G.R. No.

L-33580
1931

February 6,

Exhibit A, and that article 1124 of the

Civil Code is not applicable to the
present case.

MAXIMILIANO SANCHO, plaintiff-appellant,

vs.
SEVERIANO LIZARRAGA, defendantappellee.

2. In failing to order the defendant to

return the sum of P50,000 to the
plaintiff with interest from October 15,
1920, until fully paid.

Jose Perez Cardenas and Jose M. Casal for

appellant.
Celso B. Jamora and Antonio Gonzalez for
appellee.

3. In denying the motion for a new

trial.
In the brief filed by counsel for the appellee, a
preliminary question is raised purporting to
show that this appeal is premature and
therefore will not lie. The point is based on the
contention that inasmuch as the liquidation
ordered by the trial court, and the consequent
accounts, have not been made and
submitted, the case cannot be deemed
terminated in said court and its ruling is not
yet appealable. In support of this contention
counsel cites section 123 of the Code of Civil
Procedure, and the decision of this court in
the case of Natividad vs. Villarica (31 Phil.,
172).

ROMUALDEZ, J.:
The plaintiff brought an action for the
rescission of a partnership contract between
himself and the defendant, entered into on
October 15, 1920, the reimbursement by the
latter of his 50,000 peso investment therein,
with interest at 12 per cent per annum form
October 15, 1920, with costs, and any other
just and equitable remedy against said
defendant.
The defendant denies generally and
specifically all the allegations of the complaint
which are incompatible with his special
defenses, cross-complaint and counterclaim,
setting up the latter and asking for the
dissolution of the partnership, and the
payment to him as its manager and
administrator of P500 monthly from October
15, 1920, until the final dissolution, with
interest, one-half of said amount to be
charged to the plaintiff. He also prays for any
other just and equitable remedy.

This contention is well founded. Until the

accounts have been rendered as ordered by
the trial court, and until they have been either
approved or disapproved, the litigation
involved in this action cannot be considered
as completely decided; and, as it was held in
said case of Natividad vs .Villarica, also with
reference to an appeal taken from a decision
ordering the rendition of accounts following
the dissolution of partnership, the appeal in
the instant case must be deemed premature.

The Court of First Instance of Manila, having

heard the cause, and finding it duly proved
that the defendant had not contributed all the
capital he had bound himself to invest, and
that the plaintiff had demanded that the
defendant liquidate the partnership, declared
it dissolved on account of the expiration of the
period for which it was constituted, and
ordered the defendant, as managing partner,
to proceed without delay to liquidate it,
submitting to the court the result of the
liquidation together with the accounts and
vouchers within the period of thirty days from
receipt of notice of said judgment, without
costs.

But even going into the merits of the case,

the affirmation of the judgment appealed from
is inevitable. In view of the lower court's
findings referred to above, which we cannot
revise because the parol evidence has not
been forwarded to this court, articles 1681
and 1682 of the Civil Code have been properly
applied. Owing to the defendant's failure to
pay to the partnership the whole amount
which he bound himself to pay, he became
indebted to it for the remainder, with interest
and any damages occasioned thereby, but the
plaintiff did not thereby acquire the right to
demand rescission of the partnership contract
according to article 1124 of the Code. This
article cannot be applied to the case in
question, because it refers to the resolution of
obligations in general, whereas article 1681
and 1682 specifically refer to the contract of
partnership in particular. And it is a well

The plaintiff appealed from said decision

making the following assignments of error:
1. In holding that the plaintiff and
appellant is not entitled to the
rescission of the partnership contract,

known principle that special provisions prevail

over general provisions.

resulting in the formation of the "U.P.

Construction Company" 3 which was
subsequently engaged as subcontractor of the
construction projects. 4

By virtue of the foregoing, this appeal is

hereby dismissed, leaving the decision
appealed from in full force, without special
pronouncement of costs. So ordered.

The partners agreed that the capital of the

partnership would be P100,000.00 of which
each partner shall contribute the amount of
P50,000.00 in cash. 5 But, as heretofore
stated, Puzon was short of cash and he
promised to contribute his share in the
partnership capital as soon as his application
for a loan with the Philippine National Bank in
the amount of P150,000.00 shall have been
approved. However, before his loan
application could be acted upon, he had to
clear his collaterals of its incumbrances first.
For this purpose, on October 24, 1956,
WilhamUy gave Bartolome Puzon the amount
of P10,000.00 as advance contribution of his
share in the partnership to be organized
between them under the firm name U.P.
CONSTRUCTION COMPANY which amount
mentioned above will be used by Puzon to pay
his obligations with the Philippine National
Bank to effect the release of his mortgages
with the said Bank. 6 On October 29, 1956,
William Uy again gave Puzon the amount of
P30,000.00 as his partial contribution to the
proposed partnership and which the said
Puzon was to use in payment of his obligation
to the Rehabilitation Finance
Corporation. 7 Puzon promised William Uy that
the amount of P150,000.00 would be given to
the partnership to be applied thusly:
P40,000.00, as reimbursement of the capital
contribution of William Uy which the said Uy
had advanced to clear the title of Puzon's
property; P50,000.00, as Puzon's contribution
to the partnership; and the balance of
P60,000.00 as Puzon's personal loan to the
partnership. 8

Avancea, C.J., Johnson, Street, Malcolm,

Villamor, Ostrand, Johns and Villa-Real, JJ.,
concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-19819 October 26, 1977
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by
FRANCO PUZON, defendant-appellant.
R.P. Sarandi for appellant.
Jose L. Uy& Andres P. Salvador for appellee.

CONCEPCION JR., J.:t.hqw

Appeal from the decision of the Court of First
Instanre of Manila, dissolving the "U.P.
Construction Company" and ordering the
defendant Bartolome Puzon to pay the
plaintiff the amounts of: (1) P115,102.13, with
legal interest thereon from the date of the
filing of the complaint until fully paid; (2)
P200,000.00, as plaintiffs share in the
unrealized profits of the "U.P. Construction
Company" and (3) P5,000.00, as and for
attorney's fees.

Although the partnership agreement was

signed by the parties on January 18,
1957,9 work on the projects was started by
the partnership on October 1, 1956 in view of
the insistence of the Bureau of Public
Highways to complete the project right
away. 10 Since Puzon was busy with his other
projects, William Uy was entrusted with the
management of the projects and whatever
expense the latter might incur, would be
considered as part of his contribution. 11 At
the end of December, 1957, William Uy had
contributed to the partnership the amount of
P115,453.39, including his capital. 12

It is of record that the defendant Bartolome

Puzon had a contract with the Republic of the
Philippines for the construction of the
GanyanganBato Section of the Pagadian
Zamboanga City Road, province of
Zamboanga del Sur 1 and of five (5) bridges in
the Malangas-Ganyangan Road. 2 Finding
difficulty in accomplishing both projects,
Bartolome Puzon sought the financial
assistance of the plaintiff, William Uy. As an
inducement, Puzon proposed the creation of a
partnership between them which would be
the sub-contractor of the projects and the
profits to be divided equally between them.
William Uy inspected the projects in question
and, expecting to derive considerable profits
therefrom, agreed to the proposition, thus

The loan of Puzon was approved by the

Philippine National Bank in November, 1956
and he gave to William Uy the amount of
P60,000.00. Of this amount, P40,000.00 was
for the reimbursement of Uy's contribution to
the partnership which was used to clear the

title to Puzon's property, and the P20,000.00

as Puzon's contribution to the partnership
capital. 13

their subcontract agreement as of December

1, 1957. 21
Thereafter, William Uy was not allowed to hold
office in the U.P. Construction Company and
his authority to deal with the Bureau of Public
Highways in behalf of the partnership was
revoked by Bartolome Puzon who continued
with the construction projects alone. 22

To guarantee the repayment of the abovementioned loan, Bartolome Puzon, without the
knowledge and consent of William
Uy, 14 assigned to the Philippine National Bank
all the payments to be received on account of
the contracts with the Bureau of Public
Highways for the construction of the aforementioned projects. 15 By virtue of said
assignment, the Bureau of Public Highways
paid the money due on the partial
accomplishments on the government projects
in question to the Philippine National Bank
which, in turn, applied portions of it in
payment of Puzon's loan. Of the amount of
P1,047,181.07, released by the Bureau of
Public Highways in payment of the partial
work completed by the partnership on the
projects, the amount of P332,539.60 was
applied in payment of Puzon's loan and only
the amount of P27,820.80 was deposited in
the partnership funds, 16 which, for all
practical purposes, was also under Puzon's
account since Puzon was the custodian of the
common funds.

On May 20, 1958, William Uy, claiming that

Bartolome Puzon had violated the terms of
their partnership agreement, instituted an
action in court, seeking, inter alia, the
dissolution of the partnership and payment of
damages.
Answering, Bartolome Puzon denied that he
violated the terms of their agreement
claiming that it was the plaintiff, William Uy,
who violated the terms thereof. He, likewise,
prayed for the dissolution of the partnership
and for the payment by the plaintiff of his,
share in the losses suffered by the
partnership.
After appropriate proceedings, the trial court
found that the defendant, contrary to the
terms of their partnership agreement, failed
to contribute his share in the capital of the
partnership applied partnership funds to his
personal use; ousted the plaintiff from the
management of the firm, and caused the
failure of the partnership to realize the
expected profits of at least P400,000.00. As a
consequence, the trial court dismissed the
defendant's counterclaim and ordered the
dissolution of the partnership. The trial court
further ordered the defendant to pay the
plaintiff the sum of P320,103.13.

As time passed and the financial demands of

the projects increased, William Uy, who
supervised the said projects, found difficulty
in obtaining the necessary funds with which to
pursue the construction projects. William Uy
correspondingly called on Bartolome Puzon to
comply with his obligations under the terms of
their partnership agreement and to place, at
lest, his capital contribution at the disposal of
the partnership. Despite several promises,
Puzon, however, failed to do so. 17 Realizing
that his verbal demands were to no avail,
William Uy consequently wrote Bartolome
Puzonpormal letters of demand, 18 to which
Puzon replied that he is unable to put in
additional capital to continue with the
projects. 19

Hence, the instant appeal by the defendant

Bartolome Puzon during the pendency of the
appeal before this Court, the said Bartolome
Puzon died, and was substituted by Franco
Puzon.

Failing to reach an agreement with William Uy,

Bartolome Puzon, as prime contractor of the
construction projects, wrote the
subcontractor, U.P. Construction Company, on
November 20, 1957, advising the partnership,
of which he is also a partner, that unless they
presented an immediate solution and capacity
to prosecute the work effectively, he would be
constrained to consider the sub-contract
terminated and, thereafter, to assume all
responsibilities in the construction of the
projects in accordance with his original
contract with the Bureau of Public
Highways. 20 On November 27, 1957,
Bartolome Puzon again wrote the
U.P.Construction Company finally terminating

The appellant makes in his brief nineteen (19)

assignment of errors, involving questions of
fact, which relates to the following points:
(1) That the appellant is not guilty of breach
of contract; and
(2) That the amounts of money the appellant
has been order to pay the appellee is not
supported by the evidence and the law.
After going over the record, we find no reason
for rejecting the findings of fact below,
justifying the reversal of the decision
appealed from.

The findings of the trial court that the

appellant failed to contribute his share in the
capital of the partnership is clear
incontrovertible. The record shows that after
the appellant's loan the amount of
P150,000.00 was approved by the Philippin
National Bank in November, 1956, he gave
the amount P60,000.00 to the appellee who
was then managing the construction projects.
Of this amount, P40,000.00 was to be applied
a reimbursement of the appellee's
contribution to the partnership which was
used to clear the title to the appellant's
property, and th balance of P20,000.00, as
Puzon's contribution to the
partnership. 23 Thereafter, the appellant failed
to make any further contributions the
partnership funds as shown in his letters to
the appellee wherein he confessed his
inability to put in additional capital to
continue with the projects. 24

PESOS (P30,000.00) in Check

No. SC423287, of the Equitable
Banking Corporation, as partial
contribution of the share of the
said William Uy to the U.P.
CONSTRUCTION COMPANY for
which the undersigned will use
the said amount in payment of
his obligation to the
Rehabilitation Finance
Corporation. (Emphasis
supplied)
The findings of the trial court that the
appellant misapplied partnership funds is,
likewise, sustained by competent evidence. It
is of record that the appellant assigned to the
Philippine National Bank all the payments to
be received on account of the contracts with
the Bureau of Public Highways for the
construction of the aforementioned projects to
guarantee the repayment of the bank. 27 By
virtue of the said appeflant's personal loan
with the said bank assignment, the Bureau of
Public Highways paid the money due on the
partial accomplishments on the construction
projects in question to the Philippine National
Bank who, in turn, applied portions of it in
payment of the appellant's loan. 28

Parenthetically, the claim of the appellant that

the appellee is equally guilty of not
contributing his share in the partnership
capital inasmuch as the amount of
P40,000.00, allegedly given to him in October,
1956 as partial contribution of the appellee is
merely a personal loan of the appellant which
he had paid to the appellee, is plainly
untenable. The terms of the receipts signed
by the appellant are clear and unequivocal
that the sums of money given by the appellee
are appellee's partial contributions to the
partnership capital. Thus, in the receipt for
P10,000.00 dated October 24, 1956, 25 the
appellant stated:+.wph!1

The appellant claims, however, that the said

assignment was made with the consent of the
appellee and that the assignment not
prejudice the partnership as it was
reimbursed by the appellant.
But, the appellee categorically stated that the
assignment to the Philippine National Bank
was made without his prior knowledge and
consent and that when he learned of said
assignment, he cal the attention of the
appellant who assured him that the
assignment was only temporary as he would
transfer the loan to the Rehabilitation Finance
Corporation within three (3) months time. 29

Received from Mr. William Uy

the sum of TEN THOUSAND
PESOS (P10,000.00) in Check
No. SC 423285 Equitable
Banking Corporation, dated
October 24, 1956, as advance
contribution of the share of said
William Uy in the partnership to
be organized between us under
the firm name U.P.
CONSTRUCTION
COMPANY which amount
mentioned above will be used
by the undersigned to pay his
obligations with the Philippine
National Bank to effect the
release of his mortgages with
the said bank. (Emphasis
supplied)

The question of whom to believe being a

matter large dependent on the trier's
discretion, the findings of the trial court who
had the better opportunity to examine and
appraise the fact issue, certainly deserve
respect.
That the assignment to the Philippine National
Bank prejudicial to the partnership cannot be
denied. The record show that during the
period from March, 1957 to September, 1959,
the appellant Bartolome Puzon received from
the Bureau of Public highways, in payment of
the work accomplished on the construction
projects, the amount of P1,047,181.01, which
amount rightfully and legally belongs to the
partnership by virtue of the subcontract
agreements between the appellant and the

In the receipt for the amount of P30,000.00

dated October 29, 1956, 26 the appellant also
said:+.wph!1
Received from William Uy the
sum of THIRTY THOUSAND

U.P. Construction Company. In view of the

assignemt made by Puzon to the Philippine
National Bank, the latter withheld and applied
the amount of P332,539,60 in payment of the
appellant's personal loan with the said bank.
The balance was deposited in Puzon's current
account and only the amount of P27,820.80
was deposited in the current account of the
partnership. 30 For sure, if the appellant gave
to the partnership all that were eamed and
due it under the subcontract agreements, the
money would have been used as a safe
reserve for the discharge of all obligations of
the firm and the partnership would have been
able to successfully and profitably prosecute
the projects it subcontracted.

Aside from the initial amount P40,000.00 put

up by the appellee in October, 1956, 34 the
partners' investments took, the form of cash
advances coveting expenses of the
construction projects as they were incurred.
Since the determination of the amount of the
disbursements which each of them had made
for the construction projects require an
examination of the books of account, the trial
court appointed two commissioners,
designated by the parties, "to examine the
books of account of the defendant regarding
the U.P. Construction Company and his
personal account with particular reference to
the Public Works contract for the construction
of the Ganyangan-Bato Section, PagadianZamboanga City Road and five (5) Bridges in
Malangas-Ganyangan Road, including the
payments received by defendant from the
Bureau of Public Highways by virtue of the
two projects above mentioned, the
disbursements or disposition made by
defendant of the portion thereof released to
him by the Philippine National Bank and in
whose account these funds are deposited . 35

When did the appellant make the

reimbursement claimed by him?
For the same period, the appellant actually
disbursed for the partnership, in connection
with the construction projects, the amount of
P952,839.77. 31 Since the appellant received
from the Bureau of Public Highways the sum
of P1,047,181.01, the appellant has a deficit
balance of P94,342.24. The appellant,
therefore, did not make complete restitution.

In due time, the loners so

appointed, 36 submitted their report 37 they
indicated the items wherein they are in
agreement, as well as their points of
disagreement.

The findings of the trial court that the

appellee has been ousted from the
management of the partnership is also based
upon persuasive evidence. The appellee
testified that after he had demanded from the
appellant payment of the latter's contribution
to the partnership capital, the said appellant
did not allow him to hold office in the U.P.
Construction Company and his authority to
deal with the Bureau of Public Highways was
revoked by the appellant.32

In the commissioners' report, the appellant's

advances are listed under Credits; the money
received from the firm, under Debits; and the
resulting monthly investment standings of the
partners, under Balances. The commissioners
are agreed that at the end of December,
1957, the appellee had a balance of
P8,242.39. 38 It is in their respective
adjustments of the capital account of the
appellee that the commissioners had
disagreed.

As the record stands, We cannot say,

therefore, that the decis of the trial court is
not sustained by the evidence of record as
warrant its reverw.

Mr. Ablaza, designated by the appellant,

would want to charge the appellee with the
sum of P24,239.48, representing the checks
isssued by the appellant, 39 and encashed by
the appellee or his brother, UyHan so that the
appellee would owe the partnership the
amount of P15,997.09.

Since the defendantappellant was at fauh, the

tral court properly ordered him to reimburse
the plaintiff-appellee whatever amount latter
had invested in or spent for the partnership
on account of construction projects.

Mr. Tayag, designated by the appellee, upon

the other hand, would credit the appellee the
following additional amounts:

How much did the appellee spend in the

construction projects question?
It appears that although the partnership
agreement stated the capital of the
partnership is P100,000.00 of which each part
shall contribute to the partnership the amount
of P50,000.00 cash 33 the partners of the U.P.
Construction Company did contribute their
agreed share in the capitalization of the
enterprise in lump sums of P50,000.00 each.

(1) P7,497.80 items omitted from the books

of partnership but recognized and charged to
Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 payrolls paid by the
appellee in the amount P128,103.77 less

payroll remittances from the appellant in

amount of P63,000.00; and

Manila office which were under the control of

the appellant. However, officer which were
under the control of the appellant. However, a
list of these expenses are incorporated in
Exhibits ZZ, ZZ-1 to ZZ-4.

(3) P26,027.04 other expeses incurred by the

appellee at construction site.

In resume', the appelllee's credit balance

would be as follows:

With respect to the amount of P24,239.48,

claimed by appellant, we are hereunder
adopting the findings of the trial which we
find to be in accord with the evidence:

+.wph!1

To enhance defendant's theory that he should

be credited P24,239.48, he presented checks
allegedly given to plaintiff and the latter's
brother, Uy Han, marked as Exhibits 2 to 11.
However, defendant admitted that said
cheeks were not entered nor record their
books of account, as expenses for and in
behalf of partnership or its affairs. On the
other hand, Uy Han testified that of the
cheeks he received were exchange for cash,
while other used in the purchase of spare
parts requisitioned by defendant. This
testimony was not refuted to the satisfaction
of the Court, considering that Han's
explanation thereof is the more plausible
because if they were employed in the
prosecution of the partners projects, the
corresponding disbursements would have
certainly been recorded in its books, which is
not the case. Taking into account defendant is
the custodian of the books of account, his
failure to so enter therein the alleged
disbursements, accentuates the falsity of his
claim on this point. 40

Undisputed
balance as of
Dec. 1967

Add: Items
omitted from
the books but

P
8,242.

recognized
and charged
to
Miscellaneous

Expenses by
Mr. Ablaza

Besides, as further noted by the trial court,

the report Commissioner Ablaza is unreliable
in view of his proclivity to favor the appellant
and because of the inaccurate accounting
procedure adopted by him in auditing the
books of account of the partnership unlike Mr.
Tayag's report which inspires faith and
credence. 41

7,497.
80

Add:
Payro
lls
paid
by
the
appel
lee

P128,
103.7
7

63,00
0.00

The explanation of Mr. Tayag on the inclusion

of the amount of P65,103.77 is likewise clear
and convincing. 43

Less:
Payro
ll
remit
tance
s
recei
ved

As for the sum of of P26,027.04, the same

represents the expenses which the appelle
paid in connection withe the projects and not
entered in the books of the partnership since
all vouchers and receipts were sent to the

Add:
Other
expe

As explained by Mr. Tayag, the amount of

P7,497.80 represen expenses paid by the
appellee out of his personal funds which not
been entered in the books of the partnership
but which been recognized and conceded to
by the auditor designated by the appellant
who included the said amount under
Expenses. 42

65,1
3.77

nses
incurr
ed at
the

KKK-20,
KKK-21)

site
(Exhs
, ZZ,
ZZ-1
to
ZZ-4)

Total
Investmen
ts

26,02
7.04

TOTA
L

At the trial, the appellee presented a claim for

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

Pl
15,453.3
9

Regarding the award of P200,000.00 as his

share in the unrealized profits of the
partnership, the appellant contends that the
findings of the trial court that the amount of
P400,000.00 as reasonable profits of the
partnership venture is without any basis and
P106,
is not supported by the evidence. The
871.0
appemnt maintains that the lower court, in
0
making its determination, did not take into
consideration the great risks involved in
business operations involving as it does the
completion of the projects within a definite
period of time, in the face of adverse and
often unpredictable circumstances, as well as
the fact that the appellee, who was in charge
of the projects in the field, contributed in a
large measure to the failure of the partnership
to realize such profits by his field
management.

