LAWBUS

BUS ORG
LAW
ORG
- CASES - CASES
-

Table of Contents
CIR v. William J. Suter................................................................................................................................... 3
Magalona v. Pesayco .................................................................................................................................... 4
Criado v. Gutierrez Hermanos.................................................................................................................... 13
Leung v. IAC ................................................................................................................................................ 31

CIR v. William J. Suter

G.R. No. L-25532, 2/28/1969

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-25532

February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.
Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30
September 1947 by herein respondent William J. Suter as the general partner, and Julia
Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited
partnership was registered with the Securities and Exchange Commission. The firm engaged,
among other activities, in the importation, marketing, distribution and operation of
automatic phonographs, radios, television sets and amusement machines, their parts and
accessories. It had an office and held itself out as a limited partnership, handling and
carrying merchandise, using invoices, bills and letterheads bearing its trade-name,
maintaining its own books of accounts and bank accounts, and had a quota allocation
with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the partnership to
Suter and his wife. The sale was duly recorded with the Securities and Exchange Commission
on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation, without
objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the
latter, in an assessment, consolidated the income of the firm and the individual incomes of
the partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax
against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and
withdrawal, as not in accordance with law, but his request was denied. Unable to secure a
reconsideration, he appealed to the Court of Tax Appeals, which court, after trial, rendered
a decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal Revenue, of
the tax court's aforesaid decision. It raises these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd.
should be disregarded for income tax purposes, considering that respondent William J. Suter
and his wife, Julia Spirig Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners,
respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by the
remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter
and Spirig and their subsequent acquisition of the interests of remaining partner Carlson in
the partnership dissolved the limited partnership, and if they did not, the fiction of juridical
personality of the partnership should be disregarded for income tax purposes because the
spouses have exclusive ownership and control of the business; consequently the income tax
return of respondent Suter for the years in question should have included his and his wife's
individual incomes and that of the limited partnership, in accordance with Section 45 (d) of
the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens, residents
or non-residents, only one consolidated return for the taxable year shall be filed by
either spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held,
that his marriage with limited partner Spirig and their acquisition of Carlson's interests in the
partnership in 1948 is not a ground for dissolution of the partnership, either in the Code of
Commerce or in the New Civil Code, and that since its juridical personality had not been
affected and since, as a limited partnership, as contra distinguished from a duly registered
general partnership, it is taxable on its income similarly with corporations, Suter was not
bound to include in his individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved
by operation of law because of the marriage of the only general partner, William J. Suter to
the originally limited partner, Julia Spirig one year after the partnership was organized is
rested by the appellant upon the opinion of now Senator Tolentino in Commentaries and
Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as
follows:
A husband and a wife may not enter into a contract of general copartnership,
because under the Civil Code, which applies in the absence of express provision in
the Code of Commerce, persons prohibited from making donations to each other
are prohibited from entering into universal partnerships. (2 Echaverri 196) It follows
that the marriage of partners necessarily brings about the dissolution of a pre-existing
partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears from
Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force when

the subject firm was organized in 1947), a universal partnership requires either that the
object of the association be all the present property of the partners, as contributed by them
to the common fund, or else "all that the partners may acquire by their industry or
work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the contributions of the partners were fixed sums of
money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them
was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil,
7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition
contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad
universal, pero o podran constituir sociedad particular? Aunque el punto ha sido
muy debatido, nos inclinamos a la tesis permisiva de los contratos de sociedad
particular entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y
hay que estar a la norma general segun la que toda persona es capaz para
contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta misma tesis en su resolution de 3 de
febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not
being one of the causes provided for that purpose either by the Spanish Civil Code or the
Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and
Julia Spirig were separately owned and contributed by them before their marriage; and
after they were joined in wedlock, such contributions remained their respective separate
property under the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not
become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical
personality of its own, distinct and separate from that of its partners (unlike American and
English law that does not recognize such separate juridical personality), the bypassing of the
existence of the limited partnership as a taxpayer can only be done by ignoring or
disregarding clear statutory mandates and basic principles of our law. The limited
partnership's separate individuality makes it impossible to equate its income with that of the
component members. True, section 24 of the Internal Revenue Code merges registered
general co-partnerships (compaias colectivas) with the personality of the individual
partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal

tenet of our partnership laws, and can not be extended by mere implication to limited
partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas,
L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as
authority for disregarding the fiction of legal personality of the corporations involved therein
are not applicable to the present case. In the cited cases, the corporations were
already subject to tax when the fiction of their corporate personality was pierced; in the
present case, to do so would exempt the limited partnership from income taxation but
would throw the tax burden upon the partners-spouses in their individual capacities. The
corporations, in the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited partnership is not a mere
business conduit of the partner-spouses; it was organized for legitimate business purposes; it
conducted its own dealings with its customers prior to appellee's marriage, and had been
filing its own income tax returns as such independent entity. The change in its membership,
brought about by the marriage of the partners and their subsequent acquisition of all
interest therein, is no ground for withdrawing the partnership from the coverage of Section
24 of the tax code, requiring it to pay income tax. As far as the records show, the partners
did not enter into matrimony and thereafter buy the interests of the remaining partner with
the premeditated scheme or design to use the partnership as a business conduit to dodge
the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that
income to be included in the individual tax return of respondent Suter is to overstretch the
letter and intent of the law. In fact, it would even conflict with what it specifically provides in
its Section 24: for the appellant Commissioner's stand results in equal treatment, tax wise, of
a general copartnership (compaia colectiva) and a limited partnership, when the code
plainly differentiates the two. Thus, the code taxes the latter on its income, but not the
former, because it is in the case of compaias colectivas that the members, and not the
firm, are taxable in their individual capacities for any dividend or share of the profit derived
from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on
the N.I.R.C., As Amended, Vol. 1, pp. 88-89).
law phi1.n t

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

The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a justification for
requiring consolidation; the revenue code, as it presently stands, does not authorize it, and
even bars it by requiring the limited partnership to pay tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and
Teehankee, JJ., concur.
Barredo, J., took no part.
Footnotes
V. Evangelists vs. Collector of Internal Revenue, 102 Phil 140; Collector vs. Batangas
Transportation Co., 102 Phil. 822.
1

http://www.lawphil.net/judjuris/juri1969/feb1969/gr_l-25532_1969.html

Magalona v. Pesayco
G.R. No. L-39607, 2/6/1934
59 Phil 453

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-39607

February 6, 1934

ENCARNACION MAGALONA, ET AL., plaintiffs-appellees,

vs.
JUAN PESAYCO, defendant-appellant.
Manuel Polido and Pedro V. Jimenez for appellant.
Lutero and Lutero and Ramon Maza for appellee.
GODDARD, J.:

In the month of September, 1930, the plaintiffs, Encarnacion Magalona, Juan Sermeno, and
the defendant, Juan Pesayco, formed a partnership for the purpose of catching "semillas
de bagus o aua" in the sea and rivers within the jurisdiction of the municipality of San Jose,
Antique Province, for the year 1931. It was agreed that the defendant should put in a bid for
this privilege and that the partners should each supply one third of the capital in case the
defendant was awarded the desired privilege. The defendant, having had experience in
this line, was to be the manager in case his bid was accepted. The defendant offered the
sum of P5,550.09 for the year ending December 31, 1931. As a deposit of
one-fourth of the amount of the bid was required each of the partners put up one third of
this amount. This bid, being the highest, was accepted by the municipality and the privilege
was awarded to the defendant. The latter entered upon his duties under the contract and
gave an account of two sales of "semillas de bagus", to Tiburcio Lutero as representative of
the plaintiff Magalona. As the defendant, on April 21, 1931, had on hand only P410 he
wired, Exhibit A, Lutero for sufficient money to complete the payment of the first quarter
which was to be paid within the first twenty days of the second quarter of the year 1931. This
telegram reads as follows: "Hemos conseguido plazo hasta esta tarde tenemos aqui
cuatrocientos diez gira telegraficamente restante." Lutero immediately sent P1,000 to the
municipal treasurer of San Jose, Antique (Exhibit D).
The defendant managed the business from January 1,1931, and with the exception of the
two sales above-mentioned, never gave any account of his catches or sales to his partners,
the plaintiffs. In view of this the herein complaint was filed April 21, 1931, in which it was
prayed that a receiver be appointed by the court to take charge of the funds of the
partnership and the management of its affairs; that the defendant be ordered to render an
account of his management and to pay to the plaintiff their participation in the profits
thereof; that the defendant be required to turn over to the receiver all of the funds of the
partnership and that the defendant be condemned to pay the costs.
The plaintiffs put up a bond of P5,000 and a receiver was appointed who also put up a
bond for the same amount.

