Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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

COMMISSIONER OF INTERNAL REVENUE, petitioner,

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

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

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

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

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

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

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

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

Respondent Suter protested the assessment, and requested its cancellation

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

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

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

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

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

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

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

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

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

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

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

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

We find the Commissioner's appeal unmeritorious.

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

A husband and a wife may not enter into a contract

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

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

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

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

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

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

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

The following shall be the exclusive property of each spouse:

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

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

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

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

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

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

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

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

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

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

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

FOR THE FOREGOING REASONS, the decision under review is hereby

affirmed. No costs.

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

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

EN BANC

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

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

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

Araneta and Araneta for appellee.

Jose A. Buendia for appellant.

REYES, J.:

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

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

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

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

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

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

involved, defendant makes the following assignment or errors:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

G.R. No. 120138 September 5, 1997

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

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

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

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

Consequently, the aforelisted properties were duly recorded in the inventory

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

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

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

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

*Order of stock certificate issuances by TORMIL to respondent Torres

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

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

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

SECRETARY OF JUSTICE and FELINO MERCADO, respondents.

DECISION
CARPIO, J.:

The Case

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

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

Antecedent Facts

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

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

xxx

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

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

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

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

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

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

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

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

The Ruling of the Provincial Prosecution Office

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

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

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

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

The accusation of estafa here lacks enough credible evidentiary support to

sustain a prima facie finding.

Premises considered, it is respectfully recommended that the complaint for

estafa be dismissed.

RESPECTFULLY SUBMITTED.[10]

The Angeles spouses filed a motion for reconsideration, which the

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

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

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

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

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

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

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

WHEREFORE, the appeal is hereby DISMISSED.[11]

Hence, this petition.

Issues

The Angeles spouses ask us to consider the following issues:

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

The Ruling of the Court

The petition has no merit.

Whether the Secretary of Justice Committed

Grave Abuse of Discretion

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

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

Whether a Partnership Existed

Between Mercado and the Angeles Spouses

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

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

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

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

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

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

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

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

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

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

Whether there was

Misappropriation by Mercado

The Secretary of Justice adequately explained the alleged

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

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

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

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

DECISION

PARAS, J.:

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

EN BANC

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

MAURICIO AGAD, plaintiff-appellant,

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

Angeles, Maskarino and Associates for plaintiff-appellant.

Victorio S. Advincula for defendants-appellees.

CONCEPCION, C.J.:

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

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

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

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

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

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

Articles 1771 and 1773 of said Code provide:

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

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

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

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

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

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

xxx xxx xxx

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

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

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

Fernando, JJ., concur.
THIRD DIVISION

AURELIO K. LITONJUA, JR., G.R. NOS. 166299-300

Petitioner,

- versus

Present:

EDUARDO K. LITONJUA, SR.,

ROBERT T. YANG, ANGLO
PHILS. MARITIME, INC.,
CINEPLEX, INC., DDM PANGANIBAN, J., Chairman
GARMENTS, INC., EDDIE K.
LITONJUA SHIPPING AGENCY, SANDOVAL- GUTIERREZ,
INC., EDDIE K. LITONJUA
CORONA,
SHIPPING CO., INC.,
LITONJUA SECURITIES, INC. CARPIO MORALES and
(formerly E. K. Litonjua Sec),
GARCIA, JJ.
LUNETA THEATER, INC., E & L
REALTY, (formerly E & L INTL
SHIPPING CORP.), FNP CO.,
INC., HOME ENTERPRISES,
INC., BEAUMONT DEV. REALTY
Promulgated:
CO., INC., GLOED LAND CORP.,
EQUITY TRADING CO., INC.,
3D CORP., L DEV. CORP, LCM
THEATRICAL ENTERPRISES,
INC., LITONJUA SHIPPING CO. December 13, 2005
INC., MACOIL INC., ODEON
REALTY CORP., SARATOGA
REALTY, INC., ACT THEATER
INC. (formerly General
Theatrical & Film Exchange,
INC.), AVENUE REALTY, INC.,
AVENUE THEATER, INC. and
LVF PHILIPPINES, INC.,
(Formerly VF PHILIPPINES),

Respondents.

x-----------------------------------------------
--x

DECISION

GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner
Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the
Court of Appeals (CA) dated March 31, 2004[1] in consolidated cases C.A.
G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated
December 07, 2004,[2]denying petitioners motion for reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K.

Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them started
when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City,
Aurelio filed a suit against his brother Eduardo and herein respondent Robert
T. Yang (Yang) and several corporations for specific performance and
accounting. In his complaint,[3] docketed as Civil Case No. 69235 and
eventually raffled to Branch 68 of the court,[4] Aurelio alleged that, since
June 1973, he and Eduardo are into a joint venture/partnership arrangement
in the Odeon Theater business which had expanded thru investment in
Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation
(operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands
and buildings, among other corporations. Yang is described in the complaint
as petitioners and Eduardos partner in their Odeon Theater
investment. The same complaint also contained the following material
[5]

averments:

3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint
venture/partnership for the continuation of their family business and
common family funds .

3.01.1 This joint venture/[partnership] agreement was contained in a

memorandum addressed by Eduardo to his siblings, parents and other
relatives. Copy of this memorandum is attached hereto and made an integral
part as Annex A and the portion referring to [Aurelio] submarked as Annex
A-1.

3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelios] retaining his share in the remaining family
businesses (mostly, movie theaters, shipping and land development) and
contributing his industry to the continued operation of these businesses,
[Aurelio] will be given P1 Million or 10% equity in all these businesses and
those to be subsequently acquired by them whichever is greater. . . .

4.01 from 22 June 1973 to about August 2001, or [in] a span of 28 years,
[Aurelio] and Eduardo had accumulated in their joint venture/partnership
various assets including but not limited to the corporate defendants and
[their] respective assets.

4.02 In addition . . . the joint venture/partnership had also acquired [various

other assets], but Eduardo caused to be registered in the names of other
parties.

xxx xxx xxx

4.04 The substantial assets of most of the corporate defendants consist of
real properties . A list of some of these real properties is attached hereto
and made an integral part as Annex B.

xxx xxx xxx

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo

became sour so that [Aurelio] requested for an accounting and liquidation of
his share in the joint venture/partnership [but these demands for complete
accounting and liquidation were not heeded].

xxx xxx xxx

5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo
and/or the corporate defendants as well as Bobby [Yang], are transferring . .
. various real properties of the corporations belonging to the joint
venture/partnership to other parties in fraud of [Aurelio]. In consequence,
[Aurelio] is therefore causing at this time the annotation on the titles of
these real properties a notice of lis pendens . (Emphasis in the original;
underscoring and words in bracket added.)

For ease of reference, Annex A-1 of the complaint, which petitioner asserts
to have been meant for him by his brother Eduardo, pertinently reads:

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:

You have now your own life to live after having been married. .
I am trying my best to mold you the way I work so you can follow the
pattern . You will be the only one left with the company, among us brothers
and I will ask you to stay as I want you to run this office every time I am
away. I want you to run it the way I am trying to run it because I will be all
alone and I will depend entirely to you (sic). My sons will not be ready to
help me yet until about maybe 15/20 years from now. Whatever is left in the
corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two
will gamble the whole thing of what I have and what you are entitled to. . It
will be you and me alone on this. If ever I pass away, I want you to take
care of all of this. You keep my share for my two sons are ready take over
but give them the chance to run the company which I have built.

xxx xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE
HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt.
Artiaga so you can live better there. The rest I will give you in form of stocks
which you can keep. This stock I assure you is good and saleable. I will also
gladly give you the share of Wack-Wack and Valley Golf because you have
been good. The rest will be in stocks from all the corporations which I
repeat, ten percent (10%) equity. [6]

On December 20, 2002, Eduardo and the corporate respondents, as

defendants a quo, filed a joint ANSWER With Compulsory
Counterclaim denying under oath the material allegations of the complaint,
more particularly that portion thereof depicting petitioner and Eduardo as
having entered into a contract of partnership. As affirmative defenses,
Eduardo, et al., apart from raising a jurisdictional matter, alleged that the
complaint states no cause of action, since no cause of action may be derived
from the actionable document, i.e., Annex A-1, being void under the terms
of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further
alleged that whatever undertaking Eduardo agreed to do, if any, under
Annex A-1, are unenforceable under the provisions of the Statute of
Frauds.[7]

For his part, Yang - who was served with summons long after the other
defendants submitted their answer moved to dismiss on the ground, inter
alia, that, as to him, petitioner has no cause of action and the complaint
does not state any.[8] Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative

Defenses.[9] To this motion, petitioner interposed an Opposition with ex-
Parte Motion to Set the Case for Pre-trial.[10]

Acting on the separate motions immediately adverted to above, the trial

court, in an Omnibus Order dated March 5, 2003, denied the affirmative
defenses and, except for Yang, set the case for pre-trial on April 10,
2003.[11]

In another Omnibus Order of April 2, 2003, the same court denied the
motion of Eduardo, et al., for reconsideration[12] and Yangs motion to
dismiss. The following then transpired insofar as Yang is concerned:

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the
right to seek reconsideration of the April 2, 2003 Omnibus Order and to
pursue his failed motion to dismiss[13] to its full resolution.

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of

April 2, 2003, but his motion was denied in an Order of July 4, 2003.[14]

3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP
No. 78774,[15] to nullify the separate orders of the trial court, the first
denying his motion to dismiss the basic complaint and, the second, denying
his motion for reconsideration.

Earlier, Eduardo and the corporate defendants, on the contention that grave
abuse of discretion and injudicious haste attended the issuance of the trial
courts aforementioned Omnibus Orders dated March 5, and April 2, 2003,
sought relief from the CA via similar recourse. Their petition
for certiorari was docketed as CA G.R. SP No. 76987.

Per its resolution dated October 2, 2003,[16] the CAs 14th Division ordered
the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.

Following the submission by the parties of their respective Memoranda of

Authorities, the appellate court came out with the herein assailed Decision
dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners
therein, disposing as follows:

WHEREFORE, judgment is hereby rendered granting the issuance of the writ

of certiorari in these consolidated cases annulling, reversing and setting
aside the assailed orders of the court a quo dated March 5, 2003, April 2,
2003 and July 4, 2003 and the complaint filed by private respondent [now
petitioner Aurelio] against all the petitioners [now herein respondents
Eduardo, et al.] with the court a quo is hereby dismissed.

SO ORDERED.[17] (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the
alleged partnership, as evidenced by the actionable documents,
Annex A and A-1attached to the complaint, and upon which petitioner solely
predicates his right/s allegedly violated by Eduardo, Yang and the corporate
defendants a quo is void or legally inexistent.

In time, petitioner moved for reconsideration but his motion was denied by
the CA in its equally assailed Resolution of December 7, 2004.[18] .

Hence, petitioners present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the actionable

document because this was not a public instrument and immovable
properties were contributed to the partnership.

B. When it ruled that the actionable document did not create a demandable
right in favor of petitioner.

C. When it ruled that the complaint stated no cause of action against

[respondent] Robert Yang; and

D. When it ruled that petitioner has changed his theory on appeal when all
that Petitioner had done was to support his pleaded cause of action by
another legal perspective/argument.

The petition lacks merit.

