THIRD DIVISION

[G.R. No. 143340. August 15, 2001]

LILIBETH
SUNGA-CHAN
and
CECILIA
SUNGA,
petitioners, vs. LAMBERTO T. CHUA, respondent.
DECISION
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45
of the Rules of Court of the Decision[1] of the Court of
Appeals dated January 31, 2000 in the case entitled
Lamberto T. Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution
dated May 23, 2000 denying the motion for reconsideration
of herein petitioners Lilibeth Sunga Chan and Cecilia Sunga
(hereafter collectively referred to as petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter respondent)
filed a complaint against Lilibeth Sunga Chan (hereafter
petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner
Cecilia), daughter and wife, respectively of the deceased
Jacinto L. Sunga (hereafter Jacinto), for Winding Up of
Partnership Affairs, Accounting, Appraisal and Recovery of
Shares and Damages with Writ of Preliminary Attachment
with the Regional Trial Court, Branch 11, Sindangan,
Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a
partnership with Jacinto in the distribution of Shellane
Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to
register the business name of their partnership, SHELLITE

GAS APPLIANCE CENTER (hereafter Shellite), under the

name of Jacinto as a sole proprietorship. Respondent
allegedly delivered his initial capital contribution of
P100,000.00 to Jacinto while the latter in turn produced
P100,000.00 as his counterpart contribution, with the
intention that the profits would be equally divided between
them. The partnership allegedly had Jacinto as manager,
assisted by Josephine Sy (hereafter Josephine), a sister of
the wife of respondent, Erlinda Sy. As compensation, Jacinto
would receive a managers fee or remuneration of 10% of the
gross profit and Josephine would receive 10% of the net
profits, in addition to her wages and other remuneration
from the business.
Allegedly, from the time that Shellite opened for business on
July 8, 1977, its business operation went quite well and was
profitable. Respondent claimed that he could attest to the
success of their business because of the volume of orders
and deliveries of filled Shellane cylinder tanks supplied by
Pilipinas Shell Petroleum Corporation. While Jacinto furnished
respondent with the merchandise inventories, balance
sheets and net worth of Shellite from 1977 to 1989,
respondent however suspected that the amount indicated in
these documents were understated and undervalued by
Jacinto and Josephine for their own selfish reasons and for
tax avoidance.
Upon Jacintos death in the later part of 1989, his surviving
wife, petitioner Cecilia and particularly his daughter,
petitioner Lilibeth, took over the operations, control,
custody, disposition and management of Shellite without
respondents consent.
Despite respondents repeated demands upon petitioners for
accounting, inventory, appraisal, winding up and restitution
of his net shares in the partnership, petitioners failed to
comply. Petitioner Lilibeth allegedly continued the

operations of Shellite, converting to her own use and

advantage its properties.
On March 31, 1991, respondent claimed that after petitioner
Lilibeth ran out of alibis and reasons to evade respondents
demands, she disbursed out of the partnership funds the
amount of P200,000.00 and partially paid the same to
respondent.
Petitioner
Lilibeth
allegedly
informed
respondent that the P200,000.00 represented partial
payment of the latters share in the partnership, with a
promise that the former would make the complete inventory
and winding up of the properties of the business
establishment. Despite such commitment, petitioners
allegedly failed to comply with their duty to account, and
continued to benefit from the assets and income of Shellite
to the damage and prejudice of respondent.
On December 19, 1992, petitioners filed a Motion to Dismiss
on the ground that the Securities and Exchange Commission
(SEC) in Manila, not the Regional Trial Court in Zambaonga
del Norte had jurisdiction over the action. Respondent
opposed the motion to dismiss.
On January 12, 1993, the trial court finding the complaint
sufficient in form and substance denied the motion to
dismiss.
On January 30, 1993, petitioners filed their Answer with
Compulsory Counterclaims, contending that they are not
liable for partnership shares, unreceived income/profits,
interests, damages and attorneys fees, that respondent
does not have a cause of action against them, and that the
trial court has no jurisdiction over the nature of the action,
the SEC being the agency that has original and exclusive
jurisdiction over the case. As counterclaim, petitioner sought
attorneys fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to
Dismiss this time on the ground that the claim for winding

up of partnership affairs, accounting and recovery of shares

in partnership affairs, accounting and recovery of shares in
partnership assets /properties should be dismissed and
prosecuted against the estate of deceased Jacinto in a
probate or intestate proceeding.
On August 16, 1993, the trial court denied the second
motion to dismiss for lack of merit.
On November 26, 1993, petitioners filed their Petition for
Certiorari, Prohibition and Mandamus with the Court of
Appeals docketed as CA-G.R. SP No. 32499 questioning the
denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court
a Motion to Suspend Pre-trial Conference.
On December 13, 1993, the trial court granted the motion to
suspend pre-trial conference.
On November 15, 1994, the Court of Appeals denied the
petition for lack of merit.
On January 16, 1995, this Court denied the petition for
review on certiorari filed by petitioner, as petitioners failed
to show that a reversible error was committed by the
appellate court."[2]
On February 20, 1995, entry of judgment was made by the
Clerk of Court and the case was remanded to the trial court
on April 26, 1995.
On September 25, 1995, the trial court terminated the pretrial conference and set the hearing of the case on January
17, 1996. Respondent presented his evidence while
petitioners were considered to have waived their right to
present evidence for their failure to attend the scheduled
date for reception of evidence despite notice.

On October 7, 1997, the trial court rendered its Decision

ruling for respondent. The dispositive portion of the Decision
reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable
form under accounting procedures and standards of the
properties, assets, income and profits of the Shellite Gas
Appliance Center since the time of death of Jacinto L. Sunga,
from whom they continued the business operations
including all businesses derived from the Shellite Gas
Appliance Center; submit an inventory, and appraisal of all
these properties, assets, income, profits, etc. to the Court
and to plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to the
partnership any and all properties, assets, income and
profits they misapplied and converted to their own use and
advantage that legally pertain to the plaintiff and account
for the properties mentioned in pars. A and B on pages 4-5
of this petition as basis;

(3) DIRECTING them to restitute and pay to the plaintiff

shares and interest of the plaintiff in the partnership of the
listed properties, assets and good will (sic) in schedules A, B
and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but
unreceived income and profits from the partnership from
1988 to may 30, 1992, when the plaintiff learned of the
closure of the store the sum of P35,000.00 per month, with
legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership
and terminate its business activities pursuant to law, after

delivering to the plaintiff all the interest, shares,

participation and equity in the partnership, or the value
thereof in money or moneys worth, if the properties are not
physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of
breach of trust and in bad faith and hold them liable to the
plaintiff the sum of P50,000.00 as moral and exemplary
damages; and,
(7) DIRECTING them to reimburse and pay the sum of
P25,000.00 as attorneys (sic) and P25,00.00 as litigation
expenses.
NO special pronouncements as to COSTS.
SO ORDERED.[3]
On October 28, 1997, petitioners filed a Notice of Appeal
with the trial court, appealing the case to the Court of
Appeals.
On January 31, 2000, the Court of Appeals dismissed the
appeal. The dispositive portion of the Decision reads:
WHEREFORE, the instant appeal is dismissed. The appealed
decision is AFFIRMED in all respects.[4]
On May 23, 2000, the Court of Appeals denied the motion
for reconsideration filed by petitioner.

