Compromise Agreement, they subsequently revealed their
intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess
or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the
term common fund under Article 1767. The contribution to such fund need not be cash or fixed assets; it could
be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation
of the boats would be divided equally among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of
the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in
furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying
the boat but not in the acquisition of the aforesaid equipment, without which the business could not have
proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged
in the fishing business. They purchased the boats, which constituted the main assets of the partnership, and they
agreed that the proceeds from the sales and operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only questions of
law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent
proof that the present action is embraced by one of the exceptions to the rule.[16] In assailing the factual findings
of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the
Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among
them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement
was but an embodiment of the relationship extant among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all
relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the
parties. In implying that the lower courts have decided on the basis of one piece of document alone, petitioner
fails to appreciate that the CA and the RTC delved into the history of the document and explored all the possible
consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts factual
findings mentioned above nullified petitioners argument that the existence of a partnership was based only on
the Compromise Agreement.

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and Yao,
not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the
registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets were
found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his
own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of
them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting
partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in
which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would
be used in their fishing business. The sale of the boats, as well as the division among the three of the balance
remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name,
was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired
from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is
the brother of the creditor, Jesus Lim.
 We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did
not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua
and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or on any tort committed by it
as such, it shall not be allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance
thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped
from denying its corporate existence. The reason behind this doctrine is obvious - an unincorporated association
has no personality and would be incompetent to act and appropriate for itself the power and attributes of a
corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus,
those who act or purport to act as its representatives or agents do so without authority and at their own risk. And
as it is an elementary principle of law that a person who acts as an agent without authority or without a principal
is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a
person acting or purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for contracts entered into or for other acts performed
as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the
first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from
denying its corporate capacity in a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered
into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it
as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit
brought against the alleged corporation. In such case, all those who benefited from the transaction made by the
ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly
assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets
it sold. The only question here is whether petitioner should be held jointly[18] liable with Chua and
Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not appear on any of the contracts and since he never
directly transacted with the respondent corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has
earlier been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the
Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those
acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held
liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having
reaped the benefits of the contract entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of
corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the
subtle art of movement and position , entraps and destroys the other. It is, rather, a contest in which
each contending party fully and fairly lays before the court the facts in issue and then, brushing
aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks
that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers
thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant consideration from courts. There should be no vested
rights in technicalities.

Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree
with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was
an asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he
and his partners owed. The nets and the floats were specifically manufactured and tailor-made according to their
own design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ
to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement,
ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur.
Vitug, J., Pls. see concurring opinion.
G.R. No. L-21906 December 24, 1968

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.

Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.

Ruiz Law Offices for defendant-appellant.

CASTRO, J.:

This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of May 21, 1956, all of
the Court of First Instance of Davao, in civil case 629. The basic action is for specific performance, and damages
resulting from an alleged breach of contract.

In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then Sitio of Malalag (now
the Municipality of Malalag), Municipality of Padada, Davao. No action was taken thereon by the authorities
concerned. During the Japanese occupation, he filed another fishpond application for the same area, but because of
the conditions then prevailing, it was not acted upon either. On December 12, 1945 he filed a third fishpond
application for the same area, which, after a survey, was found to contain 178.76 hectares. Upon investigation
conducted by a representative of the Bureau of Forestry, it was discovered that the area applied for was still needed
for firewood production. Hence on May 13, 1946 this third application was disapproved.

Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration. While this motion was
pending resolution, he was advised by the district forester of Davao City that no further action would be taken on his
motion, unless he filed a new application for the area concerned. So he filed on May 27, 1947 his fishpond
application 1717.

Meanwhile, several applications were submitted by other persons for portions of the area covered by Casteel's
application.

On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares of land found inside the
area applied for by Casteel; he was later granted fishpond permit F-289-C covering 9.3 hectares certified as
available for fishpond purposes by the Bureau of Forestry.

Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the land applied for by
Casteel. Alejandro Cacam's fishpond application 1276, filed on December 26, 1946, was given due course on
December 9, 1947 with the issuance to him of fishpond permit F-539-C to develop 30 hectares of land comprising a
portion of the area applied for by Casteel, upon certification of the Bureau of Forestry that the area was likewise
available for fishpond purposes. On November 17, 1948 Felipe Deluao filed his own fishpond application for the
area covered by Casteel's application.

Because of the threat poised upon his position by the above applicants who entered upon and spread themselves
within the area, Casteel realized the urgent necessity of expanding his occupation thereof by constructing dikes and
cultivating marketable fishes, in order to prevent old and new squatters from usurping the land. But lacking financial
resources at that time, he sought financial aid from his uncle Felipe Deluao who then extended loans totalling more
or less P27,000 with which to finance the needed improvements on the fishpond. Hence, a wide productive fishpond
was built.

Moreover, upon learning that portions of the area applied for by him were already occupied by rival applicants,
Casteel immediately filed the corresponding protests. Consequently, two administrative cases ensued involving the
area in question, to wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel,
applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicant-appellant"; and DANR Case 353-B, entitled
"Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-protestant versus Fp. Permit No. 289-C, Leoncio
Aradillos, Fp. Permit No. 539-C, Alejandro Cacam, Permittees-Respondents."