Petitioners demand, as defined in the petitory portion of his complaint in the

trial court, is for delivery or payment to him, as Eduardos and Yangs
partner, of his partnership/joint venture share, after an accounting has been
duly conducted of what he deems to be partnership/joint venture
property.[19]
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses between them.[20] A contract of partnership is defined by the Civil
Code as one where two or more persons bound themselves to contribute
money, property, or industry to a common fund with the intention of dividing
the profits among themselves.[21] A joint venture, on the other hand, is
hardly distinguishable from, and may be likened to, a partnership since their
elements are similar, i.e., community of interests in the business and
sharing of profits and losses. Being a form of partnership, a joint venture is
generally governed by the law on partnership.[22]

The underlying issue that necessarily comes to mind in this proceedings is

whether or not petitioner and respondent Eduardo are partners in the
theatre, shipping and realty business, as one claims but which the other
denies. And the issue bearing on the first assigned error relates to the
question of what legal provision is applicable under the premises, petitioner
seeking, as it were, to enforce the actionable document - Annex A-1 - which
he depicts in his complaint to be the contract of partnership/joint venture
between himself and Eduardo. Clearly, then, a look at the legal provisions
determinative of the existence, or defining the formal requisites, of a
partnership is indicated. Foremost of these are the following provisions of
the Civil Code:

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

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

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

pesos or more, in money or property, shall appear in a public instrument,
which must be recorded in the Office of the Securities and Exchange
Commission.
Failure to comply with the requirement of the preceding paragraph shall not
affect the liability of the partnership and the members thereof to third
persons.

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

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

Annex A-1, on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling
that Annex A-1 does not meet the public instrumentation requirements
exacted under Article 1771 of the Civil Code. Moreover, being unsigned and
doubtless referring to a partnership involving more than P3,000.00 in money
or property, Annex A-1 cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission (SEC), as called for
under the Article 1772 of the Code. And inasmuch as the inventory
requirement under the succeeding Article 1773 goes into the matter of
validity when immovable property is contributed to the partnership, the next
logical point of inquiry turns on the nature of petitioners contribution, if any,
to the supposed partnership.

The CA, addressing the foregoing query, correctly stated that petitioners
contribution consisted of immovables and real rights. Wrote that court:

A further examination of the allegations in the complaint would show that

[petitioners] contribution to the so-called partnership/joint venture was his
supposed share in the family business that is consisting of movie theaters,
shipping and land development under paragraph 3.02 of the complaint. In
other words, his contribution as a partner in the alleged partnership/joint
venture consisted of immovable properties and real rights. .[23]
Significantly enough, petitioner matter-of-factly concurred with the appellate
courts observation that, prescinding from what he himself alleged in his
basic complaint, his contribution to the partnership consisted of his share in
the Litonjua family businesses which owned variable immovable properties.
Petitioners assertion in his motion for reconsideration[24] of the CAs decision,
that what was to be contributed to the business [of the partnership] was
[petitioners] industry and his share in the family [theatre and land
development] business leaves no room for speculation as to what petitioner
contributed to the perceived partnership.

Lest it be overlooked, the contract-validating inventory requirement under

Article 1773 of the Civil Code applies as long real property or real rights are
initially brought into the partnership. In short, it is really of no moment
which of the partners, or, in this case, who between petitioner and his
brother Eduardo, contributed immovables. In context, the more important
consideration is that real property was contributed, in which case an
inventory of the contributed property duly signed by the parties should be
attached to the public instrument, else there is legally no partnership to
speak of.

Petitioner, in an obvious bid to evade the application of Article 1773, argues

that the immovables in question were not contributed, but were acquired
after the formation of the supposed partnership. Needless to stress, the
Court cannot accord cogency to this specious argument. For, as earlier
stated, petitioner himself admitted contributing his share in the supposed
shipping, movie theatres and realty development family businesses which
already owned immovables even before Annex A-1 was allegedly executed.

Considering thus the value and nature of petitioners alleged contribution to

the purported partnership, the Court, even if so disposed, cannot plausibly
extend Annex A-1 the legal effects that petitioner so desires and pleads to
be given. Annex A-1, in fine, cannot support the existence of the
partnership sued upon and sought to be enforced. The legal and factual
milieu of the case calls for this disposition. A partnership may be constituted
in any form, save when immovable property or real rights are contributed
thereto or when the partnership has a capital of at least P3,000.00, in which
case a public instrument shall be necessary.[25] And if only to stress what
has repeatedly been articulated, an inventory to be signed by the parties
and attached to the public instrument is also indispensable to the validity of
the partnership whenever immovable property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its
assailed Decision[26] about the probative value and legal effect of Annex A-
1commends itself for concurrence:

Considering that the allegations in the complaint showed that [petitioner]

contributed immovable properties to the alleged partnership, the
Memorandum (Annex A of the complaint) which purports to establish the
said partnership/joint venture is NOT a public instrument and there was NO
inventory of the immovable property duly signed by the parties. As such, the
said Memorandum is null and void for purposes of establishing the existence
of a valid contract of partnership. Indeed, because of the failure to comply
with the essential formalities of a valid contract, the purported
partnership/joint venture is legally inexistent and it produces no effect
whatsoever. Necessarily, a void or legally inexistent contract cannot be the
source of any contractual or legal right. Accordingly, the allegations in the
complaint, including the actionable document attached thereto, clearly
demonstrates that [petitioner] has NO valid contractual or legal right which
could be violated by the [individual respondents] herein. As a consequence,
[petitioners] complaint does NOT state a valid cause of action because NOT
all the essential elements of a cause of action are present. (Underscoring
and words in bracket added.)

Likewise well-taken are the following complementary excerpts from the CAs
equally assailed Resolution of December 7, 2004[27] denying petitioners
motion for reconsideration:
Further, We conclude that despite glaring defects in the allegations in the
complaint as well as the actionable document attached thereto (Rollo, p.
191), the [trial] court did not appreciate and apply the legal provisions which
were brought to its attention by herein [respondents] in the their pleadings.
In our evaluation of [petitioners] complaint, the latter alleged inter alia to
have contributed immovable properties to the alleged partnership but the
actionable document is not a public document and there was no inventory of
immovable properties signed by the parties. Both the allegations in the
complaint and the actionable documents considered, it is crystal clear that
[petitioner] has no valid or legal right which could be violated by
[respondents]. (Words in bracket added.)

Under the second assigned error, it is petitioners posture that Annex A-1,
assuming its inefficacy or nullity as a partnership document, nevertheless
created demandable rights in his favor. As petitioner succinctly puts it in this
petition:

43. Contrariwise, this actionable document, especially its above-quoted

provisions, established an actionable contract even though it may not be a
partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).

44. It may not be a contract of loan, or a mortgage or whatever, but surely

the contract does create rights and obligations of the parties and which
rights and obligations may be enforceable and demandable. Just because the
relationship created by the agreement cannot be specifically labeled or
pigeonholed into a category of nominate contract does not mean it is void or
unenforceable.

Petitioner has thus thrusted the notion of an innominate contract on this

Court - and earlier on the CA after he experienced a reversal of fortune
thereat - as an afterthought. The appellate court, however, cannot really be
faulted for not yielding to petitioners dubious stratagem of altering his
theory of joint venture/partnership to an innominate contract. For, at
bottom, the appellate courts certiorari jurisdiction was circumscribed by
what was alleged to have been the order/s issued by the trial court in grave
abuse of discretion. As respondent Yang pointedly observed,[28] since the
parties basic position had been well-defined, that of petitioner being that the
actionable document established a partnership/joint venture, it is on those
positions that the appellate court exercised its certiorari jurisdiction.
Petitioners act of changing his original theory is an impermissible practice
and constitutes, as the CA aptly declared, an admission of the untenability of
such theory in the first place.

[Petitioner] is now humming a different tune . . . . In a sudden twist of

stance, he has now contended that the actionable instrument may be
considered an innominate contract. xxx Verily, this now changes
[petitioners] theory of the case which is not only prohibited by the Rules but
also is an implied admission that the very theory he himself has adopted,
filed and prosecuted before the respondent court is erroneous.

Be that as it may . . We hold that this new theory contravenes [petitioners]

theory of the actionable document being a partnership document. If
anything, it is so obvious we do have to test the sufficiency of the cause of
action on the basis of partnership law xxx.[29] (Emphasis in the original;
Words in bracket added).

But even assuming in gratia argumenti that Annex A-1 partakes of a

perfected innominate contract, petitioners complaint would still be
dismissible as against Eduardo and, more so, against Yang. It cannot be
over-emphasized that petitioner points to Eduardo as the author of Annex A-
1. Withal, even on this consideration alone, petitioners claim against Yang is
doomed from the very start.
As it were, the only portion of Annex A-1 which could perhaps be remotely
regarded as vesting petitioner with a right to demand from respondent
Eduardo the observance of a determinate conduct, reads:

xxx You will be the only one left with the company, among us brothers and I
will ask you to stay as I want you to run this office everytime I am away. I
want you to run it the way I am trying to run it because I will be alone and I
will depend entirely to you, My sons will not be ready to help me yet until
about maybe 15/20 years from now. Whatever is left in the corporation, I
will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten
percent (10%) equity, whichever is greater. (Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon himself

under the above passage, if he indeed wrote Annex A-1, is a promise which
is not to be performed within one year from contract execution on June 22,
1973. Accordingly, the agreement embodied in Annex A-1 is covered by the
Statute of Frauds and ergo unenforceable for non-compliance
therewith. [30] By force of the statute of frauds, an agreement that by its
terms is not to be performed within a year from the making thereof shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing and subscribed by the party charged. Corollarily, no
action can be proved unless the requirement exacted by the statute of
frauds is complied with.[31]

Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million

or 10% equity of the family businesses supposedly promised by Eduardo to
give in the near future. Any suggestion that the stated amount or the equity
component of the promise was intended to go to a common fund would be to
read something not written in Annex A-1. Thus, even this angle alone
argues against the very idea of a partnership, the creation of which requires
two or more contracting minds mutually agreeing to contribute money,
property or industry to a common fund with the intention of dividing the
profits between or among themselves.[32]
In sum then, the Court rules, as did the CA, that petitioners complaint for
specific performance anchored on an actionable document of partnership
which is legally inexistent or void or, at best, unenforceable does not state a
cause of action as against respondent Eduardo and the corporate
defendants. And if no of action can successfully be maintained against
respondent Eduardo because no valid partnership existed between him and
petitioner, the Court cannot see its way clear on how the same action could
plausibly prosper against Yang. Surely, Yang could not have become a
partner in, or could not have had any form of business relationship with, an
inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical
nexus that would tie Yang to him as his partner. In fact, attendant
circumstances would indicate the contrary. Consider:

1. Petitioner asserted in his complaint that his so-called joint

venture/partnership with Eduardo was for the continuation of their family
business and common family funds which were theretofore being mainly
managed by Eduardo. [33] But Yang denies kinship with the Litonjua family
and petitioner has not disputed the disclaimer.

2. In some detail, petitioner mentioned what he had contributed to the joint

venture/partnership with Eduardo and what his share in the businesses will
be. No allegation is made whatsoever about what Yang contributed, if any,
let alone his proportional share in the profits. But such allegation cannot,
however, be made because, as aptly observed by the CA, the actionable
document did not contain such provision, let alone mention the name of
Yang. How, indeed, could a person be considered a partner when the
document purporting to establish the partnership contract did not even
mention his name.