Hence, this petition wherein petitioner relies upon the

following grounds:
1. The Court of Appeals erred in making a legal conclusion
that there existed a partnership between respondent
Lamberto T. Chua and the late Jacinto L. Sunga upon the
latters invitation and offer and that upon his death the

partnership assets and business were taken over by

petitioners.
2. The Court of Appeals erred in making the legal conclusion
that laches and/or prescription did not apply in the instant
case.
3. The Court of Appeals erred in making the legal conclusion
that there was competent and credible evidence to warrant
the finding of a partnership, and assuming arguendo that
indeed there was a partnership, the finding of highly
exaggerated amounts or values in the partnership assets
and profits.[5]
Petitioners question the correctness of the finding of the trial
court and the Court of Appeals that a partnership existed
between respondent and Jacinto from 1977 until Jacintos
death. In the absence of any written document to show such
partnership between respondent and Jacinto, petitioners
argue that these courts were proscribed from hearing the
testimonies of respondent and his witness, Josephine, to
prove the alleged partnership three years after Jacintos
death. To support this argument, petitioners invoke the Dead
Mans Statute or Survivorship Rule under Section 23, Rule
130 of the Rules of Court that provides:
SEC. 23. Disqualification by reason of death or insanity of
adverse party.-- Parties or assignors of parties to a case, or
persons in whose behalf a case is prosecuted, against an
executor or administrator or other representative of a
deceased person, or against a person of unsound mind,
upon a claim or demand against the estate of such
deceased person, or against such person of unsound mind,
cannot testify as to any matter of fact occurring before the
death of such deceased person or before such person
became of unsound mind.

Petitioners thus implore this Court to rule that the

testimonies of respondent and his alter ego, Josephine,
should not have been admitted to prove certain claims
against a deceased person (Jacinto), now represented by
petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.[6] Hence,
based on the intention of the parties, as gathered from the
facts and ascertained from their language and conduct, a
verbal contract of partnership may arise.[7] The essential
points that must be proven to show that a partnership was
agreed upon are (1) mutual contribution to a common stock,
and (2) a joint interest in the profits.[8] Understandably so,
in view of the absence of a written contract of partnership
between respondent and Jacinto, respondent resorted to the
introduction of documentary and testimonial evidence to
prove said partnership. The crucial issue to settle then is
whether or not the Dead Mans Statute applies to this case
so as to render inadmissible respondents testimony and that
of his witness, Josephine.
The Dead Mans Statute provides that if one party to the
alleged transaction is precluded from testifying by death,
insanity, or other mental disabilities, the surviving party is
not entitled to the undue advantage of giving his own
uncontradicted and unexplained account of the transaction.
[9] But before this rule can be successfully invoked to bar
the introduction of testimonial evidence, it is necessary that:
1. The witness is a party or assignor of a party to a case or
persons in whose behalf a case is prosecuted.
2. The action is against an executor or administrator or
other representative of a deceased person or a person of
unsound mind;

3. The subject-matter of the action is a claim or demand

against the estate of such deceased person or against
person of unsound mind;
4. His testimony refers to any matter of fact which occurred
before the death of such deceased person or before such
person became of unsound mind.[10]
Two reasons forestall the application of the Dead Mans
Statute to this case.
First, petitioners filed a compulsory counterclaim[11] against
respondent in their answer before the trial court, and with
the filing of their counterclaim, petitioners themselves
effectively removed this case from the ambit of the Dead
Mans Statute.[12] Well entrenched is the rule that when it is
the executor or administrator or representatives of the
estate that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of
the deceased to defeat the counterclaim.[13] Moreover, as
defendant in the counterclaim, respondent is not disqualified
from testifying as to matters of fact occurring before the
death of the deceased, said action not having been brought
against but by the estate or representatives of the
deceased.[14]
Second, the testimony of Josephine is not covered by the
Dead Mans Statute for the simple reason that she is not a
party or assignor of a party to a case or persons in whose
behalf a case is prosecuted. Records show that respondent
offered the testimony of Josephine to establish the existence
of the partnership between respondent and Jacinto.
Petitioners insistence that Josephine is the alter ego of
respondent does not make her an assignor because the
term assignor of a party means assignor of a cause of action
which has arisen, and not the assignor of a right assigned
before any cause of action has arisen.[15] Plainly then,

Josephine is merely a witness of respondent, the latter being

the party plaintiff.
We are not convinced by petitioners allegation that
Josephines testimony lacks probative value because she was
allegedly coerced by respondent, her brother-in-law, to
testify in his favor. Josephine merely declared in court that
she was requested by respondent to testify and that if she
were not requested to do so she would not have testified.
We fail to see how we can conclude from this candid
admission that Josephines testimony is involuntary when she
did not in any way categorically say that she was forced to
be a witness of respondent. Also, the fact that Josephine is
the sister of the wife of respondent does not diminish the
value of her testimony since relationship per se, without
more, does not affect the credibility of witnesses.[16]
Petitioners reliance alone on the Dead Mans Statute to
defeat respondents claim cannot prevail over the factual
findings of the trial court and the Court of Appeals that a
partnership was established between respondent and
Jacinto. Based not only on the testimonial evidence, but the
documentary evidence as well, the trial court and the Court
of Appeals considered the evidence for respondent as
sufficient to prove the formation of a partnership, albeit an
informal one.
Notably, petitioners did not present any evidence in their
favor during trial. By the weight of judicial precedents, a
factual matter like the finding of the existence of a
partnership between respondent and Jacinto cannot be
inquired into by this Court on review.[17] This Court can no
longer be tasked to go over the proofs presented by the
parties and analyze, assess and weigh them to ascertain if
the trial court and the appellate court were correct in
according superior credit to this or that piece of evidence of
one party or the other.[18] It must be also pointed out that
petitioners failed to attend the presentation of evidence of

respondent. Petitioners cannot now turn to this Court to

question the admissibility and authenticity of the
documentary evidence of respondent when petitioners failed
to object to the admissibility of the evidence at the time that
such evidence was offered.[19]
With regard to petitioners insistence that laches and/or
prescription should have extinguished respondents claim,
we agree with the trial court and the Court of Appeals that
the action for accounting filed by respondent three (3) years
after Jacintos death was well within the prescribed period.
The Civil Code provides that an action to enforce an oral
contract prescribes in six (6) years[20] while the right to
demand an accounting for a partners interest as against the
person continuing the business accrues at the date of
dissolution, in the absence of any contrary agreement.[21]
Considering that the death of a partner results in the
dissolution of the partnership[22], in this case, it was after
Jacintos death that respondent as the surviving partner had
the right to an account of his interest as against petitioners.
It bears stressing that while Jacintos death dissolved the
partnership, the dissolution did not immediately terminate
the partnership. The Civil Code[23] expressly provides that
upon dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its
business, culminating in its termination.[24]
In a desperate bid to cast doubt on the validity of the oral
partnership between respondent and Jacinto, petitioners
maintain that said partnership that had an initial capital of
P200,000.00 should have been registered with the Securities
and Exchange Commission (SEC) since registration is
mandated by the Civil Code. True, Article 1772 of the Civil
Code requires that partnerships with a capital of P3,000.00
or more must register with the SEC, however, this
registration requirement is not mandatory. Article 1768 of
the Civil Code[25] explicitly provides that the partnership
retains its juridical personality even if it fails to register. The

failure to register the contract of partnership does not

invalidate the same as among the partners, so long as the
contract has the essential requisites, because the main
purpose of registration is to give notice to third parties, and
it can be assumed that the members themselves knew of
the contents of their contract.[26] In the case at bar, noncompliance with this directory provision of the law will not
invalidate the partnership considering that the totality of the
evidence proves that respondent and Jacinto indeed forged
the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED
and the appealed decision is AFFIRMED.
SO ORDERED.