The receiver took over the management and took possession of all the devices and
implements used in the catching of "semillas de bagus".
At the trial it was proven that before April 20, 1931, the defendant obtained and sold a total
of 975,000 "semillas de bagus" the market value of which was P3 per thousand. The
defendant made no report of this nor did he pay the plaintiffs any part of the P2,925
realized by him on the sales thereof. This was not denied.
In his two counter-complaints the defendant prays that he be awarded damages in the
sum of P34,700. He denies that there was a partnership and depends principally upon the
fact that the partnership agreement was not in writing.
The partnership was conclusively proven by the oral testimony of the plaintiffs and other
witnesses, two of whom were Attorneys Lutero and Maza. The defense made no objection
to the questions asked with regard to the forming of this partnership. This court has held that
if a party permits a contract, which the law provides shall be in writing, to be proved,
without objection as to the form of the proof, it is just as binding as if the statute had been
complied with.
However, we cannot agree with the appellant that one of the requisites of a partnership
agreement such as the one under consideration, is that it should be in writing.
Article 1667 of the Civil Code provides that "Civil partnerships may be established in any
form whatever, unless real property or real rights are contributed to the same, in which case
a public instrument shall be necessary."
Articles of partnership are not required to be in writing except in the cases
mentioned in article 1667, Civil Code, which controls article 1280 of the same Code.
(Fernandez vs. Dela Rosa, 1 Phil., 671.)
A verbal partnership agreement is valid between the parties even though more than
1,500 pesetas are involved and can be enforced without bringing action under
article 1279, Civil Code, to compel execution of a written instrument. (Arts. 1261,
1278-1280, 1667, Civil Code; arts. 116-119, 51, Code of Commerce.)Thunga Chui vs.
Que Bentec, 2 Phil., 561. (4 Phil. Digest, 3468.)
The dispositive part of the decision of the trial court reads as follows:
Habiendose probado, sin pruebas en contrario, de que el demandado obtuvo
durante su administracion de este negocio, semillas de bagus por valor de P2,925
que no dio cuenta ni participacion a sus consocios los demandantes, el Juzgado
declara al demandado en deber a la sociedad, compuesta por demandantes y
demandado, en la suma de P2,925, importe de 975,000 semillas de bagus a P3 el
millar, y ordena que entregue esta suma al depositario judicial nombrado, como
fondos de dicha sociedad.
Se sobreseen las contrademandas y se condena en costas al demandado. Asi se
ordena.

This decision is affirmed with costs in both instances against the defendant-appellant. So
ordered.
Malcolm, Villa-Real, Hull, and Imperial, JJ., concur.

http://www.lawphil.net/judjuris/juri1934/feb1934/gr_l-39607_1934.html

Criado v. Gutierrez Hermanos

G.R. No. L-12371, 3/23/1918
37 Phil 883

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-12371

March 23, 1918

LEOPOLDO CRIADO, plaintiff-appellant,

vs.
GUTIERREZ HERMANOS, defendant-appellant.
Eduardo Gutierrez Repide and Felix Socias for plaintiff-appellant.
C. W. O'Brien for defendant-appellant.
TORRES, J.:

In the ordinary proceedings prosecuted in the Court of First Instance of Manila by counsel
for Leopoldo Criado against the firm of Gutierrez Hermanos for the recovery of a sum of
money, on September 11, 1916, judgment was handed down whereby said firm was
ordered to pay, in addition to other amounts therein specified, P54,292.62 with interest
thereon at the rate of 6 per cent per annum from May 25, 1912, and whereby it was held
that plaintiff was entitled to a share of .34064 per cent on P818,260.70, the total amount of
the unpaid bills, subject to the liability of 10 per cent contracted toward the defendant in
respect to said bills or to such part thereof as should be found to be uncollectible, with the
costs against the defendant. Both parties excepted from this judgment and moved for a
new trial, which motion was denied by an order of September 25th of the same year, to
which both parties excepted. Plaintiff and defendant by mutual consent have filed but a
single bill of exceptions and the same was approved, certified and forwarded to the clerk
of this court, together with the oral and documentary evidence of record.
The original complaint was filed in the Court of First Instance on May 25, 1912, and after
being twice amended was finally filed on January 15, 1913. Upon answering it, defendant
interposed a cross-complaint. After full trial, judgment was rendered on July 8, 1913, by
which, dismissing plaintiff's first, second, third, and fourth causes of action and the crosscomplaint of the defendant of the court sentenced the defendant, the firm of Gutierrez
Hermanos, to pay the several sums specified in the fifth, sixth, seventh, eighth, ninth, and
tenth causes of action, with legal interest thereon from May 25, 1912, and ordered same
further to render accounts to the plaintiff for the reason therein stated, and to pay the costs.
From this judgment defendant appealed and moved for a trial. The motion was denied and
defendant excepted and filed the proper bill of exceptions which was forwarded to this
court. Upon hearing, a decision was rendered on March 24, 1915, whereby, for the reasons
therein given, the judgment appealed from was set aside and the record remanded to the
court of origin for the proper proceedings.
The proceedings in the Court of First Instance having been reopened upon petition by
plaintiff, on May 24, 1915, the judge ordered the defendant Gutierrez Hermanos to render
within a period of twenty days a detailed account, supported by vouchers, of the share

which the plaintiff might have in the capital stock of said firm up to that date. In
compliance with this order, defendant presented an account (record, pp. 103-124) certified
by the bookkeeper of the firm of Gutierrez Hermanos to on June 3 of the same year.
In view of the fact that the defendant firm had not complied with the order of the court in
respect to the account presented, counsel for plaintiff moved in writing that the clerk of
court, McMicking, be appointed so that, in his presence and in that of the parties, G. B.
Wicks might proceed to make true liquidation of plaintiff's said share of the capital stock of
the firm of Gutierrez Hermanos, since he began his connection therewith, on January 1,
1900, until his separation therefrom, on December 31, 1911. Said motion was accompanied
by an affidavit in which the plaintiff Leopoldo Criado declared under oath that he had
examined the accounts presented by the defendant referring to his capital in that firm and
that said accounts were based upon a false debit balance of P26,349.13 a balance
which had been previously impeached by the affiant as well as the accounts from which
said sum is sought to be derived. Wherefore he gain assailed them in their totality on the
grounds that some of the entries thereof were improper, other fraudulent, and still other
false. Therefore plaintiff's counsel moved that defendant be ordered to place immediately
at the disposal of Commissioner Wicks all the books, accounts, bills, vouchers, and other
documents that might be necessary, in order that said liquidation might be made by
defendants counsel, by an order of September 2, 1915, the court ruled in conformity
therewith, authorizing defendant to appoint another expert accountant who, together with
the one already designated. Wicks, might examine the books and documents
aforementioned. On motion by plaintiff, and notwithstanding the arguments made by the
defendant firm, it was provided by another order of the court that said firm should comply
with what the court had previously ordered, to wit, to place said books and documents at
the disposal of the commissioner for his examination in the office of the clerk of court, on the
three specified days of the week, from 2.30 o'clock up every afternoon.
After a rehearing of the case and an examination of George B. Wicks was made regarding
the contents of the report that he submitted after studying for that purpose the books and
other documents placed at his disposal by the defendant to which report he attached
several documents in proof or substantiation of the different items mentioned in said report
(Exhibit Z-3) in view of the result and the evidence adduced by the parties, and by the
said commissioner's report duly supported by vouchers, the court rendered the judgment
aforementioned, on September 11, 1916. This motion was denied, exception was taken,
and, upon receipt of the proper bill of exceptions, both appeals were forwarded in the in
the usual manner.
Counsel for the defendant-appellant assails in general the judgment appealed from
because the trial court did not determine the issues raised in the first, second, third, fourth,
sixth, seventh, eighth, ninth, and tenth causes of action, and in defendant's cross-complaint;
and inasmuch as in the judgment the contrary appears with the exception of the first cause
of action, the court will now proceed to examine each of the causes of action referred to in
the cross-complaint filed by the latter in its answer.
The first cause of action consists in the obligation assumed by Miguel Alonso, formerly one of
the general partners and manager of the firm of Gutierrez Hermanos, to pay to the plaintiff
Leopoldo Criado, and sum P1,100 by reason of the contract of loan prevent plaintiff from
suing for the recovery of that debt an action against the testate or intestate estate of the