3. Petitioner states in par. 2.01 of the complaint that [he] and Eduardo are
business partners in the [respondent] corporations, while Bobby is his and
Eduardos partner in their Odeon Theater investment (par. 2.03). This means
that the partnership between petitioner and Eduardo came first; Yang
became their partner in their Odeon Theater investment thereafter. Several
paragraphs later, however, petitioner would contradict himself by alleging
that his investment and that of Eduardo and Yang in the Odeon theater
business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six]
corporate respondents This simply means that the Odeon Theatre business
came before the corporate respondents. Significantly enough, petitioner
refers to the corporate respondents as progeny of the Odeon Theatre
business.[34]

Needless to stress, petitioner has not sufficiently established in his complaint

the legal vinculum whence he sourced his right to drag Yang into the fray.
The Court of Appeals, in its assailed decision, captured and formulated the
legal situation in the following wise:

[Respondent] Yang, is impleaded because, as alleged in the complaint, he is

a partner of [Eduardo] and the [petitioner] in the Odeon Theater Investment
which expanded through reinvestments of profits and direct investments in
several corporations, thus:

xxx xxx xxx

Clearly, [petitioners] claim against Yang arose from his alleged partnership
with petitioner and the respondent. However, there was NO allegation in the
complaint which directly alleged how the supposed contractual relation was
created between [petitioner] and Yang. More importantly, however, the
foregoing ruling of this Court that the purported partnership between
[Eduardo] is void and legally inexistent directly affects said claim against
Yang. Since [petitioner] is trying to establish his claim against Yang by
linking him to the legally inexistent partnership . . . such attempt had
become futile because there was NOTHING that would contractually connect
[petitioner] and Yang. To establish a valid cause of action, the complaint
should have a statement of fact upon which to connect [respondent] Yang to
the alleged partnership between [petitioner] and respondent [Eduardo],
including their alleged investment in the Odeon Theater. A statement of
facts on those matters is pivotal to the complaint as they would constitute
the ultimate facts necessary to establish the elements of a cause of action
against Yang. [35]

Pressing its point, the CA later stated in its resolution denying petitioners
motion for reconsideration the following:

xxx Whatever the complaint calls it, it is the actionable document attached
to the complaint that is controlling. Suffice it to state, We have not ignored
the actionable document As a matter of fact, We emphasized in our decision
that insofar as [Yang] is concerned, he is not even mentioned in the said
actionable document. We are therefore puzzled how a person not mentioned
in a document purporting to establish a partnership could be considered a
partner.[36] (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not he changed

his theory of the case, as peremptorily determined by the CA, has been
discussed at length earlier and need not detain us long. Suffice it to say that
after the CA has ruled that the alleged partnership is inexistent, petitioner
took a different tack. Thus, from a joint venture/partnership theory which he
adopted and consistently pursued in his complaint, petitioner embraced the
innominate contract theory. Illustrative of this shift is petitioners statement
in par. #8 of his motion for reconsideration of the CAs decision combined
with what he said in par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint
venture, or whatever, is a legal matter. What is determinative for purposes
of sufficiency of the complainants allegations, is whether the actionable
document bears out an actionable contract be it a partnership, a joint
venture or whatever or some innominate contract It may be noted that one
kind of innominate contract is what is known as du ut facias (I give that you
may do).[37]

43. Contrariwise, this actionable document, especially its above-quoted

provisions, established an actionable contract even though it may not be a
partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).[38]

Springing surprises on the opposing party is offensive to the sporting idea of

fair play, justice and due process; hence, the proscription against a party
shifting from one theory at the trial court to a new and different theory in
the appellate court.[39] On the same rationale, an issue which was neither
averred in the complaint cannot be raised for the first time on appeal.[40] It
is not difficult, therefore, to agree with the CA when it made short shrift of
petitioners innominate contract theory on the basis of the foregoing basic
reasons.

Petitioners protestation that his act of introducing the concept of innominate

contract was not a case of changing theories but of supporting his pleaded
cause of action that of the existence of a partnership - by another legal
perspective/argument, strikes the Court as a strained attempt to rationalize
an untenable position. Paragraph 12 of his motion for reconsideration of the
CAs decision virtually relegates partnership as a fall-back theory. Two
paragraphs later, in the same notion, petitioner faults the appellate court for
reading, with myopic eyes, the actionable document solely as establishing a
partnership/joint venture. Verily, the cited paragraphs are a study of a party
hedging on whether or not to pursue the original cause of action or
altogether abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a
partnership between [respondent] Eduardo, Sr. and [petitioner], no
immovables were contributed to this partnership. xxx

14. All told, the Decision takes off from a false premise that the actionable
document attached to the complaint does not establish a contractual
relationship between [petitioner] and Eduardo, Sr. and Roberto T Yang
simply because his document does not create a partnership or a joint
venture. This is a myopic reading of the actionable document.

Per the Courts own count, petitioner used in his complaint the mixed
words joint venture/partnership nineteen (19) times and the
term partner four (4) times. He made reference to the law of joint
venture/partnership [being applicable] to the business relationship between
[him], Eduardo and Bobby [Yang] and to hisrights in all specific properties of
their joint venture/partnership. Given this consideration, petitioners right of
action against respondents Eduardo and Yang doubtless pivots on the
existence of the partnership between the three of them, as purportedly
evidenced by the undated and unsigned Annex A-1. A void Annex A-1, as an
actionable document of partnership, would strip petitioner of a cause of
action under the premises. A complaint for delivery and accounting of
partnership property based on such void or legally non-existent actionable
document is dismissible for failure to state of action. So, in gist, said the
Court of Appeals. The Court agrees.

WHEREFORE, the instant petition is DENIED and the impugned Decision

and Resolution of the Court of Appeals AFFIRMED.

Cost against the petitioner.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 19892 September 6, 1923

TECK SEING AND CO., LTD., petitioner-appellee.

SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.

Del Rosario & Del Rosario and Block, Johnston and Greenbaum for
appellants.
F. V. Arias for appellants Jo Ibec and Go Tayco.
No appearance for petitioner and appellee.
Jose A. Espiritu and Felipe Ysmael as amici curiae.

MALCOLM, J.:

Following the presentation of an application to be adjudged an insolvent by

the "Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific
Commercial Company, Piñol & Company, Riu Hermanos, and W. H. Anderson
& Company, filed a motion in which the Court was prayed to enter an order:
"(A) Declaring the individual partners as described in paragraph 5 parties to
this proceeding; (B) to require each of said partners to file an inventory of
his property in the manner required by section 51 of Act No. 1956; and (C)
that each of said partners be adjudicated insolvent debtors in this
proceeding." The trial judge first granted the motion, but, subsequently, on
opposition being renewed, denied it. It is from this last order that an appeal
was taken in accordance with section 82 of the Insolvency Law.

There has been laid before us for consideration and decision a question of
some importance and of some intricacy. The issue in the case relates to a
determination of the nature of the mercantile establishment which operated
under the name of Teck Seing & co., Ltd., and this issue requires us to look
into, and analyze, the document constituting Teck Seing & Co., Ltd. It reads:

ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA

Sepan todos por la presente:

Que nosotros, Santiago Jo Chung Cang, mayor de edad comerciante, vecino
y residente del municipio de Tabogon Provincia de Cebu, Islas Filipinas, Go
Tayco, mayor de edad, comerciante, vecino y residente del municipio de
Cebu Provincia de Cebu, Islas Filipinas, Yap Gueco, mayor de edad,
comerciante, vecino y residente del municipio y Provincia de Cebu, Islas
Filipinas, Lim Yogsing, mayor de edad comerciante, vecino y residente del
municipio de Cebu, Provincia de Cebu, Islas Filipinas, y Jo Ybec, mayor de
edad, comerciante, vecino y residente del municipio de Jagna, Provincia de
Bohol, Islas Filipinas, hacemos constar por la presente, que constituimos y
formamos una sociedad mercantil limitada, bajo las leyes vigentes en las
Islas Filipinas y para ser registrada de acuerdo con los reglamentos vigentes
del Codigo de Comercio en Filipinas.

Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra su
domicilio principal en la Calle Magallanes No. 94, de la Ciudad de Cebu,
Provincia de Cebu, Islas Filipinas.

Que el capital social sera de treinta mil pesos (P30,000) moneda legal de las
Islas Filipinas, dividido en cinco acciones de a P6,000 como sigue:

Santiago Jo Chung Cang . . . . . P6,000.00

........

Go Tayco . . . . . . . . . . . . . . . 6,000.00
...........

Yap Gueco . . . . . . . . . . . . . . 6,000.00

..........

Jo Ybec . . . . . . . . . . . . . . . . 6,000.00
...........

Lim Yogsing . . . . . . . . . . . . . 6,000.00

..........

Total . . . . . . . . . . . . . . . . . . 30,000.00
....
Que la duracion de la sociedad sera la de seis años, a contar de la fecha de
esta escritura, pudiendo prorrogarse este tiempo a discrecion unanime de
todos los accionistas.

El objeto de la sociedad sera la compra y venta de mercaderias en general.

El administrador o administradores de la sociedad podran, previa

conformidad de los accionistas, establecer cuantas sucursales o
establecimientos considere necesarios para facilitar sus negocios y el mayor
desarrollo del comercio a que se dedica la sociedad, verificando todas las
operaciones que crean convenientes para el fomento de su capital.

Las ganancias o perdidas que resultaren durante cada año comercial, se

distribuiran proporcionalmente entre los accionistas, de acuerdo con el
capital aportado por cada uno de los mismos.

Las ganancias que resultaren en cada año comercial, si resultaren algunas

ganancias, no podran ser retiradas pors los accionistas hasta dentro del
termino de tres años a contar de la fecha del primer balance anual del
negocio, quedadno por tanto estas ganancias en reserva, para ampliar el
capital aportado opor los accionistas y ampliar por tanto la esfera de accion
emprendida por la misma sociedad. Al pasar o expirar el termino de tres
años, cada accionista podra retirar o depositar en poder de la sociedad, las
ganancias que le debiera corresponder durante dicho termino de tres años.

Que los accionistas no podran extraer ni disponer en ningun tiempo

cualesquiera cantidad o cantidades de la sociedad, que haya sido aportado
por los mismos, para atender sus gastos particulares ni aun pagando redito
alguno sobre la cantidad que intenen disponer o extraer de dicha sociedad.

El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente
Jocson Jo, la administracion de la Compañia, quienes podran usar
indistintamente la firma social, quedando por consiguiente autorizados
amobs para hacer en nombre de ella toda calse de operaciones, negocios y
especulaciones mercantiles, practicando judicial y extra-judicialment cuantos
actos se requieran para el bien de la sociedad, nombrar procuradores o
abogados para reclamaciones y cobro de creditos y proponer ante los
tribunales las demandas, convenios, transacciones y excepciones
procdentes. En caso de ausencia, enfermedad o cualquier otro impedimento
del accionista administrador Sr. Lim Yogsing, este podra conferir poder
general o especial al accionista que crea conveniente para que en union del
administrador auxiliar Sr. Vicente Jocson Jo, pudieran ambos administrar
convenientemente los negocios de la sociedad. Que los administradores
podran tener los empleados necesarios para el mejor que debieran percibir
dichos empleados por servicios rendidos a la sociedad.