Appellee's
total
credits

P106,871
.00

Add:
unrecorde
d balances
for the
month of
Dec. 1957
(Exhs.
KKK, KK-1
to KKK_19,
KKK-22)

3,917,39

Add:
Payments
to Munoz,
as
subcontrac
tor of five,
(5) Bridges
(p. 264
tsn; Exhs.

4,665.00

This argument must be overruled in the light

of the law and evidence on the matter. Under
Article 2200 of the Civil Code, indemnification
for damages shall comprehend not only the
value of the loss suffered, but also that of the
profits which the obligee failed to obtain. In
other words lucrumcessans is also a basis for
indemnification.
Has the appellee failed to make profits
because of appellant's breach of contract?
There is no doubt that the contracting
business is a profitable one and that the U.P.
Construction Company derived some profits
from' co iooaects its sub ntracts in the
construction of the road and bridges projects
its deficient working capital and the juggling
of its funds by the appellant.

Contrary to the appellant's claim, the

partnership showed some profits during the
period from July 2, 1956 to December 31,
1957. If the Profit and Loss
Statement 45 showed a net loss of
P134,019.43, this was primarily due to the
confusing accounting method employed by
the auditor who intermixed h and
accthecasruamethod of accounting and the
erroneous inclusion of certain items, like
personal expenses of the appellant and

afteged extraordinary losses due to an

accidental plane crash, in the operating
expenses of the partnership, Corrected, the
Profit and Loss Statement would indicate a net
profit of P41,611.28.
For the period from January 1, 1958 to
September 30, 1959, the partnership
admittedly made a net profit of P52,943.89.

FIRST DIVISION
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and
MARIANO E. PECSON, respondents.

46

Besides, as We have heretofore pointed out,

the appellant received from the Bureau of
Public Highways, in payment of the
zonstruction projects in question, the amount
of P1,047,181.01 47 and disbursed the amount
of P952,839.77, 48 leaving an unaccounted
balance of P94,342.24. Obviously, this
amount is also part of the profits of the
partnership.

GUTIERREZ, JR., J.:+.wph!1

This is a petition for review on certiorari of the
decision of the respondent Court of Appeals
which ordered petitioner Isabelo Moran, Jr. to
pay damages to respondent Mariano E,
Pecson.

During the trial of this case, it was discovered

that the appellant had money and credits
receivable froin the projects in question, in the
custody of the Bureau of Public Highways, in
the amount of P128,669.75, representing the
10% retention of said projects.49 After the trial
of this case, it was shown that the total
retentions Wucted from the appemnt
amounted to P145,358.00. 50 Surely, these
retained amounts also form part of the profits
of the partnership.

As found by the respondent Court of Appeals,

the undisputed facts indicate that: t.
hqw
xxxxxxxxx
... on February 22, 1971 Pecson
and Moran entered into an
agreement whereby both would
contribute P15,000 each for the
purpose of printing 95,000
posters (featuring the delegates
to the 1971 Constitutional
Convention), with Moran
actually supervising the work;
that Pecson would receive a
commission of P l,000 a month
starting on April 15, 1971 up to
December 15, 1971; that on
December 15, 1971, a
liquidation of the accounts in
the distribution and printing of
the 95,000 posters would be
made, that Pecson gave Moran
P10,000 for which the latter
issued a receipt; that only a few
posters were printed; that on or
about May 28, 1971, Moran
executed in favor of Pecson a
promissory note in the amount
of P20,000 payable in two equal
installments (P10,000 payable
on or before June 15, 1971 and
P10,000 payable on or before
June 30, 1971), the whole sum
becoming due upon default in
the payment of the first
installment on the date due,
complete with the costs of
collection.

Had the appellant not been remiss in his

obligations as partner and as prime contractor
of the construction projects in question as he
was bound to perform pursuant to the
partnership and subcontract agreements, and
considering the fact that the total contract
amount of these two projects is
P2,327,335.76, it is reasonable to expect that
the partnership would have earned much
more than the P334,255.61 We have
hereinabove indicated. The award, therefore,
made by the trial court of the amount of
P200,000.00, as compensatory damages, is
not speculative, but based on reasonable
estimate.
WHEREFORE, finding no error in the decision
appealed from, the said decision is hereby
affirmed with costs against the appellant, it
being understood that the liability mentioned
herein shall be home by the estate of the
deceased Bartolome Puzon, represented in
this instance by the administrator thereof,
Franco Puzon.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

Private respondent Pecson filed with the Court

of First Instance of Manila an action for the
recovery of a sum of money and alleged in his
complaint three (3) causes of action, namely:
(1) on the alleged partnership agreement, the
return of his contribution of P10,000.00,
payment of his share in the profits that the
partnership would have earned, and, payment
of unpaid commission; (2) on the alleged
promissory note, payment of the sum of
P20,000.00; and, (3) moral and exemplary
damages and attorney's fees.

From this decision, both parties appealed to

the respondent Court of Appeals. The latter
likewise rendered a decision against the
petitioner. The dispositive portion of the
decision reads: t.hqw
PREMISES CONSIDERED, the
decision appealed from is
hereby SET ASIDE, and a new
one is hereby rendered,
ordering defendant-appellant
Isabelo C. Moran, Jr. to pay
plaintiff- appellant Mariano E.
Pecson:

After the trial, the Court of First Instance held

that: t.hqw

(a) Forty-seven thousand five

hundred (P47,500) (the amount
that could have accrued to
Pecson under their agreement);

From the evidence presented it

is clear in the mind of the court
that by virtue of the partnership
agreement entered into by the
parties-plaintiff and defendant
the plaintiff did contribute
P10,000.00, and another sum of
P7,000.00 for the Voice of the
Veteran or Delegate Magazine.
Of the expected 95,000 copies
of the posters, the defendant
was able to print 2,000 copies
only authorized of which,
however, were sold at P5.00
each. Nothing more was done
after this and it can be said that
the venture did not really get
off the ground. On the other
hand, the plaintiff failed to give
his full contribution of
P15,000.00. Thus, each party is
entitled to rescind the contract
which right is implied in
reciprocal obligations under
Article 1385 of the Civil Code
whereunder 'rescission creates
the obligation to return the
things which were the object of
the contract ...

(b) Eight thousand (P8,000),

(the commission for eight
months);
(c) Seven thousand (P7,000) (as
a return of Pecson's investment
for the Veteran's Project);
(d) Legal interest on (a), (b) and
(c) from the date the complaint
was filed (up to the time
payment is made)
The petitioner contends that the respondent
Court of Appeals decided questions of
substance in a way not in accord with law and
with Supreme Court decisions when it
committed the following errors:
I
THE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE
SUM OF P47,500 AS THE SUPPOSED
EXPECTED PROFITS DUE HIM.

WHEREFORE, the court hereby

renders judgment ordering
defendant Isabelo C. Moran, Jr.
to return to plaintiff Mariano E.
Pecson the sum of P17,000.00,
with interest at the legal rate
from the filing of the complaint
on June 19, 1972, and the costs
of the suit.

II
THE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE
SUM OF P8,000, AS SUPPOSED COMMISSION
IN THE PARTNERSHIP ARISING OUT OF
PECSON'S INVESTMENT.

For insufficiency of evidence,

the counterclaim is hereby
dismissed.

III

THE HONORABLE COURT OF APPEALS

GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE
SUM OF P7,000 AS A SUPPOSED RETURN OF
INVESTMENT IN A MAGAZINE VENTURE.

Pesos (P1,000.00) a month

starting April 15, 1971 up to
December 15, 1971;
5. That upon the termination of
the partnership on December
15, 1971, a liquidation of the
account pertaining to the
distribution and printing of the
said 95,000 posters shall be
made.

IV
ASSUMING WITHOUT ADMITTING THAT
PETITIONER IS AT ALL LIABLE FOR ANY
AMOUNT, THE HONORABLE COURT OF
APPEALS DID NOT EVEN OFFSET PAYMENTS
ADMITTEDLY RECEIVED BY PECSON FROM
MORAN.

The petitioner on the other hand admitted in

his answer the existence of the partnership.
The rule is, when a partner who has
undertaken to contribute a sum of money fails
to do so, he becomes a debtor of the
partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code)
and for interests and damages from the time
he should have complied with his obligation
(Art. 1788, Civil Code). Thus in Uy v. Puzon
(79 SCRA 598), which interpreted Art. 2200 of
the Civil Code of the Philippines, we allowed a
total of P200,000.00 compensatory damages
in favor of the appellee because the appellant
therein was remiss in his obligations as a
partner and as prime contractor of the
construction projects in question. This case
was decided on a particular set of facts. We
awarded compensatory damages in
the Uy case because there was a finding that
the constructing business is a profitable one
and that the UP construction company
derived some profits from its contractors in
the construction of roads and bridges despite
its deficient capital." Besides, there was
evidence to show that the partnership made
some profits during the periods from July 2,
1956 to December 31, 1957 and from January
1, 1958 up to September 30, 1959. The profits
on two government contracts worth
P2,327,335.76 were not speculative. In the
instant case, there is no evidence whatsoever
that the partnership between the petitioner
and the private respondent would have been
a profitable venture. In fact, it was a failure
doomed from the start. There is therefore no
basis for the award of speculative damages in
favor of the private respondent.

V
THE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN NOT GRANTING THE
PETITIONER'S COMPULSORY COUNTERCLAIM
FOR DAMAGES.
The first question raised in this petition refers
to the award of P47,500.00 as the private
respondent's share in the unrealized profits of
the partnership. The petitioner contends that
the award is highly speculative. The petitioner
maintains that the respondent court did not
take into account the great risks involved in
the business undertaking.
We agree with the petitioner that the award of
speculative damages has no basis in fact and
law.
There is no dispute over the nature of the
agreement between the petitioner and the
private respondent. It is a contract of
partnership. The latter in his complaint
alleged that he was induced by the petitioner
to enter into a partnership with him under the
following terms and conditions: t.hqw
1. That the partnership will
print colored posters of the
delegates to the Constitutional
Convention;
2. That they will invest the
amount of Fifteen Thousand
Pesos (P15,000.00) each;

Furthermore, in the Uy case, only Puzon failed

to give his full contribution while
Uy contributed much more than what was
expected of him. In this case, however, there
was mutual breach. Private respondent failed
to give his entire contribution in the amount
of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to

3. That they will print Ninety

Five Thousand (95,000) copies
of the said posters;
4. That plaintiff will receive a
commission of One Thousand

10

give any of the amount expected of him. He

further failed to comply with the agreement to
print 95,000 copies of the posters. Instead, he
printed only 2,000 copies.

the petitioner in printing the 2,000 copies, the

remaining P6,000.00 should therefore be
returned to the private respondent.
Relative to the second alleged error, the
petitioner submits that the award of
P8,000.00 as Pecson's supposed commission
has no justifiable basis in law.

Article 1797 of the Civil Code provides: t.

hqw
The losses and profits shall be
distributed in conformity with
the agreement. If only the
share of each partner in the
profits has been agreed upon,
the share of each in the losses
shall be in the same proportion.

Again, we agree with the petitioner.

The partnership agreement stipulated that the
petitioner would give the private respondent a
monthly commission of Pl,000.00 from April
15, 1971 to December 15, 1971 for a total of
eight (8) monthly commissions. The
agreement does not state the basis of the
commission. The payment of the commission
could only have been predicated on relatively
extravagant profits. The parties could not
have intended the giving of a commission
inspite of loss or failure of the venture. Since
the venture was a failure, the private
respondent is not entitled to the P8,000.00
commission.

Being a contract of partnership, each partner

must share in the profits and losses of the
venture. That is the essence of a partnership.
And even with an assurance made by one of
the partners that they would earn a huge
amount of profits, in the absence of fraud, the
other partner cannot claim a right to recover
the highly speculative profits. It is a rare
business venture guaranteed to give 100%
profits. In this case, on an investment of
P15,000.00, the respondent was supposed to
earn a guaranteed P1,000.00 a month for
eight months and around P142,500.00 on
95,000 posters costing P2.00 each but 2,000
of which were sold at P5.00 each. The
fantastic nature of expected profits is obvious.
We have to take various factors into account.
The failure of the Commission on Elections to
proclaim all the 320 candidates of the
Constitutional Convention on time was a
major factor. The petitioner undesirable his
best business judgment and felt that it would
be a losing venture to go on with the printing
of the agreed 95,000 copies of the posters.
Hidden risks in any business venture have to
be considered.

Anent the third assigned error, the petitioner

maintains that the respondent Court of
Appeals erred in holding him liable to the
private respondent in the sum of P7,000.00 as
a supposed return of investment in a
magazine venture.
In awarding P7,000.00 to the private
respondent as his supposed return of
investment in the "Voice of the Veterans"
magazine venture, the respondent court ruled
that: t.hqw
xxxxxxxxx
... Moran admittedly signed the
promissory note of P20,000 in
favor of Pecson. Moran does not
question the due execution of
said note. Must Moran therefore
pay the amount of P20,000?
The evidence indicates that the
P20,000 was assigned by Moran
to cover the following: t.
hqw

It does not follow however that the private

respondent is not entitled to recover any
amount from the petitioner. The records show
that the private respondent gave P10,000.00
to the petitioner. The latter used this amount
for the printing of 2,000 posters at a cost of
P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the
2,000 copies were sold at P5.00 each. The
gross income therefore was P10,000.00.
Deducting the printing costs of P4,000.00
from the gross income of P10,000.00 and with
no evidence on the cost of distribution, the
net profits amount to only P6,000.00. This net
profit of P6,000.00 should be divided between
the petitioner and the private respondent.
And since only P4,000.00 was undesirable by

(a) P 7,000 the amount of the PNB check

given by Pecson to Moran representing
Pecson's investment in Moran's other project
(the publication and printing of the 'Voice of
the Veterans');

11

(b) P10,000 to cover the return of Pecson's

contribution in the project of the Posters;

profit of P8,000. This

investment of P6,000.00 and
the promised profit of P8,000
are covered by defendant's
promissory note for P14,000
dated March 31, 1971 marked
by defendant as Exhibit 2
(t.s.n., pp. 20-21, Nov. 29,
1972), and by plaintiff as
Exhibit P. Later, defendant
returned P3,000.00 of the
P6,000.00 investment thereby
proportionately reducing the
promised profit to P4,000. With
the balance of P3,000 (capital)
and P4,000 (promised profit),
defendant signed and executed
the promissory note for P7,000
marked Exhibit 3 for the
defendant and Exhibit M for
plaintiff. Of this P7,000,
defendant paid P4,000
representing full return of the
capital investment and P1,000
partial payment of the
promised profit. The P3,000
balance of the promised profit
was made part consideration of
the P20,000 promissory note
(t.s.n., pp. 22-24, Nov. 29,
1972). It is, therefore, being
presented to show the
consideration for the P20,000
promissory note.

(c) P3,000 representing Pecson's

commission for three months (April, May,
June, 1971).
Of said P20,000 Moran has to pay P7,000 (as
a return of Pecson's investment for the
Veterans' project, for this project never left
the ground) ...
As a rule, the findings of facts of the Court of
Appeals are final and conclusive and cannot
be reviewed on appeal to this Court (Amigo v.
Teves, 96 Phil. 252), provided they are borne
out by the record or are based on substantial
evidence (Alsua-Betts v. Court of Appeals, 92
SCRA 332). However, this rule admits of
certain exceptions. Thus, in Carolina
Industries Inc. v. CMS Stock Brokerage, Inc., et
al., (97 SCRA 734), we held that this Court
retains the power to review and rectify the
findings of fact of the Court of Appeals when
(1) the conclusion is a finding grounded
entirely on speculation, surmises and
conjectures; (2) when the inference made is
manifestly mistaken absurd and impossible;
(3) where there is grave abuse of discretion;
(4) when the judgment is based on a
misapprehension of facts; and (5) when the
court, in making its findings, went beyond the
issues of the case and the same are contrary
to the admissions of both the appellant and
the appellee.

F Xerox copy of PNB

Manager's check dated May 29,
1971 for P7,000 in favor of
defendant. The authenticity of
the check and his receipt of the
proceeds thereof were admitted
by the defendant (t.s.n., pp. 34, Nov. 29, 1972). This P 7,000
is part consideration, and in
cash, of the P20,000 promissory
note (t.s.n., p. 25, Nov. 29,
1972), and it is being presented
to show the consideration for
the P20,000 note and the
existence and validity of the
obligation.

In this case, there is misapprehension of facts.

The evidence of the private respondent
himself shows that his investment in the
"Voice of Veterans" project amounted to only
P3,000.00. The remaining P4,000.00 was the
amount of profit that the private respondent
expected to receive.
The records show the following exhibits- t.
hqw
E Xerox copy of PNB
Manager's Check No. 234265
dated March 22, 1971 in favor
of defendant. Defendant
admitted the authenticity of
this check and of his receipt of
the proceeds thereof (t.s.n., pp.
3-4, Nov. 29, 1972). This exhibit
is being offered for the purpose
of showing plaintiff's capital
investment in the printing of
the "Voice of the Veterans" for
which he was promised a fixed

xxxxxxxxx
L-Book entitled "Voice of the
Veterans" which is being offered
for the purpose of showing the
subject matter of the other
partnership agreement and in
which plaintiff invested the

12

P6,000 (Exhibit E) which,

together with the promised
profit of P8,000 made up for the
consideration of the P14,000
promissory note (Exhibit 2;
Exhibit P). As explained in
connection with Exhibit E. the
P3,000 balance of the promised
profit was later made part
consideration of the P20,000
promissory note.

A This promissory note is for the printing of

the "Voice of the Veterans".
Q What is this "Voice of the Veterans", Mr.
Pecson?
A It is a book.t.hqw
(T.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00
indicated in the promissory note, Exhibit 2,
represent?

M-Promissory note for P7,000

dated March 30, 1971. This is
also defendant's Exhibit E. This
document is being offered for
the purpose of further showing
the transaction as explained in
connection with Exhibits E and
L.

A It represents the P6,000.00 cash which I

gave to Mr. Moran, as evidenced by the
Philippine National Bank Manager's check and
the P8,000.00 profit assured me by Mr. Moran
which I will derive from the printing of this
"Voice of the Veterans" book.

N-Receipt of plaintiff dated

March 30, 1971 for the return of
his P3,000 out of his capital
investment of P6,000 (Exh. E) in
the P14,000 promissory note
(Exh. 2; P). This is also
defendant's Exhibit 4. This
document is being offered in
support of plaintiff's
explanation in connection with
Exhibits E, L, and M to show the
transaction mentioned therein.

Q You said that the P6,000.00 of this

P14,000.00 is covered by, a Manager's check.
I show you Exhibit E, is this the Manager's
check that mentioned?
A Yes, sir.
Q What happened to this promissory note of
P14,000.00 which you said represented
P6,000.00 of your investment and P8,000.00
promised profits?
A Latter, Mr. Moran returned to me P3,000.00
which represented one-half (1/2) of the
P6,000.00 capital I gave to him.

xxxxxxxxx
P-Promissory note for
P14,000.00. This is also
defendant's Exhibit 2. It is being
offered for the purpose of
showing the transaction as
explained in connection with
Exhibits E, L, M, and N above.