However, despite the finding made in the investigation of the above administrative cases that Casteel had already
introduced improvements on portions of the area applied for by him in the form of dikes, fishpond gates, clearings,
etc., the Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949, required him to
remove all the improvements which he had introduced on the land, and ordered that the land be leased through
public auction. Failing to secure a favorable resolution of his motion for reconsideration of the Director's order,
Casteel appealed to the Secretary of Agriculture and Natural Resources.

In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our discussion of the
appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as
party of the second part, executed a contract — denominated a "contract of service" — the salient provisions of
which are as follows:

That the Party of the First Part in consideration of the mutual covenants and agreements made herein to the
Party of the Second Part, hereby enter into a contract of service, whereby the Party of the First Part hires
and employs the Party of the Second Part on the following terms and conditions, to wit:

That the Party of the First Part will finance as she has hereby financed the sum of TWENTY SEVEN
THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party of the Second Part who renders only
his services for the construction and improvements of a fishpond at Barrio Malalag, Municipality of Padada,
Province of Davao, Philippines;

That the Party of the Second Part will be the Manager and sole buyer of all the produce of the fish that will
be produced from said fishpond;

That the Party of the First Part will be the administrator of the same she having financed the construction
and improvement of said fishpond;

That this contract was the result of a verbal agreement entered into between the Parties sometime in the
month of November, 1947, with all the above-mentioned conditions enumerated; ...

On the same date the above contract was entered into, Inocencia Deluao executed a special power of attorney in
favor of Jesus Donesa, extending to the latter the authority "To represent me in the administration of the fishpond at
Malalag, Municipality of Padada, Province of Davao, Philippines, which has been applied for fishpond permit by
Nicanor Casteel, but rejected by the Bureau of Fisheries, and to supervise, demand, receive, and collect the value
of the fish that is being periodically realized from it...."

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on November 17,
1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in the two administrative cases
(DANR Cases 353 and 353-B) and asked for reinvestigation of the application of Nicanor Casteel over the subject
fishpond. However, by letter dated March 15, 1950 sent to the Secretary of Commerce and Agriculture and Natural
Resources (now Secretary of Agriculture and Natural Resources), Deluao withdrew his petition for reinvestigation.

On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in DANR Case 353,
the dispositive portion of which reads as follows:

In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of Nicanor Casteel should
be, as hereby it is, reinstated and given due course for the area indicated in the sketch drawn at the back of
the last page hereof; and Fp. A. No. 762 of Victorio D. Carpio shall remain rejected.

On the same date, the same official issued a decision in DANR Case 353-B, the dispositive portion stating as
follows:

WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F-539-C of
Alejandro Cacam, should be, as they are hereby cancelled and revoked; Nicanor Casteel is required to pay
the improvements introduced thereon by said permittees in accordance with the terms and dispositions
contained elsewhere in this decision....

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and
ejected the latter's representative (encargado), Jesus Donesa, from the premises.

Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and Nicanor Casteel,
Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance of Davao for
specific performance and damages against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel
to violate his contract), praying inter alia, (a) that Casteel be ordered to respect and abide by the terms and
conditions of said contract and that Inocencia Deluao be allowed to continue administering the said fishpond and
collecting the proceeds from the sale of the fishes caught from time to time; and (b) that the defendants be ordered
to pay jointly and severally to plaintiffs the sum of P20,000 in damages.

On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary injunction, praying among
other things, that during the pendency of the case and upon their filling the requisite bond as may be fixed by the
court, a preliminary injunction be issued to restrain Casteel from doing the acts complained of, and that after trial the
said injunction be made permanent. The lower court on April 26, 1951 granted the motion, and, two days later, it
issued a preliminary mandatory injunction addressed to Casteel, the dispositive portion of which reads as follows:

POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado y todos usu
abogados, agentes, mandatarios y demas personas que obren en su ayuda, desista de impedir a la
 demandante Inocencia R. Deluao que continue administrando personalmente la pesqueria objeto de esta
causa y que la misma continue recibiendo los productos de la venta de los pescados provenientes de dicha
pesqueria, y que, asimismo, se prohibe a dicho demandado Nicanor Casteel a desahuciar mediante fuerza
al encargado de los demandantes llamado Jesus Donesa de la pesqueria objeto de la demanda de autos.

On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that he was the owner,
lawful applicant and occupant of the fishpond in question. This motion, opposed by the plaintiffs on June 15, 1951,
was denied by the lower court in its order of June 26, 1961.

The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952, denying the
material averments of the plaintiffs' complaint. A reply to the defendants' amended answer was filed by the plaintiffs
on January 31, 1952.

The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4, 1951 the
plaintiffs opposed his motion.

The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs' complaint failed to
state a claim upon which relief may be granted. The motion, opposed by the plaintiffs on October 12, 1951, was
denied for lack of merit by the lower court in its order of October 22, 1951. The defendants' motion for
reconsideration filed on October 31, 1951 suffered the same fate when it was likewise denied by the lower court in
its order of November 12, 1951.

After the issues were joined, the case was set for trial. Then came a series of postponements. The lower court
(Branch I, presided by Judge Enrique A. Fernandez) finally issued on March 21, 1956 an order in open court,
reading as follows: .

Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of this case is hereby
transferred to May 2 and 3, 1956 at 8:30 o'clock in the morning.

This case was filed on April 3, 1951 and under any circumstance this Court will not entertain any other
transfer of hearing of this case and if the parties will not be ready on that day set for hearing, the court will
take the necessary steps for the final determination of this case. (emphasis supplied)

On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956, issued by the office of
the Clerk of Court (thru the special deputy Clerk of Court) of the Court of First Instance of Davao, setting the hearing
of the case for May 2 and 3, 1956 before Judge Amador Gomez of Branch II. The defendants, thru counsel, on April
26, 1956 filed a motion for postponement. Acting on this motion, the lower court (Branch II, presided by Judge
Gomez) issued an order dated April 27, 1956, quoted as follows:

This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956. The motion is filed
by the counsel for the defendants and has the conformity of the counsel for the plaintiffs.

An examination of the records of this case shows that this case was initiated as early as April 1951 and that
the same has been under advisement of the Honorable Enrique A. Fernandez, Presiding Judge of Branch
No. I, since September 24, 1953, and that various incidents have already been considered and resolved by
Judge Fernandez on various occasions. The last order issued by Judge Fernandez on this case was issued
on March 21, 1956, wherein he definitely states that the Court will not entertain any further postponement of
the hearing of this case.

CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and termination of any
incident referring to this case should be referred back to Branch I, so that the same may be disposed of
therein. (emphasis supplied)

A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.

On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge Fernandez
presiding), when informed about the defendants' motion for postponement filed on April 26, 1956, issued an order
reiterating its previous order handed down in open court on March 21, 1956 and directing the plaintiffs to introduce
their evidence ex parte, there being no appearance on the part of the defendants or their counsel. On the basis of
the plaintiffs' evidence, a decision was rendered on May 4, 1956 the dispositive portion of which reads as follows:

EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra del demandado
Nicanor Casteel:

(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;

(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad (½) del
"fishpond" en cuestion con todas las mejoras existentes dentro de la misma;
 (c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en concepto de
danos a contar de la fecha de la expiracion de los 30 dias de la promulgacion de esta decision hasta que
entregue la posesion y administracion de la porcion del "fishpond" en conflicto;

(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los pescado
beneficiados, mas los intereses legales de la fecha de la incoacion de la demanda de autos hasta el
completo pago de la obligacion principal;

(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos incurridos por
aquella durante la pendencia de esta causa;

(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma de P2,000.00;

(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en cuanto se refiere
al demandado Juan Depra;

(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de pruebas;

(i) Con las costas contra del demandado, Casteel.

The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia, lack of knowledge of
the order of the court a quo setting the case for trial. The petition, however, was denied by the lower court in its
order of May 21, 1956, the pertinent portion of which reads as follows:

The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this case has been
transferred or not, but to inquire from the presiding Judge, particularly because his motion asking the
transfer of this case was not set for hearing and was not also acted upon.

Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as follows:

Upon petition of the plaintiff without any objection on the part of the defendants, the hearing of this
case is hereby transferred to May 2 and 3, 1956, at 8:30 o'clock in the morning.

This case was filed on April 3, 1951, and under any circumstance this Court will not entertain any
other transfer of the hearing of this case, and if the parties will not be ready on the day set for
hearing, the Court will take necessary steps for the final disposition of this case.

In view of the order above-quoted, the Court will not accede to any transfer of this case and the duty of Atty.
Ruiz is no other than to be present in the Sala of this Court and to call the attention of the same to the
existence of his motion for transfer.

Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken, the same is
hereby denied.

Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us for final
determination on the ground that it involves only questions of law.

Casteel raises the following issues:

(1) Whether the lower court committed gross abuse of discretion when it ordered reception of the appellees'
evidence in the absence of the appellant at the trial on May 2, 1956, thus depriving the appellant of his day
in court and of his property without due process of law;

(2) Whether the lower court committed grave abuse of discretion when it denied the verified petition for relief
from judgment filed by the appellant on May 11, 1956 in accordance with Rule 38, Rules of Court; and

(3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary injunction against
defendant-appellant, and in not dismissing appellees' complaint.

1. The first and second issues must be resolved against the appellant.

The record indisputably shows that in the order given in open court on March 21, 1956, the lower court set the case
for hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning and empathically stated that, since the case had
been pending since April 3, 1951, it would not entertain any further motion for transfer of the scheduled hearing.

An order given in open court is presumed received by the parties on the very date and time of promulgation,1 and
amounts to a legal notification for all legal purposes.2 The order of March 21, 1956, given in open court, was a valid
notice to the parties, and the notice of hearing dated April 21, 1956 or one month thereafter, was a superfluity.
Moreover, as between the order of March 21, 1956, duly promulgated by the lower court, thru Judge Fernandez,
and the notice of hearing signed by a "special deputy clerk of court" setting the hearing in another branch of the
same court, the former's order was the one legally binding. This is because the incidents of postponements and
adjournments are controlled by the court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3,
Rule 22) of the Rules of Court.