Que ambos administradores podran disponer de mil discientos

pesos (P1,200) moneda filipina, anualmente, para sus gastos particulares,
siendo dicha cantidad de P1,200 la que corresponde a cada uno de dichos
administradores, como emolumentos o salarios que se les asigna a cas uno,
por sus trabajos en la administracion de la sociedad. Entendiendose, que, los
accionistas podran disponer cada fin de añola gratificacion quese concedera
a cada administrador, si los negocios del año fueran boyantes y justifiquen la
concesion de una gratificacion especial, aparte del salario aqui dispuesto y
especificado.

Que pasado el termino de seis años, y es de la conveniencia de los

accionistas la continuacion del negocio de esta sociedad, dicho termino sera
prorrogado por igual numero de años, sin necesidas del otorgamiento de
ulteriores escrituras, quedando la presente en vigor hasta el termino
dispuesto por todos los accionistas.

Que las diferencias que pudieran suscitarse entre los accionistas, bien sea
por razon de lo estipulado en esta en ella comprendidos, se procurara
arreglar entre los mismos amistosa y extrajudicialmente, y si no se
consiguiere un arreglo de este modo, dichos accionistas nombraran un
arbitro, cuya resolucion estan todos obligados y por la presente se
comprometen y se obligan a acatarla en todas sus partes, renunciando
ulteriores recursos.

En cuyos terminos dejamos formalizada esta escritura de sociedad

mercantillimitada, y prometemos cumplirla fiel y estrictamente segun los
pactos que hemos establecido.

En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de

Cebu, Islas Filipinas, hoy 31 de octubre de mil novecientos diez y nueve.

(Fdos.) "LIM YOGSING

"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
 "YAP GUECO

Firnando en presencia de:

(Fdos.) "ATILANO LEYSON
"JULIO DIAZ

"ESTADOS UNIDOS DE AMERCA

"ISLAS FILIPINAS
"PROVINCIA DE CEBU

En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de

octubre de 1919, A.D., ante mi, Notario Publico que subscribe, comprecieron
personalmente Santiago Jo Chung Cang, Go Tayco, Yap Gueco, Lim Yogsing
y Jo Ybec, representado este ultimo por Ho Seng Sian, segun autorizacion
hecha en telegrama de fecha 27 de septiembre de 1919 que se me ha
presentado en este mismo acto, de quienes doy fe de que les conozco por
ser las mismas personas que otorgaron el preinserto documento, ratificando
ant emi su contenido y manifestando ser el mismo un acto de su libre y
voluntario otorgamiento. El Sr. Santiago Jo Chung Cang me exhibio su
cedula personal expedida en Cebu, Cebu, I.F. el dia 19 de septiembre de
1919 bajo el No. H77742, Go Tayco tambien me exhibio la suya expedida en
Cebu, Cebu, I.F., el dia 9 de octubre de 1919 bajo el No. G2042490, Yap
Gueco tambien me exhibio la suya expedida en Cebu, Cebu, I.F. el dia 20 de
enero de 1919 bajo el No. F1452296, Lim Yogsing tambien me exhibio la
suya expedida en Cebu, Cebu, I.F., el dia 26 de febrero de 1919 bajo el No.
F1455662, y Ho Seng Sian representante de Jo Ybec, me exhibio su cedula
personal expedida en Cebu, Cebu, I.f. el dia 4 de febrero de 1919 bajo el
No. F1453733.

Ante mi,

(Fdo.) "F.V.ARIAS
"Notario Publico
"Hasta el 1.º de enero de 1920

"Asiento No. 157

Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.º

Presentado a las diez y cuarenta y tres minutos de la mañana de hoy, segun

el asiento No. 125, pagina 9 del Tomo 1.º del Libro Diario. Cebu, 11 de
febrero de 1920.

(Fdo.) "QUIRICO ABETO

[SELLO] "Registrador Mercantil Ex-
Officio"

Inscrito el documento que preced al folio 84 hoja No. 188, inscripcion 1.a del
Tomo 3.º del Libro Registro de Sociedades Mercantiles. Cebu, 11 de febrero
de 1920. Honorarios treinta pesos con cincuenta centavos. Art. 197, Ley No.
2711, Codigo Administrativo.

(Fdo.) "QUIRICO ABETO

[SELLO] "Registrador Mercantil Ex-
Officio"

Proceeding by process of elimination, it is self-evident that Teck Seing & Co.,

Ltd., is not a corporation. Neither is it contended by any one that Teck Seing
& Co., Ltd., is accidental partnership denominated cuenta en
participacion (joint account association).

Counsel for the petitioner and appellee described his client in once place in
his opposition to the motion of the creditors as "una verdadera sociedad
anonima" (a true sociedad anonima). The provisions of the Code of
Commerce relating to sociedades anonimas were, however, repealed by
section 191 of the Corporation Law (Act No. 1459), with the exceptions
the sociedades anonimas lawfully organized at the time of the passage of the
Corporation Law were recognized, which is not our case.

The document providing for the partnership contract purported to form "una
sociedad mercantil limitada," and counsel for the petitioner's first contention
was that Teck Seing & Co., Ltd., was not "una sociedad regular colectiva, ni
siquiera comanditaria, sino una sociedad mercantil limitada." Let us see if
the partnership contract created a "sociedad en comandita," or, as it is
known in English, and will hereafter be spoken of, "a limited partnership."
To establish a limited partnership there must be, at least, one general
partner and the name of the least one of the general partners must appear
in the firm name. (Code of Commerce, arts. 122 [2], 146, 148.) But neither
of these requirements have been fulfilled. The general rule is, that those
who seek to avail themselves of the protection of laws permitting the
creation of limited partnerships must show a substantially full compliance
with such laws. A limited partnership that has not complied with the law of
its creation is not considered a limited partnership at all, but a general
partnership in which all the members are liable. (Mechem, Elements of
Partnership, p. 412; Gilmore, Partnership, pp. 499, 595; 20 R C. L. 1064.)

The contention of the creditors and appellants is that the partnership

contract established a general partnership.

Article 125 of the Code of Commerce provides that the articles of general
copartnership must estate the names, surnames, and domiciles of the
partners; the firm name; the names, and surnames of the partners to whom
the management of the firm and the use of its signature is instrusted; the
capital which each partner contributes in cash, credits, or property, stating
the value given the latter or the basis on which their appraisement is to be
made; the duration of the copartnership; and the amounts which, in a
proper case, are to be given to each managing partner annually for his
private expenses, while the succeeding article of the Code provides that the
general copartnership must transact business under the name of all its
members, of several of them, or of one only. Turning to the document
before us, it will be noted that all of the requirements of the Code have been
met, with the sole exception of that relating to the composition of the firm
name. We leave consideration of this phase of the case for later discussion.

The remaining possibility is the revised contention of counsel for the

petitioners to the effect that Teck Seing & Co., Ltd., is "una sociedad
mercantil "de facto" solamente" (only a de facto commercial association),
and that the decision of the Supreme court in the case of Hung-Man-Yoc vs.
Kieng-Chiong-Seng [1906], 6 Phil., 498), is controlling. It was this argument
which convinced the trial judge, who gave effect to his understanding of the
case last cited and which here must be given serious attention.

The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that

the firm Kieng-Chiong-Seng was not organized by means of any public
document; that the partnership had not been recorded in the mercantile
registry; and that Kieng-Chiong-Seng was not proven to be the firm name,
but rather the designation of the partnership. The conclusion then was, that
the partnership in question was merely de facto and that, therefore, giving
effect to the provisions of article 120 of the Code of Commerce, the right of
action was against the persons in charge of the management of the
association.

Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra,

side by side with the facts before us, a marked difference is at once
disclosed. In the cited case, the organization of the partnership was not
evidenced by any public document; here, it is by a public document. In the
cited case, the partnership naturally could not present a public instrument
for record in the mercantile registry; here, the contract of partnership has
been duly registered. But the two cases are similar in that the firm name
failed to include the name of any of the partners.

We come then to the ultimate question, which is, whether we should follow
the decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we
should differentiate the two cases, holding Teck Seing & Co., Ltd., a general
copartnership, notwithstanding the failure of the firm name to include the
name of one of the partners. Let us now notice this decisive point in the
case.

Article 119 of the Code of Commerce requires every commercial association

before beginning its business to state its article, agreements, and conditions
in a public instrument, which shall be presented for record in the mercantile
registry. Article 120, next following, provides that the persons in charge of
the management of the association who violate the provisions of the
foregoing article shall be responsible in solidum to the persons not members
of the association with whom they may have transacted business in the
name of the association. Applied to the facts before us, it would seem that
Teck Seing & Co., Ltd. has fulfilled the provisions of article 119. Moreover, to
permit the creditors only to look to the person in charge of the management
of the association, the partner Lim Yogsing, would not prove very helpful to
them.

What is said in article 126 of the Code of Commerce relating to the general
copartnership transacting business under the name of all its members or of
several of them or of one only, is wisely included in our commercial law. It
would appear, however, that this provision was inserted more for the
protection of the creditors than of the partners themselves. A distinction
could well be drawn between the right of the alleged partnership to institute
action when failing to live up to the provisions of the law, or even the rights
of the partners as among themselves, and the right of a third person to hold
responsible a general copartnership which merely lacks a legal firm name in
order to make it a partnership de jure.

The civil law and the common law alike seem to point to a difference
between the rights of the partners who have failed to comply with the law
and the rights of third persons who have dealt with the partnership.

The supreme court of Spain has repeatedly held that notwithstanding the
obligation of the members to register the articles of association in the
commercial registry, agreements containing all the essential requisites are
valid as between the contracting parties, whatever the form adopted, and
that, while the failure to register in the commercial registry necessarily
precludes the members from enforcing rights acquired by them against third
persons, such failure cannot prejudice the rights of third persons.
(See decisions of December 6, 1887, January 25, 1888, November 10, 1890,
and January 26, 1900.) The same reasoning would be applicable to the less
formal requisite pertaining to the firm name.

The common law is to the same effect. The State of Michigan had a statute
prohibiting the transaction of business under an assumed name or any other
than the real name of the individual conducting the same, unless such
person shall file with the county clerk a certificate setting forth the name
under which the business is to be conducted and the real name of each of
the partners, with their residences and post-office addresses, and making a
violation thereof a misdemeanor. The supreme Court of Michigan said:

The one object of the act is manifestly to protect the public against
imposition and fraud, prohibiting persons from concealing their identity by
doing business under an assumed name, making it unlawful to use other
than their real names in transacting business without a public record of who
they are, available for use in courts, and to punish those who violate the
prohibition. The object of this act is not limited to facilitating the collection of
debts, or the protection of those giving credit to persons doing business
under an assumed name. It is not unilateral in its application. It applies to
debtor and creditor, contractor and contractee, alike. Parties doing business
with those acting under an assumed name, whether they buy or sell, have a
right, under the law, to know who they are, and who to hold responsible, in
case the question of damages for failure to perform or breach of warranty
should arise.

The general rule is well settled that, where statutes enacted to protect the
public against fraud or imposition, or to safeguard the public health or
morals, contain a prohibition and impose a penalty, all contracts in violation
thereof are void. . . .

As this act involves purely business transactions, and affects only money
interests, we think it should be construed as rendering contracts made in
violation of it unlawful and unforceable at the instance of the offending party
only, but not as designed to take away the rights of innocent parties who
may have dealt with the offenders in ignorance of their having violated the
statute. (Cashin vs. Pliter [1912], 168 Mich., 386; Ann. Cas. [1913-C, 697.)