G.R. No. 144214

July 14, 2003

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and

CARMELITO JOSE, petitioners,
vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G.
RAMIREZ
JR.
and
CARMELITA
C.
RAMIREZ,
respondents.

PANGANIBAN, J.:

A share in a partnership can be returned only after the

completion of the latter's dissolution, liquidation and
winding up of the business.
The Case

In the same month, without prior knowledge of respondents,

petitioners closed down the restaurant, allegedly because of
increased rental. The restaurant furniture and equipment
were deposited in the respondents' house for storage.8

The Petition for Review on Certiorari before us challenges

the March 23, 2000 Decision1 and the July 26, 2000
Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No.
41026. The assailed Decision disposed as follows:

On March 1, 1987, respondent spouses wrote petitioners,

saying that they were no longer interested in continuing
their partnership or in reopening the restaurant, and that
they were accepting the latter's offer to return their capital
contribution.9

"WHEREFORE, foregoing premises considered, the Decision

dated July 21, 1992 rendered by the Regional Trial Court,
Branch 148, Makati City is hereby SET ASIDE and NULLIFIED
and in lieu thereof a new decision is rendered ordering the
[petitioners] jointly and severally to pay and reimburse to
[respondents]
the
amount
of
P253,114.00.
No
pronouncement as to costs."4

On October 13, 1987, Carmelita Ramirez wrote another

letter informing petitioners of the deterioration of the
restaurant furniture and equipment stored in their house.
She also reiterated the request for the return of their onethird share in the equity of the partnership. The repeated
oral and written requests were, however, left unheeded.10

Reconsideration was denied in the impugned Resolution.

The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and
Jesus Jose formed a partnership with a capital of P750,000
for the operation of a restaurant and catering business
under the name "Aquarius Food House and Catering
Services."5 Villareal was appointed general manager and
Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in
the business on September 5, 1984. His capital contribution
of P250,000 was paid by his parents, Respondents Cesar
and Carmelita Ramirez.6
After Jesus Jose withdrew from the partnership in January
1987, his capital contribution of P250,000 was refunded to
him in cash by agreement of the partners.7

Before the Regional Trial Court (RTC) of Makati, Branch 59,

respondents subsequently filed a Complaint11 dated
November 10, 1987, for the collection of a sum of money
from petitioners.
In their Answer, petitioners contended that respondents had
expressed a desire to withdraw from the partnership and
had called for its dissolution under Articles 1830 and 1831 of
the Civil Code; that respondents had been paid, upon the
turnover to them of furniture and equipment worth over
P400,000; and that the latter had no right to demand a
return of their equity because their share, together with the
rest of the capital of the partnership, had been spent as a
result of irreversible business losses.12

In their Reply, respondents alleged that they did not know of

any loan encumbrance on the restaurant. According to
them, if such allegation were true, then the loans incurred
by petitioners should be regarded as purely personal and, as

such, not chargeable to the partnership. The former further

averred that they had not received any regular report or
accounting from the latter, who had solely managed the
business. Respondents also alleged that they expected the
equipment and the furniture stored in their house to be
removed by petitioners as soon as the latter found a better
location for the restaurant.13
Respondents filed an Urgent Motion for Leave to Sell or
Otherwise Dispose of Restaurant Furniture and Equipment14
on July 8, 1988. The furniture and the equipment stored in
their house were inventoried and appraised at P29,000.15
The display freezer was sold for P5,000 and the proceeds
were paid to them.16
After trial, the RTC 17 ruled that the parties had voluntarily
entered into a partnership, which could be dissolved at any
time. Petitioners clearly intended to dissolve it when they
stopped operating the restaurant. Hence, the trial court, in
its July 21, 1992 Decision, held there liable as follows:18
"WHEREFORE, judgment is hereby rendered in favor of
[respondents] and against the [petitioners] ordering the
[petitioners] to pay jointly and severally the following:
(a)
(b)
(c)

Actual damages in the amount of P250,000.00

Attorney's fee in the amount of P30,000.00
Costs of suit."

The CA Ruling
The CA held that, although respondents had no right to
demand the return of their capital contribution, the
partnership was nonetheless dissolved when petitioners lost
interest in continuing the restaurant business with them.
Because petitioners never gave a proper accounting of the
partnership accounts for liquidation purposes, and because
no sufficient evidence was presented to show financial
losses, the CA. computed their liability as follows:

"Consequently, since what has been proven is only the

outstanding obligation of the partnership in the amount of
P240,658.00, although contracted by the partnership before
[respondents'] have joined the partnership but in
accordance with Article 1826 of the New Civil Code, they are
liable which must have to be deducted from the remaining
capitalization of the said partnership which is in the amount
of P1,000,000.00 resulting in the amount of P759,342.00,
and in order to get the share of [respondents], this amount
of P759,342.00 must be divided into three (3) shares or in
the amount of P253,114.00 for each share and which is the
only amount which [petitioner] will return to [respondents']
representing the contribution to the partnership minus the
outstanding debt thereof."19
Hence, this Petition.20
Issues
In their Memorandum,21 petitioners submit the following
issues for our consideration:
"9.1. Whether the Honorable Court of Appeals' decision
ordering the distribution of the capital contribution, instead
of the net capital after the dissolution and liquidation of a
partnership, thereby treating the capital contribution like a
loan, is in accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision
ordering the petitioners to jointly and severally pay and
reimburse the amount of [P]253,114.00 is supported by the
evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct
in making [n]o pronouncement as to costs."22
On closer scrutiny, the issues are as follows: (1) whether
petitioners are liable to respondents for the latter's share in
the partnership; (2) whether the CA's computation of

P253,114 as respondents' share is correct; and (3) whether

the CA was likewise correct in not assessing costs.
This Court's Ruling

can be paid their shares, the creditors of the partnership

must first be compensated.25 After all the creditors have
been paid, whatever is left of the partnership assets
becomes available for the payment of the partners' shares.

The Petition has merit.

First Issue:
Share in Partnership
Both the trial and the appellate courts found that a
partnership had indeed existed, and that it was dissolved on
March 1, 1987. They found that the dissolution took place
when respondents informed petitioners of the intention to
discontinue it because of the former's dissatisfaction with,
and loss of trust in, the latter's management of the
partnership affairs. These findings were amply supported by
the evidence on record. Respondents consequently
demanded from petitioners the return of their one-third
equity in the partnership.
We hold that respondents have no right to demand from
petitioners the return of their equity share. Except as
managers of the partnership, petitioners did not personally
hold its equity or assets. "The partnership has a juridical
personality separate and distinct from that of each of the
partners."23 Since the capital was contributed to the
partnership, not to petitioners, it is the partnership that
must refund the equity of the retiring partners.24
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity
that must refund the shares of the partners, the amount to
be refunded is necessarily limited to its total resources. In
other words, it can only pay out what it has in its coffers,
which consists of all its assets. However, before the partners

Evidently, in the present case, the exact amount of refund

equivalent to respondents' one-third share in the
partnership cannot be determined until all the partnership
assets will have been liquidated in other words, sold and
converted to cash and all partnership creditors, if any,
paid. The CA's computation of the amount to be refunded to
respondents as their share was thus erroneous.
First, it seems that the appellate court was under the
misapprehension that the total capital contribution was
equivalent to the gross assets to be distributed to the
partners at the time of the dissolution of the partnership. We
cannot sustain the underlying idea that the capital
contribution at the beginning of the partnership remains
intact, unimpaired and available for distribution or return to
the partners. Such idea is speculative, conjectural and
totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital
is either increased by profits earned or decreased by losses
sustained. It does not remain static and unaffected by the
changing fortunes of the business. In the present case, the
financial statements presented before the trial court showed
that the business had made meager profits.26 However,
notable therefrom is the omission of any provision for the
depreciation27 of the furniture and the equipment. The
amortization of the goodwill28 (initially valued at P500,000)
is not reflected either. Properly taking these non-cash items
into account will show that the partnership was actually
sustaining substantial losses, which consequently decreased
the capital of the partnership. Both the trial and the

appellate courts in fact recognized the decrease of the

partnership assets to almost nil, but the latter failed to
recognize the consequent corresponding decrease of the
capital.
Second, the CA's finding that the partnership had an
outstanding obligation in the amount of P240,658 was not
supported by evidence. We sustain the contrary finding of
the RTC, which had rejected the contention that the
obligation belonged to the partnership for the following
reason:

"x x x [E]vidence on record failed to show the exact loan

owed by the partnership to its creditors. The balance sheet
(Exh. '4') does not reveal the total loan. The Agreement
(Exh. 'A') par. 6 shows an outstanding obligation of
P240,055.00 which the partnership owes to different
creditors, while the Certification issued by Mercator Finance
(Exh. '8') shows that it was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the nominal party
defendant in the instant case, who obtained a loan of
P355,000.00 on Oct. 1983, when the original partnership
was not yet formed."
Third, the CA failed to reduce the capitalization by P250,000,
which was the amount paid by the partnership to Jesus Jose
when he withdrew from the partnership.
Because of the above-mentioned transactions, the
partnership capital was actually reduced. When petitioners
and respondents ventured into business together, they
should have prepared for the fact that their investment
would either grow or shrink. In the present case, the
investment of respondents substantially dwindled. The
original amount of P250,000 which they had invested could
no longer be returned to them, because one third of the

partnership properties at the time of dissolution did not

amount to that much.
It is a long established doctrine that the law does not relieve
parties from the effects of unwise, foolish or disastrous
contracts they have entered into with all the required
formalities and with full awareness of what they were doing.
Courts have no power to relieve them from obligations they
have voluntarily assumed, simply because their contracts
turn out to be disastrous deals or unwise investments.29
Petitioners further argue that respondents acted negligently
by permitting the partnership assets in their custody to
deteriorate to the point of being almost worthless.
Supposedly, the latter should have liquidated these sole
tangible assets of the partnership and considered the
proceeds as payment of their net capital. Hence, petitioners
argue that the turnover of the remaining partnership assets
to respondents was precisely the manner of liquidating the
partnership and fully settling the latter's share in the
partnership.
We disagree. The delivery of the store furniture and
equipment to private respondents was for the purpose of
storage. They were unaware that the restaurant would no
longer be reopened by petitioners. Hence, the former cannot
be faulted for not disposing of the stored items to recover
their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit. Unless
otherwise provided in these rules, costs shall be allowed to
the prevailing party as a matter of course, but the court
shall have power, for special reasons, to adjudge that either

party shall pay the costs of an action, or that the same be

divided, as may be equitable. No costs shall be allowed
against the Republic of the Philippines unless otherwise
provided by law."
Although, as a rule, costs are adjudged against the losing
party, courts have discretion, "for special reasons," to
decree otherwise. When a lower court is reversed, the
higher court normally does not award costs, because the
losing party relied on the lower court's judgment which is
presumed to have been issued in good faith, even if found
later on to be erroneous. Unless shown to be patently
capricious, the award shall not be disturbed by a reviewing
tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed
Decision and Resolution SET ASIDE. This disposition is
without prejudice to proper proceedings for the accounting,
the liquidation and the distribution of the remaining
partnership assets, if any. No pronouncement as to costs.
SO ORDERED.

[G.R. No. 127405. October 4, 2000]

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
vs. COURT OF APPEALS and NENITA A. ANAY,
respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of
Appeals in CA-G.R. CV No. 41616,[1] affirming the Decision
of the Regional Trial Court of Makati, Branch 140, in Civil
Case No. 88-509.[2]

Fresh from her stint as marketing adviser of Technolux in

Bangkok, Thailand, private respondent Nenita A. Anay met
petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former
employer in Bangkok. Belo introduced Anay to petitioner
Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of
kitchen cookwares. Belo volunteered to finance the joint
venture and assigned to Anay the job of marketing the
product considering her experience and established
relationship with West Bend Company, a manufacturer of
kitchen wares in Wisconsin, U.S.A. Under the joint venture,
Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department
and later, vice-president for sales. Anay organized the
administrative staff and sales force while Tocao hired and
fired employees, determined commissions and/or salaries of
the employees, and assigned them to different branches.
The parties agreed that Belos name should not appear in
any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anays name in
securing distributorship of cookware from that company. The
parties agreed further that Anay would be entitled to: (1) ten
percent (10%) of the annual net profits of the business; (2)
overriding commission of six percent (6%) of the overall
weekly production; (3) thirty percent (30%) of the sales she
would make; and (4) two percent (2%) for her demonstration
services. The agreement was not reduced to writing on the
strength of Belos assurances that he was sincere,
dependable and honest when it came to financial
commitments.
Anay having secured the distributorship of cookware
products from the West Bend Company and organized the
administrative staff and the sales force, the cookware
business took off successfully. They operated under the
name of Geminesse Enterprise, a sole proprietorship

registered in Marjorie Tocaos name, with office at 712 Rufino

Building, Ayala Avenue, Makati City. Belo made good his
monetary commitments to Anay. Thereafter, Roger
Muencheberg of West Bend Company invited Anay to the
distributor/dealer meeting in West Bend, Wisconsin, U.S.A.,
from July 19 to 21, 1987 and to the southwestern regional
convention in Pismo Beach, California, U.S.A., from July 2526, 1987. Anay accepted the invitation with the consent of
Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa
Section of the U.S. Embassy in Manila on July 13, 1987. A
portion of the letter reads:

both Makati and Cubao offices.[7] Anay attempted to

contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5,
1988 and the audit of the company to determine her share
in the net profits. When her letters were not answered, Anay
consulted her lawyer, who, in turn, wrote Belo a letter. Still,
that letter was not answered.

Ms. Nenita D. Anay (sic), who has been patronizing and

supporting West Bend Co. for twenty (20) years now,
acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing
and a business partner of our company, will attend in
response to the invitation. (Italics supplied.)[3]

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509,

a complaint for sum of money with damages[8] against
Marjorie D. Tocao and William Belo before the Regional Trial
Court of Makati, Branch 140.

Anay arrived from the U.S.A. in mid-August 1987, and

immediately undertook the task of saving the business on
account of the unsatisfactory sales record in the Makati and
Cubao offices. On August 31, 1987, she received a plaque of
appreciation from the administrative and sales people
through Marjorie Tocao[4] for her excellent job performance.
On October 7, 1987, in the presence of Anay, Belo signed a
memo[5] entitling her to a thirty-seven percent (37%)
commission for her personal sales "up Dec 31/87. Belo
explained to her that said commission was apart from her
ten percent (10%) share in the profits. On October 9, 1987,
Anay learned that Marjorie Tocao had signed a letter[6]
addressed to the Cubao sales office to the effect that she
was no longer the vice-president of Geminesse Enterprise.
The following day, October 10, she received a note from Lina
T. Cruz, marketing manager, that Marjorie Tocao had barred
her from holding office and conducting demonstrations in

Anay still received her five percent (5%) overriding

commission up to December 1987. The following year, 1988,
she did not receive the same commission although the
company netted a gross sales of P13,300,360.00.