Much less had the clerk of court the authority to interfere with the order of the court or to transfer the cage from one
sala to another without authority or order from the court where the case originated and was being tried. He had
neither the duty nor prerogative to re-assign the trial of the case to a different branch of the same court. His duty as
such clerk of court, in so far as the incident in question was concerned, was simply to prepare the trial calendar. And
this duty devolved upon the clerk of court and not upon the "special deputy clerk of court" who purportedly signed
the notice of hearing.

It is of no moment that the motion for postponement had the conformity of the appellees' counsel. The
postponement of hearings does not depend upon agreement of the parties, but upon the court's discretion.3

The record further discloses that Casteel was represented by a total of 12 lawyers, none of whom had ever
withdrawn as counsel. Notice to Atty. Ruiz of the order dated March 21, 1956 intransferably setting the case for
hearing for May 2 and 3, 1956, was sufficient notice to all the appellant's eleven other counsel of record. This is a
well-settled rule in our jurisdiction.4

It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to appear before
Judge Fernandez on the scheduled dates of hearing Parties and their lawyers have no right to presume that their
motions for postponement will be granted.5 For indeed, the appellant and his 12 lawyers cannot pretend ignorance
of the recorded fact that since September 24, 1953 until the trial held on May 2, 1956, the case was under the
advisement of Judge Fernandez who presided over Branch I. There was, therefore, no necessity to "re-assign" the
same to Branch II because Judge Fernandez had exclusive control of said case, unless he was legally inhibited to
try the case — and he was not.

There is truth in the appellant's contention that it is the duty of the clerk of court — not of the Court — to prepare the
trial calendar. But the assignment or reassignment of cases already pending in one sala to another sala, and the
setting of the date of trial after the trial calendar has been prepared, fall within the exclusive control of the presiding
judge.

The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of the clerk of court of the
Court of First Instance of Davao was located directly below Branch I. If the appellant and his counsel had exercised
due diligence, there was no impediment to their going upstairs to the second storey of the Court of First Instance
building in Davao on May 2, 1956 and checking if the case was scheduled for hearing in the said sala. The appellant
after all admits that on May 2, 1956 his counsel went to the office of the clerk of court.

The appellant's statement that parties as a matter of right are entitled to notice of trial, is correct. But he was
properly accorded this right. He was notified in open court on March 21, 1956 that the case was definitely and
intransferably set for hearing on May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to the doctrine
in Siochi vs. Tirona,6 his counsel was entitled to a timely notice of the denial of his motion for postponement. In the
cited case the motion for postponement was the first one filed by the defendant; in the case at bar, there had
already been a series of postponements. Unlike the case at bar, the Siochi case was not intransferably set for
hearing. Finally, whereas the cited case did not spend for a long time, the case at bar was only finally and
intransferably set for hearing on March 21, 1956 — after almost five years had elapsed from the filing of the
complaint on April 3, 1951.

The pretension of the appellant and his 12 counsel of record that they lacked ample time to prepare for trial is
unacceptable because between March 21, 1956 and May 2, 1956, they had one month and ten days to do so. In
effect, the appellant had waived his right to appear at the trial and therefore he cannot be heard to complain that he
has been deprived of his property without due process of law.7 Verily, the constitutional requirements of due process
have been fulfilled in this case: the lower court is a competent court; it lawfully acquired jurisdiction over the person
of the defendant (appellant) and the subject matter of the action; the defendant (appellant) was given an opportunity
to be heard; and judgment was rendered upon lawful hearing.8

2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance ex parte of a writ of
preliminary injunction against him, and in not dismissing the appellee's complaint. We find this contention
meritorious.

Apparently, the court a quo relied on exhibit A — the so-called "contract of service" — and the appellees' contention
that it created a contract of co-ownership and partnership between Inocencia Deluao and the appellant over the
fishpond in question.

Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed to know the
law. It must be assumed, conformably to such rule, that the parties entered into the so-called "contract of service"
cognizant of the mandatory and prohibitory laws governing the filing of applications for fishpond permits. And since
they were aware of the said laws, it must likewise be assumed — in fairness to the parties — that they did not intend
to violate them. This view must perforce negate the appellees' allegation that exhibit A created a contract of co-
ownership between the parties over the disputed fishpond. Were we to admit the establishment of a co-ownership
violative of the prohibitory laws which will hereafter be discussed, we shall be compelled to declare altogether the
nullity of the contract. This would certainly not serve the cause of equity and justice, considering that rights and
obligations have already arisen between the parties. We shall therefore construe the contract as one of partnership,
divided into two parts — namely, a contract of partnership to exploit the fishpond pending its award to either Felipe
Deluao or Nicanor Casteel, and a contract of partnership to divide the fishpond between them after such award. The
first is valid, the second illegal.

It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called "contract of
service" on November 25, 1949, there were two pending applications over the fishpond. One was Casteel's which
was appealed by him to the Secretary of Agriculture and Natural Resources after it was disallowed by the Director of
Fisheries on October 25, 1949. The other was Felipe Deluao's application over the same area which was likewise
rejected by the Director of Fisheries on November 29, 1949, refiled by Deluao and later on withdrawn by him by
letter dated March 15, 1950 to the Secretary of Agriculture and Natural Resources. Clearly, although the fishpond
was then in the possession of Casteel, neither he nor, Felipe Deluao was the holder of a fishpond permit over the
area. But be that as it may, they were not however precluded from exploiting the fishpond pending resolution of
Casteel's appeal or the approval of Deluao's application over the same area — whichever event happened first. No
law, rule or regulation prohibited them from doing so. Thus, rather than let the fishpond remain idle they cultivated it.