Q As a consequence of the return by Mr.

Moran of one-half (1/2) of the P6,000.00
capital you gave to him, what happened to
the promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is
P4,000.00.

Explaining the above-quoted exhibits,

respondent Pecson testified that: t.hqw

Q Was there any document executed by Mr.

Moran in connection with the Balance of
P3,000.00 of your capital investment and the
P4,000.00 promised profits?

Q During the pre-trial of this case, Mr. Pecson,

the defendant presented a promissory note in
the amount of P14,000.00 which has been
marked as Exhibit 2. Do you know this
promissory note?

A Yes, sir, he executed a promissory note.

Q I show you a promissory note in the amount
of P7,000.00 dated March 30, 1971 which for
purposes of Identification I request the same
to be marked as Exhibit M. . .

A Yes, sir.
Q What is this promissory note, in connection
with your transaction with the defendant?

Court

13

Mark it as Exhibit M.

managing partner alone, specially if the latter

exercised his best business judgment, which
seems to be true in this case. In view of the
foregoing, there is no reason to pass upon the
fourth and fifth assignments of errors raised
by the petitioner. We likewise find no valid
basis for the grant of the counterclaim.

Q (continuing) is this the promissory note

which you said was executed by Mr. Moran in
connection with your transaction regarding
the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).

WHEREFORE, the petition is GRANTED. The

decision of the respondent Court of Appeals
(now Intermediate Appellate Court) is hereby
SET ASIDE and a new one is rendered ordering
the petitioner Isabelo Moran, Jr., to pay private
respondent Mariano Pecson SIX THOUSAND
(P6,000.00) PESOS representing the amount
of the private respondent's contribution to the
partnership but which remained unused; and
THREE THOUSAND (P3,000.00) PESOS
representing one half (1/2) of the net profits
gained by the partnership in the sale of the
two thousand (2,000) copies of the posters,
with interests at the legal rate on both
amounts from the date the complaint was
filed until full payment is made.

Q What happened to this promissory note

executed by Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the
P7,000.00 as shown by the promissory note.
Q Was there a receipt issued by you covering
this payment of P4,000.00 in favor of Mr.
Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount
of P4,000.00 on account of the P7,000.00
covered by the promissory note, Exhibit M.
What does this P4,000.00 covered by Exhibit
N represent?

SO ORDERED.1wph1.t
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT
and LEUNG YIU, respondents.

A This P4,000.00 represents the P3,000.00

which he has returned of my P6,000.00 capital
investment and the P1,000.00 represents
partial payment of the P4,000.00 profit that
was promised to me by Mr. Moran.

John L. Uy for petitioner.

Q And what happened to the balance of

P3,000.00 under the promissory note, Exhibit
M?

Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:

A The balance of P3,000.00 and the rest of the

profit was applied as part of the consideration
of the promissory note of P20,000.00.

The petitioner asks for the reversal of the

decision of the then Intermediate Appellate
Court in AC-G.R. No. CV-00881 which affirmed
the decision of the then Court of First Instance
of Manila, Branch II in Civil Case No. 116725
declaring private respondent Leung Yiu a
partner of petitioner Dan Fue Leung in the
business of Sun WahPanciteria and ordering
the petitioner to pay to the private
respondent his share in the annual profits of
the said restaurant.

(T.S.N., pp. 23-24, Nov. 29, 1972).

The respondent court erred when it concluded
that the project never left the ground because
the project did take place. Only it failed. It was
the private respondent himself who presented
a copy of the book entitled "Voice of the
Veterans" in the lower court as Exhibit "L".
Therefore, it would be error to state that the
project never took place and on this basis
decree the return of the private respondent's
investment.

This case originated from a complaint filed by

respondent Leung Yiu with the then Court of
First Instance of Manila, Branch II to recover
the sum equivalent to twenty-two percent
(22%) of the annual profits derived from the
operation of Sun WahPanciteria since October,
1955 from petitioner Dan Fue Leung.

As already mentioned, there are risks in any

business venture and the failure of the
undertaking cannot entirely be blamed on the

14

The Sun WahPanciteria, a restaurant, located

at Florentino Torres Street, Sta. Cruz, Manila,
was established sometime in October, 1955. It
was registered as a single proprietorship and
its licenses and permits were issued to and in
favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced
evidence during the trial of the case to show
that Sun WahPanciteria was actually a
partnership and that he was one of the
partners having contributed P4,000.00 to its
initial establishment.

the Savings Department of the China Banking

Corporation testified that said check (Exhibit
B) was deposited by and duly credited to the
private respondents savings account with the
bank after it was cleared by the drawee bank,
the Equitable Banking Corporation. Another
witness Elvira Rana of the Equitable Banking
Corporation testified that the check in
question was in fact and in truth drawn by the
petitioner and debited against his own
account in said bank. This fact was clearly
shown and indicated in the petitioner's
statement of account after the check (Exhibit
B) was duly cleared. Rana further testified
that upon clearance of the check and
pursuant to normal banking procedure, said
check was returned to the petitioner as the
maker thereof.

The private respondents evidence is

summarized as follows:
About the time the Sun WahPanciteria started
to become operational, the private
respondent gave P4,000.00 as his
contribution to the partnership. This is
evidenced by a receipt identified as Exhibit
"A" wherein the petitioner acknowledged his
acceptance of the P4,000.00 by affixing his
signature thereto. The receipt was written in
Chinese characters so that the trial court
commissioned an interpreter in the person of
Ms. Florence Yap to translate its contents into
English. Florence Yap issued a certification
and testified that the translation to the best of
her knowledge and belief was correct. The
private respondent identified the signature on
the receipt as that of the petitioner (Exhibit A3) because it was affixed by the latter in his
(private respondents') presence. Witnesses So
Sia and Antonio Ah Heng corroborated the
private respondents testimony to the effect
that they were both present when the receipt
(Exhibit "A") was signed by the petitioner. So
Sia further testified that he himself received
from the petitioner a similar receipt (Exhibit
D) evidencing delivery of his own investment
in another amount of P4,000.00 An
examination was conducted by the PC Crime
Laboratory on orders of the trial court
granting the private respondents motion for
examination of certain documentary exhibits.
The signatures in Exhibits "A" and 'D' when
compared to the signature of the petitioner
appearing in the pay envelopes of employees
of the restaurant, namely Ah Heng and Maria
Wong (Exhibits H, H-1 to H-24) showed that
the signatures in the two receipts were indeed
the signatures of the petitioner.

The petitioner denied having received from

the private respondent the amount of
P4,000.00. He contested and impugned the
genuineness of the receipt (Exhibit D). His
evidence is summarized as follows:
The petitioner did not receive any contribution
at the time he started the Sun WahPanciteria.
He used his savings from his salaries as an
employee at Camp Stotsenberg in Clark Field
and later as waiter at the Toho Restaurant
amounting to a little more than P2,000.00 as
capital in establishing Sun WahPanciteria. To
bolster his contention that he was the sole
owner of the restaurant, the petitioner
presented various government licenses and
permits showing the Sun WahPanciteria was
and still is a single proprietorship solely
owned and operated by himself alone. Fue
Leung also flatly denied having issued to the
private respondent the receipt (Exhibit G) and
the Equitable Banking Corporation's Check
No. 13389470 B in the amount of P12,000.00
(Exhibit B).
As between the conflicting evidence of the
parties, the trial court gave credence to that
of the plaintiffs. Hence, the court ruled in
favor of the private respondent. The
dispositive portion of the decision reads:
WHEREFORE, judgment is
hereby rendered in favor of the
plaintiff and against the
defendant, ordering the latter
to deliver and pay to the
former, the sum equivalent to
22% of the annual profit
derived from the operation of
Sun WahPanciteria from
October, 1955, until fully paid,

Furthermore, the private respondent received

from the petitioner the amount of P12,000.00
covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the
profits of the operation of the restaurant for
the year 1974. Witness Teodulo Diaz, Chief of

15

and attorney's fees in the

amount of P5,000.00 and cost
of suit. (p. 125, Rollo)

net profit of P2,000.00 a day

from judicial demand to May
15, 1971;

The private respondent filed a verified motion

for reconsideration in the nature of a motion
for new trial and, as supplement to the said
motion, he requested that the decision
rendered should include the net profit of the
Sun WahPanciteria which was not specified in
the decision, and allow private respondent to
adduce evidence so that the said decision will
be comprehensively adequate and thus put
an end to further litigation.

2. Similarly, the sum equivalent

to 22% of the net profit of
P8,000.00 a day from May 16,
1971 to August 30, 1975;
3. And thereafter until fully paid
the sum equivalent to 22% of
the net profit of P8,000.00 a
day.
Except as modified, the
decision of the court a quo is
affirmed in all other respects.
(p. 102, Rollo)

The motion was granted over the objections

of the petitioner. After hearing the trial court
rendered an amended decision, the
dispositive portion of which reads:

Later, the appellate court, in a resolution,

modified its decision and affirmed the lower
court's decision. The dispositive portion of the
resolution reads:

FOR ALL THE FOREGOING

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

WHEREFORE, the dispositive

portion of the amended
judgment of the court a
quo reading as follows:
WHEREFORE, judgment is
rendered in favor of the plaintiff
and against the defendant,
ordering the latter to pay to the
former the sum equivalent to
22% of the net profit of
P8,000.00 per day from the
time of judicial demand, until
fully paid, plus the sum of
P5,000.00 as and for attorney's
fees and costs of suit.

WHEREFORE, judgment is
hereby rendered, ordering the
plaintiff (sic) and against the
defendant, ordering the latter
to pay the former the sum
equivalent to 22% of the net
profit of P8,000.00 per day from
the time of judicial demand,
until fully paid, plus the sum of
P5,000.00 as and for attorney's
fees and costs of suit. (p. 150,
Rollo)

is hereby retained in full and affirmed in

toto it being understood that the date of
judicial demand is July 13, 1978. (pp. 105-106,
Rollo).

The petitioner appealed the trial court's

amended decision to the then Intermediate
Appellate Court. The questioned decision was
further modified by the appellate court. The
dispositive portion of the appellate court's
decision reads:

In the same resolution, the motion for

reconsideration filed by petitioner was denied.
Both the trial court and the appellate court
found that the private respondent is a partner
of the petitioner in the setting up and
operations of the panciteria. While the
dispositive portions merely ordered the
payment of the respondents share, there is no
question from the factual findings that the
respondent invested in the business as a
partner. Hence, the two courts declared that
the private petitioner is entitled to a share of

WHEREFORE, the decision

appealed from is modified, the
dispositive portion thereof
reading as follows:
1. Ordering the defendant to
pay the plaintiff by way of
temperate damages 22% of the

16

the annual profits of the restaurant. The

petitioner, however, claims that this factual
finding is erroneous. Thus, the petitioner
argues: "The complaint avers that private
respondent extended 'financial assistance' to
herein petitioner at the time of the
establishment of the Sun WahPanciteria, in
return of which private respondent allegedly
will receive a share in the profits of the
restaurant. The same complaint did not claim
that private respondent is a partner of the
business. It was, therefore, a serious error for
the lower court and the Hon. Intermediate
Appellate Court to grant a relief not called for
by the complaint. It was also error for the
Hon. Intermediate Appellate Court to interpret
or construe 'financial assistance' to mean the
contribution of capital by a partner to a
partnership;" (p. 75, Rollo)

Sun WahPanciteria because Article 1767 of

the Civil Code provides that "By the contract
of partnership two or more persons bind
themselves to contribute money, property or
industry to a common fund, with the intention
of dividing the profits among themselves".
Therefore, the lower courts did not err in
construing the complaint as one wherein the
private respondent asserted his rights as
partner of the petitioner in the establishment
of the Sun WahPanciteria, notwithstanding the
use of the term financial assistance therein.
We agree with the appellate court's
observation to the effect that "... given its
ordinary meaning, financial assistance is the
giving out of money to another without the
expectation of any returns therefrom'. It
connotes an ex gratia dole out in favor of
someone driven into a state of destitution.
But this circumstance under which the
P4,000.00 was given to the petitioner does
not obtain in this case.' (p. 99, Rollo) The
complaint explicitly stated that "as a return
for such financial assistance, plaintiff (private
respondent) would be entitled to twenty-two
percentum (22%) of the annual profit derived
from the operation of the said panciteria.' (p.
107, Rollo) The well-settled doctrine is that
the '"... nature of the action filed in court is
determined by the facts alleged in the
complaint as constituting the cause of action."
(De Tavera v. Philippine Tuberculosis Society,
Inc., 113 SCRA 243; Alger Electric, Inc. v.
Court of Appeals, 135 SCRA 37).

The pertinent portions of the complaint state:

xxxxxxxxx
2. That on or about the latter
(sic) of September, 1955,
defendant sought the financial
assistance of plaintiff in
operating the defendant's
eatery known as Sun
WahPanciteria, located in the
given address of defendant; as
a return for such financial
assistance. plaintiff would be
entitled to twenty-two
percentum (22%) of the
annual profit derived from the
operation of the said panciteria;

The appellate court did not err in declaring

that the main issue in the instant case was
whether or not the private respondent is a
partner of the petitioner in the establishment
of Sun WahPanciteria.

3. That on October 1, 1955,

plaintiff delivered to the
defendant the sum of four
thousand pesos (P4,000.00),
Philippine Currency, of which
copy for the receipt of such
amount, duly acknowledged by
the defendant is attached
hereto as Annex "A", and form
an integral part hereof; (p. 11,
Rollo)

The petitioner also contends that the

respondent court gravely erred in giving
probative value to the PC Crime Laboratory
Report (Exhibit "J") on the ground that the
alleged standards or specimens used by the
PC Crime Laboratory in arriving at the
conclusion were never testified to by any
witness nor has any witness identified the
handwriting in the standards or specimens
belonging to the petitioner. The supposed
standards or specimens of handwriting were
marked as Exhibits "H" "H-1" to "H-24" and
admitted as evidence for the private
respondent over the vigorous objection of the
petitioner's counsel.

In essence, the private respondent alleged

that when Sun WahPanciteria was established,
he gave P4,000.00 to the petitioner with the
understanding that he would be entitled to
twenty-two percent (22%) of the annual profit
derived from the operation of the said
panciteria. These allegations, which were
proved, make the private respondent and the
petitioner partners in the establishment of

The records show that the PC Crime

Laboratory upon orders of the lower court

17

examined the signatures in the two receipts

issued separately by the petitioner to the
private respondent and So Sia (Exhibits "A"
and "D") and compared the signatures on
them with the signatures of the petitioner on
the various pay envelopes (Exhibits "H", "H-1"
to 'H-24") of Antonio Ah Heng and Maria
Wong, employees of the restaurant. After the
usual examination conducted on the
questioned documents, the PC Crime
Laboratory submitted its findings (Exhibit J)
attesting that the signatures appearing in
both receipts (Exhibits "A" and "D") were the
signatures of the petitioner.

in relation to Article 1155 thereof which

provides:
Art. 1155. The prescription of
actions is interrupted when
they are filed before the court,
when there is a written extrajudicial demand by the creditor,
and when there is any written
acknowledgment of the debt by
the debtor.'
The argument is not well-taken.
The private respondent is a partner of the
petitioner in Sun WahPanciteria. The
requisites of a partnership which are 1) two
or more persons bind themselves to
contribute money, property, or industry to a
common fund; and 2) intention on the part of
the partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v.
Yang Chiao Cheng, 106 Phil. 110)-have been
established. As stated by the respondent, a
partner shares not only in profits but also in
the losses of the firm. If excellent relations
exist among the partners at the start of
business and all the partners are more
interested in seeing the firm grow rather than
get immediate returns, a deferment of sharing
in the profits is perfectly plausible. It would be
incorrect to state that if a partner does not
assert his rights anytime within ten years
from the start of operations, such rights are
irretrievably lost. The private respondent's
cause of action is premised upon the failure of
the petitioner to give him the agreed profits in
the operation of Sun WahPanciteria. In effect
the private respondent was asking for an
accounting of his interests in the partnership.

The records also show that when the pay

envelopes (Exhibits "H", "H-1" to "H-24") were
presented by the private respondent for
marking as exhibits, the petitioner did not
interpose any objection. Neither did the
petitioner file an opposition to the motion of
the private respondent to have these exhibits
together with the two receipts examined by
the PC Crime Laboratory despite due notice to
him. Likewise, no explanation has been
offered for his silence nor was any hint of
objection registered for that purpose.
Under these circumstances, we find no reason
why Exhibit "J" should be rejected or ignored.
The records sufficiently establish that there
was a partnership.
The petitioner raises the issue of prescription.
He argues: The Hon. Respondent Intermediate
Appellate Court gravely erred in not resolving
the issue of prescription in favor of petitioner.
The alleged receipt is dated October 1, 1955
and the complaint was filed only on July 13,
1978 or after the lapse of twenty-two (22)
years, nine (9) months and twelve (12) days.
From October 1, 1955 to July 13, 1978, no
written demands were ever made by private
respondent.

It is Article 1842 of the Civil Code in

conjunction with Articles 1144 and 1155
which is applicable. Article 1842 states:

The petitioner's argument is based on Article

1144 of the Civil Code which provides:

The right to an account of his

interest shall accrue to any
partner, or his legal
representative as against the
winding up partners or the
surviving partners or the person
or partnership continuing the
business, at the date of
dissolution, in the absence or
any agreement to the contrary.

Art. 1144. The following actions

must be brought within ten
years from the time the right of
action accrues:
(1) Upon a written contract;
(2) Upon an obligation created
by law;

Regarding the prescriptive period within which

the private respondent may demand an
accounting, Articles 1806, 1807, and 1809
show that the right to demand an accounting

(3) Upon a judgment.

18

exists as long as the partnership exists.

Prescription begins to run only upon the
dissolution of the partnership when the final
accounting is done.

A For regular days, I received around

P7,000.00 a day during my shift alone and
during pay days I receive more than
P10,000.00. That is excluding the catering
outside the place.

Finally, the petitioner assails the appellate

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

Q What about the catering service, will you

please tell the Honorable Court how many
times a week were there catering services?
A Sometimes three times a month; sometimes
two times a month or more.
xxxxxxxxx

Apart from his own testimony and allegations,

the private respondent presented the cashier
of Sun WahPanciteria, a certain Mrs. Sarah L.
Licup, to testify on the income of the
restaurant.

Q Now more or less, do you know the cost of

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

Mrs. Licup stated:

Q How much is that?

ATTY. HIPOLITO (direct examination to Mrs.

Licup).

A That ranges from two thousand to six

thousand pesos, sir.

Q Mrs. Witness, you stated that among your

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

Q Per service?
A Per service, Per catering.

A Yes, sir.

Q So in other words, Mrs. witness, for your

shift alone in a single day from 3:30 P.M. to
11:30 P.M. in the evening the restaurant
grosses an income of P7,000.00 in a regular
day?

Q So that every time there is a customer who

pays, you were the one who accepted the
money and you gave the change, if any, is
that correct?

A Yes.

A Yes.

Q And ten thousand pesos during pay day.?

Q Now, after 11:30 (P.M.) which is the closing

time as you said, what do you do with the
money?

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

A We balance it with the manager, Mr. Dan

Fue Leung.

xxxxxxxxx

ATTY. HIPOLITO:

COURT:Any cross?

I see.

ATTY. UY (counsel for defendant):

Q So, in other words, after your job, you

huddle or confer together?

No cross-examination, Your Honor. (T.S.N. p.

65, November 15, 1978). (Rollo, pp. 127-128)

A Yes, count it all. I total it. We sum it up.

The statements of the cashier were not

rebutted. Not only did the petitioner's counsel
waive the cross-examination on the matter of
income but he failed to comply with his

Q Now, Mrs. Witness, in an average day, more

or less, will you please tell us, how much is
the gross income of the restaurant?

19

promise to produce pertinent records. When a

subpoena ducestecum was issued to the
petitioner for the production of their records
of sale, his counsel voluntarily offered to bring
them to court. He asked for sufficient time
prompting the court to cancel all hearings for
January, 1981 and reset them to the later part
of the following month. The petitioner's
counsel never produced any books, prompting
the trial court to state:

witnesses, counsel for

defendant promised that he will
present the defendant as his
last witness. Notably there were
several postponement asked by
counsel for the defendant and
the last one was on October 1,
1981 when he asked that this
case be postponed for 45 days
because said defendant was
then in Hongkong and he
(defendant) will be back after
said period. The Court acting
with great concern and
understanding reset the
hearing to November 17, 1981.
On said date, the counsel for
the defendant who again failed
to present the defendant asked
for another postponement, this
time to November 24, 1981 in
order to give said defendant
another judicial magnanimity
and substantial due process. It
was however a condition in the
order granting the
postponement to said date that
if the defendant cannot be
presented, counsel is deemed
to have waived the
presentation of said witness
and will submit his case for
decision.