debtor who died without having paid his debt; the other partner Miguel Gutierrez de Celis,
manager of the firm, succeeded in persuading the plaintiff by promising to return said sum
to Criado this not being a strange obligation, for at the time of his death the deceased
debtor Miguel Alfonso, was a partner in the firm of Gutierrez Hermanos and had a share in
the firm's assets. But the fact is that from 1898, when Alfonso died, until 1912, the date the
complaint was filed, such settlement had already been made of the decedent's said share
and in spite of the attempts to collect made by the creditor he was unable to recover the
loan.
Even on the supposition that at the time of his death the debtor Miguel Alfonso certainly
and positively left this debt and that in order to avoid judicial proceedings on the part of
the creditor, Miguel Gutierrez de Celis subrogated and put himself in the place of the
debtor, binding himself to pay said amount to plaintiff, yet, in view of the fact that said, loan
was made as an independent private act, unconnected with the mercantile operations of
the firm of Gutierrez Hermanos, and that the record does not duly show that this firm,
though its manager assumed the obligation to reimbursed the sum, there is no provision of
law to warrant us in holding that the firm of Gutierrez Hermanos is obliged to pay the
amount claimed by the plaintiff as the subject-matter of his first cause of action.
In the second cause of action plaintiff demands the payment of P43,410.86, and alleges
that, pursuant to a notarial instrument of March 29, 1900, he became a partner of the firm of
Gutierrez Hermanos; and that said document stipulated that the partnership should last for
four years from January 1, 1900, and, among other conditions, it contained the following:
Second. Therefore the partnership is organized among the parties to this instrument,
Don Placido Gutierrez de Celis, Don Miguel Gutierrez de Celis, Don Miguel Alonso y
Gutierrez, Don Daniel Perez y Alberto, and Don Leopoldo Criado y Garcia, the first
three as capitalist partners, and the last two as industrial partners.
Eighth. All earnings or profits that may be obtained shall be distributed among the
partners in the following proportion: 37 per cent shall go to Don Placido Gutierrez de
Celis; 37 per cent to Don Miguel Gutierrez de Celis; 16 per cent to Don Miguel
Alfonso y Gutierrez; 5 per cent, to Don Daniel Perez y Alberto; and 5 per cent to Don
Leopoldo Criado y Garcia. In the same proportion above established for the profits
the capitalist partners shall be liable for all losses or damages that may be sustained.
A copy of said instrument was presented as Exhibit A and made an integral part of the
complaint.
Plaintiff also alleged that, according to the books of the defendant firm, his capital was
P56,796.25 in 1902 and, according to the balance had on December 31, 1903, the profits
obtained amounted to P256,025.31, 5 per cent of which, or P12,801.26, belonged to him,
according to the eight clause of the articles of partnership, although the manager Miguel
Gutierrez de Celis, by means of false and erroneous entries in the books, succeeded in
concealing such profits, thereby injuring him in said amount of P43,410.86. Plaintiff testified
that as soon as he learned of such entries, he at once protested, but that said manager
assured him that as soon as the probate proceedings concerning the estate of the
decedent Miguel Alfonso should be determined said amount would be refunded although
in spite of his efforts said promise has not been fulfilled.

In its answer the defendant firm admitted that plaintiff Criado was an industrial partner
entitled to 5 per cent of the profits, but denied all the other averments of the complaint. In
special defense it alleged that on December 31, 1903, there was made a liquidation and
balance of the business of the firm operations which were approved by all the partners
with no protest made by the plaintiff before or after said liquidation, but contrary, he gave
his assent thereto and without reserve whatsoever he executed a new partnership contract,
inasmuch as the sum shown by said liquidation and balance of the business of the firm at
the end of December, 1903, formed the basis of the capital mentioned in the articles of
partnership executed before a notary on May 9, 1904. Finally, the defendant alleged that,
in accordance with the provisions of section 43 of the Code of Civil Procedure, this second
cause of action had already prescribed, inasmuch as its object, the recovery of personal
property, prescribed after four years, just as an action for damages by reason of fraud.
The purpose of the second cause of action exercised by plaintiff's counsel is to obtain from
the defendant the share of the profits earned by the firm from 1900 to December 31, 1903,
belonging to plaintiff, by reason of the partnership contract a contract that produced
reciprocal rights and obligation between the partners and if the record shows as duly
proven that there were profits, the obligation on the part of the defendant firm to pay to
plaintiff his share of said profits at the rate of 5 per cent is inevitable, there appearing no just
and legal reason in the record for exempting the defendant from the fulfillment of said
obligation. It is therefore no proper to assert that the action brought by the plaintiff has for
its object the recovery of personal property, or demand damages for fraud, and therefore
the period for prescription is not the four years fixed by section 43, paragraph 1 of the Code
of Civil Procedure, but that of ten years, as provided in paragraph 1 of said section, in as
much as the action brought is founded on a contract in writing and demand is thereby
made for the payment of a certain net sum, entered in the books of the firm of Gutierrez
Hermanos, for the prescription of which the lapse of ten years is required a period which
certainly has not elapsed since the last balance was made of the business of the firm of
which Leopoldo Criado was a partner.
In order to determine whether besides the sum of P25,129.09 which constituted the
capital brought by the plaintiff Leopoldo Criado, as capitalist, during the second period of
the firm newly organized in 1904 plaintiff still has a right to demand the sum that is the
subject of his complaint in the second cause of action, or any other sum that might be
found to be a remainder of the salary owing him in his capacity of industrial partner during
the first period of the firm organized for four years from January, 1900, it becomes necessary
first too decide whether in fact the plaintiff is in estoppel and unable to oppose any valid
objection against said liquidation and balance; inasmuch as, according to the inventory of
the firm's business, made on December 31, 1903, which was signed by Leopoldo Criado,
Miguel Gutierrez de Celis and Daniel Perez de Celis, plaintiff Criado's capital on that date
was only P25,129.09, the sum recorded as his capital in the articles of partnership, Exhibit O,
which were in force during the second period from January, 1904, although this contract
was executed on May 9 of that year. From clause 7 of said contract, and according to said
inventory of December 31, 1903, it appears that the firm's capital stock amounted to
P1,605,497.30, of which the sum of P25,129.09 belonged to Leopoldo Criado.
In an affidavit plaintiff stated that when he learned of the contents of the firm's books, he
protested against the entries therein, but that the manager Guiterrez de Celis assured him
that he would lose nothing by those entries made in connection with a serious matter then
pending; that afterwards he learned that said entries had been made in the books through

fear that Jose Fortiz, a creditor of 5 per cent of the profits, should claim his share of the
profits pertaining to the years 1902 and 1903; that in fact Fortiz did bring suit against
Gutierrez Hermanos and obtained a favorable judgment not only in the Court of First
Instance but also in the Supreme Court which affirmed the judgment of the lower court
(record, p. 381); that another reason why said false and erroneous entries were made in the
firm's books by Gutierrez de Celis was to show the family of the deceased Miguel Alonso
that the losses reported in his letter received during his lifetime from Gutierrez de Celis were
due to his poor management of the firm's business (record, pp. 381 and 382); that as, in
spite of repeated steps taken by plaintiff, said Gutierrez de Celis did not fulfill his promise to
pay the sums which had been unduly withheld by means of those improper entries, plaintiff
therefore finally refused to sign the balance sheet for the business of 1909, but did sign the
previous one containing the record of a loss of P110,000 and also the partnership contract
of 1904, showing his capital to be P25,129.09 as he believed that Miguel Gutierrez de Celis
would reimburse him, as he had promised, his share of the sums which had been entered as
losses in the firm's books.
In Exhibit 10 (record, p. 205) there appears an entry which reads thus:
P501,513.57, amount of the bills cancelled in the books in this date which should
have been cancelled in previous years on account of difficulty in their collection,
some of these bills being of such a nature that they should be charged to the
account of the management as they are contrary to the provisions of the 5th and
10th clauses of the partnership contract . . . but, in view of the fact that the author of
these irregularities is not living so that compliance with the contract may be
demanded of him, we have distributed the losses equally among the three principal
partners . . . and 5 per cent against each of the industrial partners, Leopoldo Criado's
share of the losses being P25,080.68.
Without doubt this entry was made for the purpose of showing that Miguel Alonso, former
manger of the partnership, was to blame for these losses. It is to be noted that, according to
the contract, plaintiff as an industrial partner is not liable for said losses; therefore in this
distribution said sum was unduly deducted from his share of the assets.
In order to prove the certainty of the protest made by plaintiff and the repeated promises
of payment by Miguel Gutierrez de Celis, Attorney Eduardo Gutierrez Repide was called as
witness and testified that, as a consequence to the complaint made by the plaintiff to the
attorney Marple, one of the members of the Hartigan law firm, against the acts of the
manager of the firm of Gutierrez Hermanos a proceeding which, as plaintiff stated
produced the effect of continually reducing his assets in the firm by order of the said Marple
he, witness, went to confer with said manager Guiterrez de Celis who after learning of
plaintiff's complaint stated to witness that there was then good and sufficient reason for
making it appear in the firm's books that the industrial partner Leopoldo Criado had less
assets in the firm than in reality he had, but that he should not worry further as later on the
firm would pay him the reduced amount of the forty-three thousand and odd pesos which
made up the reduction, and that, sometime afterwards, witness having been called as a
friend, and not as an attorney, by said manager of the firm, on meeting the latter, he
learned that just then Leopoldo Criado was refusing to sign the instrument setting forth the
new articles of partnership for a new period because said manager had not fulfilled his
promise to return to plaintiff the aforesaid sum deducted from the capital stock, on which