The evidence preponderates in favor of the view that the initial intention of the parties was not to form a co-
ownership but to establish a partnership — Inocencia Deluao as capitalist partner and Casteel as industrial partner
— the ultimate undertaking of which was to divide into two equal parts such portion of the fishpond as might have
been developed by the amount extended by the plaintiffs-appellees, with the further provision that Casteel should
reimburse the expenses incurred by the appellees over one-half of the fishpond that would pertain to him. This can
be gleaned, among others, from the letter of Casteel to Felipe Deluao on November 15, 1949, which states, inter
alia:

... [W]ith respect to your allowing me to use your money, same will redound to your benefit because you are
the ones interested in half of the work we have done so far, besides I did not insist on our being partners in
my fishpond permit, but it was you "Tatay" Eping the one who wanted that we be partners and it so
happened that we became partners because I am poor, but in the midst of my poverty it never occurred to
me to be unfair to you. Therefore so that each of us may be secured, let us have a document prepared to
the effect that we are partners in the fishpond that we caused to be made here in Balasinon, but it does not
mean that you will treat me as one of your "Bantay" (caretaker) on wage basis but not earning wages at all,
while the truth is that we are partners. In the event that you are not amenable to my proposition and consider
me as "Bantay" (caretaker) instead, do not blame me if I withdraw all my cases and be left without even a
little and you likewise.
(emphasis supplied)9

Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their partnership, the
appellee Inocencia Deluao and the appellant executed exhibit A which, although denominated a "contract of
service," was actually the memorandum of their partnership agreement. That it was not a contract of the services of
the appellant, was admitted by the appellees themselves in their letter10 to Casteel dated December 19, 1949
wherein they stated that they did not employ him in his (Casteel's) claim but because he used their money in
developing and improving the fishpond, his right must be divided between them. Of course, although exhibit A did
not specify any wage or share appertaining to the appellant as industrial partner, he was so entitled — this being
one of the conditions he specified for the execution of the document of partnership.11

Further exchanges of letters between the parties reveal the continuing intent to divide the fishpond. In a
letter,12dated March 24, 1950, the appellant suggested that they divide the fishpond and the remaining capital, and
offered to pay the Deluaos a yearly installment of P3,000 — presumably as reimbursement for the expenses of the
appellees for the development and improvement of the one-half that would pertain to the appellant. Two days later,
the appellee Felipe Deluao replied,13expressing his concurrence in the appellant's suggestion and advising the latter
to ask for a reconsideration of the order of the Director of Fisheries disapproving his (appellant's) application, so that
if a favorable decision was secured, then they would divide the area.

Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to maintain his
petition for the reinvestigation of Casteel's application. Thus by letter14 dated March 15, 1950 addressed to the
Secretary of Agriculture and Natural Resources, he withdrew his petition on the alleged ground that he was no
longer interested in the area, but stated however that he wanted his interest to be protected and his capital to be
reimbursed by the highest bidder.

The arrangement under the so-called "contract of service" continued until the decisions both dated September 15,
1950 were issued by the Secretary of Agriculture and Natural Resources in DANR Cases 353 and 353-B. This
development, by itself, brought about the dissolution of the partnership. Moreover, subsequent events likewise
reveal the intent of both parties to terminate the partnership because each refused to share the fishpond with the
other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership, "... any event
which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in
partnership." The approval of the appellant's fishpond application by the decisions in DANR Cases 353 and 353-B
brought to the fore several provisions of law which made the continuation of the partnership unlawful and therefore
caused its ipso facto dissolution.

Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from transferring or
subletting the fishpond granted to him, without the previous consent or approval of the Secretary of Agriculture and
Natural Resources.15 To the same effect is Condition No. 3 of the fishpond permit which states that "The permittee
shall not transfer or sublet all or any area herein granted or any rights acquired therein without the previous consent
and approval of this Office." Parenthetically, we must observe that in DANR Case 353-B, the permit granted to one
of the parties therein, Leoncio Aradillos, was cancelled not solely for the reason that his permit covered a portion of
the area included in the appellant's prior fishpond application, but also because, upon investigation, it was
ascertained thru the admission of Aradillos himself that due to lack of capital, he allowed one Lino Estepa to develop
with the latter's capital the area covered by his fishpond permit F-289-C with the understanding that he (Aradillos)
would be given a share in the produce thereof.16

Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that

The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of
Agriculture and Commerce, and the violation of this condition shall avoid the contract; Provided, That
assignment, encumbrance, or subletting for purposes of speculation shall not be permitted in any
case: Provided, further, That nothing contained in this section shall be understood or construed to permit the
assignment, encumbrance, or subletting of lands leased under this Act, or under any previous Act, to
persons, corporations, or associations which under this Act, are not authorized to lease public lands.

Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources issued in
August 1937, prohibits a transfer or sublease unless first approved by the Director of Lands and under such terms
and conditions as he may prescribe. Thus, it states:

When a transfer or sub-lease of area and improvement may be allowed. — If the permittee or lessee had,
unless otherwise specifically provided, held the permit or lease and actually operated and made
improvements on the area for at least one year, he/she may request permission to sub-lease or transfer the
area and improvements under certain conditions.

(a) Transfer subject to approval. — A sub-lease or transfer shall only be valid when first approved by the
Director under such terms and conditions as may be prescribed, otherwise it shall be null and void. A
transfer not previously approved or reported shall be considered sufficient cause for the cancellation of the
permit or lease and forfeiture of the bond and for granting the area to a qualified applicant or bidder, as
provided in subsection (r) of Sec. 33 of this Order.

Since the partnership had for its object the division into two equal parts of the fishpond between the appellees and
the appellant after it shall have been awarded to the latter, and therefore it envisaged the unauthorized transfer of
one-half thereof to parties other than the applicant Casteel, it was dissolved by the approval of his application and
the award to him of the fishpond. The approval was an event which made it unlawful for the business of the
partnership to be carried on or for the members to carry it on in partnership.

The appellees, however, argue that in approving the appellant's application, the Secretary of Agriculture and Natural
Resources likewise recognized and/or confirmed their property right to one-half of the fishpond by virtue of the
contract of service, exhibit A. But the untenability of this argument would readily surface if one were to consider that
the Secretary of Agriculture and Natural Resources did not do so for the simple reason that he does not possess the
authority to violate the aforementioned prohibitory laws nor to exempt anyone from their operation.

However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the foregoing
prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership, succeeding events reveal
the intent of both parties to terminate the partnership by refusing to share the fishpond with the other.

On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire to divide the fishpond
so that he could administer his own share, such division to be subject to the approval of the Secretary of Agriculture
and Natural Resources. By letter dated December 29, 1950,18 the appellee Felipe Deluao demurred to Casteel's
proposition because there were allegedly no appropriate grounds to support the same and, moreover, the conflict
over the fishpond had not been finally resolved.

The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein the former expressed
his determination to administer the fishpond himself because the decision of the Government was in his favor and
the only reason why administration had been granted to the Deluaos was because he was indebted to them. In the
same letter, the appellant forbade Felipe Deluao from sending the couple's encargado, Jesus Donesa, to the
fishpond. In reply thereto, Felipe Deluao wrote a letter20 dated January 5, 1951 in which he reiterated his refusal to
grant the administration of the fishpond to the appellant, stating as a ground his belief "that only the competent
agencies of the government are in a better position to render any equitable arrangement relative to the present
case; hence, any action we may privately take may not meet the procedure of legal order."

Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not to share the
fishpond with each other — in direct violation of the undertaking for which they have established their partnership —
each must be deemed to have expressly withdrawn from the partnership, thereby causing its dissolution pursuant to
art. 1830(2) of the Civil Code which provides, inter alia, that dissolution is caused "by the express will of any partner
at any time."

In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive and administrative
powers with regard to the survey, classification, lease, sale or any other form of concession or disposition and
management of the lands of the public domain, and, more specifically, with regard to the grant or withholding of
licenses, permits, leases and contracts over portions of the public domain to be utilized as fishponds.21, Thus, we
held in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and reiterated in Ganitano vs. Secretary of Agriculture
and Natural Resources, et al.
(L-21167, March 31, 1966), that

... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Resources) by law
regarding the disposition of public lands such as granting of licenses, permits, leases, and contracts, or
approving, rejecting, reinstating, or cancelling applications, or deciding conflicting applications, are all
executive and administrative in nature. It is a well-recognized principle that purely administrative and
discretionary functions may not be interfered with by the courts (Coloso v. Board of Accountancy, G.R. No.
L-5750, April 20, 1953). In general, courts have no supervising power over the proceedings and action of the
administrative departments of the government. This is generally true with respect to acts involving the
exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-559) Findings of fact by an
administrative board or official, following a hearing, are binding upon the courts and will not be disturbed
except where the board or official has gone beyond his statutory authority, exercised unconstitutional
powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of discretion...
(emphasis supplied)

In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the appellant's fishpond
application 1717 and awarded to him the possession of the area in question. In view of the finality of the Secretary's
decision in DANR Cases 353 and 353-B, and considering the absence of any proof that the said official exceeded
his statutory authority, exercised unconstitutional powers, or acted with arbitrariness and in disregard of his duty, or
with grave abuse of discretion, we can do no less than respect and maintain unfettered his official acts in the
premises. It is a salutary rule that the judicial department should not dictate to the executive department what to do
with regard to the administration and disposition of the public domain which the law has entrusted to its care and
administration. Indeed, courts cannot superimpose their discretion on that of the land department and compel the
latter to do an act which involves the exercise of judgment and discretion.22

Therefore, with the view that we take of this case, and even assuming that the injunction was properly issued
because present all the requisite grounds for its issuance, its continuation, and, worse, its declaration as permanent,
was improper in the face of the knowledge later acquired by the lower court that it was the appellant's application
over the fishpond which was given due course. After the Secretary of Agriculture and Natural Resources approved
the appellant's application, he became to all intents and purposes the legal permittee of the area with the
corresponding right to possess, occupy and enjoy the same. Consequently, the lower court erred in issuing the
preliminary mandatory injunction. We cannot overemphasize that an injunction should not be granted to take
property out of the possession and control of one party and place it in the hands of another whose title has not been
clearly established by law.23