Counsel for the defendant

admitted that the sales of Sun
Wah were registered or
recorded in the daily sales
book. ledgers, journals and for
this purpose, employed a
bookkeeper. This inspired the
Court to ask counsel for the
defendant to bring said records
and counsel for the defendant
promised to bring those that
were available. Seemingly, that
was the reason why this case
dragged for quite sometime. To
bemuddle the issue, defendant
instead of presenting the books
where the same, etc. were
recorded, presented witnesses
who claimed to have supplied
chicken, meat, shrimps, egg
and other poultry products
which, however, did not show
the gross sales nor does it
prove that the same is the best
evidence. This Court gave
warning to the defendant's
counsel that if he failed to
produce the books, the same
will be considered a waiver on
the part of the defendant to
produce the said books
inimitably showing decisive
records on the income of the
eatery pursuant to the Rules of
Court (Sec. 5(e) Rule 131).
"Evidence willfully suppressed
would be adverse if produced."
(Rollo, p. 145)

On November 24, 1981, there

being a typhoon prevailing in
Manila said date was declared a
partial non-working holiday, so
much so, the hearing was reset
to December 7 and 22, 1981.
On December 7, 1981, on
motion of defendant's counsel,
the same was again reset to
December 22, 1981 as
previously scheduled which
hearing was understood as
intransferable in character.
Again on December 22, 1981,
the defendant's counsel asked
for postponement on the
ground that the defendant was
sick. the Court, after much
tolerance and judicial
magnanimity, denied said
motion and ordered that the
case be submitted for
resolution based on the
evidence on record and gave
the parties 30 days from
December 23, 1981, within

The records show that the trial court went out

of its way to accord due process to the
petitioner.
The defendant was given all the
chance to present all
conceivable witnesses, after the
plaintiff has rested his case on
February 25, 1981, however,
after presenting several

20

which to file their simultaneous

memoranda. (Rollo, pp. 148150)

Art. 1831. On application by or

for a partner the court shall
decree a dissolution whenever:

The restaurant is located at No. 747 Florentino

xxxxxxxxx
Torres, Sta. Cruz, Manila in front of the
Republic Supermarket. It is near the corner of
(3) A partner has been guilty of
Claro M. Recto Street. According to the trial
such conduct as tends to affect
court, it is in the heart of Chinatown where
prejudicially the carrying on of
people who buy and sell jewelries,
the business;
businessmen,
Ganancia total desde el ultimo balance hasta la fecha P575.
brokers,
45
manager, bank
employees, and
Participacion del capital de los hermanosLasala en la
P55.3
ganancia
9
people from all
walks of life
Participacion del capital de Jose Ornum en el ganancia 125.7
converge and
9
patronize Sun
Participacion de Jose Ornumcomo socio industrial
143.9
Wah.
6
Participacion del capital de EmerencianaOrnum en la
106.5
There is more
ganancia
4
than substantial
Participacion de EmerencianaOrnumcomosocia
143.8
evidence to
industrial
6
support the
(4) A partner willfully or
factual findings of the trial court and the
persistently commits a breach
appellate court. If the respondent court
of the partnership agreement,
awarded damages only from judicial demand
or otherwise so conducts
in 1978 and not from the opening of the
himself in matters relating to
restaurant in 1955, it is because of the
the partnership business that it
petitioner's contentions that all profits were
is not reasonably practicable to
being plowed back into the expansion of the
carry on the business in
business. There is no basis in the records to
partnership with him;
sustain the petitioners contention that the
damages awarded are excessive. Even if the
Court is minded to modify the factual findings
xxxxxxxxx
of both the trial court and the appellate court,
it cannot refer to any portion of the records
(6) Other circumstances render a dissolution
for such modification. There is no basis in the
equitable.
records for this Court to change or set aside
the factual findings of the trial court and the
There shall be a liquidation and winding up of
appellate court. The petitioner was given
partnership affairs, return of capital, and other
every opportunity to refute or rebut the
incidents of dissolution because the
respondent's submissions but, after promising
continuation of the partnership has become
to do so, it deliberately failed to present its
inequitable.
books and other evidence.
The resolution of the Intermediate Appellate
Court ordering the payment of the petitioner's
obligation shows that the same continues
until fully paid. The question now arises as to
whether or not the payment of a share of
profits shall continue into the future with no
fixed ending date.
Considering the facts of this case, the Court
may decree a dissolution of the partnership
under Article 1831 of the Civil Code which, in
part, provides:

21

WHEREFORE,
DISMISSED
for lack of
merit. The
decision of
the
respondent
court is
AFFIRMED
with a

the petition for review is hereby

are also natives of Taal, but resided in the

barrio of TanCapital de los hermanosLasalasegun el
P4,393.
agan,
ultimo balance
08
municipality
P4,448.4
of Tablas,
Ganancia de este capital
55.39
7
Province of
Romblon. In
Pero se debededucir la
1908 Pedro
cantidadtomadapor los hermanosLasala
1,730.00
Lasala,
Cantidad nota quedebecorresponder a los
P2,718. father of the
hermanosLasala
47 respondents,
Capital de Jose Ornumsegun el ultimo
P9,975.
and
balance
13
Ganancia de este capital

125.79

Participacion de Jose Ornumcomo socio

industrial

143.86

Pero se debededucir la
cantidadtomadapor Jose Ornum

P10,244.
65
1,650.00

Cantidadnetaquedebecorresponder a Jose
Ornum

P8,594.
65

Capital de EmerencianaOrnumsegun el
ultimo balance

P8,448.
00

Ganancia de este capital

106.54

Participacion de
EmerencianaOrnumcomosocia industrial

143.86

Pero se debededucir la
cantidadtomadaporEmerencianaOrnum
Cantidadnetaquedebecorresponder a
EmerencianaOrnum
MODIFICATION that as indicated above, the
partnership of the parties is ordered
dissolved.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47823

July 26, 1943

JOSE ORNUM and EMERENCIANA

ORNUM, petitioners,
vs.
MARIANO, LASALA, et al., respondent.
MarcelinoLontok for petitioners.
Duran, Lim and Bausa and Augusto Francisco
for respondents.
PARAS, J.:
The following facts are practically admitted in
the pleadings and briefs of the parties: The
respondents (plaintiffs below) are natives of
Taal, Batangas, and resided therein or in
Manila. The petitioners (defendants below)

22

P8,698.4
0
1,850.00

P6,848.
40
EmerencianoOrnum formed a partnership,
whereby the former, as capitalist, delivered
the sum of P1,000 to the latter who, as
industrial partner, was to conduct a business
at his place of residence in Romblon. In 1912,
when the assets of the partnership consisted
of outstanding accounts and old stock of
merchandise, EmerencianoOrnum, following
the wishes of his wife, asked for the
dissolution of the Lasala, EmerencianoOrnum
looked for some one who could take his place
and he suggested the names of the
petitioners who accordingly became the new
partners. Upon joining the business, the
petitioners, contributed P505.54 as their
capital, with the result that in the new
partnership Pedro Lasala had a capital of
P1,000, appraised value of the assets of the
former partnership, plus the said P505.54
invested by the petitioners who, as industrial
partners, were to run the business in
Romblon. After the death of Pedro Lasala, his
children (the respondents) succeeded to all
his rights and interest in the partnership. The
partners never knew each other personally.
No formal partnership agreement was ever
executed. The petitioners, as managing
partners, were received one-half of the net
gains, and the other half was to be divided
between them and the Lasala group in
proportion to the capital put in by each group.
During the course divided, but the partners

were given the election, as evidenced by the

statements of accounts referred to in the
decision of the Court of Appeals, to invest
their respective shares in such profits as
additional capital. The petitioners accordingly
let a greater part of their profits as additional
investment in the partnership. After twenty
years the business had grown to such an
extent that is total value, including profits,
amounted to P44,618.67. Statements of
accounts were periodically prepared by the
petitioners and sent to the respondents who
invariably did not make any objection thereto.
Before the last statement of accounts was
made, the respondents had received
P5,387.29 by way of profits. The last and final
statement of accounts, dated May 27, 1932,
and prepared by the petitioners after the
respondents had announced their desire to
dissolve the partnership, read as follows:

statement of accounts prepared by the

petitioners was tacitly approved and accepted
by the respondents who, by virtue of the
above-quoted letter of Father Mariano Lasala,
lost their right to a further accounting from
the moment they received and accepted their
shares as itemized in said statement. This
judgment was reversed by the Court of
Appeals principally on the ground that as the
final statement of accounts remains unsigned
by the respondents, the same stands
disapproved. The decision appealed by the
petitioners thus said:
To support a plea of a stated account
so as to conclude the parties in
relation to all dealings between them,
the accounting must be shown to have
been final. (1 Cyc. 366.) All the first
nine statements which the defendants
sent the plaintiffs were partial
settlements, while the last, although
intended to be final, has not been
signed.

Siendoeste el balance final lo

siguientees la
cantidadquedebecorresponder a cada
socio:

We hold that the last and final statement of

accounts hereinabove quoted, had been
approved by the respondents. This approval
resulted, by virtue of the letter of Father
Mariano Lasala of July 19, 1932, quoted in
part in the appealed decision from the failure
of the respondents to object to the statement
and from their promise to sign the same as
soon as they received their shares as shown
in said statement. After such shares had been
paid by the petitioners and accepted by the
respondents without any reservation, the
approval of the statement of accounts was
virtually confirmed and its signing thereby
became a mere formality to be complied with
by the respondents exclusively. Their refusal
to sign, after receiving their shares, amounted
to a waiver to that formality in favor of the
petitioners who has already performed their
obligation.

After the receipt of the foregoing statement of

accounts, Father Mariano Lasala, spokesman
for the respondents, wrote the following letter
to the petitioners on July 19, 1932:
Yatemanifestamosfrancamenteaqui,
comoconsocio, y
teautorizamostambien para que lo
repitas a tuhermanaMering, viuda, que
el motivoporquerecogemos el capital y
utilidades de nuestrasociedad en
todonuestronegocioqueesta al
cuidadovosotros dos, esquetenemos
un grandecompromisoquecasi no
podemosevitarlo. Porestovolvemos a
rogarlesqueporcualquiermedio antes
de terminarestemes de julio, 1932,
nosotrosesperamosvuestraconsideraci
on. Gracias.

This approval precludes any right on the part

of the respondents to a further liquidation,
unless the latter can show that there was
fraud, deceit, error or mistake in said
approval. (Pastor, vs. Nicasio, 6 Phil., 152;
Aldecoa& Co., vs. Warner, Barnes & Co., 16
Phil., 423; Gonsalez vs. Harty, 32 Phil. 328.)
The Court of Appeals did not make any
findings that there was fraud, and on the
matter of error or mistake it merely said:

En cuantohayamosrecibidoesto,
entoncesfirmaremos el balance
quehabeishechoalli, cuyacopia has
dejadoaqui.
Recuerdos a todosalli y mandar.
Pursuant to the request contained in this
letter, the petitioners remitted and paid to the
respondents the total amount corresponding
to them under the above-quoted statement of
accounts which, however, was not signed by
the latter. Thereafter the complaint in this
case was filed by the respondents, praying for
an accounting and final liquidation of the
assets of the partnership. The Court of First
Instance of Manila held that the last and final

The question, then is, have mistakes,

been committed in the statements
sent appellants? Not only do plaintiffs
so allege, and not only does not
evidence so tend to prove, but the
charge is seconded by the defendants

23

themselves when in their

counterclaims they said:

accounting is ordered, a costly action or

proceeding may arise which may not be
disposed of within a similar period, it is not
improbable that the intended relief may in
fact be the respondents' funeral.

"(a) Querecientemente se ha
hechounaacabada revision de
lascuentas y libros del negocio, y, se
ha descubiertoque los
demandadoscometieron un error al
hacerlasentregas de
lasvariascantidades en efectivo a los
demandantes, entregando en total
mayor cantidades a la
quetenianderechoestosporsuparticipac
ion y ganancias en dichonegocio;

We are reversing the appealed decision on the

legal ground that the petitioners' final
statement of accounts had been approved by
the respondents and no justifiable reason
(fraud, deceit, error or mistake) has been
positively and unmistakably found by the
Court of Appeals so as to warrant the
liquidations sought by the respondents. In
justice to the petitioners, however, we may
add that, considering that they ran the
business of the partnership for about twenty
years at a place far from the residence of the
respondents and without the latter's
intervention; that the partners did not even
know each other personally; that no formal
partnership agreement was entered into
which bound the petitioners under specific
conditions; that the petitioners could have
easily and freely alleged that the business
became partial, or even a total, loss for any
plausible reason which they could have
concocted, it appearing that the partnership
engaged in such uncertain ventures as
agriculture, cattle raising and operation of rice
mill, and the petitioners did not keep any
regular books of accounts; that the petitioners
were still frank enough to disclose that the
original capital of P1,505.54 amounted, as of
the date of the dissolution of the partnership,
to P44,618.67; and that the respondents had
received a total of P8,105.76 out of their
capital of P1,000, without any effort on their
part, we are reluctant even to make the
conjecture that the petitioners had ever
intended to, or actually did, take undue
advantage of the absence and confidence of
the respondents. Indeed, we feel justified in
stating that the petitioners have here given a
remarkable demonstration of the legendary
honesty, good faith and industry with which
the natives of Taal pursue business
arrangements similar to the partnership in
question, and we would hate, in the absence
of any sufficient reason, to let such a beautiful
legend have a distateful ending.

"(b) Que el excesoentregado a los

demandantes, asciende a la suma de
quinientossetenta y cinco pesos con
docecentimos (P575.12), y que los
demandadosreclamanahora de
aquellossudevolucion o pago en la
presentecontrademanda;"
In our opinion, the pronouncement that the
evidence tends to prove that there were
mistakes in the petitioners' statements of
accounts, without specifying the mistakes,
merely intimates as suspicion and is not such
a positive and unmistakable finding of fact (Cf.
Concepcion vs. People, G.R. No. 48169,
promulgated December 28, 1942) as to justify
a revision, especially because the Court of
Appeals has relied on the bare allegations of
the parties, Even admitting that, as alleged by
the petitioners in their counterclaim, they
overpaid the respondents in the sum of
P575.12, this error is essentially fatal to the
latter's theory what the statement of accounts
shows, and is therefore not the kind of error
that calls for another accounting which will
serve the purpose of the respondent's suit.
Moreover, as the petitioners did not appeal
from the decision of the Court abandoned
such allegation in the Court of Appeals.
If the liquidation is ordered in the absence of
any particular error, found as a fact, simply
because no damage will be suffered by the
petitioners in case the latter's final statement
of the accounts proves to be correct, we shall
be assuming a fundamentally inconsistent
position. If there is not mistake, the only
reason for a new accounting disappears. The
petitioners may not be prejudiced in the sense
that they will be required to pay anything to
the respondents, but they will have to go to
the trouble of itemizing accounts covering a
period of twenty years mostly from memory,
its appearing that no regular books of
accounts were kept. Stated more
emphatically, they will be told to do what
seems to be hardly possible. When it is borne
in mind that this case has been pending for
nearly nine years and that, if another

The appealed decision is hereby reversed and

the petitioners (defendants below) absolved
from the complaints of the respondents
(plaintiffs below), with costs against the latter.
Yulo, C.J., and Hontiveros, J., concur.

24

Republic of the Philippines

SUPREME COURT
Manila

plaintiff sold his two aforementioned real

properties to the said Walter A. Fitton, the
rural estate, shown in Exhibit A, for 5,900
pesos, and the urban property, described in
Exhibit B, for 100 pesos; that the plaintiff
received from the purchaser the sum of 3,000
pesos and the latter, Walter A. Fitton, bound
himself to pay into the funds of the said
partnership, as the plaintiff's capital, the
remaining 3,000 pesos of the selling price;
that it was furthermore agreed that the two
said real properties should constitute the
capital of Walter A. Fitton in the partnership,
which would be known by the name of "A. M.
Pabalan and Company" and should be an
equivalent for the aforesaid sum of 6,000
pesos; that all the foregoing facts set forth in
the complaint were recorded in the
instrument of sale and organization of the
partnership, executed on June 27, 1900,
before the notary public Rosado, a copy of
which was attached to and made an integral
part of the complaint; that, from June 27,
1900, up to the date when the partner Fitton
died, the latter failed to pay into the
partnership funds the said 3,000 pesos, the
remainder of the price of the properties
purchased by him, or any part thereof, and
did not pay the said sum or any part of the
same to the plaintiff; that, since Fitton's
death, and up to the date of the filing of the
complaint, neither the administrator of the
latter's estate nor any other person had
turned into the partnership or paid to the
plaintiff the aforesaid 3,000 pesos; that, owing
to the failure of Fitton to comply with his
obligation, the properties in question had
been entirely unproductive and losses and
damages had been occasioned to the plaintiff
in the sum of 2,000 pesos Philippine currency.
The latter, therefore, prayed for the rescission
of the contract entered into, on June 27, 1900,
by himself, the plaintiff, and Walter A. Fitton,
the dissolution of the partnership "A. M.
Pabalan and Company," and the annulment of
the sale of the said properties, by returning to
the defendant a sum in Philippine currency
equivalent to the 3,000 pesos in Mexican
currency received from Walter A. Fitton, and
that the defendant be sentenced to pay to the
plaintiff, as losses and damages, the sum of
2,000 pesos, and to the payment of the cost
of the suit, in addition to the other remedies
sought.