The early decision of our Supreme Court in the case of Prautch Scholes &
Co. vs. Hernandez [1903], 1 Phil., 705), contains the following pertinent
observations:

Another case may be supposed. A partnership is organized for commercial

purposes. It fails to comply with the requirements of article 119. A creditor
sues the partnership for a debt contracted by it, claiming to hold the
partners severally. They answer that their failure to comply with the Code of
Commerce makes them a civil partnership and that they are in accordance
with article 1698 of the Civil Code only liable jointly. To allow such liberty of
action would be to permit the parties by a violation of the Code to escape a
liability which the law has seen fit to impose upon persons who organized
commercial partnership; "Because it would be contrary to all legal principles
that the nonperformance of a duty should redound to the benefit of the
person in default either intentional or unintentional." (Mercantile Law, Eixala,
fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916], 33 Phil., 350,
360.)

Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the

following comment after articles 121 and 126 of the Code:

From the decisions cited in this and in the previous comments, the following
is deduced: 1st. Defects in the organization cannot affect relations with third
persons. 2d. Members who contract with other persons before the
association is lawfully organized are liable to these persons. 3d. The
intention to form an association is necessary, so that if the intention of
mutual participation in the profits and losses in a particular business is
proved, and there are no articles of association, there is no association. 4th.
An association, the articles of which have not been registered, is valid in
favor of third persons. 5th. The private pact or agreement to form a
commercial association is governed not by the commercial law but by the
civil law. 6th. Secret stipulations expressed in a public instrument, but not
inserted in the articles of association, do not affect third persons, but are
binding on the parties themselves. 7th. An agreement made in a public
instrument, other than the articles of association, by means of which one of
the partners guarantees to another certain profits or secures him from
losses, is valid between them, without affecting the association.
8th. Contracts entered into by commercial associations defectively organized
are valid when they are voluntarily executed by the parties, if the only
controversy relates to whether or not they complied with the agreement.

xxx xxx xxx

The name of the collective merchant is called firm name. By this name, the
new being is distinguished from others, its sphere of action fixed, and the
juridical personality better determined, without constituting an exclusive
character of the general partnership to such an extent as to serve the
purpose of giving a definition of said kind of a mercantile partnership, as is
the case in our Code.

Having in mind that these partnerships are prevailingly of a personal

character, article 126 says that they must transact business under the name
of all its members, of some of them, or of one only, the words "and
company" to be added in the latter two cases.

It is rendered impossible for the general partnership to adopt a firm name

appropriate to its commercial object; the law wants to link, and does link,
the solidary and unlimited responsibility of the members of this partnership
with the formation of its name, and imposes a limitation upon personal
liberty in its selection, not only by prescribing the requisites, but also by
prohibiting persons not members of the company from including their names
in its firm name under penalty of civil solidary responsibility.

Of course, the form required by the Code for the adoption of the firm name
does not prevent the addition thereto of any other title connected with the
commercial purpose of the association. The reader may see our
commentaries on the mercantile registry about the business names and firm
names of associations, but it is proper to establish here that, while the
business name may be alienated by any of the means admitted by the law,
it seems impossible to separate the firm names of general partnerships from
the juridical entity for the creation of which it was formed. (Vol. 2, pp. 197,
213.)

On the question of whether the fact that the firm name "Teck Seing & Co.,
Ltd." does not contain the name of all or any of the partners as prescribed
by the Code of Commerce prevents the creation of a general partnership,
Professor Jose A. Espiritu, as amicus curiæ, states:

My opinion is that such a fact alone cannot and will not be a sufficient cause
of preventing the formation of a general partnership, especially if the other
requisites are present and the requisite regarding registration of the articles
of association in the Commercial Registry has been complied with, as in the
present case. I do not believe that the adoption of a wrong name is a
material fact to be taken into consideration in this case; first, because the
mere fact that a person uses a name not his own does not prevent him from
being bound in a contract or an obligation he voluntarily entered into;
second, because such a requirement of the law is merely a formal and not
necessarily an essential one to the existence of the partnership, and as long
as the name adopted sufficiently identity the firm or partnership intended to
use it, the acts and contracts done and entered into under such a name bind
the firm to third persons; and third, because the failure of the partners
herein to adopt the correct name prescribed by law cannot shield them from
their personal liabilities, as neither law nor equity will permit them to utilize
their own mistake in order to put the blame on third persons, and much less,
on the firm creditors in order to avoid their personal possibility.

The legal intention deducible from the acts of the parties controls in
determining the existence of a partnership. If they intend to do a thing
which in law constitutes a partnership, they are partners, although their
purpose was to avoid the creation of such relation. Here, the intention of the
persons making up Teck Seing & co., Ltd. was to establish a partnership
which they erroneously denominated a limited partnership. If this was their
purpose, all subterfuges resorted to in order to evade liability for possible
losses, while assuming their enjoyment of the advantages to be derived
from the relation, must be disregarded. The partners who have disguised
their identity under a designation distinct from that of any of the members
of the firm should be penalized, and not the creditors who presumably have
dealt with the partnership in good faith.

Articles 127 and 237 of the Code of Commerce make all the members of the
general copartnership liable personally and in solidum with all their property
for the results of the transactions made in the name and for the account of
the partnership. Section 51 of the Insolvency Law, likewise, makes all the
property of the partnership and also all the separate property of each of the
partners liable. In other words, if a firm be insolvent, but one or more
partners thereof are solvent, the creditors may proceed both against the
firm and against the solvent partner or partners, first exhausting the assets
of the firm before seizing the property of the partners. (Brandenburg of
Bankcruptcy, sec. 108; De los Reyes vs. Lukban and Borja [1916], 35 Phil.,
757; Involuntary Insolvency of Campos Rueda & Co. vs. Pacific Commercial
Co. [1922], 44 Phil., 916).

We reach the conclusion that the contract of partnership found in the

document hereinbefore quoted established a general partnership or, to be
more exact, a partnership as this word is used in the Insolvency Law.

Wherefore, the order appealed from is reversed, and the record shall be
returned to the court of origin for further proceedings pursuant to the
motion presented by the creditors, in conformity with the provisions of the
Insolvency Law. Without special findings as to the costs in this instance, it is
ordered.

Araullo, C.J., Johnson, Street, Avanceña, Villamor, Johns and Romualdez,

JJ., concur.
[G.R. No. 2888. October 23, 1906. ]

HUNG-MAN-YOC, in the name of KWONG-WO-SING, Plaintiff-

Appellee, v. KIENG-CHIONG-SENG, ET AL., Defendants-Appellants.

Chicote & Miranda, for Appellants.

Win. Tutherly and Gabriel & Borbon, for Appellee.

SYLLABUS

1. GENERAL PARTNERSHIP. — K.C.S. was not proven the firm name, but
rather the designation of the partnership. It can not, therefore, be the firm
name of a general partnership, because this should contain the names of all
the partners, or some of them, or at least one of them, to be followed in the
two latter cases by the words "and company."cralaw virtua1aw library

2. LIMITED PARTNERSHIP. — It is not the firm name of a limited partnership

for the reason that this should contain the same requisites as the firm name
of a general partnership, and in addition thereto, the word "limited."cralaw
virtua1aw library

3. DE JURE PARTNERSHIP. — The organization of the partnership in question

was not evidenced by any public document, nor has the partnership been
legal existence, and has acquired no juridical personality in the acts and
contracts executed and made by it.

4. DE FACTO PARTNERSHIP. — The partnership under consideration, not

being included in any of the classes of partnership defined by the Code of
Commerce, there should be applied to it the general provisions applicable to
all partnerships. In such case "the persons in charge of the management of
the association are responsible for the business transacted in the name of
the same." (Article 120, Code of Commerce.) As the defendant was not so
"in charge of the management of the association," he has incurred no
liability.
DECISION

ARELLANO, J. :

The court below entered judgment against each and all of the defendants,
Chua-Che-Co, Yu-Yec-Pin, and Ang-Chu-Keng for the sum of 7,962.14
pesos, Mexican, equivalent to 7,372.75 pesos, Philippine currency, with
interest at the rate 6 per cent per annum from December 7, 1903, and
costs.

Chua-Che-Co is the only one who appealed.

The court below found that Chu-Che-Co, Yu-Yec-Pin, and Ang-Chu-Keng

were partners of Kiong-Tiao-Eng, under the firm name of Kieng-Chiong-
Seng.

It has been not proved that Kieng-Chiong-Seng was the firm name, but
rather the designation of the partnership.

It can not be the firm name of a general partnership because this should
contain the names of all the partners, or some of them, or at least one of
them to be, followed in the two latter cases by the words "and company"
(art. 126 of the Code of Commerce), whereas in this case none of the four
names of those it is alleged were members of the firm appear in the firm
name of the partnership. Neither can it be considered as the firm name of a
limited partnership for the reason that this should contain the same
requisites as the firm name of a general partnership, and in addition thereto
the word "limited." (Art. 146.) The firm name in question has absolutely
none of these requisites.

Anonymous partnership (corporations) do not require a firm name or

signature; a designation adequate, for the object or objects of the business
to which it is dedicated, is sufficient. (Art. 151 and 152.)
The fact is, as alleged by the plaintiff and appellee in his brief, that "there is
no doubt that the partnership of Kieng-Chiong-Seng was a mercantile
partnership organized for the purpose of engaging in commercial pursuits,
although such organization was not evidenced by any public document as
required by article 119 of the Code of Commerce, nor was it registered as
required by article 17 of the said code" (p.5).

All these statements are correct.

The partnership in question was a mercantile one, as it was engaged in the

importation of goods for sale here at a profit. It was so testified to by its
manager, Yu-Yec-Pin, and Kiong-Tiao-Eng. But its organization is not
evidenced by any public document. The agent Yu-Yec-Pin himself and some
of his so-called partners have merely noted in the books of the partnership,
which by the way, were not introduced in evidence, the capital which each
had contributed. The agent further testified that the partnership was not
record in the Mercantile Registry but in the Internal Revenue office.

All this being so, the alleged partnership never had any legal existence nor
has it acquired any judicial personality in the acts and contracts executed
and made by it. (Art. 116, par. 2.)

But as the said partnership was a partnership de facto, although it had no

legal standing, and contracted obligations in favor of the plaintiff, the liability
arising from such obligations must enforcible against some one.

The partnership in question not being included in any of the classes of

partnership defined by the Code of Commerce there should be applied to it
the general provisions applicable to all partnerships contained in article 120
of the Code of Commerce, which reads as follows:jgc:chanrobles.com.ph

"The persons in charge of the management of the association who do not

comply with the provisions of the foregoing article (art. 119, which requires
that the articles of partnership be recorded in a public instrument, and that
the partnership be registered in the Mercantile Register) shall be responsible
together with the persons not members of the association with whom they
may have transacted business in the name of the same."cralaw virtua1aw
library
The defendant, Chua-Che-Co, was in charge of the management of the
association, nor did he make any contract at all with the plaintiff, as clearly
appears from the testimony of the various witnesses, the agent of the
partnership, Yu-Yec-Pin, being the person who made all the contracts for the
partnership; also Kieng-Tiao-Eng according to two of the witnesses. It is
evident, therefore, that he has incurred no liability and that he can not be
held individually responsible for the payment of plaintiff’s claims as the court
below found.