occasion the notary Barrera was there waiting; that then Guiterrez de Celis directed the
witness to tell plaintiff not to worry, and that said sum would be returned to him; that
therefore witness, trusting in these words of the manger, advised plaintiff to sign the
instrument, just as he did; and that witness afterwards learned that these promises had not
been fulfilled.
In view of the evidence adduced by plaintiff, not rebutted by counsel for the defendant, it
cannot be held that plaintiff was in estoppel immediately after having signed the
partnership contract of May 9, 1904, in which it appears that he brought into the new firm,
as capital of his own, P25129.09, nor may it be said that he was not entitled to claim the rest
of his assets in the firm during the first period from 1900 to 1903, to wit, the difference
between the sum of P56,793.25, plaintiff Criado's capital as an industrial partner and said
P25,129.09, the capital brought into the new firm, inasmuch as it was not the plaintiff, but
the manager of the firm, Miguel Gutierrez de Celis, who intentionally and deliberately
induced Leopoldo Criado to sign said partnership contract of May, 1904, in which plaintiff
appeared as capitalist partner for the last mentioned sum brought into the general assets of
the firm under the repeated promise that he would afterwards be paid the rest of the assets
due him up to the aforestated sum of P56,793.25, the amount of capital standing to his
credit at the time of the termination of the previous partnership on December 31, 1903.
As aforesaid, plaintiff signed the instrument of 1904 in the belief that the manager of the firm
of Gutierrez Hermanos would fulfill the promise he had made not only to the plaintiff but also
to the attorney Gutierrez Repide; wherefore, it is evident that the defendant cannot set up
estoppel against the plaintiff, who relied upon said repeated promise (Act No. 190, sec.
333), inasmuch as the defendant was aware that plaintiff, as an industrial partner, was
entitled to collect a greater sum as a part of his capital than that brought into the new
partnership and he had an indisputable right to contradict and adduce oral evidence
against the contents of said instrument of May 9, 1904 (Act No. 190, sec. 285), in case the
exception of the plaintiff which the defendant denied were based on the contents of that
instrument, and likewise against the liquidation and balance made at the expiration of the
term of the first partnership, causing to appear in said balance and in the books of the firm,
among other entries, that aforementioned sum of P501,513.57, certified to in the document
Exhibit 10, this amount is sufficiently large when distributed among the partners, as losses
when plaintiff Criado, as one of the industrial partners is not liable for the losses which the
firm may have sustained according to the eighth clause of the notarial instrument of May
29, 1900. The allotment to the industrial partner Leopoldo Criado of the amount of
P25,080.68 as losses suffered by the firm in its business during the years 1900 to 1903 was
notoriously illegal, inasmuch as he, being merely an industrial partner, was not liable for any
loss whatever.
Plaintiff assails several entries made in the books of the firm consisting of losses in hemp,
merchandise, depreciation of steamers, and reduction in capital stock belonging to the
partners, all amounting to P793,199.24, as well as the net loss estimated at P110,578.38. But it
suffices our purpose to mention the reduction as losses, distributed among the partners, of
P501,613.57, P25,080.68 of which was charged against the plaintiff as his proportionate loss
of the capital, in order to show the propriety of plaintiff's averments that without any good
reason or ground whatever he sustained a loss by the decrease of his capital.

For the practical application and the fulfillment of the stipulations made by the partners, in
the second and eighth clauses of said articles of partnership of March 29, 1900, it should be
understood that, for the purpose of determining the profits that correspond to an industrial
partner who shares in the profits from the different transactions carried on by the firm must
be added together from which sum must be subtracted that of the losses sustained in its
business, and in the difference which represents the net profits if these are greater than
the losses the industrial partner shares, i. e., in the sum total of the profits. But if, on the
contrary, the losses are greater and exceed the profits in said difference the industrial
partner should not be liable, for this constitutes a real loss to the firm.
Wherefore, having examined the documents presented at the trial, among them Exhibits C,
F, H, P, 2 and 8 as well as the report of the commissioner, Wicks, Exhibit Z-3, together with the
documents attached by him to his report, and taking into account that only sixty-seven
thousand and odd pesos could be collected from the credits considered as uncollectible,
and that the plaintiff, as an industrial partner, should not be liable for the losses, according
to the articles of partnership, it follows that, at the termination of the partnership in 1903,
plaintiff's assets were P56,793.25, and his liabilities P1,054.56, there being in his favor
consequently a balance of P55,738.69; but as in the instrument of May, 1904, he was
credited with only P25,129.09, as capital brought into the new company, the plaintiff is
entitled to demand that the firm of Gutierrez Hermanos pay him in the sum of P30,609.60.
Furthermore, in the instrument of May 9, 1904, it is not stated that the amount brought in the
plaintiff was the balance and sole asset that he had as an industrial partner in the extinct
firm in 1903, nor that he condoned and renounced any other assets he might have therein;
consequently, he has not lost his right to collect the rest of his capital by having signed said
instrument, and it is not fair that his copartners should benefit with no just reason and to his
prejudice.
The commissioner, Wicks, awarded plaintiff P32,875.46, as a part of his capital which he was
entitled to collect (Exhibit Z-3). Plaintiff accepts this sum, though he demanded more in his
complaint; but this court can not accept the commissioner's conclusion in this particular,
inasmuch as plaintiff admitted that his capital, on December 31, 1902, was the sum
aforementioned which appears in the defendant's books, and in 1903 the firm of Gutierrez
Hermanos netted no profits from its business; because, as a result of the commissioner's
examination if the books and papers of the defendant firm, he unduly awarded plaintiff
P6,205.25, as a part of his capital, which the defendant had failed to pay him in the years
1900 to 1902, and P1,660.91, as a part of his assets unduly excluded by the defendant firm
from his account of invested capital in 1903, both amount aggregating P7,866.17. It is to be
observed that plaintiff agrees that his capital in 1903, according to the defendant firm's
books amounts to P56,793.25, without the debt of P1,054.56.
On pages 8 to 12 of Exhibit Z-3 the commissioner Wicks also unduly charged plaintiff 5 per
cent of the interests on certain personal accounts that were canceled in the books, and on
certain sums which appeared on the firm's books as losses pertaining to the years 1904 to
1911, as being related to certain other accounts that originated during the period 1900 to
1903. These charges were improper because the interests on the accounts stricken from the
books are, like the principal debts, also losses for which, according to the articles of
partnership, the industrial partner should not be held liable. The amount thus unduly
charged against plaintiff on account of the said 5 per cent interest aggregates P5,600.32,

which sum, subtracted from said P7,866.17, an amount also unduly paid, leaves a
difference of P2,265.85 likewise unduly credited to the plaintiff and which apparently
increases his assets. This latter sum, subtracted from that awarded by the commissioner,
shows that plaintiff is entitled only to the sum of P30,609.60, a sum which, with the sole
difference of one centavo through inaccuracy in the calculations, we deem to be
mathematically correct, lawful, just, and in conformity with the stipulations made by and
among the partners in said instrument; and therefore the defendant should be ordered to
pay the same, together with the legal interest thereon from the date of the filing of the
complaint.
As regards the third cause of action in the previous judgment which was set aside, the
complaint, in so far as this cause of action was concerned, was dismissed and upon a
reopening of the case, in the subsequent judgment rendered therein on September 11,
1916, the court abstained from granting the petition made in connection with said third
cause of action; notwithstanding, the plaintiff-appellant in his brief made no assignment of
error with respect to this matter, nor did he request the court to make any ruling on the
petition submitted in connection with said cause of action. Therefore, notwithstanding the
agreement contained in the document Exhibit 50, and in view of the fact that plaintiff
tacitly waived any right he might have had to enforce this claim, judging from his conduct
in the matter of the collection of the sum of P406.99, also mentioned by the commissioner in
his report Exhibit Z-3, this court dismisses the complaint in so far as said third cause of action
is concerned.
In the judgment appealed from, the trial court holds that the item relative to the shares of
stock in the Bataan mines pertained to the losses suffered in 1906 and should have been
charged to the account of profits and losses as, according to the 8th clause of the articles
of partnership, plaintiff had suffered a loss not only of 5 but 10 per cent. The plaintiffappellant likewise makes no assignment of error against this judicial declaration. Therefore
the complaint is also dismissed with respect to the fourth cause of action. By the fifth cause
of action counsel for plaintiff demands payment of the sum of P88,245.93, and the trial
court, for the reason stated in the judgment, held that the defendant firm was obliged to
pay to plaintiff the sum of P51,296.62, with legal interest thereon from May 25, 1912, the date
of the filing of the complaint. This finding has not been assailed, nor has any error been
assigned against it by the plaintiff-appellant in his brief, but the defendant-appellant,
ordered in the judgment to pay that sum, made an assignment of errors based on the
reason set forth in its brief.
The plaintiff having impliedly acquiesced in the finding of the trial court with respect to the
fifth cause of action, we shall now proceed merely to inquire whether that court actually
committed the errors assigned to the judgment by the defendant-appellant.
According to the document Exhibit 7, presented by the defendant, which appears to be a
copy of plaintiff's stock account, certified as authentic by the defendant's bookkeeper, the
capital stock of the plaintiff Leopoldo Criado, prior to December 29, 1911, was P73,147.87,
an amount which also appears in the document (Exhibit P) and tends to prove that on
December 31, 1911, plaintiff's capital was the amount stated, before the annotation of the
entries assailed as false and fraudulent by plaintiff.