EN BANC
G.R. No. L-5953
1912

February 24,

ANTONIO M. PABALAN, plaintiff-appellant,

vs.
FELICIANO VELEZ, defendant-appellee.
Ariston Estrada for appellant.
Luciano de la Rosa for appellee.
TORRES, J.:
This case was appealed by counsel for the
plaintiff, from the judgment rendered by the
Honorable Judge A. S. Crossfield.
On January 20, 1908, counsel for the plaintiff
filed a written complaint against the
defendant, the administrator of the intestate
estate of Walter A. Fitton, now deceased. The
said administrator was appointed by an order
issued on December 21, 1907, by the
aforementioned judge in case No. 5103, heard
in the Court of First Instance of this city.
The complaint alleged: That until June 27,
1900, the plaintiff, Antonio M. Pabalan, was
the owner in fee simple of a rural estate
consisting of an hacienda known by the name
of "Pantayani," which was devoted to
agricultural purposes, situated on the roads
leading from Mariquina to Antipolo, within the
pueblos of Cainta and Antipolo, Province of
Rizal, and which covered an area of 1,978,822
square meters; also a parcel of land consisting
of a building lot situated on Calle Real, of
Cainta, measuring 371.30 square meters, the
metes and bounds of which were specified in
the complaint; that, on the said date of June
27, 1900, the plaintiff, desiring to make use of
the two properties described, and lacking the
required means for the purpose, entered into
an agreement with the said Walter A. Fitton
whereby they formed a regular mercantile
partnership for the development of the said
properties and for the manufacture and sale
of their products and other business pertinent
thereto; that the sum of 9,000 pesos Mexican
currency was fixed as the amount of the
capital stock of the partnership, of which
3,000 pesos, in cash, were to be contributed
by the plaintiff and 6,000 pesos, in real
property, by the said Fitton; that, for the
purpose of obtaining the said 3,000 pesos, the

The instrument attached to the complaint and

executed on June 27, 1900, before the notary
public Jose M.a Rosado y Calvo, by Antonio M.
Pabalan y Santos, on the one hand, and

25

Walter A. Fitton, on the other, contains the

following clauses:

represented by its agent, Herbert

Heiden Todd, through a deed, serial
number 852, drawn up in this city and
attested before the former notary
public of the same, Don Jose Engracio
Monroy y Torres, on the twenty-ninth of
November, 1894, as shown by the
notarial instrument containing the
description of the said properties,
written by the undersigned notary at
the request of their owner, Sr. Pabalan,
on the twelfth of the present month of
June, which certificate, without
number, on account of its notarial
character, was exhibited to me by the
latter and I certify to the same. Third.
That the properties in question are free
of all encumbrance, charge, and
liability, and Don Antonio Maria
Pabalan y Santos and Mr. Walter A.
Fitton having agreed to sell the same
and to form a regular mercantile
partnership for the purpose of their
improvement and the utilization of
their products, hereby execute the
present instrument, in order that all its
contents may appear in an
authenticated form, and solemnly
stipulated: That Don Antonio Maria
Pabalan y Santos hereby sells
absolutely and finally to Mr. Walter A.
Fitton, the property which, under the
letters A and B, is mentioned and
described in the first paragraph of this
instrument, together with all the
rights, actions, uses and easements
thereto pertaining, for the price of
5,900 pesos, for the property specified
under letter A, and the price of 100
pesos, for that described under letter
B, that is, for the total price of 6,000
pesos, of which the vendor received in
the act, in my presence and in that of
the witnesses hereunto, which I, the
notary, hereby attest, and from the
hands of the vendee, the sum of 3,000
pesos in coin, counted to his entire
satisfaction, for which the said Walter
A. Fitton hereby acknowledges by a
binding receipt which secures the said
Antonio M. Pabalan in all his rights and
the vendor binds himself to protect
and defend the title to the properties
hereby sold and guarantees them in
accordance with law; and the vendee
shall retain the remaining 3,000 pesos
for the purpose of bringing them, as
the vendor's capital, into the
partnership which is also a subject of
this public instrument. Fourth. Walter
A. Fitton, in his turn, covenants: That

First. That Don Antonio Maria Pabalan

y Santos is the sole and exclusive
owner in fee-simple of the following
landed properties, to wit: (a) A rural
estate consisting of an hacienda,
known as Pantayaning or Pantaen,
devoted to agricultured and situated
on the roads which lead from
Mariquina to Antipolo, within the
pueblos of Cainta and Antipolo of the
district of Morong, inscribed in the
property registry of this city as of the
north district, with an area of
1,978,022 square meters and bounded
on the north by the land of Victor
Vargas and the Sucabin River, by a
part of the Tabang River, Mount
Magpatong, the sitio of Palenque and
another part of the said Tabang River,
as far as the foot of Mount Cay-Alaring,
Mount Sapang, and the road leading to
the pueblo of Taytay; on the south by
the summit of Mount Matugalo, the
Paglilingohan estero, the old Cainta
highway, and the land of Juan Santa
Ana; and one on the west by the lands
of Doa Columba Suarez and Don
Mariano Sumulong, the Bilao road, and
the lands of Perfecto Legaspi Miguel
Gonzales, Zacarias Gonzales, Juan
Adriano, and that of the aforesaid Juan
Santa Ana. And (b) an urban property
consisting of a building lot, with
neither street nor district number,
situated on Calle Real, pueblo of
Cainta, Morong District, and in the
north district division of the property
registry of this city; it is bounded on its
front, which faces the south, by the
aforesaid Calle Real; on its right, upon
entering, or on the east, by the lot
belonging to Don Alejandro San Diego
and his wife Doa Buenaventura
Santos; on its left, or the west, by the
lot of Don Pablo Ordoez and his wife
DionisiaSalandanan; and on its rear, or
the north, by the lot of Don Florencio
San Antonio, his wife and Doa
Severina Santos, and has an area of
361 square meters and 30 square
centimeters. Second. That the
properties hereinbefore described
belong to the aforementioned Don
Antonio Maria Pabalan y Santos, who
purchased the same from their former
owner, the firm of G. Buchanan and
Company, of the city of London,

26

he accepts this sale in the precise

terms in which it is executed by
Antonio Maria Pabalan y Santos. Fifth.
That, by virtue of the preinserted
stipulations, both parties to this
contract, by this same public
instrument, form a regular mercantile
partnership, upon the following bases
and conditions: 1. The company
organized through the present public
instrument shall operate under the
firm name of "A. M. Pabalan and
Company" and shall have its domicile,
for all legal purposes, in this city of
Manila. 2. The object and aim of the
company is the cultivation and
improvement of the two properties
described under letters A and B of the
first paragraph hereof, the
manufacture and sale of their
products, and the conduct of all other
business connected with, incidental or
pertinent to the said lands. 3. The
management, direction and
administration of the company shall be
in charge of the two partners who shall
both be entitled to use the firm name,
it being thereof understood that they
are authorized to carry on, jointly or
severally, all kinds of operations
comprised within the purpose of this
partnership, with the sole limitation
that neither of them may make the
company a surety or borrow money for
the same, without its being necessary,
with respect to this latter prohibition,
for Mr. Pabalan to state that it does not
suit him to increase his capital to an
amount equal to that invested by Mr.
Fitton. Both partners are likewise
authorized, for the purposes of
management, to appoint general or
social attorneys-in-fact to represent
the company, as well as attorneys to
demand and collect such credits and
bring such suits before the courts as
be proper. 4. The management of
agricultural matters pertaining to the
rural and the urban property described
in the first paragraph of this
instrument, shall be solely and
exclusively in charge of the partner
Antonio Maria Pabalan or the person by
him designated for this purpose. 5. The
capital stock is composed of the total
sum of 9,000 pesos contributed by the
partners in the following proportion
and from: Antonio Maria Pabalan,
3,000 pesos in cash, which shall be
paid into the partnership fund by
Walter A. Fitton, who, for this purpose,

has retained them in his possession

upon his paying the amount of the sale
herein set forth; Walter A. Fitton, 6,000
pesos, represented by the two
properties described under letters A
and B in the first paragraph herein,
and in which the said lands are by
common accord appraised. 6. The
partners may not engage, in the
Province of Morong, in the same kinds
of business engaged in by this
company, but they mutually authorize
each other personally to carry on and
conduct any such business at any
other place outside of the said
province. 7. Any and all rural or city
properties which Mr. Pabalan may
acquire to the west of the hacienda
hereinabove described under letter A,
shall necessarily form a part of the
hacienda itself. 8. The term of the
existence of this partnership shall be
twenty-five years, which shall begin to
run from this date and may be
extended at the will of the contracting
parties. 9. In order that a regular and
orderly course be pursued in the
management of the company, and the
losses and profits of the latter
ascertained, an annual balance of
accounts shall be struck in the month
of June of each year, in addition to
such other balances as the partners
may, by mutual accord, determine. 10.
If, during the term of this contract,
either of the partners should die, the
company shall not, on such account,
be considered as dissolved, but shall
be continued by the surviving partner
and the heirs of the deceased partner,
unless it should suit the former to be
separated from the latter, in which
case he shall deliver to such heirs the
part of the capital that belonged to the
deceased, together with all the latter's
vested rights. 11. The profits obtained
and losses suffered by the company
shall be shared by the partners in
proportion to the capital invested by
each respectively. 12. The partners
may, by agreement, change the
company hereby organized into a joint
stock company, in which case they
shall observe and comply with the
formalities provided and prescribed by
the existing Code of Commerce in
respect to companies of this kind. 13.
All questions, controversies, doubts or
differences which may arise between
the partners, by reason of this
company or from any acts performed

27

by them on account of the same, shall

be determined by the decision of
friendly arbitrators appointed one by
each party, such appointees so
designated to choose a third arbitrator
in case of disagreement.

through the negligence, abandonment, and

carelessness of the plaintiff Pabalan, the
defendant suffered losses and damages in the
sum of P3,000 Philippine currency; the latter,
therefore, prayed that the complaint be
dismissed and that, by reason of his crosscomplaint and counterclaim, an award be
made in his behalf, and against the plaintiff,
for losses and damages, in the sum of P3,000
Philippine currency, with the costs.

The demurrer interposed to the complaint

having been overruled by an order of April 1,
1908, and exception thereto taken by the
defendant, the latter, on the 11th of the same
month, filed a written answer wherein he set
forth that he admitted the allegations
contained in paragraphs 1, 2, and 4 of the
complaint and denied, generally and
specifically, each and all of those contained in
paragraphs 3, 5, 6, 7, 8, and 9.

By a written motion of March 19, 1909,

Antonio Vasquez represented: That, owing to
the death of the plaintiff, the hearing of the
case had to be suspended until, on the 4th of
March, as aforesaid, letters of administration
were issued in his behalf, relative to the
estate of the plaintiff Pabalan; and he
therefore prayed that he be admitted as a
party in the capacity of administrator of the
estate of the deceased Antonio M. Pabalan.

As a special defense the defendant alleged

that the action prosecuted by the plaintiff had
prescribed; that the fact that the properties of
the company known as "A. M. Pabalan and
Company" had been unproductive was
exclusively due to the great negligence of the
plaintiff, since he had had more than sufficient
time, from June 27, 1900, to the date of the
death of Fitton, to have demanded from his
copartner the sum offered by the latter and
which he was to contribute to the common
assets, and that, notwithstanding all the time
that had elapsed since the execution of the
articles of partnership, up to the date of the
presentation of the complaint the plaintiff had
never required his copartner to turn into the
partnership funds the capital pledged.

The case having come to trial on April 29,

1909, with the introduction of oral evidence
by counsel for the plaintiff, the court, on July 9
of the same year, pronounced judgment and
found that the defendant had not proved any
of the damages alleged in his answer, and
was not entitled to any recovery therefore,
nor the plaintiff for the taxes that he had paid.
The court ordered a dissolution of the
partnership formed between the plaintiff and
the deceased Walter A. Fitton and a recission
of the sale and contract of partnership
executed between them on July 27, 1900, and
further ordered that the defendant, as the
administrator of the estate of the said
deceased Walter A. Fitton, deliver to the
plaintiff, upon the latter's paying to the
defendant, out of the property which
belonged to the aforesaid deceased, the sum
of P3,000 Mexican currency, equivalent to
P2,700 Philippine currency, the following real
properties:

The defendant, in his cross-complaint and

counterclaim, set forth: That, according to the
said articles of partnership, the plaintiff had
the management of agricultural matters
pertaining to the properties, rural and urban,
described therein, and, consequently, was
alone responsible for the successful
management of the company; that, also,
according to the articles of partnership, either
of the two partners had charge of the
management, direction, and administration of
the company; that, some months after the
execution of the said instrument of
partnership, Walter A. Fitton was obliged, for
reasons of health, to go abroad, where he
resided until his death, and during his
absence from this city the plaintiff, Antonio M.
Pabalan, with notable negligence and
abandonment of the interests of the company,
failed to attend to the administration of its
affairs and did not employ on his part any
means to maintain in a productive condition
the two properties brought into the
partnership by the partner Fitton, and that,

A. A rural estate consisting of an

hacienda, known as Pantayani or
Pantaen, devoted to agriculture and
situated on the roads from Mariquina
to Antipolo, within the pueblos of
Cainta and Antipolo of the old district
of Morong, now Province of Rizal,
having an area of 1,978,822 square
meters, bounded on the north by the
land of Victor Vargas and the Sucabin
River; on the east by a part of the said
Sucabin River, a part of the Tabang
River, Mount Nagtapong, the sitio of
Palenque, and by another part of the
Tabang River toward the base of Mount

28

Cay-Alaring, Mount Sapang, and the

road leading to the pueblo of Taytay;
on the south by the summit of Mount
Matugalo, the Paglilingohan estero, the
old Cainta highway, and the land of
Juan Santa Ana; and on the east by the
lands of Columba Suarez and Mariano
Sumulong, the Bulao Road, the lands
of Perfecto Legaspi, Miguel Gonzales,
Zacarias Gonzales, Juan Adriano, and
of the aforementioned Juan Santa Ana.

Article 1124 provides:

The right to rescind the obligations is
considered as implied in mutual ones,
in case one of the obligated persons
does not comply with what is
incumbent upon him.
The person prejudiced may choose
between exacting the fulfillment of the
obligation or its rescission, with
indemnity for damages and the
payment of interest in either case. He
may also demand the rescission, even
after having requested its fulfillment,
should the latter appear impossible.

B. An urban property consisting of a

building lot, without either street or
district number, situated on Calle Real
in Cainta, a municipality of the
Province of Rizal; bounded on its front,
which faces the south, by the aforesaid
Calle Real; on its right, upon entering,
or on the east, by the lot belonging to
Alejandro San Diego and his wife
Buenaventura Santos; on its left, or the
west, by the lot of Pablo Ordoez and
his wife DionisiaSalandanan; and on its
rear, or the north, by the lot of
Florencio San Antonio and his wife
Severina Santos, with an area of 361
square meters and 30 square
centimeters.

The court shall order the rescission

demanded, unless there are sufficient
causes authorizing it to fix a period.
This is understood without prejudice to
the rights of third acquirers, in
accordance with articles 1295 and
1298, and with the provisions of the
Mortgage Law.
Article 116 of the Code of Commerce
prescribes:

This litigation concerns the dissolution of a

regular mercantile partnership and the
rescission of the sale of certain real
properties, the contracts with respect to which
were entered into between Antonio M.
Pabalan y Santos, on one hand, and Walter A.
Fitton, on the other, according to a notarial
instrument executed by the contracting
parties on July 27, 1900.

Articles of association by which two or

more persons obligate themselves to
place in a common fund any property,
industry, or any of these things, in
order to obtain profit, shall be
commercial, no matter what its class
may be, provided it has been
established in accordance with the
provisions of this code.

The plaintiff's claim is founded on the alleged

fact that the said Walter A. Fitton failed to
comply with his obligations as stipulated in
the said double contract, inasmuch as he did
not pay into the funds of the company
entitled "A. M. Pabalan and Company," as the
capital of the partner Pabalan, the sum of
P3,000, or the remainder of P6,000, the price
of the properties which he had purchased
from the plaintiff, did not pay to the latter the
said amount, nor any part thereof, nor was
such payment made, after the said Fitton's
death, by the administrator of the latter's
estate.

After the organization of the general

mercantile partnership denominated "A. M.
Pabalan and Company," through the aforesaid
instrument of June 27, 1900, the partner
Fitton did not turn into the company funds the
sum of P3,000, in the name and to the credit
of Pabalan, as the latter's capital, which sum
was a part of the price of the sale of the two
real properties purchased from the said
Pabalan by his partner Fitton who, in turn,
brought the said two parcels of land, as his
capital, into the common fund, without having
paid the said sum up to the time when he
absented himself from these Islands, a few
months after the establishment of the
partnership, and died in a foreign country.

Article 1506 of the Civil Code prescribes:

The sale shall be rescinded for the
same causes as all other obligations,
etc.

It was duly proved at the trial of this case,

that the partner Walter A. Fitton failed to
observe the stipulations of the two aforesaid

29

contracts; that he did not pay any part of the

price of the sale of the two parcels of land
which he had purchased from his partner,
Antonio M. Pabalan, and, consequently, did
not turn into the company funds, as capital of
the said Pabalan, the sum of which the said
price consisted; it is therefore unquestionable
that he did not comply with his two principal
obligations, assumed in the said double
contract wherein he expressly agreed that the
said P3,000, a part of the price of the two
pieces of land that he purchased from
Pabalan, would be by him turned into the fund
of the general partnership which they had
formed, as capital of the partner Pabalan.

and computed pro rata, in proportion to the

extent that each partner is interested in the
company and on the same basis as the
profits. (Arts. 140 and 141 of the Code of
Commerce.)
As regards the amount of the land tax, which
the partner Pabalan had to pay, amounting to
P522.30, under the assessment levied upon
the two real properties owned by the
company, inasmuch as the latter is the owner
of the said two parcels of land, which form the
assets of the company known as "A. M.
Pabalan and Company," it is unquestionable
that this company should have paid the said
tax to the Government, and the same being
paid by the partner Pabalan out of his private
funds and not of those of the company, he
was solely entitled to be reimbursed for twothirds of the said sum paid, in proportion to
the amount of the respective capital brought
in, which two-thirds of the sum of P522.30,
that is, P348.20, may be deducted from the
sum of P2,700 Philippine currency, equivalent
to P3,000 Mexican currency, which the estate
of Antonio M. Pabalan must restore to the
testate or intestate estate of Walter A. Fitton,
upon the defendant's returning to the plaintiff
the two aforesaid parcels of land.

In case one of the parties to a contract does

not fulfill his obligation as stipulated therein,
the other contracting party, by the provisions
of the above-quoted article 1124 of the Civil
Code, is entitled to demand the rescission of
the contract, as such obligations are mutual,
and the court must order the rescission
demanded. The partner, Walter A. Fitton,
came within such a case, since he failed to
pay any part of the price of the two properties
which he had acquired and did not turn into
the company fund, as capital of the vendor
partner, the sum representing such sale, and
therefore justice requires the dissolution of
the aforementioned company and the
rescission of the said sale, in conformity with
the finding contained in the judgment
appealed from the prayer rightfully and
lawfully made by the partner who did not
violate his obligations as set forth in the said
contract.

For the reasons hereinbefore stated, we are of

opinion that the judgment appealed from
should be and is hereby affirmed, with no
special finding as to the costs; provided,
however, that the administrator of the estate
of the deceased Fitton shall deliver to the
administrator of the estate of Pabalan the two
parcels of land, the sale of which was
rescinded, upon payment by the last named
administrator to that of the estate of Fitton, of
the sum of P2,700, equivalent to P3,000
Mexican pesos, the said administrator of the
Pabalan estate being entitled to deduct from
the said sum that of P348.20, which is twothirds of the amount paid as land tax on the
properties concerned. So ordered.

During the course of this suit in the Court of

First Instance, the plaintiff, Antonio M.
Pabalan, also died; and if the latter, while
living, was not obliged, according to clause 10
of the articles of partnership, to continue in
the company after the decease of his
copartner, and had a right to withdraw
therefrom or from the heirs of the deceased
Walter A. Fitton, after the death of the partner
Pabalan, neither are the latter's successors in
interest obliged to continue in the company,
and, therefore, under this circumstance, the
propriety of the judgment appealed from is
still more evident. With respect to the interest
on the capital which belonged to Pabalan, and
which Fitton failed to turn into the company
fund in conformity with the agreement made,
and in regard to the amount of the losses and
damages occasioned by the noncompliance,
on the part of the partner Fitton, with the
stipulated provisions, both such amounts
should be considered as the company's losses

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-5236

January 10, 1910

PEDRO MARTINEZ, plaintiff-appellee,

vs.
ONG PONG CO and ONG LAY, defendants.
ONG PONG CO., appellant.

30

Fernando de la Cantera for appellant.

O'Brien and DeWitt for appellee.

4. For having applied article 1138 of

the Civil Code.

ARELLANO, C.J.:

5. and 6. For holding that the capital

ought to have yielded profits, and that
the latter should be calculated 12 per
cent per annum; and

On the 12th of December, 1900, the plaintiff

herein delivered P1,500 to the defendants
who, in a private document, acknowledged
that they had received the same with the
agreement, as stated by them, "that we are to
invest the amount in a store, the profits or
losses of which we are to divide with the
former, in equal shares."

7. The findings of the ejectment.

As to the first assignment of error, the fact
that the store was closed by virtue of
ejectment proceedings is of no importance for
the effects of the suit. The whole action is
based upon the fact that the defendants
received certain capital from the plaintiff for
the purpose of organizing a company; they,
according to the agreement, were to handle
the said money and invest it in a store which
was the object of the association; they, in the
absence of a special agreement vesting in one
sole person the management of the business,
were the actual administrators thereof; as
such administrators they were the agent of
the company and incurred the liabilities
peculiar to every agent, among which is that
of rendering account to the principal of their
transactions, and paying him everything they
may have received by virtue of
the mandatum. (Arts. 1695 and 1720, Civil
Code.) Neither of them has rendered such
account nor proven the losses referred to by
Ong Pong Co; they are therefore obliged to
refund the money that they received for the
purpose of establishing the said store the
object of the association. This was the
principal pronouncement of the judgment.

The plaintiff filed a complaint on April 25,

1907, in order to compel the defendants to
render him an accounting of the partnership
as agreed to, or else to refund him the P1,500
that he had given them for the said purpose.
Ong Pong Co alone appeared to answer the
complaint; he admitted the fact of the
agreement and the delivery to him and to Ong
Lay of the P1,500 for the purpose aforesaid,
but he alleged that Ong Lay, who was then
deceased, was the one who had managed the
business, and that nothing had resulted
therefrom save the loss of the capital of
P1,500, to which loss the plaintiff agreed.
The judge of the Court of First Instance of the
city of Manila who tried the case ordered Ong
Pong Co to return to the plaintiff one-half of
the said capital of P1,500 which, together with
Ong Lay, he had received from the plaintiff, to
wit, P750, plus P90 as one-half of the profits,
calculated at the rate of 12 per cent per
annum for the six months that the store was
supposed to have been open, both sums in
Philippine currency, making a total of P840,
with legal interest thereon at the rate of 6 per
cent per annum, from the 12th of June, 1901,
when the business terminated and on which
date he ought to have returned the said
amount to the plaintiff, until the full payment
thereof with costs.