We accordingly reverse the judgment of the court below and acquit the
defendant, Chua-Che-Co, without special condemnation as to costs in both
instances.

After the expiration of ten days from the date of final judgment the record
will be remanded to the Court of First Instance for execution. So ordered.

Torres, Mapa, Johnson, Carson, Willard, and Tracey, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 1184 April 22, 1904

THE COMPAÑIA AGRICOLA DE ULTRAMAR, plaintiff-appellant,

vs.
ANACLETO REYES, ET AL., defendants-appellees.

Francisco Ortigas for appellant.

Jose Santiago for appellees.

JOHNSON, J.:

On the 7th day of January, 1902, the representative of the Compañia

Agricola de Ultramar, a partnership legally organized in Madrid, Spain,
domiciled in the city of Manila, presented a complaint in the justice's court of
the town of Quingua, Province of Bulacan, against Anacleto Reyes and
others, setting forth that the defendants were tenants of the estate called
Tabang, San Marcos, and Dampol, the property of the plaintiff company
located in the said town of Quingua, each one of whom were occupying the
quantity of land expressed therein without having paid the rent for the years
1899, 1900, and 1901, notwithstanding the fact that said payment had been
demanded several times at the end of each year. Therefore the plaintiff
company prayed that judgment be rendered against said defendants,
ordering them to vacate the lands occupied by them and to restore the
possession thereof to the plaintiff, with costs against the defendants.

Upon notice, the defendants appeared on the 30th of January of the same
year, with the exception of the China-man Mariano Yñiguez. After hearing
both parties, the justice of the peace, on the 17th of February following, on
the supposition that said plaintiff company was a commercial partnership,
and subject to the provisions of the Code of Commerce, and had not
registered in the commercial registry, denied the petition of the plaintiff,.
with costs.

An appeal having been interposed by the plaintiff and the parties cited, a
hearing was had in the Court of First Instance of Bulacan on the 21st of
March, 1902, and the judge, having heard the arguments and petitions of
both parties, on the 22d of the same month, rendered judgment confirming
the decision of the justice's court of Quingua, and declared the Compañia
Agricola de Ultramar a commercial partnership, and therefore that its
registry in commercial register was necessary in order to appear in an
action, and adjudged the payment of the costs to the plaintiff.

On the 24th of March the plaintiff company, by petition, prayed that the
decision before mentioned should be annulled, and that a new trial be
granted in view of the reasons set forth. The judge, on the 27th of
September, in the presence of both parties, and for the reasons expressed
by him, declared that the Compañia Agricola de Ultramar was a civil
partnership, to which are applicable the provisions of the Code of Commerce
in conformity with article 1670 of the Civil Code, and that said partnership
should be registered in the commercial registry before it could appear in an
action against the defendants, modifying and revoking that part of the
judgment of the 22d of March which did not conform thereto, and confirming
that part which agrees with the provisions cited. The plaintiff excepted to
this judgment.

In the bill of exceptions appears, among other documents, the articles of

incorporation executed on the 6th of February, 1893, before a notary in the
court of Madrid, Spain, by various residents of the same place, organizing a
partnership, entitled Compañia Agricola de Ultramar, which, among other
things, expressed the organization of the partnership and its statutes, as
well as that the parties therein organized a special civil partnership to exploit
the agricultural industry in the Philippine Islands and other Spanish colonies,
in accordance with the present Civil Code, and under the following statutes:

ARTICLE 1. The partnership shall be called the Compañia Agricola de

Ultramar, and shall have its residence in Manila.

ART. 2. The duration of the partnership shall be for ninety years from the
date of its incorporation. Said period may be extended by a resolution of the
board of shareholders.

ART. 3. In order to exploit and develop the agricultural industry in the

Philippine Islands and other Spanish colonies, the partnership may acquire
any land, canals, and irrigating marshes or runways, overflows, waterfalls,
quarries, and other real estate, and such cattle as may be useful for
agricultural exploitation; to exploit or alienate said property, and to rent, by
way of a charge, or underlease, as may be convenient for the interests of
the partnership, the realty; to establish agricultural colonies and to invest
capital at interest with a mortgage upon rural or urban property, and to
acquire credits with such guaranties; to grant loans upon crops, cultivated
lands, cattle, agricultural machines, and in turn to borrow money on
mortgage guaranty; to lease rural or urban property.

ART. 4. The capital is four million and fifty thousand pesetas, divided into
eighty-one shares of fifty thousand pesetas each. Said capital can be
increased or decreased, or subdivided in a proportion of five thousand or
more pesetas for each one, by resolution of the board of directors.

ART. 5 Only the capital invested will answer for the obligations of the
company. Neither the organizers nor grantors of shares will in any case and
under any consideration be responsible for the debts of the partnership.

ART. 38. According to the provisions of article three the partnership can loan
money upon crops, cultivated land, cattle, and agricultural machinery and
implements in general.

In the bill of exceptions presented to this court by the Compañia Agricola de

Ultramar, plaintiff and appellant, against the decision of the lower court, it
appears that the principal object is to obtain a judicial declaration that the
plaintiff herein is a civil partnership, and is not therefore under the obligation
of registering in the commercial registry in order to have juridical personality
with the power to appear in an action against the defendants.

The organizers of the Compañia Agricola de Ultramar stated in the articles of

incorporation that by the same they organized a special civil corporation for
the purposes and ends expressed therein.

Granting, for the sake of argument, without accepting the doctrine that the
character of an association, whether it be civil or mercantile, is determined
solely by the business in which it is engaged and not by the form of its
organization, in this present cause there is not evidence showing the
character of the business of the plaintiff save the articles of its association.
We must therefore decide whether this plaintiff was a mercantile or a civil
corporation by the purposes declared in its articles of association, and the
law governing in such cases.
Mercantile associations, purely, are governed by the mercantile code. Civil
associations are governed by the Civil Code. Article 1 of the Code of
Commerce provides that:

ARTICLE 1. The following are merchants for the purposes of this code:

(1) Those who, having legal capacity to trade, devote themselves thereto
habitually.

(2) Commercial or industrial associations which are formed in accordance

with this code.

The Commercial Code for the Philippines does not attempt anywhere, as
some other codes do, to define what are commercial transactions. In the
absence of proof to the contrary, therefore, we must be governed as to the
purposes of the association by the form adopted by its organization and the
purposes declared in its articles of association.

Primarily we must determine whether an association is mercantile or civil

simply by the form of its organization.

The Commercial Code provides how mercantile associations shall be

organized.

Article 116 defines a commercial association and provides that —

Articles of association by which two or more persons obligate themselves to

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

After a commercial association has been established, it shall have the right
to operate as a juristic person in all its acts and contracts.

Article 122 provides that commercial associations may become a general or

limited copartnership or a corporation, according to the particular form of
the organization which it may adopt.

Article 121 provides that all commercial associations shall be governed by

the clauses and conditions of their articles of association, and that in cases
or conditions not so provided for shall be controlled by the general provisions
of the Commercial Code.
Article 17 provides that all commercial associations, established in
accordance with the provisions of the code, shall be inscribed in the
commercial registry.

Article 16 makes provisions for the establishment of commercial registries in

all the capitals of the provinces.

Article 21 provides what facts, concerning commercial associations, shall be

recorded in such commercial registries.

Article 119 provides that —

Every commercial association, before beginning business, shall be obliged to

record its establishment, agreements, and conditions in a public instrument,
which shall be presented for record in the commercial registry, in accordance
with the provisions of article seventeen.

Additional instruments which modify or alter in any manner whatsoever the

original contracts of the association are subject to the same formalities, in
accordance with the provisions of article twenty-five.

Partners can not make private agreements, but all must appear in the
articles of copartnership.

The supreme court of Spain in an opinion rendered on the 14th day of May,
1884, in the cause of Santiago vs.Bautista, et al., held under a similar
provision of the Commercial Code in force in Spain, that commercial
associations have no right to bring actions in the name of the association
until after they have complied with the provisions of the code found in
articles 17 and 119.

Articles 125-144 contain the general provisions governing general

associations.

Articles 145-150 contain the general provisions governing limited

associations.

Articles 151-174 contain the general provisions governing corporation.

Articles 175-243 contain the general provisions governing special classes of

corporations or associations.
Article 35 of the Civil Code provides what are juridical persons. Its provisions
are as follows:

The following are juridical persons:

(1) The corporations, associations, and institutions of public interest

recognized by law.

Their personality begins from the very instant in which, in accordance with
law, they are legally established.

(2) Private associations, be they civil, commercial, or industrial, to which the

law grants proper personality, independent of that of each member thereof.

Article 36 provides that —

The associations referred to in No. 2 of the foregoing article, shall be

governed by the provisions of their articles of association, according to the
nature of the latter.

Article 37 provides that —

The civil capacity of corporations shall be governed by the laws which have
created or recognized them; that of associations by their by-laws . . . .

Article 38 provides that the general powers and rights of juridical persons
are as follows:

Juridical persons may acquire and possess property of all kinds, as well as
contract obligations and institute civil or criminal actions in accordance with
the laws and rules of their organizations.

Article 39 provides for the winding up of the business of corporations and

associations organized under the Civil Code and for the disposition of their
property.

Article 1665 defines a partnership as follows:

Partnership is a contract by which two or more persons bind themselves to

contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.

Article 1666 provides that such partnerships must have lawful objects, and
be established for the common interest of all their members.
Article 1667 provides that such partnerships may be established in any form
whatever, except when real property or property rights are contributed, in
which case a public instrument shall be necessary.

In the present case the property was contributed and a public instrument
was duly executed before Manuel de Bofarull, one of the most famous
notaries of all Europe.

Article 1670 provides that civil partnerships, on account of the objects to

which they are devoted, may adopt all the forms recognized by the
Commercial Code. In such cases its (Commercial Code) provisions shall be
applicable in so far as they do not conflict with the provisions of this code.

It will be seen from this provision that whether or not partnerships shall
adopt the forms provided for by the Civil or Commercial Codes is left entirely
to their discretion. And furthermore, that such civil partnerships shall only be
governed by the forms and provisions of the Commercial Code when they
expressly adopt them, and then only in so far as they (rules of the
Commercial Code) do not conflict with the provisions of the Civil Code. In
this provision the legislature expressly indicates that there may exist two
classes of commercial associations, depending not upon the business in
which they are engaged but upon the particular form adopted in their
organization. The definition of the partnership found in article 1665 clearly
includes associations organized for the purpose of gain growing out of
commercial transactions.

Articles 1671-1678 provide for general and particular partnerships, and give
the rules governing the division of the profits.

The Commercial Code makes special provisions for the liability of the
members of the different associations organized under it. (See the articles
contained in sections 2, 3, 4, 5, and 6 of Book II, Title I.)

The Civil Code here again recognizes the existence of civil partnerships, in
contradistinction to commercial partnerships, in expressly providing for the
liability if their members (See arts. 1667-1669 of Chap. II of Title VII.)
Chapter III of the same title contains special provisions for the dissolution of
civil associations.

If it is held that an association which adopts the form for its organizations
provided for by the Civil Code is controlled by the rules requiring registration
under the Commercial Code, then by which code shall the courts be
governed in applying the rules of the liability of their members and for the
dissolution of the same? We are inclined to the belief that the respective
codes, Civil and Commercial, have adopted a complete system for the
organization, control continuance, liabilities, dissolutions, and juristic
personalities of associations organized under each.