The eighth and sixteenth clauses of the articles of partnership, Exhibit O (record, p. 82),
executed in May, 1904, which ratified and approved the transactions of the firm of Gutierrez
Hermanos from January of that year state the following:
Eighth. The earnings or profits which may be obtained shall be distributed among the
partners in the following proportion:
Forty per cent to D. Placido Gutierrez de Celis;
Forty per cent to D. Miguel Gutierrez de Celis;
Ten per cent to D. Daniel Perez Albertos; and
Ten per cent to D. Leopoldo Criado Garcia.
In the same proportion provided for the profits, the partners shall be liable for the
losses that may be incurred.
Sixteenth. In case the partnership business should incur such losses as to prevent a
continuance of the business or to make a dissolution of the partnership advisable,
same shall be liquidated, each capitalist partner bearing such loss in a pro rata
proportion to the capital he represents, the expenses necessary for the prosecution
of the business being chargeable to the firm as a whole. Notwithstanding these
provisions the partners Don Placido and Don Miguel as principal capitalist partners
may liquidate the partnership or alienate its rights whenever they deem proper so to
do.
By a notarial instrument of January 2, 1908, the life of the partnership was extended to
another term of four years, upon the same bases and conditions (Exh. X, p. 100).
From the two preinstated clauses of the partnership contract it is deduced that the partners
should be liable for all the losses incurred by the partnership in the proportion fixed in the 8th
clause; but that, in case such losses should be of so great importance as to prevent a
continuation of the partnership business, or to make advisable the dissolution of the
partnership, then due action should be taken in conformity with the provisions of said clause
16, and the partners should be liable from the losses in a proportion pro rata to their share in
the partnership assets; in consequence whereof, plaintiff should be liable at the rate of 10
per cent of the losses sustained.
The trial judge held that, according to the balance sheet (Exhibit P) admitted by the
defendant (sten. notes, p. 45), the profits in 1911 were P120,986.34; but a mere reading of
this balance sheet shows that the profits were not so much as the plaintiff claims, even by
adding thereto the sum of P30,000, nor did they amount to the sum fixed by the court, for
the reason that same document shows losses of P21,963.38 for general expenses and of
P22,569.41 for the account on its face, which accounts bear debit balances.
In order to determine the exact amount of the profits and losses during the year 1911, it
becomes necessary to examine the 1910 inventory, not discussed by the litigants, and to
make a comparison between its contents and those of the 1911 inventory. Having
examined various documents stating accounts of several kinds relating to the business of
the firm of Gutierrez Hermanos, as those of the merchandise, various debtors, furnitures,
shares, consignments, vessels, cash operations of provincial business, and rural and urban

properties, it appears that the active capital of the partnership was, on December 31, 1911,
P2,685,096.40.
According to the inventory Exhibit 51 (record, p. 172), the liabilities of the partnership were
P789,228.65 in 1911.
The unpaid accounts aggregate a total of P148,965.66. In his report (Exhibit Z-3) the
commissioner classified these credits as uncollectible, doubtful and slow collection, a
classification we find very just, since entry No. 1657, Exhibit T, admits that a part of such
credits, without being uncollectible or doubtful, is of slow collection. According to said
commissioner's report, the uncollectible credits amount to P33,746.58, an amount which
may, in justice, be considered as lost; those doubtful amount to P39,864.49, and those of
slow collection to P75,354.59, making a total of P118,219.08.
We cannot consider as lost the credits of slow collection nor even the doubtful ones, as
there is the hope that they may be collected in the future; therefore the sum of the doubtful
credits and those of slow collection should be deducted, as unpaid accounts from the
liabilities which, consequently, are reduced to P671,019.57, an amount that still must be
reduced to P662,337 because in 1912 the balance of P8,682.57, Ramon Madarieta's debt,
was collected as the commissioner states in his report. According to the entry No. 1658,
Exhibit U, the active capital was reduced on account of the difference in the price of
hemp, by the sum of P110,091.19. Therefore, deducting from the liabilities the excess of
P102,534.27, it appears that, on December 31, 1911, the liabilities were only P2,125,293.67,
and this sum, compared with the capital that the defendant firm had on December 31,
1910, which according to Exhibit Z (record, p. 120) was P2,182,010.04, shows a loss of
P56,716.57. Consequently, there should be deducted from plaintiff's capital 10 per cent of
this sum or P5,671.64 as his share of the loss.
The capital which the plaintiff had in the firm in 1911, according to Exhibit 7 (record, p. 197),
amounts to P76,141.08, a balance which constituted his capital on December 31, 1910, and
adding thereto the sum of the amounts collected, P605.50, the result is that plaintiff's true
assets, in his account of capital stock, must be P76,746.58. Deducting from this sum that of
P2,570.98 which is charged as a debit against plaintiff, there appears a net balance in his
favor of P74,175.60 and, deducting from this sum 10 per cent of the P56,716.37 or P5,671.64
as losses, there results the difference of P68,503.97, the sum which he was entitled to collect
from the defendant by this fifth cause of action although the amount was reduced to
P51,296.62 as fixed in the judgment the payment of which the defendant is obliged in the
manner stipulated in the 19th clause of the articles of partnership, in proportion to the total
net capital, the date is, at the rate of 3.22 per cent with legal interest from the date of the
filing of the complaint.
By the sixth cause of action plaintiff claims the sum of P2,000, alleging that same was unduly
charged against his private account when, in truth and in fact, in consequence of a
compromise made by advice of the attorneys of the defendant, the former firm of Del Pan
and Ortigas, he, as manager of the defendant firm, paid said sum to Leopoldo who for this
reason, in spite of his better right, desisted from claiming P8,000 from Tirso Nery against
whom the defendant then had an action pending.

The trial court rendered judgment in favor of the plaintiff for P2,000, with legal interest
thereon, at the first hearing of this case, and at the second hearing held that plaintiff should
be paid P1,800, considering the remaining P200 as plaintiff's share in the loss suffered by the
firm on account of said compromise.
The defendant alleged that its manager's statement shows that this sum of P2,000 was paid
by Guiterrez Hermanos on the account of Leopoldo Criado, as there was no need of buying
this credit of Leopoldo Ferrer against Tirso Nery, and that while acting as manager plaintiff
took advantage of the opportunity to buy said credit for 25 per cent of its nominal value.
Plaintiff testified that Miguel Gutierrez de Celis read the complaint of Leopoldo Ferrer and
believed that it was advisable to pay this creditor's claim; that therefore De Celis himself
drew the check for the payment of Ferrer's claim and ordered plaintiff to go to court in
company with the attorney to stipulate a compromise about the matter.
The manager, Miguel Gutierrez de Celis, testified that he had no knowledge of that
complaint and of that compromise; but the court, who saw and observed these witnesses
while they were testifying, gave credence to the plaintiff's testimony, and we see no reason
whatever for modifying his judgment in this matter, for the evidence as a whole tends to
prove that plaintiff told the truth.
So therefore plaintiff is entitled to recover from the defendant the sum of P1,800 but must
suffer the loss of the remaining P200 as his share of the loss of the credit.
In the seventh cause of action plaintiff claims compensation for the services rendered the
defendant firm at the instance of Miguel Gutierrez de Celis, and alleged that a just and
reasonable compensation from December 31, 1911, when he left the firm, until March 30,
1912, is P1,000 per month, such services being rendered at the request of Miguel Gutierrez
de Celis, with the promise that compensation would be in accordance with the profits
obtained; that this value of services, P1,000 per month, was estimated on the basis of the
work done by him and the profits obtained; that he therefore demanded of Miguel
Gutierrez de Celis the payment of said compensation, but that the latter refused to pay
anything (record, p. 427).
The manager Miguel Gutierrez de Celis testified that Leopoldo Criado lodged and boarded
in the house of Gutierrez Hermanos during the months of January, February, and March,
1912; that his work consisted solely in being there and seeing that things were
accomplished; that he intervened in the preparation of the balance sheets; and that
consequently his services were of no value.
Upon the foregoing evidence the lower court rendered judgment in favor of the plaintiff for
the amount claimed and fixed by himself, and basing judgment on the nature of his work
and on what he had earned previously as a partner.
In trying to prove that the trial court erred in its award in favor of plaintiff for this cause of
action, counsel for the defendant says, on page 33 of the Spanish brief, No. 9300, that
plaintiff could not establish his right under this cause of action; that, according to the
testimony of the defendant's manager, the sole reason why plaintiff continued in the firm
after December 31, 1911, was to make the final balance sheets; and that therefore he can