However, pursuant to our holding that there was a partnership between the parties for the exploitation of the
fishpond before it was awarded to Casteel, this case should be remanded to the lower court for the reception of
evidence relative to an accounting from November 25, 1949 to September 15, 1950, in order for the court to
determine (a) the profits realized by the partnership, (b) the share (in the profits) of Casteel as industrial partner, (e)
the share (in the profits) of Deluao as capitalist partner, and (d) whether the amounts totalling about P27,000
advanced by Deluao to Casteel for the development and improvement of the fishpond have already been liquidated.
Besides, since the appellee Inocencia Deluao continued in possession and enjoyment of the fishpond even after it
was awarded to Casteel, she did so no longer in the concept of a capitalist partner but merely as creditor of the
appellant, and therefore, she must likewise submit in the lower court an accounting of the proceeds of the sales of
all the fishes harvested from the fishpond from September 16, 1950 until Casteel shall have been finally given the
possession and enjoyment of the same. In the event that the appellee Deluao has received more than her lawful
credit of P27,000 (or whatever amounts have been advanced to Casteel), plus 6% interest thereon per annum, then
she should reimburse the excess to the appellant.

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered: (1) dissolving
the injunction issued against the appellant, (2) placing the latter back in possession of the fishpond in litigation, and
(3) remanding this case to the court of origin for the reception of evidence relative to the accounting that the parties
must perforce render in the premises, at the termination of which the court shall render judgment accordingly. The
appellant's counterclaim is dismissed. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.
G.R. No. L-27010 April 30, 1969

MARLENE DAUDEN-HERNAEZ, petitioner,

vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Quezon City, HOLLYWOOD
FAR EAST PRODUCTIONS, INC., and RAMON VALENZUELA, respondents.

R. M. Coronado and Associates for petitioner.

Francisco Lavides for respondent.

REYES, J.B.L., Acting C.J.:

Petition for a writ of certiorari to set aside certain orders of the Court of First Instance of Quezon City (Branch IV), in
its Civil Case No. Q-10288, dismissing a complaint for breach of contract and damages, denying reconsideration,
refusing to admit an amended complaint, and declaring the dismissal final and unappealable.

The essential facts are the following:

Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against herein private
respondents, Hollywood Far East Productions, Inc., and its President and General Manager, Ramon Valenzuela, to
recover P14,700.00 representing a balance allegedly due said petitioner for her services as leading actress in two
motion pictures produced by the company, and to recover damages. Upon motion of defendants, the respondent
court (Judge Walfrido de los Angeles presiding) ordered the complaint dismissed, mainly because the "claim of
plaintiff was not evidenced by any written document, either public or private", and the complaint "was defective on its
face" for violating Articles 1356 and 1358 of the Civil, Code of the Philippines, as well as for containing defective
allege, petitions. Plaintiff sought reconsideration of the dismissal and for admission of an amended complaint,
attached to the motion. The court denied reconsideration and the leave to amend; whereupon, a second motion for
reconsideration was filed. Nevertheless, the court also denied it for being pro forma, as its allegations "are, more or
less, the same as the first motion", and for not being accompanied by an affidavit of merits, and further declared the
dismissal final and unappealable. In view of the attitude of the Court of First Instance, plaintiff resorted to this Court.

The answer sets up the defense that "the proposed amended complaint did not vary in any material respect from the
original complaint except in minor details, and suffers from the same vital defect of the original complaint", which is
the violation of Article 1356 of the Civil Code, in that the contract sued upon was not alleged to be in writing; that by
Article 1358 the writing was absolute and indispensable, because the amount involved exceeds five hundred pesos;
and that the second motion for reconsideration did not interrupt the period for appeal, because it was not served on
three days' notice.

We shall take up first the procedural question. It is a well established rule in our jurisprudence that when a court
sustains a demurrer or motion to dismiss it is error for the court to dismiss the complaint without giving the party
plaintiff an opportunity to amend his complaint if he so chooses. 1 Insofar as the first order of dismissal (Annex D,
Petition) did not provide that the same was without prejudice to amendment of the complaint, or reserve to the
plaintiff the right to amend his complaint, the said order was erroneous; and this error was compounded when the
motion to accept the amended complaint was denied in the subsequent order of 3 October 1966 (Annex F, Petition).
Hence, the petitioner-plaintiff was within her rights in filing her so-called second motion for reconsideration, which
was actually a first motion against the refusal to admit the amended complaint.