In her complaint, Anay prayed that defendants be ordered to

pay her, jointly and severally, the following: (1) P32,00.00 as
unpaid overriding commission from January 8, 1988 to
February 5, 1988; (2) P100,000.00 as moral damages, and
(3) P100,000.00 as exemplary damages. The plaintiff also
prayed for an audit of the finances of Geminesse Enterprise
from the inception of its business operation until she was
illegally dismissed to determine her ten percent (10%) share
in the net profits. She further prayed that she be paid the
five percent (5%) overriding commission on the remaining
150 West Bend cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the
alleged agreement with Anay that was neither reduced in
writing, nor ratified, was either unenforceable or void or
inexistent. As far as Belo was concerned, his only role was to
introduce Anay to Marjorie Tocao. There could not have been
a partnership because, as Anay herself admitted, Geminesse
Enterprise was the sole proprietorship of Marjorie Tocao.
Because Anay merely acted as marketing demonstrator of

Geminesse Enterprise for an agreed remuneration, and her

complaint referred to either her compensation or dismissal,
such complaint should have been lodged with the
Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay
filed the complaint on account of ill-will and resentment
because Marjorie Tocao did not allow her to lord it over in
the Geminesse Enterprise. Anay had acted like she owned
the enterprise because of her experience and expertise.
Hence, petitioners were the ones who suffered actual
damages including unreturned and unaccounted stocks of
Geminesse Enterprise, and serious anxiety, besmirched
reputation in the business
world, and various damages not less than P500,000.00.
They also alleged that, to vindicate their names, they had to
hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a)
whether or not the plaintiff was an employee or partner of
Marjorie Tocao and Belo, and (b) whether or not the parties
are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to
receive a share in the profit of the business. He, however,
admitted that the two had agreed that Anay would receive a
three to four percent (3-4%) share in the gross sales of the
cookware. He denied contributing capital to the business or
receiving a share in its profits as he merely served as a
guarantor of Marjorie Tocao, who was new in the business.
He attended and/or presided over business meetings of the
venture in his capacity as a guarantor but he never
participated in decision-making. He claimed that he wrote
the memo granting the plaintiff thirty-seven percent (37%)
commission upon her dismissal from the business venture at
the request of Tocao, because Anay had no other income.

For her part, Marjorie Tocao denied having entered into an

oral partnership agreement with Anay. However, she
admitted that Anay was an expert in the cookware business
and hence, they agreed to grant her the following
commissions: thirty-seven percent (37%) on personal sales;
five percent (5%) on gross sales; two percent (2%) on
product demonstrations, and two percent (2%) for
recruitment of personnel. Marjorie denied that they agreed
on a ten percent (10%) commission on the net profits.
Marjorie claimed that she got the capital for the business
out of the sale of the sewing machines used in her garments
business and from Peter Lo, a Singaporean friend-financier
who loaned her the funds with interest. Because she treated
Anay as her co-equal, Marjorie received the same amounts
of commissions as her. However, Anay failed to account for
stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the
dispositive part of which is as follows:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered:
1. Ordering defendants to submit to the Court a formal
account as to the partnership affairs for the years 1987 and
1988 pursuant to Art. 1809 of the Civil Code in order to
determine the ten percent (10%) share of plaintiff in the net
profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding
commission for the one hundred and fifty (150) cookware
sets available for disposition when plaintiff was wrongfully
excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding
commission on the total production which for the period
covering January 8, 1988 to February 5, 1988 amounted to
P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral

damages and P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees
and P20,000.00 as costs of suit.
SO ORDERED.
The trial court held that there was indeed an oral
partnership agreement between the plaintiff and the
defendants, based on the following: (a) there was an
intention to create a partnership; (b) a common fund was
established through contributions consisting of money and
industry, and (c) there was a joint interest in the profits. The
testimony of Elizabeth Bantilan, Anays cousin and the
administrative officer of Geminesse Enterprise from August
21, 1986 until it was absorbed by Royal International, Inc.,
buttressed the fact that a partnership existed between the
parties. The letter of Roger Muencheberg of West Bend
Company stating that he awarded the distributorship to
Anay and Marjorie Tocao because he was convinced that
with Marjories financial contribution and Anays experience,
the combination of the two would be invaluable to the
partnership, also supported that conclusion. Belos claim that
he was merely a guarantor has no basis since there was no
written evidence thereof as required by Article 2055 of the
Civil Code. Moreover, his acts of attending and/or presiding
over meetings of Geminesse Enterprise plus his issuance of
a memo giving Anay 37% commission on personal sales
belied this. On the contrary, it demonstrated his
involvement as a partner in the business.
The trial court further held that the payment of commissions
did not preclude the existence of the partnership inasmuch
as such practice is often resorted to in business circles as an
impetus to bigger sales volume. It did not matter that the
agreement was not in writing because Article 1771 of the
Civil Code provides that a partnership may be constituted in

any form. The fact that Geminesse Enterprise was registered

in Marjorie Tocaos name is not determinative of whether or
not the business was managed and operated by a sole
proprietor or a partnership. What was registered with the
Bureau of Domestic Trade was merely the business name or
style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded
wrongfully from a partnership is an innocent partner. Hence,
the guilty partner must give him his due upon the
dissolution of the partnership as well as damages or share in
the profits realized from the appropriation of the partnership
business and goodwill. An innocent partner thus possesses
pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership and
assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals[11] was
dismissed, but the amount of damages awarded by the trial
court were reduced to P50,000.00 for moral damages and
P50,000.00 as exemplary damages. Their Motion for
Reconsideration was denied by the Court of Appeals for lack
of merit.[12] Petitioners Belo and Marjorie Tocao are now
before this Court on a petition for review on certiorari,
asserting that there was no business partnership between
them and herein private respondent Nenita A. Anay who is,
therefore, not entitled to the damages awarded to her by
the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals
erroneously held that a partnership existed between them
and private respondent Anay because Geminesse Enterprise
came into being exactly a year before the alleged
partnership was formed, and that it was very unlikely that
petitioner Belo would invest the sum of P2,500,000.00 with
petitioner Tocao contributing nothing, without any
memorandum
whatsoever
regarding
the
alleged
partnership.[13]

The issue of whether or not a partnership exists is a factual

matter which are within the exclusive domain of both the
trial and appellate courts. This Court cannot set aside
factual findings of such courts absent any showing that
there is no evidence to support the conclusion drawn by the
court a quo.[14] In this case, both the trial court and the
Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership. This
Court finds no reason to rule otherwise.

or managing partner. It was through her reputation with the

West Bend Company that the partnership was able to open
the business of distributorship of that companys cookware
products; it was through the same efforts that the business
was propelled to financial success. Petitioner Tocao herself
admitted private respondents indispensable role in putting
up the business when, upon being asked if private
respondent held the positions of marketing manager and
vice-president for sales, she testified thus:

To be considered a juridical personality, a partnership must

fulfill these requisites: (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.[15] It may be
constituted in any form; a public instrument is necessary
only where immovable property or real rights are
contributed thereto.[16] This implies that since a contract of
partnership is consensual, an oral contract of partnership is
as good as a written one. Where no immovable property or
real rights are involved, what matters is that the parties
have complied with the requisites of a partnership. The fact
that there appears to be no record in the Securities and
Exchange Commission of a public instrument embodying the
partnership agreement pursuant to Article 1772 of the Civil
Code[17] did not cause the nullification of the partnership.
The pertinent provision of the Civil Code on the matter
states:

A: No, sir at the start she was the marketing manager

because there were no one to sell yet, its only me there then
her and then two (2) people, so about four (4). Now, after
that when she recruited already Oscar Abella and Lina TordaCruz these two (2) people were given the designation of
marketing managers of which definitely Nita as superior to
them would be the Vice President.[18]
By the set-up of the business, third persons were made to
believe that a partnership had indeed been forged between
petitioners and private respondents. Thus, the
communication dated June 4, 1986 of Missy Jagler of West
Bend Company to Roger Muencheberg of the same company
states:

Art. 1768. The partnership has a juridical personality

separate and distinct from that of each of the partners, even
in case of failure to comply with the requirements of article
1772, first paragraph.