It will be seen from these provisions of the codes that the Civil Code has
expressly provided for the existence of commercial associations, giving them
juristic personality and certain rights and privileges. In these provisions no
reference is made to the provisions of the Commercial Code. It is contended
that notwithstanding this fact, such associations are nevertheless governed
by the provisions of the latter code. The Commercial Code was enacted and
went into effect on the 1st day of December, 1888. The Civil Code was
enacted and took effect on the 31st day of July, 1889. Had it been the
intention of the legislature to provide that all commercial associations, of
whatever class, should be governed by the provisions of the Commercial
Code, it certainly would not have provided, at a later date, other rules,
rights, privileges, and regulations. It is our opinion that associations
organized under the different codes are governed by the provisions of the
respective codes.

From the articles of association it will be seen that the plaintiff company was
organized expressly under the provisions of the Civil Code, on the 6th day of
February, 1893.

From the petition of the plaintiff and the bill of exceptions it appears that the
defendants failed and refused to pay the rent for any of the years previous
to 1899. Assuming, without finding it to be a fact, that the defendants had
paid the rents for previous years, then they thereby recognized the plaintiff
company as an entity and are thereby now estopped from setting up the
contrary.

While conditions precedent must always be performed, in order that a

corporation may have a legal existence, it does not by any means follow that
objection to the existence of a corporation on this ground alone can be
raised by any and every person, and in every proceeding. This objection can
always, with few exceptions, be raised by the State. (Attorney-
General vs. Hanchett, 42 Mich., 436; People vs. Water Co., 97 Cal., 276).
Persons who assume to form a corporation or business association, and
exercise corporate functions, and enter into business relations with third
persons, are estopped from denying that they constitute a corporation. So
also are the third persons who deal with such a de facto association or
corporation, recognizing it as such and thereby incurring liabilities, estopped,
when an action is brought on such obligations, from denying the juristic
personality of such corporations or associations. (Scheufler vs. Grand Lodge,
45 Minn., 256; Farmer's Loan and Trust Co. vs. Ann Arbor Ry. Co., 67 Fed.
Rep., 49)

Where there is a corporation de facto, with no want of legislative power to

its due and legal existence, when it is proceeding in the performance of a
corporate functions, and third persons are dealing with it on the supposition
that it is what it professes to be, and the questions are only whether the law
has been strictly followed in its organization, it is plainly a dictate alike of
justice and public policy, that in controversies between the de
facto corporation and those who have entered into contractual relations with
it, as corporations or otherwise, such questions should not be suffered to be
raised. (Swarthout vs. Michigan, etc., Ry. Co., 224 Mich., 390).

Where a shareholder of an association is called upon to respond to a liability

as such, and where a party has contracted with a corporation and is sued
upon the contract, neither is permitted to deny the existence or the legal
validity of such corporation. To hold otherwise would be contrary to the
plainest principles of reason and good faith. Parties must take the
consequences of the position they assume. (Casey vs. Galli, 94 U.S., 673;
Bliss on Code Pleading, secs. 252-254.)

From the foregoing considerations, the provisions of the articles of

association of the plaintiff company, and the quoted provisions of the Civil
and Commercial Codes, we are justified in reaching the following
conclusions:

First. That the plaintiff company had statutory authority to organize under
the Civil Code for the purposes indicated in its articles of association.

Second. That it did effect its organization under the Civil Code in force in
these Islands.
Third. The defendants having recognized the existence of the plaintiff as an
entity capable of dealing with private persons, they are thereby estopped
from denying that fact.

Fourth. That the plaintiff company, having complied with the forms required
for the organization of associations of its class under the Civil Code, is a
juristic person recognized by law, and has capacity to maintain the present
action.

The judgment of the lower court is therefore hereby reversed, and the cause
is hereby ordered to be remanded to the Court of First Instance of the
Province of Bulacan, with direction that the defendants be required to appear
and answer within the time fixed by law, and upon failure so to do that a
judgment be rendered against them by default in accordance with the prayer
of the petition filed in said cause.

Cooper and McDonough, JJ., concur.

Mapa, J., did not sit in this case.

Separate Opinions

ARELLANO, C.J., concurring:

This case presents the much-debated question of the legal personality of a

civil partnership in the mercantile form.

The question turns upon the provisions of article 1670 of the Civil Code,
which is as follows: "Civil partnerships, on account of the objects to which
they are devoted, may adopt all the forms recognized by the Code of
Commerce. In such case its provisions shall be applicable in so far as they
do not conflict with those of this code."

The doubt which gives rise to the discussion results on the one hand, from
the fact that the partnership, because it is a civil partnership, is by its very
nature invested with legal personality from the moment of the execution of
the contract, in the absence of a contrary stipulation, and on the other hand
from the fact that because it is established in a form recognized by the Code
of Commerce it can not have legal personality until after the execution of a
public instrument containing the articles of association, and the inscription of
this instrument in the mercantile registry.

The provisions of law which serve as a basis for both aspects of the question
are the following:

With respect to the juridical personality of a civil partnership, articles 1679,

1667, 1668, and 1669 of the Civil Code provide:

ART. 1679. A partnership begins from the moment of the making of the
agreement, if not otherwise stipulated.

ART. 1667. Civil partnerships may be established in any form whatever,

unless when real property or an interest therein should be contributed to the
same, in which case a public instrument shall be necessary.

ART. 1668. Articles of copartnership are void, when real property is

contributed to the same, if an inventory of said property is not made, signed
by the parties, and which must be attached to the instrument.

ART. 1669. Partnerships, the articles of which are kept secret among the
partners, and in which each one of the latter may contract in his own name
with third persons, shall have no juristic personality. This kind of partnership
shall be governed by the provisions relating to property held in common.

As to the juristic personality of a mercantile partnership articles 117, 119, 17

and 24 of the Code of Commerce control:

ART. 117. Articles of association, executed with the essential requisites of

law, shall be valid and binding between the parties thereto, no matter what
form, or what conditions and combinations, legal and honest, are embraced
therein, provided they are not expressly prohibited by this code.

ART. 119. Every commercial association before beginning business shall

record its establishment, agreements, and conditions in a public instrument,
which shall be presented for record in the commercial registry, in accordance
with the provisions of article 17 . . . . Partners can not make private
agreements, but all must appear in the articles of copartnership.

ART. 17. The record in the commercial registry shall be optional for private
merchants and compulsory for associations established in accordance with
this code or with special laws, and for vessels.
ART. 24. Articles constituting associations not recorded shall be binding
between the members who execute the same; but they shall not prejudice
third persons, who, however, may make use thereof in so far as
advantageous.

From the provisions of law above quoted it follows, first, that the contract of
partnership does not require any particular form to give it validity and make
it enforceable as between the contracting parties themselves, it being
sufficient that the essential requisites for the perfection of the contract
concur, with one single exception as to civil partnership; second, that this
exception with respect to civil partnerships consists in the fact that the
partnership contract shall not be valid, when the real property is contributed
to it, if the contract is not recorded in a public instrument, with an inventory
of the real property so contributed attached thereto; third, with respect to
third persons, (a) for the enforceability of a contract of civil partnership the
formality of the public instrument is not required, with exception of the case
above referred to, it being sufficient that the partners do not keep their
agreements secret, and that each partner does not undertake to reserve the
right to make contracts in his own name with third persons; fourth, that with
respect to third persons a partnership which keeps its agreements a secret,
or in which each one of the partners contracts in his own name, the
partnership will not be a legal entity independent from the personality of
each one of the individuals so associated, but would be merely a tenancy in
common, and persons so associated, as to third persons, would be mere
tenants in common; fifth, that with respect to third persons (b) for the
enforceability of the mercantile contract of partnership it is necessary that
the contract be evidenced by public instrument, and that this instrument be
recorded in the mercantile registry.

If the members of the Compañia Agricola de Ultramar, formed in Madrid

February 6, 1893, when constituting this partnership expressly with the civil
character in accordance with their agreements had contributed capital in
cash only "for the purpose of exploiting and developing the agricultural
industry in the Philippine Islands and other Spanish colonies," and to apply
such funds to "( f ) leasing such city or country property as may be
convenient;" "(c) to established agricultural colonies, to make large
plantations for the account of the partnerships or of other persons, to break
lands, to make plans for water supplies, to construct and operate such water
supplies, and to engage in other similar enterprises;" "(d) to invest money at
interest upon the security of mortgages or antichresis upon city or country
property, and to purchase credits secured by mortgage or antichresis. . .,"
and had not divided its capital into shares or prepared by-laws, or adopted a
partnership name, there is no doubt that they might have dispensed with
the formality of a public instrument and have recorded these agreements in
a private writing. Head they done so nobody could have denied the
partnership legal personality as to third persons unless it should be shown
that some one of the members contracted for it in his own name. The
manger or managers appointed by the partners would beyond doubt have
been able to maintain suits in the name of the partnership as a legal entity
— maintain, for instance, the action of forcible entry and unlawful detainer in
which this question arose.

The necessity for a public instrument arises from the provisions of

paragraphs (a) and (b) of the articles of partnership entered into by the
partners with respect to the purpose of the partnership. But this necessary
form did not change the status of the association as a civil partnership,
because the Civil Code itself requires this formality for all partnerships to
which real property or interests therein are contributed, even though the
partnership may not partake of the form of mercantile partnership.

The only ground for doubt remaining undisposed of is found in the following
peculiarities of the contract in question: (1) The anonymous form of the
partnership with its firm name, the division of the capital into shares, and
the establishment of by- laws for its government; (2) the operations (c) in
which the partnership might engage, to wit' "to make loans upon crops,
fields, cattle, agricultural machinery and implements . . .," an operation
apparently controlled by article 212 of the Code of Commerce as one
properly pertaining to agricultural banks. From these premises the inference
is apparently to be drawn that as the anonymous form of partnership is one
of the forms regulated by the Code of Commerce, and as the object of
agricultural banks and associations is to "make loans in money or kind for a
period not exceeding three years upon products, crops, cattle, or any other
pledge or special security" (art 212, par. 1), and as on this account the
provisions of the Code of Commerce are applicable to such a partnership
(art. 1670, Civil Code), the Compañia Agricola de Ultramar would be a civil
partnership but by reason of its form and mercantile purpose would be
subject to the provisions of articles 119 and 17 of the Code of Commerce,
and consequently until the articles of association are recorded in the
mercantile register it would appear that the partnership could not maintain a
suit as a legal entity against third persons arising fro obligations contracted
by them in favor of the partnership.

This conclusion, however, is not a necessary one. The terms of the articles of
association are as follows:

ART. 3. To exploit and develop the agricultural industry in the Philippine

Islands and other Spanish colonies, the partnership (its purpose) may: . . .
(e) (one of its purposes) make loans upon crops, field, etc. . . . ." That which
is optional is not obligatory. Not being obligatory, it is not essential. That
which is not essential is not one of the constituent elements of the contract.
Consequently the Compañia Agricola de Ultramar was not constituted as an
agricultural bank or agricultural association according to the classification of
the Code of Commerce under the heading: "Of special rules applicable to
banks and agricultural associations."