recover nothing for his services because the rule established in various American cases
cited is that a liquidator-partner is not entitled to any compensation for his services as such,
unless there are special stipulations in the matter of circumstances from which such
contractual stipulations may be deducted.
Assuming that the rule cited were applicable in this country, the same rule favors the
plaintiff for, in the present case, there was not only an implied but an express contract that
the defendant should pay plaintiff a compensation proportionate to the profits that might
be obtained from the business of the firm.
With respect to the amount of that compensation, counsel for the defendant say on the
aforecited page of their brief, that plaintiff testified that his salary ought to be in
accordance with the profits that might be obtained but that he did not prove how much
he could have earned elsewhere.
It is undeniable that plaintiff did render services to the defendant firm when he was not
obliged to do so gratuitously, for, neither in the partnership contract (Exhibit O), nor in the
law, is there any provision whatever to the effect that plaintiff as a partner was obliged to
liquidate the business without compensation, since among the partner's obligations as
prescribed by articles 170 to 174 of the Code of Commerce, such an obligation does not
appear, but on the contrary, articles 228 and 229 of the said Code provide that in general
or limited partnerships, should there be no objection on the part of any of the partners, the
persons who managed the common funds shall continue in charge of the liquidation.
Plaintiff, without being obliged, rendered service to the defendant at the manager's
request, with the understanding that his compensation should be in proportion to the profits
that might be obtained, and, therefore, it is just and reasonable that such services should
be remunerated.
As regards the amount of the compensation we do not find satisfactory rebuttal of plaintiff's
testimony in this matter, as the manager merely said that plaintiff's services were worth
nothing, a statement that falls by its own weight, for, however insignificant may be the work
one person does on behalf of another, it is always worth something. There is no estimate of
his compensation were not received nor do we find his estimate exaggerated. Nor does
there appear any reason whatever for modifying the judgment of the trial court in respect
to this point.
Therefore the defendant ought in justice pay to the plaintiff the amount claimed in this
seventh cause of action.
In the eighth cause of action plaintiff claims the sum of P52 as his 10 per cent share of the
P520 which La Germinal paid the defendant as dividend obtained in 1911 and
corresponding to the shares of stock the defendant held in that company, alleging that,
notwithstanding the fact that the defendant collected said amount, it failed to credit him
with P52, the sum to which he was entitled.
In its answer defendant admitted that it collected the dividend mentioned, and that
plaintiff was entitled to the payment of P52.

Plaintiff testified (record, p. 429) that the books do not show that the sum of P520 was
divided among the partners. Counsel for the defendant admitted that they had no
evidence to present in respect to this cause of action.
Therefore plaintiff has an unquestionable right to collect from the defendant the sum of P52,
as held by the trial court.
By the ninth cause of action plaintiff claims the payment of P1,171.11 as his 10 per cent
share of the P11,711.16 which the insurers of several of the defendant's steamers paid on
account of certain damages suffered by these vessels said repairs were paid
proportionately by all the partners and that, notwithstanding the collection of this sum,
defendant did not pay him his share thereof.
Defendant denied that is received P11,711.16, but admitted that it did receive P9,032.92,
and that this sum plaintiff should be credited with P953.92.
The court below rendered in favor of plaintiff judgment for P953.90, from which judgment he
did not appeal, nor did the defendant make any assignment of error in respect thereto. We
see no reason whatever for changing or modifying this finding, for the defendant admitted,
as aforesaid, that plaintiff was entitled to the amount awarded him in the judgment. We
therefore affirm this part of the judgment.
By the tenth cause of action plaintiff asks judgment for P3,000. alleging that in 1911, after he
had ceased to be a partner of Gutierrez Hermanos, the defendant firm charged to the
account of "Items pending collection" and credited in favor of Movellan and Angulo, of
Paris, insurers of the defendant's steamers for the year 1912, thereby diminishing the partners'
capital; and that of said P35,334.09, he is entitled P3,000 which the defendant's manager
failed to pay plaintiff, notwithstanding the demand made upon him so to do.
The defendant alleges that the premium pertaining to the year 1912 amount to only
P958.97, of which P95.89 belongs to plaintiff, and admits that said sum should be credited to
plaintiff's account.
The lower court rendered judgment in favor of plaintiff for P1,001.22, from which judgment
he did not appeal, and although the defendant appealed he from this award of the
judgment, it was not included in its assignment of errors. Nor do we find anything in the
record to show that the trial court erred; on the contrary, we see that the dates and
premiums of the insurance policies mentioned in the judgment, for which plaintiff should not
be held liable, agree with those given in Exhibit 45 (record, p. 297) which is a copy of the
insurance policies of the steamers Montaez, Dos Hermanos, and Magallanes, certified to
by the bookkeeper of the defendant firm, no policies of other steamers having been
presented, while the report of the commissioner (record, p. 77), schedule 28 of Exhibit Z-3,
differs very much from Exhibit 45. Therefore said award of the trial court should likewise be
affirmed.
DEFENDANT'S CROSS-COMPLAINT.
The defendant asks therein that plaintiff be ordered to pay any amount proved due the
partnership, and alleges that during the time that plaintiff acted as the official in charge

and the manager of the defendant firm's business, to wit, during the period between May 1
and December 10, 1903, he, knowingly and in contravention of the stipulations contained in
the articles of partnership, sold and delivered various merchandise and other effects to
several debtors, such as Antonio de la Riva, whose debt had then reached the amount of
P88,617.96, and Gerena and Co. whose account showed a debit balance of P39,417.16,
without having the security required by the articles of partnership; that therefore plaintiff
alone is responsible for losses occasioned through such procedure; and that, upon making
the balance sheet on December 31, 1911, a loss was found whereby plaintiff owed the
defendant more than P26,000.
The clause to which this cross-complaint refers and which was violated by plaintiff is the fifth
of the instrument of March 16, 1900, presented as Exhibit A (record, p. 58), and is of the
following tenor:
The purpose of the partnership shall be the transaction of business in the purchase
and sale of groceries and beverages from Europe and America, and domestic
merchandise; and in the advancement of funds on goods under security to
companies or to private parties, the credit allowed thereon not to exceed thirty
thousand pesos and granted only on the approval of the principal capitalist
partners.
The trial court dismissed this cross-complaint, for the reason that the transactions, the
responsibility for which the defendant claims to hold plaintiff liable, were ratified by Miguel
Gutierrez de Celis upon his arrival in the Philippines.
The cross-complaint raises two questions, to wit: (First.) Is plaintiff liable for the debts of
Antonio de la Riva and of Gerena and Co.? (Second.) Is plaintiff in debt to the defendant in
the sum of twenty-six thousand and odd pesos?
With respect to the second question we have already shown in discussing the fifth cause of
action, that, as disclosed by the record, the defendant is indebted to plaintiff. This question
should therefore be determined in the negative.
As regards the first question, even supposing that plaintiff has violated the stipulations of
articles of partnership by giving credit to various persons without taking the security required
in the fifth clause of said articles, yet in the cross-complaint no other reasons are alleged by
virtue of which he should be held liable for said breach of contract.
Article 144 of the Code of Commerce makes a partner liable for the damages suffered by
the partnership, by reason of his malice, abuse of powers, or serious negligence, and
requires him to indemnify the partnership should the other partners so require, provided an
express or verbal approval or ratification of the act on which the claim is based can not be
deduced in any manner whatsoever. According to this legal provision, in order that the
partner at fault may be compelled to pay an indemnity, it is indispensable, in the first,
place, that his conduct shall have caused some damage to the partnership, and, in the
second place, that his conduct should not have been expressly or impliedly ratified by the
other partners or the manager of the partnership.