Marge Tocao is president of Geminesse Enterprises.

Geminesse will finance the operations. Marge does not have
cookware experience. Nita Anay has started to gather
former managers, Lina Torda and Dory Vista. She has also
gathered former demonstrators, Betty Bantilan, Eloisa
Lamela, Menchu Javier. They will continue to gather other
key people and build up the organization. All they need is
the finance and the products to sell.[19]

Petitioners admit that private respondent had the expertise

to engage in the business of distributorship of cookware.
Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial

On the other hand, petitioner Belos denial that he financed

the partnership rings hollow in the face of the established
fact that he presided over meetings regarding matters
affecting the operation of the business. Moreover, his having

authorized in writing on October 7, 1987, on a stationery of

his own business firm, Wilcon Builders Supply, that private
respondent should receive thirty-seven (37%) of the
proceeds of her personal sales, could not be interpreted
otherwise than that he had a proprietary interest in the
business. His claim that he was merely a guarantor is belied
by that personal act of proprietorship in the business.
Moreover, if he was indeed a guarantor of future debts of
petitioner Tocao under Article 2053 of the Civil Code,[20]he
should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that
guaranty must be express, Article 1403, the Statute of
Frauds, requires that a special promise to answer for the
debt, default or miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a
capitalist in the partnership. She claimed that she herself
financed the business. Her and petitioner Belos roles as both
capitalists to the partnership with private respondent are
buttressed by petitioner Tocaos admissions that petitioner
Belo was her boyfriend and that the partnership was not
their only business venture together. They also established a
firm that they called Wiji, the combination of petitioner Belos
first name, William, and her nickname, Jiji.[23] The special
relationship between them dovetails with petitioner Belos
claim that he was acting in behalf of petitioner Tocao.
Significantly, in the early stage of the business operation,
petitioners requested West Bend Company to allow them to
utilize their banking and trading facilities in Singapore in the
matter of importation and payment of the cookware
products.[24] The inevitable conclusion, therefore, was that
petitioners merged their respective capital and infused the
amount into the partnership of distributing cookware with
private respondent as the managing partner.
The business venture operated under Geminesse Enterprise
did not result in an employer-employee relationship between
petitioners and private respondent. While it is true that the

receipt of a percentage of net profits constitutes only prima

facie evidence that the recipient is a partner in the business,
[25] the evidence in the case at bar controverts an
employer-employee relationship between the parties. In the
first place, private respondent had a voice in the
management of the affairs of the cookware distributorship,
[26] including selection of people who would constitute the
administrative staff and the sales force. Secondly, petitioner
Tocaos admissions militate against an employer-employee
relationship. She admitted that, like her who
owned Geminesse Enterprise,[27] private respondent
received only commissions and transportation and
representation allowances[28] and not a fixed salary.[29]
Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents
already marked as Exhs. X and Y. Please go over this. Exh. Y
is denominated `Cubao overrides 8-21-87 with ending
August 21, 1987, will you please go over this and tell the
Honorable Court whether you ever came across this
document and know of your own knowledge the amount --A: Yes, sir this is what I am talking about earlier. Thats the
one I am telling you earlier a certain percentage for
promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is
a figure here and words which I quote: Overrides Marjorie
Ann Tocao P21,410.50 this means that you have received
this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are
saying as one representing commission, representation,
advertising and promotion?
A: Yes, sir.

Q: I see. Below your name is the words and figure and I

quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling
this Honorable Court that there being the same P21,410.50
is merely by coincidence?

Q: Okey. Below your name is the name of Nita Anay

P15,314.25 that is also an indication that she received the
same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by
coincidence that these two (2) are the same?

A: No, sir, I made it a point that we were equal because the

way I look at her kasi, you know in a sense because of her
expertise in the business she is vital to my business. So, as
part of the incentive I offer her the same thing.

A: No, sir.

Q: So, in short you are saying that this you have shared
together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were treating
her as an equal?

A: Yes, sir. (Italics supplied.)[30]

A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides
Makati the other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides
Marjorie Ann Tocao P15,314.25 the amount there you will
acknowledge you have received that?
A: Yes, sir.
Q: Again in concept
promotion, etc.?
A: Yes, sir.

of

commission,

representation,

Q: It is again in concept of you treating Miss Anay as your

equal?

If indeed petitioner Tocao was private respondents

employer, it is difficult to believe that they shall receive the
same income in the business. In a partnership, each partner
must share in the profits and losses of the venture, except
that the industrial partner shall not be liable for the losses.
[31] As an industrial partner, private respondent had the
right to demand for a formal accounting of the business and
to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated
under the name of Geminesse Enterprise, a sole
proprietorship, is of no moment. What was registered with
the Bureau of Domestic Trade on August 19, 1987 was
merely the name of that enterprise.[33] While it is true that
in her undated application for renewal of registration of that
firm name, petitioner Tocao indicated that it would be
engaged in retail of kitchenwares, cookwares, utensils,
skillet,[34] she also admitted that the enterprise was only
60% to 70% for the cookware business, while 20% to 30% of
its business activity was devoted to the sale of water
sterilizer or purifier.[35] Indubitably then, the business name
Geminesse Enterprise was used only for practical reasons it was utilized as the common name for petitioner Tocaos

various
business
activities,
distributorship of cookware.

which

included

the

Petitioners underscore the fact that the Court of Appeals did

not return the unaccounted and unremitted stocks of
Geminesse Enterprise amounting to P208,250.00.[36]
Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves the
existence of a partnership between them. In Idos v. Court of
Appeals, this Court said:
The best evidence of the existence of the partnership, which
was not yet terminated (though in the winding up stage),
were the unsold goods and uncollected receivables, which
were presented to the trial court. Since the partnership has
not been terminated, the petitioner and private complainant
remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent
had been unceremoniously booted out of the partnership in
October 1987, she still received her overriding commission
until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private
respondent from the partnership to reap for herself and/or
for petitioner Belo financial gains resulting from private
respondents efforts to make the business venture a success.
Thus, as petitioner Tocao became adept in the business
operation, she started to assert herself to the extent that
she would even shout at private respondent in front of other
people.[38] Her instruction to Lina Torda Cruz, marketing
manager, not to allow private respondent to hold office in
both the Makati and Cubao sales offices concretely spoke of
her perception that private respondent was no longer
necessary in the business operation,[39] and resulted in a
falling out between the two.However, a mere falling out or
misunderstanding between partners does not convert the
partnership into a sham organization.[40] The partnership

exists until dissolved under the law. Since the partnership

created by petitioners and private respondent has no fixed
term and is therefore a partnership at will predicated on
their mutual desire and consent, it may be dissolved by the
will of a partner. Thus:
x x x. The right to choose with whom a person wishes to
associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent
on the constancy of that mutual resolve, along with each
partners capability to give it, and the absence of cause for
dissolution provided by the law itself. Verily, any one of the
partners may, at his sole pleasure, dictate a dissolution of
the partnership at will. He must, however, act in good faith,
not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a
liability for damages.[41]
An unjustified dissolution by a partner can subject him to
action for damages because by the mutual agency that
arises in a partnership, the doctrine of delectus personae
allows the partners to have the power, although not
necessarily the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private
respondent from the partnership is shown by her memo to
the Cubao office plainly stating that private respondent was,
as of October 9, 1987, no longer the vice-president for sales
of Geminesse Enterprise.[43] By that memo, petitioner
Tocao effected her own withdrawal from the partnership and
considered herself as having ceased to be associated with
the partnership in the carrying on of the business.
Nevertheless, the partnership was not terminated thereby; it
continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been
undertaken by the partnership. This is manifest in
petitioners claim for stocks that had been entrusted to