It is contended that the second motion for reconsideration was merely pro forma and did not suspend the period to
appeal from the first order of dismissal (Annex D) because (1) it merely reiterated the first motion for reconsideration
and (2) it was filed without giving the counsel for defendant-appellee the 3 days' notice provided by the rules. This
argument is not tenable, for the reason that the second motion for reconsideration was addressed to the court'
refusal to allow an amendment to the original complaint, and this was a ground not invoked in the first motion for
reconsideration. Thus, the second motion to reconsider was really not pro forma, as it was based on a different
ground, even if in its first part it set forth in greater detail the arguments against the correctness of the first order to
dismiss. And as to the lack of 3 days' notice, the record shows that appellees had filed their opposition (in detail) to
the second motion to reconsider (Answer, Annex 4); so that even if it were true that respondents were not given the
full 3 days' notice they were not deprived of any substantial right. Therefore, the claim that the first order of dismissal
had become final and unappealable must be overruled.

It is well to observe in this regard that since a motion to dismiss is not a responsive pleading, the plaintiff-petitioner
was entitled as of right to amend the original dismissed complaint. In Paeste vs. Jaurigue 94 Phil. 179, 181, this
Court ruled as follows:

Appellants contend that the lower court erred in not admitting their amended complaint and in holding that
their action had already prescribed. Appellants are right on both counts.

Amendments to pleadings are favored and should be liberally allowed in the furtherance of justice. (Torres
vs. Tomacruz, 49 Phil. 913). Moreover, under section 1 of Rule 17, Rules of Court, a party may amend his
pleading once as a matter of course, that is, without leave of court, at any time before a responsive pleading
 is served. A motion to dismiss is not a "responsive pleading". (Moran on the Rules of Court, vol. 1, 1952,
ed., p. 376). As plaintiffs amended their complaint before it was answered, the motion to admit the
amendment should not have been denied. It is true that the amendment was presented after the original
complaint had been ordered dismissed. But that order was not yet final for it was still under reconsideration.

The foregoing observations leave this Court free to discuss the main issue in this petition. Did the court below abuse
its discretion in ruling that a contract for personal services involving more than P500.00 was either invalid of
unenforceable under the last paragraph of Article 1358 of the Civil Code of the Philippines?

We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable misunderstanding
of the role of the written form in contracts, as ordained in the present Civil Code.

In the matter of formalities, the contractual system of our Civil Code still follows that of the Spanish Civil Code of
1889 and of the "Ordenamiento de Alcala" 2 of upholding the spirit and intent of the parties over formalities: hence, in
general, contracts are valid and binding from their perfection regardless of form whether they be oral or written. This
is plain from Articles 1315 and 1356 of the present Civil Code. Thus, the first cited provision prescribes:

ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only
to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law. (Emphasis supplied)

Concordantly, the first part of Article 1356 of the Code Provides:

ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present.... (Emphasis supplied)

These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3) consideration
or causa for the obligation assumed (Article 1318). 3 So that once the three elements exist, the contract is generally
valid and obligatory, regardless of the form, oral or written, in which they are couched. lawphi1.nêt

To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356:

However, when the law requires that a contract be in some form in order that it may be valid or enforceable,
or that a contract be proved in a certain way, that requirement is absolute and indispensable....

It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding effect inter partes of a
contract that possesses the three validating elements of consent, subject matter, and causa, Article 1356 of the
Code establishes only two exceptions, to wit:

(a) Contracts for which the law itself requires that they be in some particular form (writing) in order to make
them valid and enforceable (the so-called solemn contracts). Of these the typical example is the donation of
immovable property that the law (Article 749) requires to be embodied in a public instrument in order "that the
donation may be valid", i.e., existing or binding. Other instances are the donation of movables worth more than
P5,000.00 which must be in writing, "otherwise the donation shall be void" (Article 748); contracts to pay interest on
loans (mutuum) that must be "expressly stipulated in writing" (Article 1956); and the agreements contemplated by
Article 1744, 1773, 1874 and 2134 of the present Civil Code.

(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those covered by
the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being provable by mere oral
testimony (unless wholly or partly executed), these contracts are exceptional in requiring a writing embodying the
terms thereof for their enforceability by action in court.

The contract sued upon by petitioner herein (compensation for services) does not come under either exception. It is
true that it appears included in Article 1358, last clause, providing that "all other contracts where the amount
involved exceeds five hundred pesos must appear in writing, even a private one." But Article 1358 nowhere provides
that the absence of written form in this case will make the agreement invalid or unenforceable. On the contrary,
Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by action or suit
despite the absence of writing.

ART. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in
the following article, the contracting parties may compel each other to observe that form, once the contract
has been perfected. This right may be exercised simultaneously with the action the contract. (Emphasis
supplied) .

It thus becomes inevitable to conclude that both the court a quo as well as the private respondents herein were
grossly mistaken in holding that because petitioner Dauden's contract for services was not in writing the same could
not be sued upon, or that her complaint should be dismissed for failure to state a cause of action because it did not
plead any written agreement.
The basic error in the court's decision lies in overlooking that in our contractual system it is not enough that the law
should require that the contract be in writing, as it does in Article 1358. The law must further prescribe that without
the writing the contract is not valid or not enforceable by action.

WHEREFORE, the order dismissing the complaint is set aside, and the case is ordered remanded to the court of
origin for further proceedings not at variance with this decision.

Costs to be solidarity paid by private respondents Hollywood Far East Productions, Inc., and Ramon Valenzuela.

Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Teehankee and Barredo, JJ., concur.
Concepcion, C.J. and Castro, J., are on leave.
Capistrano, J., took no part.