In the cross-complaint the allegation is made that plaintiff, violating said fifth clause of the
articles of partnership, sold and delivered merchandise and other effects to various debtors,
such as Antonio de la Riva and Gerena and Co., without the security required in said
articles; and that, because of the large sums which said debtors owe to the partnership,
plaintiff is liable for all the damage and harm caused, amounting to P128,035.12.
Plaintiff Leopoldo Criado testified, with respect to Gerena and Co., that subsequent to his
arrival in this country, Miguel Gutierrez de Celis continued to maintain commercial relations
with said debtor firm, whose debt would have been collected had Gutierrez de Celis
followed his (plaintiff's) advice and that of the attorneys of the firm of Gutierrez Hermanos
aside from the fact that the firm of Genera and Co. was solvent and could pay its debt; so it
is that the manager Miguel Gutierrez de Celis continuing said business ratified plaintiff's
procedure during the three months and several days that he acted temporarily, in 1903, as
manager of the partnership; and for said reason there is no ground upon which plaintiff may
be held liable for the harm occasioned by the non-payment of the debt of Gerena and
Co.; and that rather did the liability for such harm fall upon the manager Gutierrez de Celis
who conscientiously never believed that plaintiff was solely liable for the loss, for the Entry
No. 1889 (Exhibit 10, aforecited) contains the statement that the author of such losses no
longer exists, the fault being attributed to the deceased Miguel Alfonso, although Miguel
Gutierrez de Celis testified (record, p. 557) that he gave his approval to what had been
done, without knowing what it was, and that the plaintiff who gave the money to Gerena
and Co. This testimony is in direct contradiction to the evidence contained in the entry
aforementioned, written on December 31, 1903, and notwithstanding that error was
discovered by Gutierrez de Celis, as he stated, the truth is that the amount of the loss was
not charged to Leopoldo Criado, neither was a similar charge made in respect to the
amount paid to Leopoldo Ferrer of which mention has previously been made herein above.
So said Entry No. 1889 of the document Exhibit 10 remained intact.
With respect to the account of Antonio de la Riva which shows, as of December 31, 1903, a
debit balance of P91,000 and odd pesos, plaintiff testified (record, p. 590) that as security
for this debt De la Riva had delivered to the firm of Gutierrez Hermanos a lot of hemp worth
P33,218.06, a power of attorney to collect P26,000 from the store "Isla de Cuba" in monthly
installments of P2,000, and the insurance policy of the launch Concha, which represented
P34,000; whereby the debt was reduced to P12,000, on December 31, 1903.
This testimony appears other corroborated documents and other evidence of record for,
with respect to the power of attorney to collect the sum mentioned from the "Isla de Cuba,"
the same exhibit, No. 5, which is the account of Antonio de la Riva, certified to by the
defendant's bookkeeper, shows that on July 3, August 5, and September 5, 1903, the
account of Antonio de la Riva's indebtedness to the partnership was credited with various
sums collected from the "Isla de Cuba." With respect to the hemp referred to by witness, the
manager himself Miguel Gutierrez de Celis testified (record, p. 565) that upon his arrival in
the Philippines, he allowed an increase in De la Riva's debt, by reason of the security of the
hemp which this debtor was sending to the firm. With reference to the insurance of the
launch Concha, there is no evidence of record in contradiction of the facts, except the
testimony of Miguel Gutierrez de Celis in which the latter claims that the launch was
purchased by plaintiff in his own name with money belonging to the firm, in order
afterwards to sell it to Antonio de la Riva (record, p. 567). The manager De Celis does not
deny that the partnership held said insurance policy on the launch as security, nor that De
la Riva was the owner of the boat, for, if the launch were sold to De la Riva and the

proceeds from the sale were charged to the latter's account, together with the expenses
occasioned by the trips made by that boat (Exhibit 5), it is obvious that Antonio de la Riva
was the owner of the launch, although he was a debtor to the firm of Gutierrez Hermanos
for its price and the expenses incurred.
Consequently it is indisputable and beyond all doubt that when plaintiff turned over to
Miguel Gutierrez de Celis the management and administration of the business of the firm,
this business was in very good condition, and if afterwards losses had been sustained same
were due to the fault of Gutierrez de Celis himself; so it is that, in canceling in the books the
account of Antonio de la Riva, he divided the amount thereof among all the partners, in
the belief that it was a loss that affected them all.
Starting from the fact that the record shows that the defendant owes plaintiff various sums
of greater or lesser importance, as stated in the findings on the majority of the causes of
action prosecuted by plaintiff, it is logical that this court should not find any well-founded or
legal reason by virtue of which judgment may be rendered against plaintiff for whatever
amount he may be owing the defendant firm, inasmuch as the latter is shown to be his
debtor. Therefore plaintiff should be absolved from the cross-complaint filed by the
defendant.
As regards the amount of the collectible accounts and of unpaid credits which total sum is
stated in the part of this decision relative to the fifth cause of action, it is undeniable that
the plaintiff Leopoldo Criado, as capitalist partner of the partnership organized in May,
1904, is entitled to receive 10 per cent of every sum collected from the date on which he
ceased to belong to the firm, January, 1912, and of whatever sum that in the future may be
collected from said collectible accounts or unpaid credits, and it is so held, without any
liability on his part in relation to the bad or uncollectible credits. Therefore, in view of section
126 of Act No. 190, we reverse that part of the judgment of the court below whereby such
liability for 10 per cent is imposed upon the plaintiff.
The last error assigned by the defendant to the judgment of the court below relates to the
order of September 2, 1915, in which it is held that the accounts presented by the
defendant are not in accord with the orders given by the Supreme Court in its previous
decision, in so far as it was directed that the firm of Gutierrez Hermanos should render a new
account supported by vouchers to determine exactly plaintiff's share in the firm's assets. In
fact the defendant was ordered immediately to present to the court all its books, vouchers
and other documents that might be necessary for the settlement of the assets pertaining to
plaintiff during the years 1900 to 1911, and to place the same at the disposal of the expert,
G. B. Wicks, and was authorized to appoint another expert who, with said Wicks, might
examine the books and papers of the firm of Gutierrez Hermanos. This order is perfectly legal
and just. It is an interlocutory order of mere procedure, issued in compliance with and in
consequence of the decision of this court, to end that, with the result of the liquidation of
the accounts made by the expert appointed, without the defendant having wished to
appoint another in use of its right so to do, this court may decide this suit equitably, in
accordance with its true merits and in conformity with the law.
For the foregoing reasons, whereby the errors assigned to the judgment appealed from with
respect to the parts thereof discussed in this decision have been refuted, the defendant
should be, as it hereby is absolved from the complaint by the first cause of action. By the

second cause of action the firm of Gutierrez Hermanos, the defendant, should be, as it
hereby is ordered to pay to the plaintiff Leopoldo Criado the sum of P30,609.60, with legal
interest thereon from May 25, 1912, the date of the filing of the complaint. In so far as it is
based on the third and the fourth causes of action, said complaint is dismissed. In
accordance with the fifth cause of action, the defendant should be, as it hereby is, ordered
to pay to plaintiff the sum of P51,296.62 fixed in the judgment appealed from, with legal
interest thereon from the date when the original complaint was filed, May, 1912, and the
plaintiff must pay said sum in the manner prescribed in the 19th clause of the articles of
partnership of 1904. By the sixth cause of action, the defendant is likewise ordered to pay
P1,800; by the seventh, P3,000; by the eighth, P52; by the ninth, P953.90; and by the tenth,
P1,001.22. That part of the judgment relating to the plaintiff's liability for 10 per cent of the
outstanding and the uncollectible bills is reversed, and he is reserved his right in the sums
collected or which may be collected from same. The plaintiff Leopoldo Criado is absolved
from the cross-complaint filed by the defendant Gutierrez Hermanos.
The plaintiff shall pay one-third, and the defendant two thirds, of the costs of both instances.
The judgment appealed from is thus affirmed in so far as it is in accord with this decision,
and is reversed in so far as it is not. So ordered.
Arellano, C.J., Johnson, Araullo, Street, Avancea and Fisher, JJ., concur.

http://www.lawphil.net/judjuris/juri1918/mar1918/gr_l-12371_1918.html

Leung v. IAC
G.R. No. L-70926, 1/31/1989

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court
in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of
Manila, Branch II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner
of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering the
petitioner to pay to the private respondent his share in the annual profits of the said
restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the then Court of
First Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent
(22%) of the annual profits derived from the operation of Sun Wah Panciteria since October,
1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila,
was established sometime in October, 1955. It was registered as a single proprietorship and
its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show
that Sun Wah Panciteria was actually a partnership and that he was one of the partners
having contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private
respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a
receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of the
P4,000.00 by affixing his signature thereto. The receipt was written in Chinese characters so
that the trial court commissioned an interpreter in the person of Ms. Florence Yap to
translate its contents into English. Florence Yap issued a certification and testified that the
translation to the best of her knowledge and belief was correct. The private respondent

identified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was
affixed by the latter in his (private respondents') presence. Witnesses So Sia and Antonio Ah
Heng corroborated the private respondents testimony to the effect that they were both
present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further testified
that he himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery
of his own investment in another amount of P4,000.00 An examination was conducted by
the PC Crime Laboratory on orders of the trial court granting the private respondents
motion for examination of certain documentary exhibits. The signatures in Exhibits "A" and 'D'
when compared to the signature of the petitioner appearing in the pay envelopes of
employees of the restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24)
showed that the signatures in the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount of P12,000.00
covered by the latter's Equitable Banking Corporation Check No. 13389470-B from the
profits of the operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the
Savings Department of the China Banking Corporation testified that said check (Exhibit B)
was deposited by and duly credited to the private respondents savings account with the
bank after it was cleared by the drawee bank, the Equitable Banking Corporation. Another
witness Elvira Rana of the Equitable Banking Corporation testified that the check in question
was in fact and in truth drawn by the petitioner and debited against his own account in
said bank. This fact was clearly shown and indicated in the petitioner's statement of
account after the check (Exhibit B) was duly cleared. Rana further testified that upon
clearance of the check and pursuant to normal banking procedure, said check was
returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the amount of
P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit D). His
evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the Sun Wah
Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg in
Clark Field and later as waiter at the Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that he was
the sole owner of the restaurant, the petitioner presented various government licenses and
permits showing the Sun Wah Panciteria was and still is a single proprietorship solely owned
and operated by himself alone. Fue Leung also flatly denied having issued to the private
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 Wah
Panciteria from October, 1955, until fully paid, and attorney's fees in the
amount of P5,000.00 and cost of suit. (p. 125, Rollo)

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

of the net profit of P8,000.00 per day from the time of judicial demand, until
fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the date of judicial
demand is July 13, 1978. (pp. 105-106, Rollo).
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 the annual profits of
the restaurant. The petitioner, however, claims that this factual finding is erroneous. Thus, the
petitioner argues: "The complaint avers that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria, in
return of which private respondent allegedly will receive a share in the profits of the
restaurant. The same complaint did not claim that private respondent is a partner of the
business. It was, therefore, a serious error for the lower court and the Hon. Intermediate
Appellate Court to grant a relief not called for by the complaint. It was also error for the
Hon. Intermediate Appellate Court to interpret or construe 'financial assistance' to mean the
contribution of capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought
the financial assistance of plaintiff in operating the defendant's eatery known
as Sun Wah Panciteria, located in the given address of defendant; as a return
for such financial assistance. plaintiff would be entitled to twenty-two
percentum (22%) of the annual profit derived from the operation of the said
panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum of
four thousand pesos (P4,000.00), Philippine Currency, of which copy for the
receipt of such amount, duly acknowledged by the defendant is attached
hereto as Annex "A", and form an integral part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was established,
he gave P4,000.00 to the petitioner with the understanding that he would be entitled to
twenty-two percent (22%) of the annual profit derived from the operation of the said
panciteria. These allegations, which were proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of the
Civil Code provides that "By the contract of partnership two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention
of dividing the profits among themselves".