private respondent in the pursuit of the partnership

business.
The
determination
of
the
amount
of
damages
commensurate with the factual findings upon which it is
based is primarily the task of the trial court.[45] The Court
of Appeals may modify that amount only when its factual
findings are diametrically opposed to that of the lower court,
[46] or the award is palpably or scandalously and
unreasonably excessive.[47] However, exemplary damages
that are awarded by way of example or correction for the
public good,[48] should be reduced to P50,000.00, the
amount
correctly
awarded
by
the
Court
of
Appeals.Concomitantly, the award of moral
damages of P100,000.00 was excessive and should be
likewise reduced to P50,000.00. Similarly, attorneys fees
that should be granted on account of the award of
exemplary damages and petitioners evident bad faith in
refusing to satisfy private respondents plainly valid, just and
demandable claims,[49] appear to have been excessively
granted by the trial court and should therefore be reduced
to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is
DENIED. The partnership among petitioners and private
respondent is ordered dissolved, and the parties are ordered
to effect the winding up and liquidation of the partnership
pursuant to the pertinent provisions of the Civil Code. This
case is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed
decisions of the Regional Trial Court and the Court of
Appeals are AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial

Court a formal account of the partnership affairs for the
years 1987 and 1988, pursuant to Article 1809 of the Civil
Code, in order to determine private respondents ten percent
(10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay
private respondent five percent (5%) overriding commission
for the one hundred and fifty (150) cookware sets available
for disposition since the time private respondent was
wrongfully excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay
private respondent overriding commission on the total
production which, for the period covering January 8, 1988 to
February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay
private respondent moral damages in the amount of
P50,000.00, exemplary damages in the amount of
P50,000.00 and attorneys fees in the amount of P25,000.00.
SO ORDERED.

G.R. No. 127347

November 25, 1999

ALFREDO N. AGUILA, JR., petitioner,

vs.
HONORABLE COURT OF APPEALS and FELICIDAD S.
VDA. DE ABROGAR, respondents.
MENDOZA, J.:

This is a petition for review on certiorari of the decision 1 of

the Court of Appeals, dated November 29, 1990, which
reversed the decision of the Regional Trial Court, Branch
273, Marikina, Metro Manila, dated April 11, 1995. The trial
court dismissed the petition for declaration of nullity of a
deed of sale filed by private respondent Felicidad S. Vda. de
Abrogar against petitioner Alfredo N. Aguila, Jr.

ninety (90) days, the FIRST PARTY is obliged to deliver

peacefully the possession of the property to the SECOND
PARTY within fifteen (15) days after the expiration of the said
90 day grace period;

The facts are as follows:

(5)
With the execution of the deed of absolute sale, the
FIRST PARTY warrants her ownership of the property and
shall defend the rights of the SECOND PARTY against any
party whom may have any interests over the property;

Petitioner is the manager of A.C. Aguila & Sons, Co., a

partnership
engaged
in
lending
activities.
Private
respondent and her late husband, Ruben M. Abrogar, were
the registered owners of a house and lot, covered by
Transfer Certificate of Title No. 195101, in Marikina, Metro
Manila. On April 18, 1991, private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner, entered into a Memorandum of
Agreement, which provided:
(1)
That the SECOND PARTY [A.C. Aguila & Sons, Co.]
shall buy the above-described property from the FIRST
PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this
agreement, a Deed of Absolute Sale shall be executed by
the FIRST PARTY conveying the property to the SECOND
PARTY for and in consideration of the sum of Two Hundred
Thousand Pesos (P200,000.00), Philippine Currency;

(4)
During the said grace period, the FIRST PARTY obliges
herself not to file any lis pendens or whatever claims on the
property nor shall be cause the annotation of say claim at
the back of the title to the said property;

(6)
All expenses for documentation and other incidental
expenses shall be for the account of the FIRST PARTY;
(7)
Should the FIRST PARTY fail to deliver peaceful
possession of the property to the SECOND PARTY after the
expiration of the 15-day grace period given in paragraph 3
above, the FIRST PARTY shall pay an amount equivalent to
Five Percent of the principal amount of TWO HUNDRED
PESOS (P200.00) or P10,000.00 per month of delay as and
for rentals and liquidated damages;

(2)
The FIRST PARTY is hereby given by the SECOND
PARTY the option to repurchase the said property within a
period of ninety (90) days from the execution of this
memorandum of agreement effective April 18, 1991, for the
amount of TWO HUNDRED THIRTY THOUSAND PESOS
(P230,000.00);

(8)
Should the FIRST PARTY fail to exercise her option to
repurchase the property within ninety (90) days period
above-mentioned, this memorandum of agreement shall be
deemed cancelled and the Deed of Absolute Sale, executed
by the parties shall be the final contract considered as
entered between the parties and the SECOND PARTY shall
proceed to transfer ownership of the property above
described to its name free from lines and encumbrances. 2

(3)
In the event that the FIRST PARTY fail to exercise her
option to repurchase the said property within a period of

On the same day, April 18, 1991, the parties likewise

executed a deed of absolute sale, 3 dated June 11, 1991,

wherein private respondent, with the consent of her late

husband, sold the subject property to A.C. Aguila & Sons,
Co., represented by petitioner, for P200,000,00. In a special
power of attorney dated the same day, April 18, 1991,
private respondent authorized petitioner to cause the
cancellation of TCT No. 195101 and the issuance of a new
certificate of title in the name of A.C. Aguila and Sons, Co.,
in the event she failed to redeem the subject property as
provided in the Memorandum of Agreement. 4
Private respondent failed to redeem the property within the
90-day period as provided in the Memorandum of
Agreement. Hence, pursuant to the special power of
attorney
mentioned
above,
petitioner
caused
the
cancellation of TCT No. 195101 and the issuance of a new
certificate of title in the name of A.C. Aguila and Sons, Co. 5

Private respondent then received a letter dated August 10,

1991 from Atty. Lamberto C. Nanquil, counsel for A.C. Aguila
& Sons, Co., demanding that she vacate the premises within
15 days after receipt of the letter and surrender its
possession peacefully to A.C. Aguila & Sons, Co. Otherwise,
the latter would bring the appropriate action in court. 6
Upon the refusal of private respondent to vacate the subject
premises, A.C. Aguila & Sons, Co. filed an ejectment case
against her in the Metropolitan Trial Court, Branch 76,
Marikina, Metro Manila. In a decision, dated April 3, 1992,
the Metropolitan Trial Court ruled in favor of A.C. Aguila &
Sons, Co. on the ground that private respondent did not
redeem the subject property before the expiration of the 90day period provided in the Memorandum of Agreement.
Private respondent appealed first to the Regional Trial Court,
Branch 163, Pasig, Metro Manila, then to the Court of
Appeals, and later to this Court, but she lost in all the cases.