With regard to the second and third

assignments of error, this court, like the court
below, finds no evidence that the entire
capital or any part thereof was lost. It is no
evidence of such loss to aver, without proof,
that the effects of the store were ejected.
Even though this were proven, it could not be
inferred therefrom that the ejectment was due
to the fact that no rents were paid, and that
the rent was not paid on account of the loss of
the capital belonging to the enterprise.

From this judgment Ong Pong Co appealed to

this court, and assigned the following errors:
1. For not having taken into
consideration the fact that the reason
for the closing of the store was the
ejectment from the premises occupied
by it.

With regard to the possible profits, the finding

of the court below are based on the
statements of the defendant Ong Pong Co, to
the effect that "there were some profits, but
not large ones." This court, however, does not
find that the amount thereof has been proven,
nor deem it possible to estimate them to be a
certain sum, and for a given period of time;
hence, it can not admit the estimate, made in

2. For not having considered the fact

that there were losses.
3. For holding that there should have
been profits.

31

the judgment, of 12 per cent per annum for

the period of six months.

STATEMENT
Plaintiff alleges that about December 23,
1926, he and the defendants formed a
partnership for the operation of a fish
business and similar commercial transactions,
which by mutual contest was called
"Malangpaya Fish Co," with a capital of
P35,000, of which plaintiff paid P25,000, the
defendant Martin P5,000, P2,500, and Golucke
P2,500. That as such partnership, they agreed
to share in the profits and losses of the
business in proportion to the amount of
capital which each contributed. That the
plaintiff was named the general manager to
take charge of the business, with full power to
do and perform all acts necessary to carry out
of the purposes of the partnership. That there
was no agreement as to the duration of the
partnership. That plaintiff wants to dissolve it,
but that the defendants refused to do so. A
statement marked Exhibit A, which purports
to be a cash book, is made a part of the
complaint. That the partnership purchased
and now owns a lighter called Lapu-Lapu, and
a motorshipcalledBarracuda, and other
properties. That the lighter and the motorship
are in the possession of the defendants who
are making use of them, to the damage and
prejudice of the plaintiff, for any damage
which plaintiff may sustain. That it is for the
best interest of the parties to have a receiver
appointed pending this litigation, to take
possession of the properties, and he prays
that the Philippine Trust Company be
appointed receiver, and for judgment
dissolving the partnership, with costs.

Inasmuch as in this case nothing appears

other than the failure to fulfill an obligation on
the part of a partner who acted as agent in
receiving money for a given purpose, for
which he has rendered no accounting, such
agent is responsible only for the losses which,
by a violation of the provisions of the law, he
incurred. This being an obligation to pay in
cash, there are no other losses than the legal
interest, which interest is not due except from
the time of the judicial demand, or, in the
present case, from the filing of the complaint.
(Arts. 1108 and 1100, Civil Code.) We do not
consider that article 1688 is applicable in this
case, in so far as it provides "that the
partnership is liable to every partner for the
amounts he may have disbursed on account
of the same and for the proper interest," for
the reason that no other money than that
contributed as is involved.
As in the partnership there were two
administrators or agents liable for the abovenamed amount, article 1138 of the Civil Code
has been invoked; this latter deals with debts
of a partnership where the obligation is not a
joint one, as is likewise provided by article
1723 of said code with respect to the liability
of two or more agents with respect to the
return of the money that they received from
their principal. Therefore, the other errors
assigned have not been committed.

Each of the defendants filed a separate

answer, but the same nature, in which they
admit that about December 10, 1926, the
plaintiff and the defendants formed a
partnership for the purpose of the equipment
of the Manila Fish Co., Inc., and the conduct of
a fish business. That the terms of the
partnership were never evidenced by a truth
and in fact, the partnership was formed under
a written plan, of which each member
received a copy and to which all agreed. That
by its terms the amount of the capital was
P45,000, of which the plaintiff agreed to
contribute P35,000. That P20,000 of the
capital was to be used for the purchase of the
equipment of the Manila Fish Co., Inc. and the
balance placed to the checking account o the
new company.

In view of the foregoing judgment appealed

from is hereby affirmed, provided, however,
that the defendant Ong Pong Co shall only
pay the plaintiff the sum of P750 with the
legal interest thereon at the rate of 6 per cent
per annum from the time of the filing of the
complaint, and the costs, without special
ruling as to the costs of this instance. So
ordered.

G.R. No. 30286

1929

September 12,

M. TEAGUE, plaintiff-appellant,
vs.
H. MARTIN, J. T. MADDY and L.H.
GOLUCKE, defendants-appellees.

It is then alleged that "the new owners agree

to duties as follows:

Abad Santos, Camu and Delgado, for

appellant.
J.W. Ferrier for appellees.

Capt. Maddy will have charger of the

Barracuda and the navigating of the
same. Salary P300 per month.

32

Mr. Martin will have charge of the

southern station, cold stores,
commissary and procuring fish. Salary
P300 per month.

partnership over purchased or that it now

owns the lighter Lapu-Lapu, "And/ or any
other properties" as mentioned in said ninth
paragraph, except such motorship and a
smoke in the house," or that the defendants
are making use of any of the properties of the
partnership, to the damage and prejudice of
the plaintiff, or that they do not have any
visible means to answer for any damages,
and alleges that at the time of the filing of the
complaint, partnership in cold storage, of the
value of P6,000, for which he has never
accounted on the books of the partnership or
mentioned in the complaint, and defendant
prays that plaintiff's complaint be dismissed,
and that he be ordered and required to render
an accounting , and to pay to partnership the
balance of his unpaid subscription amounting
to P10,000.

Mr. Teague will have charge of selling

fish in Manila and purchasing supplies.
No salary until business is on paying
basis, then the same as Maddy or
Martin.
The principal office shall be in Manila,
each party doing any business shall
keep books showing plainly all
transactions, the books shall be
available at all time for inspections of
any member of the partnership.
If Mr. Martin or Mr. Maddy wishes at
some future time to repurchase a
larger share in the business Teague
agrees to sell part of his shares to each
on the basis double the amount
originally invested by each or ten
thousand to Martin and five thousand
to Maddy.

In his answer the defendant Maddy claimed

and asserted that there is due and owing him
from the plaintiff P1,385.53, with legal
interest, and in his amended answer, the
defendant Martin prays for judgment for
P615.49.
To all which the plaintiff made a general and
specific denial.

This offer will expire after two years.

That no charge was ever made in the
terms of said agreement of
copartnership as set forth above
except that it was later agreed among
the partners that the business of the
partnership should be conducted under
the trade name "Malangpaya Fish
Company."

Upon such issues the lower court on April 30,

1928, rendered the following judgment:
In view of the foregoing
considerations, the court decrees:
That the partnership, existing among
the parties in this suit, is hereby
declared dissolved; that all the existing
properties of the said partnership are
ordered to be sold at public auction;
and that all the proceeds and other
unexpended funds of the partnership
be used, first, to pay he P529.48 tax to
the Government of the Philippine
Islands; second, to pay debts owing to
third persons; third, to reimburse the
partners for their advances and
salaries due; and lastly, to return to
the partners the amounts they
contributed to the capital of the
association and any other remaining
such to be distributed proportionately
among them as profits:

That as shown by the foregoing quoted

agreement the agreed capital of the
copartnership was P45,000 and not
P35,000 as stated in the third
paragraph of plaintiff's amended
complaint, and the plaintiff herein, M.
Teague, bound himself and agreed to
contribute to the said copartnership
the sum of P35,000 and not the sum of
P25,000 as stated in the third
paragraph of his said amended
complaint.
Defendant Martin specificaly denies the
"plaintiff was named general manager of the
partnership," and alleged "that all the duties
and powers of the said plaintiff were
specifically set forth in the above quoted
written agreement and that no further or
additional powers were ever given the said
plaintiff." But he admits the purchase of the
motorship Barracuda, by the partnership. He
denies that Exhibit A is a true or correct
statement of the cash received and paid out
by or on behalf of the partnership, or that the

That the plaintiff immediately render a

true and proper account of all the
money due to and received by him for
the partnership.
That the barge Lapu-Lapu as well as
the Ford truck No. T-3019 and adding
machine belong exclusively to the

33

plaintiff, M. Teague, but the said

plaintiff must return to and reimburse
the partnership the sum of P14,032.26
taken from its funds for the purchase
and equipment of the said barge LapuLapu; and also to return the sum of
P1,230 and P228 used for buying the
Ford truck and adding machine,
respectively:

whether or not the appellant M. Teague

was the manager of the unregistered
partnership Malangpaya Fish Company.
III. The trial court erred in holding that
the appellant had no authority to buy
the Lapu-Lapu, the Ford truck and the
adding machine without the consent of
his copartners, for in accordance with
article 131 of the Code of Commerce
the managing partner of a partnership
can make purchases for the
partnership without the knowledge
and/or consent of his copartners.

That the sum of P,1512.03 be paid to

the defendant, J. T. Maddy, and the
sum of P615.49 be paid to defendant,
H. Martin, for their advances and their
unpaid salaries, with legal interest
from October 27, 1927, until paid; that
the plaintiff pay the costs of this
action.

IV. The trial court erred in holding that

the Lapu-Lapu, the Ford truck and the
adding machine purchased by
appellant, as manager of the
Malangpaya Fish Company, for and
with funds of the partnership, do not
form part of the assets of the
partnership.

So ordered.
May 16, 1928, plaintiff filed a motion praying
for an order "directing the court's
stenographic notes taken by them of the
evidence presented in the present case, as
soon as possible." This motion was denied on
May 19th, and on May 16th, the court denied
the plaintiff's motion for reconsideration. To all
of which exceptions were duly taken.

V. The trial court erred in requiring the

appellant to pay to the partnership the
sum of P14,032.26, purchase price,
cost of repairs and equipment of the
barge Lapu-Lapu; P1,230 purchase
price of the adding machine, for these
properties were purchased for and
they form part of the assets of the
partnership.

June 7, 1928, plaintiff filed a petition praying,

for the reasons therein stated, that the
decision of the court in the case be set aside,
and that the parties be permitted to again
present their testimony and to have the case
decided upon its merits. To which objections
were duly made, and on June 28, 1928, the
court denied plaintiff's motion for a new trial.
To which exceptions were duly taken, and on
July 10, 1928, the plaintiff filed a motion in
which he prayed that the period for the
appeal interposed by the plaintiff be
suspended, and that the order of June 28,
1928, be set aside, "and that another be
entered ordering the re-taking of the evidence
in this case." To which objections were also
filed and later overruled, from all of which the
plaintiff appealed and assigns the following
errors:

VI. The trial court erred in disapproving

appellant's claim for salary and
expenses incurred by him for and in
connection with the partnership's
business.
VII. The trial court erred in approving
the claims of appellees J.T. Maddy and
H. Martin and in requiring the appellant
to pay them the sum of P1,512.03 and
P615.49 respectively.
VIII. The trial court erred in not taking
cognizance of appellant's claim for
reimbursement for advances made by
him for the partnerships, as shown in
the statement attached to the
complaint marked Exhibit A, in which
there is a balance in his favor and
against the partnership amounting to
over P16,000.

I. The trial court erred in not having

confined itself, in the determination of
this case, to the question as to
whether or not it is proper to dissolve
the partnership and to liquidate its
assets, for all other issues raised by
appellees are incidental with the
process of liquidation provided for by
law.

X. Lastly, considering the irregularities

committed, the disappearance of the
stenographic notes for a considerable
length of time, during which time
changes in the testimonies of the
witnesses could have been made and
the impossibility of having an accurate

II. The trial court erred in not resolving

the primary and most important
question at issue in his case, namely,

34

and complete transcript of the

stenographic notes, the trial court
erred in denying appellant's petition
for the retaking of the evidence in this
case.

bank made in the ordinary course of business,

as to who was authorized to sign checks for
the partnership; otherwise, it would not cash
the checks.
In the final analysis, the important question in
this case is the ownership of the Lapu-Lapu,
the Ford truck, and the adding machine. The
proof is conclusive that they were purchased
by the plaintiff and paid for him from and out
of the money of the partnership. That at the
time of their purchase, the Lapu-Lapu was
purchased in the name of the plaintiff, and
that he personally had it registered in the
customs house in his own name, for which he
made an affidavit that he was its owner. After
the purchase, he also had the Ford truck
registered in his won name. His contention
that this was done as a matter of convenience
is not tenable. The record shows that when
the partnership purchased the Barracuda, it
was registered in the customs house in the
name of the partnership, and that it was a
very simple process to have it so registered.

JOHNS, J.:
By their respective pleadings, all parties
agreed that there was a partnership between
them, which appears at one time to have
done a good business. In legal effect, plaintiff
asked for its dissolution and the appointment
of a receiver pendente lite. The defendants
did not object to the dissolution of the
partnership, but prayed for an accounting
with the plaintiff. It was upon such issues that
the evidence was taken and the case tried.
Hence, there is no merit in the first in the first
assignment of error. Complaint is made that
the lower court did not specifically decide as
to whether or not the plaintiff was the
manager of the unregistered partnership. But
upon that question the lower court, in legal
effect, followed and approved the contention
of the defendants that the duties of each
partners were specified and defined in the
"plans for formation of a limited partnership,"
in which it is stated that Captain Maddy would
have charge of the Barracuda and its
navigation, with a salary of P300 per month,
and that Martin would have charge of the
southern station, cold stores, commisary and
procuring fish, with a salary of P300 per
month, and that the plaintiff would have
charge of selling fish in Manila and purchasing
supplies, without salary until such time as the
business is placed on a paying basis, when his
salary would be the same as that of Maddy
and Martin, and that the principal office of the
partnership "shall keep books showing plainly
all transactions," which shall be available at
all time for inspection of any of the members.

Without making a detailed analysis of the

evidence, we agree with the trial court that
the Lapu-Lapu, the Ford truck, and the adding
machine were purchased by the plaintiff and
paid for out of the funds of the partnership,
and that by his own actions and conduct, and
the taking of the title in his own name, he is
now estopped to claim or assert that they are
not his property or that they are the property
of the company. Again, under his powers and
duties as specified in the tentative, unsigned
written agreement, his authority was confined
and limited to the "selling of fish in Manila and
the purchase of supplies." It must be
conceded that, standing alone, the power to
sell fish and purchase supplies does not carry
with it or imply the authority to purchase
the Lapu-Lapu, or the Ford truck, or the
adding machine. From which it must follow
that he had no authority to purchase the
lighter Lapu-Lapu, the Ford truck, or the
adding machine, as neither of them can be
construed as supplies for the partnership
business. While it is true that the tentative
agreement was never personally signed by
any member of the firm, the trial court found
as a fact, and that finding is sustained by the
evidence, that this unsigned agreement was
acted upon and accepted by all parties as the
basis of the partnership. It was upon that
theory that the lower court allowed the
defendant s Maddy and Martin a salary of
P300 per month and the money which each of
them paid out and advanced in the
discharged of their respective duties, and
denied any salary to the plaintiff, for the
simple reason that the business was never on
a paying basis.

It will thus be noted that the powers and

duties of Maddy Martin, and the plaintiff are
specifically defined, and that each of them
was more or less the general manager in his
particular part of the business. That is to say,
that Maddy's power and duties are confined
and limited to the charge of
the Barracuda and its navigation, and Martin's
to the southern station, cold stores,
commissary and procuring fish, and that
plaintiff's powers and duties are confined and
limited to "selling fish in Manila and the
purchase of supplies." In the selling of fish,
plaintiff received a substantial amount of
money which he deposited to the credit of the
company signed by him as manager, but it
appears that was a requirement which the

35

Much could be said about this division of

powers, and that Maddy and Martin's duties
were confined and limited to the catching and
procuring of fish, which were then shipped to
the plaintiff who sold them on the Manila
market and received the proceeds of the
sales. In other words, Maddy and Martin were
supplying the fish to plaintiff who sold them
under an agreement that he would account
for the money.

Q.
Did you not say that
you paid yourself a salary in
August because you made a
profit?
A.
Yes. This profit was
made counting the stock on
hand and equipment on hand,
but as far as cash to pay this
balance, I did not have it. when
I wanted a salary I just took it. I
ran things to suit myself.

Upon the question of accounting, his

testimony as to the entries which he made
and how he kept the books of the partnership
is very interesting:

xxx

A.
You are mistaken; I
am not against them. I paid this
out for filing this complaint and
if the honorable court strikes it
out, all right. I think it was a
just charge. When I want to sue
them the Company can pay for
my suit.

A.
Well, I put the salary
in there.
Q.
I am asking you if that
is true?
A.
I do not think I will
decide that, I think it will be
decided by the court.

Q.
Would you have any
objection to their asking for
their attorney's fees from the
company as partners also in the
business?

Q.
I will ask you to
answer the question?
A.
You asked me my
opinion and I said that I am
entitled to it.
xxx

A.

xxx

A.
Yes, that is the way I
do my business.
To say the least, this kind of evidence does
not appeal to the court. This case has been
bitterly contested, and there is much feeling
between the parties and even their respective
attorneys. Be that as it may, we are clearly of
the opinion that the findings of the lower
court upon questions of fact are well
sustained by the evidence. Plaintiff's case was
tried on the theory that the partnership was
the owner of the property in question, and no
claim was made for the use of the Lapu-Lapu,
and it appears that P14,032.26 of the
partnership money was used in its purchase,
overhauling, expenses and repairs. That in
truth and in fact the partnership had the use
and benefit of the Lapu-Lapu in its business

xxx

Q.
You have your own
bookkeeping?
A.
Well, I run my
business to suit myself, I put in
the books what I want to, and I
leave out what I want to, and I
have a quarter of a million
pesos to show for it,
xxx

xxx

Yes.

Q.
You would object to
your partners having their
attorney's fees here paid out of
the copartnership like you have
had yours paid?

xxx

I am not on trial as a bookkeeper; if my

lawyers won't object to the question I
will object myself; I am not on trial as a
bookkeeper; I keep my books any way
I want to, put in what I want to, and I
leave out anything I don't choose to
put in,
xxx

xxx

Q.
In other words in
going against these partners
you are going to tax them for
the services of your attorney?

Q.
Then this salary does
not take into consideration the
fact that you claim the
company is very badly in debt?

xxx

xxx

xxx

36

from sometime in May until the receiver was

appointed on November 11, 1927, or a period
of about six months, and that the partnership
has never paid anything for its use. it is true
that there is no testimony as to the value of
such use, but the cost of the Lapu-Lapu and
the time of its use and the purpose for which
it was used, all appear in the record. For such
reason, in the interest of justice, plaintiff
should be compensated for the reasonable
value of the time which the partnership made
use of the Lapu-Lapu.

Larin charged them with the crime of estafa,

but the provincial fiscal filed an information
only against EusebioClarin in which he
accused him of appropriating to himself not
only the P172 but also the share of the profits
that belonged to Larin, amounting to P15.50.

All things considered, we are of the opinion

that P2,000 is a reasonable, amount which the
plaintiff should receive for its use.

The trial court, that of First Instance of

Pampanga, sentenced the defendant,
EusebioClarin, to six months'arresto mayor, to
suffer the accessory penalties, and to return
to Pedro Larin P172, besides P30.50 as his
share of the profits, or to subsidiary
imprisonment in case of insolvency, and to
pay the costs. The defendant appealed, and in
deciding his appeal we arrive at the following
conclusions:

Pedro Tarug and Carlos de Guzman appeared

in the case as witnesses and assumed that
the facts presented concerned the defendant
and themselves together.

In all things and respects, the judgment of the

lower court as to the merits is affirmed, with
the modification only that P2,000 shall be
deducted from the amount of the judgment
which was awarded against the plaintiff, such
deduction to be made for and on account of
such use of the Lapu-Lapu by the partnership,
with costs against the appellant. So ordered.

When two or more persons bind themselves

to contribute money, property, or industry to
a common fund, with the intention of dividing
the profits among themselves, a contract is
formed which is called partnership. (Art. 1665,
Civil Code.)

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 5840

When Larin put the P172 into the partnership

which he formed with Tarug, Clarin, and
Guzman, he invested his capital in the risks or
benefits of the business of the purchase and
sale of mangoes, and, even though he had
reserved the capital and conveyed only the
usufruct of his money, it would not devolve
upon of his three partners to return his capital
to him, but upon the partnership of which he
himself formed part, or if it were to be done
by one of the three specifically, it would be
Tarug, who, according to the evidence, was
the person who received the money directly
from Larin.