Therefore, the lower courts did not err in construing the complaint as one wherein the
private respondent asserted his rights as partner of the petitioner in the establishment of the
Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein. We
agree with the appellate court's observation to the effect that "... given its ordinary
meaning, financial assistance is the giving out of money to another without the expectation
of any returns therefrom'. It connotes an ex gratia dole out in favor of someone driven into a
state of destitution. But this circumstance under which the P4,000.00 was given to the
petitioner does not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as
a return for such financial assistance, plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit derived from the operation of the said
panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature of the action filed in
court is determined by the facts alleged in the complaint as constituting the cause of
action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc.
v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant case was
whether or not the private respondent is a partner of the petitioner in the establishment of
Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in giving probative
value to the PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged
standards or specimens used by the PC Crime Laboratory in arriving at the conclusion were
never testified to by any witness nor has any witness identified the handwriting in the
standards or specimens belonging to the petitioner. The supposed standards or specimens
of handwriting were marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the
private respondent over the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower court examined
the signatures in the two receipts issued separately by the petitioner to the private
respondent and So Sia (Exhibits "A" and "D") and compared the signatures on them with the
signatures of the petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of
Antonio Ah Heng and Maria Wong, employees of the restaurant. After the usual
examination conducted on the questioned documents, the PC Crime Laboratory submitted
its findings (Exhibit J) attesting that the signatures appearing in both receipts (Exhibits "A"
and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were
presented by the private respondent for marking as exhibits, the petitioner did not interpose
any objection. Neither did the petitioner file an opposition to the motion of the private
respondent to have these exhibits together with the two receipts examined by the PC
Crime Laboratory despite due notice to him. Likewise, no explanation has been offered for
his silence nor was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored.
The records sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate
Appellate Court gravely erred in not resolving the issue of prescription in favor of petitioner.
The alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13,

1978 or after the lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From
October 1, 1955 to July 13, 1978, no written demands were ever made by private
respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which provides:
Art. 1144. The following actions must be brought within ten years from the time
the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are filed before
the court, when there is a written extra-judicial demand by the creditor, and
when there is any written acknowledgment of the debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of
a partnership which are 1) two or more persons bind themselves to contribute money,
property, or industry to a common fund; and 2) intention on the part of the partners to
divide the profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng,
106 Phil. 110)-have been established. As stated by the respondent, a partner shares not only
in profits but also in the losses of the firm. If excellent relations exist among the partners at
the start of business and all the partners are more interested in seeing the firm grow rather
than get immediate returns, a deferment of sharing in the profits is perfectly plausible. It
would be incorrect to state that if a partner does not assert his rights anytime within ten
years from the start of operations, such rights are irretrievably lost. The private respondent's
cause of action is premised upon the failure of the petitioner to give him the agreed profits
in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an
accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is
applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or
the person or partnership continuing the business, at the date of dissolution, in
the absence or any agreement to the contrary.
Regarding the prescriptive period within which the private respondent may demand an
accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting
exists as long as the partnership exists. Prescription begins to run only upon the dissolution of
the partnership when the final accounting is done.

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.
Apart from his own testimony and allegations, the private respondent presented the cashier
of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the
restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties was that you
were in charge of the custody of the cashier's box, of the
money, being the cashier, is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you were
the one who accepted the money and you gave the change,
if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you said,
what do you do with the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or confer
together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less, will you
please tell us, how much is the gross income of the restaurant?
A For regular days, I received around P7,000.00 a day during
my shift alone and during pay days I receive more than
P10,000.00. That is excluding the catering outside the place.

Q What about the catering service, will you please tell the
Honorable Court how many times a week were there catering
services?
A Sometimes three times a month; sometimes two times a
month or more.
xxx xxx xxx
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.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
Q Per service?
A Per service, Per catering.
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?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15,
1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive
the cross-examination on the matter of income but he failed to comply with his promise to

produce pertinent records. When a subpoena duces tecum was issued to the petitioner for
the production of their records of sale, his counsel voluntarily offered to bring them to court.
He asked for sufficient time prompting the court to cancel all hearings for January, 1981 and
reset them to the later part of the following month. The petitioner's counsel never produced
any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book. ledgers, journals and for this
purpose, employed a bookkeeper. This inspired the Court to ask counsel for
the defendant to bring said records and counsel for the defendant promised
to bring those that were available. Seemingly, that was the reason why this
case dragged for quite sometime. To bemuddle the issue, defendant instead
of presenting the books where the same, etc. were recorded, presented
witnesses who claimed to have supplied chicken, meat, shrimps, egg and
other poultry products which, however, did not show the gross sales nor does
it prove that the same is the best evidence. This Court gave warning to the
defendant's counsel that if he failed to produce the books, the same will be
considered a waiver on the part of the defendant to produce the said books
inimitably showing decisive records on the income of the eatery pursuant to
the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be
adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due process to the
petitioner.
The defendant was given all the chance to present all conceivable witnesses,
after the plaintiff has rested his case on February 25, 1981, however, after
presenting several witnesses, counsel for defendant promised that he will
present the defendant as his last witness. Notably there were several
postponement asked by counsel for the defendant and the last one was on
October 1, 1981 when he asked that this case be postponed for 45 days
because said defendant was then in Hongkong and he (defendant) will be
back after said period. The Court acting with great concern and
understanding reset the hearing to November 17, 1981. On said date, the
counsel for the defendant who again failed to present the defendant asked
for another postponement, this time to November 24, 1981 in order to give
said defendant another judicial magnanimity and substantial due process. It
was however a condition in the order granting the postponement to said
date that if the defendant cannot be presented, counsel is deemed to have
waived the presentation of said witness and will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila said date
was declared a partial non-working holiday, so much so, the hearing was
reset to December 7 and 22, 1981. On December 7, 1981, on motion of
defendant's counsel, the same was again reset to December 22, 1981 as
previously scheduled which hearing was understood as intransferable in
character. Again on December 22, 1981, the defendant's counsel asked for
postponement on the ground that the defendant was sick. the Court, after
much tolerance and judicial magnanimity, denied said motion and ordered

that the case be submitted for resolution based on the evidence on record
and gave the parties 30 days from December 23, 1981, within which to file
their simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the
Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the trial
court, it is in the heart of Chinatown where people who buy and sell jewelries, businessmen,
brokers, manager, bank employees, and people from all walks of life converge and
patronize Sun Wah.
There is more than substantial evidence to support the factual findings of the trial court and
the appellate court. If the respondent court awarded damages only from judicial demand
in 1978 and not from the opening of the restaurant in 1955, it is because of the petitioner's
contentions that all profits were being plowed back into the expansion of the business.
There is no basis in the records to sustain the petitioners contention that the damages
awarded are excessive. Even if the Court is minded to modify the factual findings of both
the trial court and the appellate court, it cannot refer to any portion of the records for such
modification. There is no basis in the records for this Court to change or set aside the factual
findings of the trial court and the appellate court. The petitioner was given every
opportunity to refute or rebut the respondent's submissions but, after promising to do so, it
deliberately failed to present its books and other evidence.
The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's
obligation shows that the same continues until fully paid. The question now arises as to
whether or not the payment of a share of profits shall continue into the future with no fixed
ending date.
Considering the facts of this case, the Court may decree a dissolution of the partnership
under Article 1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a
dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect prejudicially
the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.

There shall be a liquidation and winding up of partnership affairs, return of capital, and
other incidents of dissolution because the continuation of the partnership has become
inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the
respondent court is AFFIRMED with a MODIFICATION that as indicated above, the
partnership of the parties is ordered dissolved.
SO ORDERED.
Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

http://www.lawphil.net/judjuris/juri1989/jan1989/gr_70926_1989.html