Private respondent then filed a petition for declaration of

nullity of a deed of sale with the Regional Trial Court, Branch
273, Marikina, Metro Manila on December 4, 1993. She
alleged that the signature of her husband on the deed of
sale was a forgery because he was already dead when the
deed was supposed to have been executed on June 11,
1991.
It appears, however, that private respondent had filed a
criminal complaint for falsification against petitioner with
the Office of the Prosecutor of Quezon City which was
dismissed in a resolution, dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its
decision:
Plaintiff's claim therefore that the Deed of Absolute Sale is a
forgery because they could not personally appear before
Notary Public Lamberto C. Nanquil on June 11, 1991 because
her husband, Ruben Abrogar, died on May 8, 1991 or one
month and 2 days before the execution of the Deed of
Absolute Sale, while the plaintiff was still in the Quezon City
Medical Center recuperating from wounds which she
suffered at the same vehicular accident on May 8, 1991,
cannot be sustained. The Court is convinced that the three
required documents, to wit: the Memorandum of Agreement,
the Special Power of Attorney, and the Deed of Absolute
Sale were all signed by the parties on the same date on April
18, 1991. It is a common and accepted business practice of
those engaged in money lending to prepare an undated
absolute deed of sale in loans of money secured by real
estate for various reasons, foremost of which is the evasion
of taxes and surcharges. The plaintiff never questioned
receiving the sum of P200,000.00 representing her loan
from the defendant. Common sense dictates that an
established lending and realty firm like the Aguila & Sons,
Co. would not part with P200,000.00 to the Abrogar spouses,
who are virtual strangers to it, without the simultaneous

accomplishment and signing of all the required documents,

more particularly the Deed of Absolute Sale, to protect its
interest.
xxx

xxx

xxx

WHEREFORE, foregoing premises considered, the case in

caption is hereby ORDERED DISMISSED, with costs against
the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between
plaintiff-appellant and defendant-appellee is indubitably an
equitable mortgage. Article 1602 of the New Civil Code finds
strong application in the case at bar in the light of the
following circumstances.
First: The purchase price for the alleged sale with right to
repurchase is unusually inadequate. The property is a two
hundred forty (240) sq. m. lot. On said lot, the residential
house of plaintiff-appellant stands. The property is inside a
subdivision/village. The property is situated in Marikina
which is already part of Metro Manila. The alleged sale took
place in 1991 when the value of the land had considerably
increased.
For this property, defendant-appellee pays only a measly
P200,000.00 or P833.33 per square meter for both the land
and for the house.
Second: The disputed Memorandum of Agreement
specifically provides that plaintiff-appellant is obliged to
deliver peacefully the possession of the property to the
SECOND PARTY within fifteen (15) days after the expiration
of the said ninety (90) day grace period. Otherwise stated,
plaintiff-appellant is to retain physical possession of the
thing allegedly sold.

In fact, plaintiff-appellant retained possession of the

property "sold" as if they were still the absolute owners.
There was no provision for maintenance or expenses, much
less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein,
continued to pay taxes on the property "sold". It is wellknown that payment of taxes accompanied by actual
possession of the land covered by the tax declaration,
constitute evidence of great weight that a person under
whose name the real taxes were declared has a claim of
right over the land.
It is well-settled that the presence of even one of the
circumstances in Article 1602 of the New Civil Code is
sufficient to declare a contract of sale with right to
repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a
price which is unusually inadequate, has retained possession
of the subject property and has continued paying the realty
taxes over the subject property, (circumstances mentioned
in par. (1) (2) and (5) of Article 1602 of the New Civil Code),
it must be conclusively presumed that the transaction the
parties actually entered into is an equitable mortgage, not a
sale with right to repurchase. The factors cited are in
support to the finding that the Deed of Sale/Memorandum of
Agreement with right to repurchase is in actuality an
equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of
repurchase was executed by reason of the loan extended by
defendant-appellee to plaintiff-appellant. The amount of
loan being the same with the amount of the purchase price.
xxx

xxx

xxx

Since the real intention of the party is to secure the

payment of debt, now deemed to be repurchase price: the

transaction shall then be considered to be an equitable

mortgage.
Being a mortgage, the transaction entered into by the
parties is in the nature of a pactum commissorium which is
clearly prohibited by Article 2088 of the New Civil Code.
Article 2088 of the New Civil Code reads:
Art. 2088.
The creditor cannot appropriate the things
given by way of pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for
pactum commissorium to exist: (1) that there should be a
pledge or mortgage wherein a property is pledged or
mortgaged by way of security for the payment of principal
obligation; and (2) that there should be a stipulation for an
automatic appropriation by the creditor of the thing pledged
and mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
In this case, defendant-appellee in reality extended a
P200,000.00 loan to plaintiff-appellant secured by a
mortgage on the property of plaintiff-appellant. The loan
was payable within ninety (90) days, the period within which
plaintiff-appellant can repurchase the property. Plaintiffappellant will pay P230,000.00 and not P200,000.00, the
P30,000.00 excess is the interest for the loan extended.
Failure of plaintiff-appellee to pay the P230,000.00 within
the ninety (90) days period, the property shall automatically
belong to defendant-appellee by virtue of the deed of sale
executed.
Clearly, the agreement entered into by the parties is in the
nature of pactum commissorium. Therefore, the deed of sale
should be declared void as we hereby so declare to be
invalid, for being violative of law.
xxx

xxx

xxx

WHEREFORE, foregoing considered, the appealed decision is

hereby REVERSED and SET ASIDE. The questioned Deed of
Sale and the cancellation of the TCT No. 195101 issued in
favor of plaintiff-appellant and the issuance of TCT No.
267073 issued in favor of defendant-appellee pursuant to
the questioned Deed of Sale is hereby declared VOID and is
hereby ANNULLED. Transfer Certificate of Title No. 195101 of
the Registry of Marikina is hereby ordered REINSTATED. The
loan in the amount of P230,000.00 shall be paid within
ninety (90) days from the finality of this decision. In case of
failure to pay the amount of P230,000.00 from the period
therein stated, the property shall be sold at public auction to
satisfy the mortgage debt and costs and if there is an
excess, the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in
interest but A.C. Aguila & Co., against which this case should
have been brought; (2) the judgment in the ejectment case
is a bar to the filing of the complaint for declaration of nullity
of a deed of sale in this case; and (3) the contract between
A.C. Aguila & Sons, Co. and private respondent is a pacto de
retro sale and not an equitable mortgage as held by the
appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the
complaint in this case was filed, provided that "every action
must be prosecuted and defended in the name of the real
party in interest." A real party in interest is one who would
be benefited or injured by the judgment, or who is entitled
to the avails of the suit. 7 This ruling is now embodied in
Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a real party in
interest in the case cannot be executed. 8 Hence, a
complaint filed against such a person should be dismissed
for failure to state a cause of action. 9

Under Art. 1768 of the Civil Code, a partnership "has a

juridical personality separate and distinct from that of each
of the partners." The partners cannot be held liable for the
obligations of the partnership unless it is shown that the
legal fiction of a different juridical personality is being used
for fraudulent, unfair, or illegal purposes. 10 In this case,
private respondent has not shown that A.C. Aguila & Sons,
Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title to
the subject property is in the name of A.C. Aguila & Sons,
Co. and the Memorandum of Agreement was executed
between private respondent, with the consent of her late
husband, and A.C. Aguila & Sons, Co., represented by
petitioner. Hence, it is the partnership, not its officers or
agents, which should be impleaded in any litigation
involving property registered in its name. A violation of this

rule will result in the dismissal of the complaint. 11 We

cannot understand why both the Regional Trial Court and the
Court of Appeals sidestepped this issue when it was
squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest
against whom this action should be prosecuted makes it
unnecessary to discuss the other issues raised by him in this
appeal.
WHEREFORE, the decision of the Court of Appeals is hereby
REVERSED and the complaint against petitioner is
DISMISSED.
SO ORDERED.