September 17, 1910

THE UNITED STATES, plaintiff-appellee,

vs.
EUSEBIO CLARIN, defendant-appellant.
Francisco Dominguez, for appellant.
Attorney-General Villamor, for appellee.
ARELLANO, C.J.:
Pedro Larin delivered to Pedro Tarug P172, in
order that the latter, in company with
EusebioClarin and Carlos de Guzman, might
buy and sell mangoes, and, believing that he
could make some money in this business, the
said Larin made an agreement with the three
men by which the profits were to be divided
equally between him and them.

The P172 having been received by the

partnership, the business commenced and
profits accrued, the action that lies with the
partner who furnished the capital for the
recovery of his money is not a criminal action
for estafa, but a civil one arising from the
partnership contract for a liquidation of the
partnership and a levy on its assets if there
should be any.

Pedro Tarug, EusebioClarin, and Carlos de

Guzman did in fact trade in mangoes and
obtained P203 from the business, but did not
comply with the terms of the contract by
delivering to Larin his half of the profits;
neither did they render him any account of
the capital.

No. 5 of article 535 of the Penal Code,

according to which those are guilty
of estafa "who, to the prejudice of another,
shall appropriate or misapply any money,
goods, or any kind of personal property which

37

they may have received as a deposit on

commission for administration or in any other
character producing the obligation to deliver
or return the same," (as, for example,
in commodatum, precarium, and other
unilateral contracts which require the return
of the same thing received) does not include
money received for a partnership; otherwise
the result would be that, if the partnership,
instead of obtaining profits, suffered losses, as
it could not be held liable civilly for the share
of the capitalist partner who reserved the
ownership of the money brought in by him, it
would have to answer to the charge of estafa,
for which it would be sufficient to argue that
the partnership had received the
money under obligation to return it.

total, a little over P4,300, was the estimated

cost of the casco, but in the progress of the
work the defendant found that it called for
additional funds, which he advanced to the
amount of P2,024.49. It is satisfactorily
appears from the evidence that this amount is
necessary in order to complete the work
undertaken. Although it would seem that he
failed to notify his partners of the various
items from time to time going to make up this
sum, it is shown that the books were at all
times open to their inspection, and that, being
asked to examine them, they omitted to do
so, and that the plaintiff Juan Agustin,
representing all the partners, was also present
at the construction of the casco, in charge of
the practical work and cognizant of its needs
and its progress.

We therefore freely acquit EusebioClarin, with

the costs de oficio. The complaint for estafa is
dismissed without prejudice to the institution
of a civil action.

The work done in the casco having been

within the scope of the association and
necessary to carry out its express object, the
borrowing of the money required to carry it
on, with the acquiescence if not with the
affirmative consent of his associates, was not
outside the powers of the managing partner
and constitutes a debt for which all the
associates are liable.

FIRST DIVISION
[G.R. No. L-3745. October 26, 1907. ]
JUAN AGUSTIN, ET AL., plaintiffs; VICTOR
DEL ROSARIO, appellant, v. BARTOLOME
INOCENCIO, Defendant-Appellee.

The note passed into the hands of the

defendant by reason of the successive deaths
of his wife and of their only child, each
without debts, and for the amount thereof he
became a creditor, subject, however, to the
deduction therefrom of his proportionate part
of the indebtedness.

Salas and Soncuya, for Appellant.

Southworth and Ingersoll, for Appellee.
SYLLABUS

The trial court treated his claim on this note,

as well as the sum of P2,024.49 furnished by
him, as an addition to his capital in the firm,
rather than as a loan, and this constitutes one
of the grounds of error stated by
the Appellant. We do not deem it necessary to
pass upon this objection, for the reason that,
considered as a loan, this sum would place
the defendant as a creditor in a stronger
position as against his associates than if
regarded as a mere contribution to capital.
The error, if it be an error, is not, therefore,
prejudicial to the plaintiff, but is rather
beneficial to him. The respondent did not
except to it.

1. PARTNERSHIP; ADVANCES ALLOWED

MANAGING PARTNER. On the adjustment of
the accounts of a partnership, the managing
partner may be allowed funds borrowed or
advanced and necessary to the completion of
the work, within the scope of the business and
expressly provided for by agreement among
the partners.
DECISION
TRACEY, J. :

Various small sums have been paid out of the

profits to some of the partners and these were
properly allowed him in the judgment.

The parties to this controversy, who had been

conducting a partnership as industrial
partners without capital, contributed from its
profits the sum of P807.28 as a fund toward
the construction of a casco for use in their
business, to which they added P3,500,
borrowed from Maria del Rosario, the wife of
the defendant, Bartolome Inocencio, he being
the managing partner. It is admitted that this

On the theory on which the action was

disposed of, the trial court committed no error
in the computation of the various shares.
Of the four parties plaintiff, but one, Victor del
Rosario, is interested in this appeal, which has
been dismissed as to the others, and as to
him the judgment of the trial court must be

38

affirmed, with costs of this instance. So

ordered.

From this order of dismissal, the appellant

took an appeal, assigning twenty alleged
errors committed by the lower court in its
order referred to.

Arellano, C.J., Torres, Johnson, and Willard, JJ.,

concur.
Republic of the Philippines
SUPREME COURT
Manila

The demurrer interposed by defendant to the

amended complaint filed by plaintiff having
been sustained on the grounds that the facts
alleged in said complaint are not sufficient to
constitute a cause of action and that the
complaint is ambiguous, unintelligible and
vague, the only questions which may be
raised and considered in the present appeal
are those which refer to said grounds.

EN BANC
G.R. No. L-45464

April 28, 1939

JOSUE SONCUYA, plaintiff-appellant,

vs.
CARMEN DE LUNA, defendant-appellee.

In the amended complaint it is prayed that

defendant Carmen de Luna be sentenced to
pay plaintiff damages in the sum of P700,432
as a result of the administration, said to be
fraudulent, of he partnership, "Centro Escolar
de Seoritas", of which plaintiff, defendant
and the deceased LibradaAvelino were
members. For the purpose of adjudicating to
plaintiff damages which he alleges to have
suffered as a partner by reason of the
supposed fraudulent management of he
partnership referred to, it is first necessary
that a liquidation of the business thereof be
made to the end that the profits and losses
may be known and the causes of the latter
and the responsibility of the defendant as well
as the damages which each partner may have
suffered, may be determined. It is not alleged
in the complaint that such a liquidation has
been effected nor is it prayed that it be made.
Consequently, there is no reason or cause for
plaintiff to institute the action for damages
which he claims from the managing partner
Carmen de Luna (Po YengCheo vs. Lim Ka
Yam, 44 Phil., 172).

Josue Soncuya in his own behalf.

Conrado V. Sanchez and Jesus de Veyra for
appellee.
VILLA-REAL, J.:
On September 11, 1936, plaintiff Josue
Soncuya filed with the Court of First Instance
of Manila and amended complaint against
Carmen de Luna in her own name and as coadministratrix of the intestate estate, of
LibradaAvelino, in which, upon the facts
therein alleged, he prayed that defendant be
sentenced to pay him the sum of P700,432 as
damages and costs.
To the aforesaid amended complaint
defendant Carmen de Luna interposed a
demurrer based on the following grounds: (1)
That the complaint does not contain facts
sufficient to constitute a cause of action; and
(2) that the complaint is ambiguous,
unintelligible and vague.

Having reached the conclusion that the facts

alleged in the complaint are not sufficient to
constitute a cause of action on the part of
plaintiff as member of the partnership "Centro
Escolar de Seoritas" to collect damages from
defendant as managing partner thereof,
without a previous liquidation, we do not
deem it necessary to discuss the remaining
question of whether or not the complaint is
ambiguous, unintelligible and vague.

Trial on the demurrer having been held and

the parties heard, the court found the same
well-founded and sustained it, ordering the
plaintiff to amend his complaint within a
period of ten days from receipt of notice of
the order.
Plaintiff having manifested that he would
prefer not to amend his amended complaint,
the attorney for the defendant, Carmen de
Luna, filed a motion praying that the
amended complaint be dismissed with costs
against the plaintiff. Said motion was granted
by The Court of First Instance of Manila which
ordered the dismissal of the aforesaid
amended complaint, with costs against the
plaintiff.

In view of the foregoing considerations, we

are of the opinion and so hold that for a
partner to be able to claim from another
partner who manages the general
copartnership, damages allegedly suffered by
him by reason of the fraudulent
administration of the latter, a previous
liquidation of said partnership is necessary.

39

Wherefore, finding no error in the order

appealed from the same is affirmed in all its
parts, with costs against the appellant. So
ordered.

40

Republic of the Philippines

SUPREME COURT
Manila

said balance. The court, after trial, ordered

Carlos Ceron personally to pay the amount
claimed and absolved the partnership Hill
&Ceron, Robert Hill and the Visayan Surety &
Insurance Corporation. On appeal to the Court
of Appeals, the latter affirmed the decision of
the court on May 29, 1937, having reached
the conclusion that Ceron did not intend to
represent and did not act for the firm Hill
&Ceron in the transaction involved in this
litigation.

EN BANC
G.R. No. L-45624

April 25, 1939

GEORGE LITTON, petitioner-appellant,

vs.
HILL & CERON, ET AL., respondentsappellees.

Accepting, as we cannot but accept, the

conclusion arrived at by the Court of Appeals
as to the question of fact just mentioned,
namely, that Ceron individually entered into
the transaction with the plaintiff, but in view,
however, of certain undisputed facts and of
certain regulations and provisions of the Code
of Commerce, we reach the conclusion that
the transaction made by Ceron with the
plaintiff should be understood in law as
effected by Hill &Ceron and binding upon it.

George E. Reich for appellant.

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

In the first place, it is an admitted fact by

Robert Hill when he testified at the trial that
he and Ceron, during the partnership, had the
same power to buy and sell; that in said
partnership Hill as well as Ceron made the
transaction as partners in equal parts; that on
the date of the transaction, February 14,
1934, the partnership between Hill and Ceron
was in existence. After this date, or on
February 19th, Hill &Ceron sold shares of the
Big Wedge; and when the transaction was
entered into with Litton, it was neither
published in the newspapers nor stated in the
commercial registry that the partnership Hill
&Ceron had been dissolved.

The facts are as follows: On February 14,

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

Hill testified that a few days before February

14th he had a conversation with the plaintiff
in the course of which he advised the latter
not to deliver shares for sale or on
commission to Ceron because the partnership
was about to be dissolved; but what
importance can be attached to said advice if
the partnership was not in fact dissolved on
February 14th, the date when the transaction
with Ceron took place?

HILL & CERON

By: (Sgd.) CARLOS CERON

Under article 226 of the Code of Commerce,

the dissolution of a commercial association
shall not cause any prejudice to third parties
until it has been recorded in the commercial
registry. (See also Cardell vs. Maeru, 14 Phil.,
368.) The Supreme Court of Spain held that
the dissolution of a partnership by the will of
the partners which is not registered in the

Ceron paid to the plaintiff the sum or P1,150

leaving an unpaid balance of P720, and
unable to collect this sum either from Hill
&Ceron or from its surety Visayan Surety &
Insurance Corporation, Litton filed a complaint
in the Court of First Instance of Manila against
the said defendants for the recovery of the

41

commercial registry, does not prejudice third

persons. (Opinion of March 23, 1885.)

It follows from the sixth paragraph of the

articles of partnership of Hill &n Ceron above
quoted that the management of the business
of the partnership has been entrusted to both
partners thereof, but we dissent from the view
of the Court of Appeals that for one of the
partners to bind the partnership the consent
of the other is necessary. Third persons, like
the plaintiff, are not bound in entering into a
contract with any of the two partners, to
ascertain whether or not this partner with
whom the transaction is made has the
consent of the other partner. The public need
not make inquires as to the agreements had
between the partners. Its knowledge, is
enough that it is contracting with the
partnership which is represented by one of
the managing partners.

Aside from the aforecited legal provisions, the

order of the Bureau of Commerce of
December 7, 1933, prohibits brokers from
buying and selling shares on their own
account. Said order reads:
The stock and/or bond broker is,
therefore, merely an agent or an
intermediary, and as such, shall not be
allowed. . . .
(c) To buy or to sell shares of stock or
bonds on his own account for purposes
of speculation and/or for manipulating
the market, irrespective of whether the
purchase or sale is made from or to a
private individual, broker or brokerage
firm.

There is a general presumption that

each individual partner is an
authorized agent for the firm and that
he has authority to bind the firm in
carrying on the partnership
transactions. (Mills vs. Riggle, 112
Pac., 617.)

In its decision the Court of Appeals states:

But there is a stronger objection to the
plaintiff's attempt to make the firm
responsible to him. According to the
articles of copartnership of 'Hill
&Ceron,' filed in the Bureau of
Commerce.

The presumption is sufficient to permit

third persons to hold the firm liable on
transactions entered into by one of
members of the firm acting apparently
in its behalf and within the scope of his
authority. (Le Roy vs.Johnson, 7 U. S.
[Law. ed.], 391.)

Sixth. That the management of the

business affairs of the copartnership
shall be entrusted to both copartners
who shall jointly administer the
business affairs, transactions and
activities of the copartnership, shall
jointly open a current account or any
other kind of account in any bank or
banks, shall jointly sign all checks for
the withdrawal of funds and shall
jointly or singly sign, in the latter case,
with the consent of the other
partner. . . .

The second paragraph of the articles of

partnership of Hill &Ceron reads in part:
Second: That the purpose or object for
which this copartnership is organized
is to engage in the business of
brokerage in general, such as stock
and bond brokers, real brokers,
investment security brokers, shipping
brokers, and other activities pertaining
to the business of brokers in general.

Under this stipulation, a written

contract of the firm can only be signed
by one of the partners if the other
partner consented. Without the
consent of one partner, the other
cannot bind the firm by a written
contract. Now, assuming for the
moment that Ceron attempted to
represent the firm in this contract with
the plaintiff (the plaintiff conceded that
the firm name was not mentioned at
that time), the latter has failed to
prove that Hill had consented to such
contract.

The kind of business in which the partnership

Hill &Ceron is to engage being thus
determined, none of the two partners, under
article 130 of the Code of Commerce, may
legally engage in the business of brokerage in
general as stock brokers, security brokers and
other activities pertaining to the business of
the partnership. Ceron, therefore, could not
have entered into the contract of sale of
shares with Litton as a private individual, but
as a managing partner of Hill &Ceron.

42

The respondent argues in its brief that even

admitting that one of the partners could not,
in his individual capacity, engage in a
transaction similar to that in which the
partnership is engaged without binding the
latter, nevertheless there is no law which
prohibits a partner in the stock brokerage
business for engaging in other transactions
different from those of the partnership, as it
happens in the present case, because the
transaction made by Ceron is a mere personal
loan, and this argument, so it is said, is
corroborated by the Court of Appeals. We do
not find this alleged corroboration because
the only finding of fact made by the Court of
Appeals is to the effect that the transaction
made by Ceron with the plaintiff was in his
individual capacity.

being no evidence that said consent had been

obtained, the complaint to compel compliance
with the said contract had to be, as it must be
in fact, a procedural failure.
Although this question has already been
considered and settled in our decision, we
nevertheless take cognizance of the motion in
order to enlarge upon our views on the
matter.
The stipulation in the articles of partnership
that any of the two managing partners may
contract and sign in the name of the
partnership with the consent of the other,
undoubtedly creates an obligation between
the two partners, which consists in asking the
other's consent before contracting for the
partnership. This obligation of course is not
imposed upon a third person who contracts
with the partnership. Neither is it necessary
for the third person to ascertain if the
managing partner with whom he contracts
has previously obtained the consent of the
other. A third person may and has a right to
presume that the partner with whom he
contracts has, in the ordinary and natural
course of business, the consent of his
copartner; for otherwise he would not enter
into the contract. The third person would
naturally not presume that the partner with
whom he enters into the transaction is
violating the articles of partnership but, on
the contrary, is acting in accordance
therewith. And this finds support in the legal
presumption that the ordinary course of
business has been followed (No. 18, section
334, Code of Civil Procedure), and that the
law has been obeyed (No. 31, section 334).
This last presumption is equally applicable to
contracts which have the force of law
between the parties.

The appealed decision is reversed and the

defendants are ordered to pay to the plaintiff,
jointly and severally, the sum of P720, with
legal interest, from the date of the filing of the
complaint, minus the commission of one-half
per cent (%) from the original price of
P1,870, with the costs to the respondents. So
ordered.
Avancea, C. J., Villa-Real, Imperial, Diaz,
Laurel, and Moran, JJ., concur.
RESOLUTION
July 13, 1939
CONCEPCION, J.:
A motion has been presented in this case by
Robert Hill, one of the defendants sentenced
in our decision to pay to the plaintiff the
amount claimed in his complaint. It is asked
that we reconsider our decision, the said
defendant insisting that the appellant had not
established that Carlos Ceron, another of the
defendants, had the consent of his copartner,
the movant, to enter with the appellant into
the contract whose breach gave rise to the
complaint. It is argued that, it being stipulated
in the articles of partnership that Hill and
Ceron, only partners of the firm Hill &Ceron,
would, as managers, have the management
of the business of the partnership, and that
either may contract and sign for the
partnership with the consent of the other; the
parties of partnership having been, so it is
said, recorded in the commercial registry, the
appellant could not ignore the fact that the
consent of the movant was necessary for the
validity of the contract which he had with the
other partner and defendant, Ceron, and there

Wherefore, unless the contrary is shown,

namely, that one of the partners did not
consent to his copartner entering into a
contract with a third person, and that the
latter with knowledge thereof entered into
said contract, the aforesaid presumption with
all its force and legal effects should be taken
into account.
There is nothing in the case at bar which
destroys this presumption; the only thing
appearing in he findings of fact of the Court of
Appeals is that the plaintiff "has failed to
prove that Hill had consented to such
contract". According to this, it seems that the
Court of Appeals is of the opinion that the two
partners should give their consent to the

43

contract and that the plaintiff should prove it.

The clause of the articles of partnership
should not be thus understood, for it means
that one of the two partners should have the
consent of the other to contract for the
partnership, which is different; because it is
possible that one of the partners may not see
any prospect in a transaction, but he may
nevertheless consent to the realization
thereof by his copartner in reliance upon his
skill and ability or otherwise. And here we
have to hold once again that it is not the
plaintiff who, under the articles of partnership,
should obtain and prove the consent of Hill,
but the latter's partner, Ceron, should he file a
complaint against the partnership for
compliance with the contract; but in the
present case, it is a third person, the plaintiff,
who asks for it. While the said presumption
stands, the plaintiff has nothing to prove.

The reason or purpose behind these legal

provisions is no other than to protect a third
person who contracts with one of the
managing partners of the partnership, thus
avoiding fraud and deceit to which he may
easily fall a victim without this protection
which the Code of Commerce wisely provides.
If we are to interpret the articles of
partnership in question by holding that it is
the obligation of the third person to inquire
whether the managing copartner of the one
with whom he contracts has given his consent
to said contract, which is practically casting
upon him the obligation to get such consent,
this interpretation would, in similar cases,
operate to hinder effectively the transactions,
a thing not desirable and contrary to the
nature of business which requires promptness
and dispatch one the basis of good faith and
honesty which are always presumed.

Passing now to another aspect of the case,

had Ceron in any way stated to the appellant
at the time of the execution of the contract, or
if it could be inferred by his conduct, that he
had the consent of Hill, and should it turn out
later that he did not have such consent, this
alone would not annul the contract judging
from the provisions of article 130 of the Code
of Commerce reading as follows:

In view of the foregoing, and sustaining the

other views expressed in the decision, the
motion is denied. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

No new obligation shall be

contracted against the will of one of
the managing partners, should he
have expressly stated it; but if,
however, it should be contracted it
shall not be annulled for this reason,
and shall have its effects without
prejudice to the liability of the partner
or partners who contracted it to
reimburse the firm for any loss
occasioned by reason thereof.
(Emphasis supplied.)

G.R. No. L-11624

January 21, 1918

E. M. BACHRACH, plaintiff-appellee,
vs.
"LA PROTECTORA", ET AL., defendantsappellants.
Vicente Foz for appellants.
A. J. Burke for appellee.
STREET, J.:

Under the aforequoted provisions, when, not

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

In the year 1913, the individuals named as

defendants in this action formed a civil
partnership, called "La Protectora," for the
purpose of engaging in the business of
transporting passengers and freight at Laoag,
Ilocos Norte. In order to provide the enterprise
with means of transportation, Marcelo Barba,
acting as manager, came to Manila and upon
June 23, 1913, negotiated the purchase of two
automobile trucks from the plaintiff, E. M.
Bachrach, for the agree price of P16,500. He
paid the sum of 3,000 in cash, and for the
balance executed promissory notes
representing the deferred payments. These
notes provided for the payment of interest

44

from June 23, 1913, the date of the notes, at

the rate of 10 per cent per annum. Provision
was also made in the notes for the payment
of 25 per cent of the amount due if it should
be necessary to place the notes in the hands
of an attorney for collection. Three of these
notes, for the sum of P3,375 each, have been
made the subject of the present action, and
there are exhibited with the complaint in the
cause. One was signed by Marcelo Barba in
the following manner:

in order to secure the purchase price. The

amount realized from this sale was P1,000.
This was credited unpaid. To recover this
balance, together with the sum due for
additional purchases, the present action was
instituted in the Court of First Instance of the
city of Manila, upon May 29, 1914, against "La
Protectora" and the five individuals Marcelo
Barba, Nicolas Segundo, Antonio Adiarte,
Ignacio Flores, and Modesto Serrano. No
question has been made as to the propriety of
impleading "La Protectora" as if it were a legal
entity. At the hearing, judgment was rendered
against all of the defendants. From this
judgment no appeal was taken in behalf either
of "La Protectora" or Marcelo Barba; and their
liability is not here under consideration. The
four individuals who signed the document to
which reference has been made, authorizing
Barba to purchase the two trucks have,
however, appealed and assigned errors. The
question here to be determined is whether or
not these individuals are liable for the firm
debts and if so to what extent.

P. P. La Protectora
By Marcelo Barba
Marcelo Barba.
The other two notes are signed in the same
way with the word "By" omitted before the
name of Marcelo Barba in the second line of
the signature. It is obvious that in thus signing
the notes Marcelo Barba intended to bind
both the partnership and himself. In the body
of the note the word "I" (yo) instead of "we"
(nosotros) is used before the words "promise
to pay" (prometemos) used in the printed
form. It is plain that the singular pronoun here
has all the force of the plural.

The amount of indebtedness owing to the

plaintiff is not in dispute, as the principal of
the debt is agreed to be P7,037. Of this
amount it must now be assumed, in view of
the finding of the trial court, from which no
appeal has been taken by the plaintiff, that
the unpaid balance of the notes amounts to
P4,121, while the remainder (P2,916)
represents the amount due for automobile
supplies and accessories.

As preliminary to the purchase of these

trucks, the defendants Nicolas Segundo,
Antonio Adiarte, Ignacio Flores, and Modesto
Serrano, upon June 12, 1913, executed in due
form a document in which they declared that
they were members of the firm "La
Protectora" and that they had granted to its
president full authority "in the name and
representation of said partnership to contract
for the purchase of two automobiles" (en
nombre y representacion de la
mencionadasociedadcontratante la compra
de dos automoviles). This document was
apparently executed in obedience to the
requirements of subsection 2 of article 1697
of the Civil Code, for the purpose of
evidencing the authority of Marcelo Barba to
bind the partnership by the purchase. The
document in question was delivered by him to
Bachrach at the time the automobiles were
purchased.

The business conducted under the name of

"La Protectora" was evidently that of a civil
partnership; and the liability of the partners to
this association must be determined under
the provisions of the Civil Code. The authority
of Marcelo Barba to bind the partnership, in
the purchase of the trucks, is fully established
by the document executed by the four
appellants upon June 12, 1913. The
transaction by which Barba secured these
trucks was in conformity with the tenor of this
document. The promissory notes constitute
the obligation exclusively of "La Protectora"
and of Marcelo Barba; and they do not in any
sense constitute an obligation directly binding
on the four appellants. Their liability is based
on the fact that they are members of the civil
partnership and as such are liable for its
debts. It is true that article 1698 of the Civil
Code declares that a member of a civil
partnership is not liable in
solidum (solidariamente) with his fellows for
its entire indebtedness; but it results from this
article, in connection with article 1137 of the

From time to time after this purchase was

made, Marcelo Barba purchased of the
plaintiff various automobile effects and
accessories to be used in the business of "La
Protectora." Upon May 21, 1914, the
indebtedness resulting from these additional
purchases amounted to the sum of P2,916.57
In May, 1914, the plaintiff foreclosed a chattel
mortgage which he had retained on the trucks

45

Civil Code, that each is liable with the others

(mancomunadamente) for his aliquot part of
such indebtedness. And so it has been held by
this court. (Co-Pitco vs. Yulo, 8 Phil. Rep.,
544.)

Instance committed no error in giving

judgment against them. The amount for which
judgment should be entered is P7,037, to
which shall be added (1) interest at 10 per
cent per annum from June 23, 1913, to be
calculated upon the sum of P4.121; (2)
interest at 6 per cent per annum from July 21,
1915, to be calculated upon the sum of
P2,961; (3) the further sum of P1,030.25, this
being the amount stipulated to be paid by
way of attorney's fees. However, it should be
noted that any property pertaining to "La
Protectora" should first be applied to this
indebtedness pursuant to the judgment
already entered in this case in the court
below; and each of the four appellants shall
be liable only for the one-fifth part of the
remainder unpaid.

The Court of First Instance seems to have

founded its judgment against the appellants
in part upon the idea that the document
executed by them constituted an authority for
Marcelo Barba to bind them personally, as
contemplated in the second clause of article
1698 of the Civil Code. That cause says that
no member of the partnership can bind the
others by a personal act if they have not
given him authority to do so. We think that
the document referred to was intended
merely as an authority to enable Barba to
bind the partnership and that the parties to
that instrument did not intend thereby to
confer upon Barba an authority to bind them
personally. It is obvious that the contract
which Barba in fact executed in pursuance of
that authority did not by its terms profess to
bind the appellants personally at all, but only
the partnership and himself. It follows that the
four appellants cannot be held to have been
personally obligated by that instrument; but,
as we have already seen, their liability rests
upon the general principles underlying
partnership liability.

Let judgment be entered accordingly, without

any express finding of costs of this instance.
So ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16318
1921

October 21,

As to so much of the indebtedness as is based

upon the claim for automobile supplies and
accessories, it is obvious that the document of
June 12, 1913, affords no authority for holding
the appellants liable. Their liability upon this
account is, however, no less obvious than
upon the debt incurred by the purchase of the
trucks; and such liability is derived from the
fact that the debt was lawfully incurred in the
prosecution of the partnership enterprise.

PANG LIM and BENITO GALVEZ, plaintiffsappellees,

vs.
LO SENG, defendant-appellant.

There is no proof in the record showing what

the agreement, if any, was made with regard
to the form of management. Under these
circumstances it is declared in article 1695 of
the Civil Code that all the partners are
considered agents of the partnership. Barba
therefore must be held to have had authority
to incur these expenses. But in addition to
this he is shown to have been in fact the
president or manager, and there can be no
doubt that he had actual authority to incur
this obligation.

STREET, J.:

Cohn, Fisher and DeWitt for appellant.

No appearance for appellees.

For several years prior to June 1, 1916, two of

the litigating parties herein, namely, Lo Seng
and Pang Lim, Chinese residents of the City of
Manila, were partners, under the firm name of
Lo Seng and Co., in the business of running a
distillery, known as "El Progreso," in the
Municipality of Paombong, in the Province of
Bulacan. The land on which said distillery is
located as well as the buildings and
improvements originally used in the business
were, at the time to which reference is now
made, the property of another Chinaman, who
resides in Hongkong, named Lo Yao, who, in
September, 1911, leased the same to the firm
of Lo Seng and Co. for the term of three years.

From what has been said it results that the

appellants are severally liable for their
respective shares of the entire indebtedness
found to be due; and the Court of First

46

Upon the expiration of this lease a new

written contract, in the making of which Lo
Yao was represented by one Lo Shui as
attorney in fact, became effective whereby
the lease was extended for fifteen years. The
reason why the contract was made for so long
a period of time appears to have been that
the Bureau of Internal Revenue had required
sundry expensive improvements to be made
in the distillery, and it was agreed that these
improvements should be effected at the
expense of the lessees. In conformity with this
understanding many thousands of pesos were
expended by Lo Seng and Co., and later by Lo
Seng alone, in enlarging and improving the
plant.

shall be paid for by Messrs.

Pang Lim and Lo Seng.
We, Pang Lim and Lo Seng, as partners
in said distillery "El Progreso," which
we are at present conducting, hereby
accept this contract in each and all its
parts, said contract to be effective
upon the termination of the contract of
September 11, 1911.
Neither the original contract of lease nor the
agreement extending the same was inscribed
in the property registry, for the reason that
the estate which is the subject of the lease
has never at any time been so inscribed.

Among the provisions contained in said lease

we note the following:

On June 1, 1916, Pang Lim sold all his interest

in the distillery to his partner Lo Seng, thus
placing the latter in the position of sole
owner; and on June 28, 1918, Lo Shui, again
acting as attorney in fact of Lo Yao, executed
and acknowledged before a notary public a
deed purporting to convey to Pang Lim and
another Chinaman named Benito Galvez, the
entire distillery plant including the land used
in connection therewith. As in case of the
lease this document also was never recorded
in the registry of property. Thereafter Pang
Lim and Benito Galvez demanded possession
from Lo Seng, but the latter refused to yield;
and the present action of unlawful detainer
was thereupon initiated by Pang Lim and
Benito Galvez in the court of the justice of the
peace of Paombong to recover possession of
the premises. From the decision of the justice
of the peace the case was appealed to the
Court of First Instance, where judgment was
rendered for the plaintiffs; and the defendant
thereupon appealed to the Supreme Court.

Know all men by these presents:

x xx

x xx

x xx

1. That I, Lo Shui, as attorney in

fact in charge of the properties
of Mr. Lo Yao of Hongkong, cede
by way of lease for fifteen years
more said distillery "El
Progreso" to Messrs. Pang Lim
and Lo Seng (doing business
under the firm name of Lo Seng
and Co.), after the termination
of the previous contract,
because of the fact that they
are required, by the Bureau of
Internal Revenue, to rearrange,
alter and clean up the distillery.
2. That all the improvements
and betterments which they
may introduce, such as
machinery, apparatus, tanks,
pumps, boilers and buildings
which the business may
require, shall be, after the
termination of the fifteen years
of lease, for the benefit of Mr.
Lo Yao, my principal, the
buildings being considered as
improvements.

The case for the plaintiffs is rested exclusively

on the provisions of article 1571 of the Civil
Code, which reads in part as follows:
ART. 1571. The purchaser of a leased
estate shall be entitled to terminate
any lease in force at the time of
making the sale, unless the contrary is
stipulated, and subject to the
provisions of the Mortgage Law.

3. That the monthly rent of said

distillery is P200, as agreed
upon in the previous contract of
September 11, 1911,
acknowledged before the
notary public D. Vicente Santos;
and all modifications and
repairs which may be needed

In considering this provision it may be

premised that a contract of lease is personally
binding on all who participate in it regardless
of whether it is recorded or not, though of
course the unrecorded lease creates no real
charge upon the land to which it relates. The
Mortgage Law was devised for the protection
of third parties, or those who have not

47

participated in the contracts which are by that

law required to be registered; and none of its
provisions with reference to leases interpose
any obstacle whatever to the giving of full
effect to the personal obligations incident to
such contracts, so far as concerns the
immediate parties thereto. This is
rudimentary, and the law appears to be so
understood by all commentators, there being,
so far as we are aware, no authority
suggesting the contrary. Thus, in the
commentaries of the authors Galindo and
Escosura, on the Mortgage Law, we find the
following pertinent observation: "The
Mortgage Law is enacted in aid of and in
respect to third persons only; it does not
affect the relations between the contracting
parties, nor their capacity to contract. Any
question affecting the former will be
determined by the dispositions of the special
law [i.e., the Mortgage Law], while any
question affecting the latter will be
determined by the general law." (Galindo y
Escosura, Comentarios a la
LegislacionHipotecaria, vol. I, p. 461.)

precise power conferred in article 1571 of the

Civil Code, namely, of terminating any lease
which is unrecorded; nothing in that law that
can be considered as arresting the force of
article 1571 as applied to the lease now
before us.
Article 1549 of the Civil Code has also been
cited by the attorneys for the appellant as
supplying authority for the proposition that
the lease in question cannot be terminated by
one who, like Pang Lim, has taken part in the
contract. That provision is practically identical
in terms with the first paragraph of article 23
of the Mortgage Law, being to the effect that
unrecorded leases shall be of no effect as
against third persons; and the same
observation will suffice to dispose of it that
was made by us above in discussing the
Mortgage Law, namely, that while it
recognizes the fact that an unrecorded lease
is binding on all persons who participate
therein, this does not determine the question
whether, admitting the lease to be so binding,
it can be terminated by the plaintiffs under
article 1571.

Although it is thus manifest that, under the

Mortgage Law, as regards the personal
obligations expressed therein, the lease in
question was from the beginning, and has
remained, binding upon all the parties thereto
among whom is to be numbered Pang Lim,
then a member of the firm of Lo Seng and Co.
this does not really solve the problem now
before us, which is, whether the plaintiffs
herein, as purchasers of the estate, are at
liberty to terminate the lease, assuming that
it was originally binding upon all parties
participating in it.

Having thus disposed of the considerations

which arise in relation with the Mortgage Law,
as well as article 1549 of the Civil Coded all
of which, as we have seen, are undecisive
we are brought to consider the aspect of the
case which seems to us conclusive. This is
found in the circumstance that the plaintiff
Pang Lim has occupied a double role in the
transactions which gave rise to this litigation,
namely, first, as one of the lessees; and
secondly, as one of the purchasers now
seeking to terminate the lease. These two
positions are essentially antagonistic and
incompatible. Every competent person is by
law bond to maintain in all good faith the
integrity of his own obligations; and no less
certainly is he bound to respect the rights of
any person whom he has placed in his own
shoes as regards any contract previously
entered into by himself.

Upon this point the plaintiffs are undoubtedly

supported, prima facie, by the letter of article
1571 of the Civil Code; and the position of the
defendant derives no assistance from the
mere circumstance that the lease was
admittedly binding as between the parties
thereto. 1awph!l.net
The words "subject to the provisions of the
Mortgage Law," contained in article 1571,
express a qualification which evidently has
reference to the familiar proposition that
recorded instruments are effective against
third persons from the date of registration
(Co-Tiongco vs. Co-Guia, 1 Phil., 210); from
whence it follows that a recorded lease must
be respected by any purchaser of the estate
whomsoever. But there is nothing in the
Mortgage Law which, so far as we now see,
would prevent a purchaser from exercising the

While yet a partner in the firm of Lo Seng and

Co., Pang Lim participated in the creation of
this lease, and when he sold out his interest in
that firm to Lo Seng this operated as a
transfer to Lo Seng of Pang Lim's interest in
the firm assets, including the lease; and Pang
Lim cannot now be permitted, in the guise of
a purchaser of the estate, to destroy an
interest derived from himself, and for which
he has received full value.

48

The bad faith of the plaintiffs in seeking to

deprive the defendant of this lease is
strikingly revealed in the circumstance that
prior to the acquisition of this property Pang
Lim had been partner with Lo Seng and Benito
Galvez an employee. Both therefore had been
in relations of confidence with Lo Seng and in
that position had acquired knowledge of the
possibilities of the property and possibly an
experience which would have enabled them,
in case they had acquired possession, to
exploit the distillery with profit. On account of
his status as partner in the firm of Lo Seng
and Co., Pang Lim knew that the original lease
had been extended for fifteen years; and he
knew the extent of valuable improvements
that had been made thereon. Certainly, as
observed in the appellant's brief, it would be
shocking to the moral sense if the condition of
the law were found to be such that Pang Lim,
after profiting by the sale of his interest in a
business, worthless without the lease, could
intervene as purchaser of the property and
confiscate for his own benefit the property
which he had sold for a valuable consideration
to Lo Seng. The sense of justice recoils before
the mere possibility of such eventuality.

deliver and warrant the subject-matter of the

sale and is responsible to the vendee for the
legal and lawful possession of the thing sold.
The pertinence of these provisions to the case
now under consideration is undeniable, for
among the assets of the partnership which
Pang Lim transferred to Lo Seng, upon selling
out his interest in the firm to the latter, was
this very lease; and while it cannot be
supposed that the obligation to warrant
recognized in the articles cited would nullify
article 1571, if the latter article had actually
conferred on the plaintiffs the right to
terminate this lease, nevertheless said
articles (1461, 1474), in relation with other
considerations, reveal the basis of an estoppel
which in our opinion precludes Pang Lim from
setting up his interest as purchaser of the
estate to the detriment of Lo Seng.
It will not escape observation that the
doctrine thus applied is analogous to the
doctrine recognized in courts of common law
under the head of estoppel by deed, in
accordance with which it is held that if a
person, having no title to land, conveys the
same to another by some one or another of
the recognized modes of conveyance at
common law, any title afterwards acquired by
the vendor will pass to the purchaser; and the
vendor is estopped as against such purchaser
from asserting such after-acquired title. The
indenture of lease, it may be further noted,
was recognized as one of the modes of
conveyance at common law which created
this estoppel. (8 R. C. L., 1058, 1059.)

Above all other persons in business relations,

partners are required to exhibit towards each
other the highest degree of good faith. In fact
the relation between partners is essentially
fiduciary, each being considered in law, as he
is in fact, the confidential agent of the other. It
is therefore accepted as fundamental in
equity jurisprudence that one partner cannot,
to the detriment of another, apply exclusively
to his own benefit the results of the
knowledge and information gained in the
character of partner. Thus, it has been held
that if one partner obtains in his own name
and for his own benefit the renewal of a lease
on property used by the firm, to commence at
a date subsequent to the expiration of the
firm's lease, the partner obtaining the renewal
is held to be a constructive trustee of the firm
as to such lease. (20 R. C. L., 878-882.) And
this rule has even been applied to a renewal
taken in the name of one partner after the
dissolution of the firm and pending its
liquidation. (16 R. C. L., 906; Knapp vs. Reed,
88 Neb., 754; 32 L. R. A. [N. S.], 869;
Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep.,
252.)

From what has been said it is clear that Pang

Lim, having been a participant in the contract
of lease now in question, is not in a position to
terminate it: and this is a fatal obstacle to the
maintenance of the action of unlawful
detainer by him. Moreover, it is fatal to the
maintenance of the action brought jointly by
Pang Lim and Benito Galvez. The reason is
that in the action of unlawful detainer, under
section 80 of the Code of Civil Procedure, the
only question that can be adjudicated is the
right to possession; and in order to maintain
the action, in the form in which it is here
presented, the proof must show that
occupant's possession is unlawful, i. e., that
he is unlawfully withholding possession after
the determination of the right to hold
possession. In the case before us quite the
contrary appears; for, even admitting that
Pang Lim and Benito Galvez have purchased
the estate from Lo Yao, the original landlord,
they are, as between themselves, in the
position of tenants in common or owners pro

An additional consideration showing that the

position of the plaintiff Pang Lim in this case is
untenable is deducible from articles 1461 and
1474 of the Civil Code, which declare that
every person who sells anything is bound to

49

indiviso, according to the proportion of their

respective contribution to the purchase price.
But it is well recognized that one tenant in
common cannot maintain a possessory action
against his cotenant, since one is as much
entitled to have possession as the other. The
remedy is ordinarily by an action for partition.
(Cornista vs. Ticson, 27 Phil., 80.) It follows
that as Lo Seng is vested with the possessory
right as against Pang Lim, he cannot be
ousted either by Pang Lim or Benito Galvez.
Having lawful possession as against one
cotenant, he is entitled to retain it against
both. Furthermore, it is obvious that partition
proceedings could not be maintained at the
instance of Benito Galvez as against Lo Seng,
since partition can only be effected where the
partitioners are cotenants, that is, have an
interest of an identical character as among
themselves. (30 Cyc., 178-180.) The practical
result is that both Pang Lim and Benito Galvez
are bound to respect Lo Seng's lease, at least
in so far as the present action is concerned.

under which the plaintiffs acquired the right of

Lo Yao, the owner of the fee, is competent
proof in behalf of the plaintiffs. It is, however,
earnestly insisted by the attorney for Lo Seng
that this document, having never been
recorded in the property registry, cannot
under article 389 of the Mortgage Law, be
used in court against him because as to said
instrument he is a third party. The important
question thus raised is not absolutely
necessary to the decision of this case, and we
are inclined to pass it without decision, not
only because the question does not seem to
have been ventilated in the Court of First
Instance but for the further reason that we
have not had the benefit of any written brief
in this case in behalf of the appellees.
The judgment appealed from will be reversed,
and the defendant will be absolved from the
complaint. It is so ordered, without express
adjudication as to costs.

We have assumed in the course of the

preceding discussion that the deed of sale

50