Taking it for granted that this purpose, among others of a purely civil
character, as well as the object of the partnership, were necessary purposes,
or that the Compañia Agricola del Ultramar, or any other partnership,
similarly situated, might some day desire to carry it into effect, it would not
for this reason necessarily have to be considered as a mercantile partnership
or bound to comply with the formalities necessary to the constitution of a
purely mercantile partnership. Article 1 of the Code of Commerce gives us a
division of merchants as follows (1) Those who, having legal capacity to
trade, devote themselves thereto customarily; (2) commercial or industrial
associations which are formed in accordance with this code. The Compañia
Agricola de Ultramar was not organized in accordance with this code. It was
expressly stated by the gentlemen who signed the contract that ". . . they
declare (1) constitution of the partnership; that by this act they constitute
a particular civil anonymous partnership for the purpose of exploiting and
developing the agricultural industry in the Philippine Islands and other
Spanish colonies in accordance with the Civil Code in force . . . .(Bill of
exceptions, p. 18.)

Furthermore, in accordance with article 2 of the Code of Commerce

"commercial transactions, whether those who perform them are merchants
or not, and whether such acts are or are not specified in this code, shall be
controlled by the provisions contained therein." If the Compañia Agricola de
Ultramar or any other company organized in a similar way should engage in
commercial transactions such as, for instance, purchase and sale,
commission agencies, mercantile bailments, or mercantile loans, then in
accordance with this article of the Code of Commerce which would be
applicable to it ex propio vigore, and furthermore by the provisions of article
1670 of the Civil Code, without ceasing to be a civil partnership and
endowed with legal personality from the time of its commencement, it would
be controlled by the provisions contained in that code with respect to the
commercial transactions performed by it. Thus, for instance, if it made loans
upon crops, fields, cattle, agricultural machinery and implements (object (c)
of the articles of association, bill of exceptions, p. 18) then it would be
subject to the provisions of article 217, according to which — even
considering it for the sake of the argument as a mere agricultural credit
association instead of what it is, a civil company for the exploitation and
development of the agricultural industry — it would be obliged to apply 50
per cent of its capital to loans which, as well as those referred to, are
specified in paragraph 1 of article 212 of the Code of Commerce.

If neither by reason of one among various purposes, or by reason of any

general purpose, is it necessary that one who, like a civil partnership
organized in accordance with the Civil Code, is not a merchant, should
become a merchant and thereby be subject to all the provisions of the Code
of Commerce concerning mercantile companies, and withdrawn absolutely
from the scope of the provisions of the Civil Code to which it was the intent
of the founders to conform in the exercise of the option conferred upon them
by both codes, then neither is it a necessary consequence that a civil
partnership, intentionally and deliberately organized in accordance with the
Civil Code, should be transformed into a mercantile partnership merely
because it has been molded in one of the forms recognized by the Code of
Commerce — in this case the anonymous form.

The applicability of the provisions of the Code of Commerce to civil

partnerships organized in the form of mercantile associations, such as
anonymous partnerships or corporation, does not include all the provisions
of that code, nor does it annul by absorption those provisions is limited
logically to a mere adaptation to those concerning the form adopted by the
civil partnership with respect to its control. This is the provision of article
1670 of the Civil Code ad referendum. This article is to be understood as
though its provisions had been expressed in the following language:
ART. 1670. The civil partnership, without ceasing to be civil by reason of its
object, may be created in all the forms recognized in the Code of Commerce.
It may be a collective or general partnership, a partnership en comandita, or
an anonymous partnership. In this case, if it should adopt the form of a
general partnership, then the provisions of articles one hundred and twenty-
five to one hundred and forty-four, inclusive, would be applicable to it; if it
should adopt the form of a partnership en comandita, then articles one
hundred and forty-five to one hundred and fifty would be applicable; and if
the form adopted is that of the anonymous partnership, then the provisions
of articles one hundred and fifty-seven to one hundred and seventy- four of
the Code of Commerce would apply in so far as they are not in conflict with
the articles of the present code.

If the object of the Civil Code was to authorize a civil partnership to adopt
the forms of a mercantile partnership but still be controlled by the provisions
of the Civil Code — and that such was the purpose is shown by the exception
established to the applicability of the articles of the Code of Commerce and
to the preponderance given to the provisions of the Civil Code itself — then
it is evident that the provisions of the Code of Commerce referred to as
being applicable to such a civil partnership in the mercantile form can be
none other than those concerning the mercantile from adopted. Any other
view would be equivalent to considering the part greater than the whole, and
no effect could be given to the exception that the provisions of the Code of
Commerce are to be applicable "in so far as they are not in conflict with the
provisions of the present code." If this were not the purpose intended, then
it would have been sufficient to have said, "in such case they shall be in
every respect subject to the Code of Commerce." Then indeed it might have
been said that the civil partnership in the mercantile form ceases to be civil
and is transformed into a mercantile association. If this conclusion can not
be reached, and the partnership continues to be civil, although invested with
the mercantile form, then it has legal personality as a corporate being
provided the articles are not kept secret among the partners, and that each
one of the latter be not authorized to contract in his own name with third
persons. (Art. 1669) Any other application of these provisions would be
contrary to the requirements of the Civil Code with respect to the legal
personality of a civil partnership.

Even if we examine the historical precedents of article 1670 of the Civil

Code, no other conclusion can be reached. Its historical precedent is article
106 of the Portuguese Code of Commerce, which became operative in that
country January 1, 1889. The Spanish Civil Code did not become operative
in Spain until May of that year, having been published the preceding
January, before which date the provisions cited of the Portuguese Code were
available, it having been published in June, 1888. According to this article
106, "civil partnerships may be constituted under any of the forms
established in the preceding article, they being, nevertheless, subject to the
provisions of the present code, except with respect to matters of bankruptcy
and questions of jurisdiction." As the terms of this article are more explicit, it
appears more clearly still that a civil partnership in the mercantile form is
not converted into a mercantile partnership, and is not identified with a
partnership mercantile by its nature merely because it is subject to the
provisions of the Code of Commerce. It appears further that while mercantile
partnerships are subject to the provisions of the Code of Commerce
concerning bankruptcy and the jurisdiction of the commercial court which
exists in Portugal, civil partnerships in the mercantile form are not so
subject. The Spanish Civil Code is broader. While in the Portuguese Code of
Commerce the proviso contained in article 106 is a pure exception, the rule
being the applicability to civil partnerships in the mercantile form of the
provisions of the Code of Commerce, in the Civil Code of Spain the proviso is
not a mere exception, but is the rule, the exception being the applicability of
the provisions of the Code of Commerce in subordination to those of the Civil
Code, which preponderate. Consequently the direct, primordial, and principal
law applicable is the Civil Code, without prejudice to the application of the
provisions of the Code of Commerce in so far as they are not in conflict with
those of the Civil Code, which are applicable to such partnerships merely
subsidiary. This being so, if the civil partnership from the time the contract is
perfected is invested with juridical personality as a corporate being, unless
the partners keep their agreements a secret or each one of them contracts
in his own name (art. 1669), the Compañia Agricola de Ultramar, the
members of which do not keep their agreements secret, and as to whom it
has not been shown that any of them has contracted in his own name, is
invested with juridical personality, notwithstanding the fact that under the
provisions of article 119 of the Code of Commerce, a mercantile partnership
is devoid of juridical personality unless its articles of association are recorded
in the mercantile registry. This is so because this provision of the Code of
Commerce, which refers not to a matter of form, but to the existence or
essence of a mercantile partnership, is not applicable to a civil partnership in
the mercantile form, and second, because even admitting for the sake of
argument that it were, then as being clearly in conflict with the provisions of
article 1669 it must give way to the rules of the Civil Code in accordance
with the provisions of article 1670 thereof. "The provisions of the Code of
Commerce will be applicable in so far as they are not in conflict with those of
the present code." These are the express terms of article 1670 of the Civil
Code.

The will of the contracting parties, which is the fundamental law of the
contract, can not be disregarded without infringing the principle of the law of
contracts established by article 1091 of the Civil Code. It being the express
will of the parties to constitute a civil partnership in accordance with the Civil
Code, the partnership organized is and can be nothing else than a civil
partnership, and this was the conclusion of the court below in its second
decision. It is true that contracts are not what the parties may see fit to call
them, but what they really are as determined by the principles of law. It is
true that the parties are not a liberty to call a contract of loan a bailment, for
these two contracts are essentially different, and the essential attributes of
things can not be changed. But a civil partnership does not differ essentially
from a mercantile partnership. They are not two distinct contracts. Both of
them have for their purpose the contribution of property or industry for the
purpose of obtaining a profit. As to whether the partnership is to be
mercantile or civil, the law makes no specific difference, leaving this to the
will of the parties. If the parties organize the partnership in accordance with
the provisions of the Code of Commerce, then it would be mercantile. If they
organize it in accordance with the provisions of the Civil Code, then it will be
civil. As the founders of the company in question have made use of the right
of option l which the law grants them, it can not be said that their election,
authorized by the law, is rendered ineffectual by the law itself. If there were
such a provision of law, no room for doubt would exist. It follows, therefore,
that to say that although the parties intended that the partnership should be
civil, nevertheless it is mercantile, because the law so provides, is to take
the whole case for granted.

The partnership in question is industrial. Industry is one of the objects

included within the definition which the Civil Code gives of a civil partnership
in article 1665, and also in that of a mercantile partnership, the definition of
which is found in article 116 of the Code of Commerce. Manresa says "This
definition also includes mercantile partnerships," but adds, "but they will not
be considered as mercantile if they are not constituted in accordance with
the provisions of the Code of Commerce, in which case they would be civil."
(Vol. I, Manresa's Commentaries, p. 184)

For the reasons stated I agree with the result of the majority opinion.

TORRES, J., dissenting:

January 7, 1902, counsel for the Compañia Agricola de Ultramar, an

anonymous partnership legally constituted in Madrid, Spain, and domiciled in
this city, filed a complaint in the court of the justice of the peace of the
municipality of Quingua, Province of Bulacan, against Anacleto Reyes et al.,
alleging that the defendants are tenants of the haciendas called Tabang, San
Marcos, and Dampol, the property of the plaintiff company, situated in the
said township of Quingua' that each of the defendants is in possession of the
parcels of land described in the complaint; that they have failed to pay the
rents due for the years 1899, 1900, and 1901, or that of preceding years,
notwithstanding demands made upon them several times at the end of each
year for the payment of the said rents. Upon this statement of facts the
plaintiff company prayed for judgment against the defendants for the
recovery of possession of the lands occupied by them, with the costs of suit.

Process having been issued, the defendants appeared by their respective

counsel on January 30, 1902, with the exception of the Chinaman Mariano
Iñiguez, as to whom the case was dismissed on motion of plaintiff. After
hearing of both parties the justice of the peace, on February 17 following,
and upon the ground that the plaintiff company, being a mercantile
partnership subject to the provisions of the Code of Commerce, had not
proven that its articles were recorded in the mercantile registry, dismissed
the complaint on motion of counsel for the defendants, and imposed upon
the plaintiff the costs of suit.

The plaintiff company having appealed, the case was tried in the Court of
First Instance of Bulacan, March 21, 1902, and the judge, after hearing the
evidence and argument by the respective counsel, on March 22, 1902,
rendered judgment with the costs against the plaintiff, affirming the decision
of the court of the justice of the peace of Quingua, declaring the Compañia
Agricola de Ultramar to be a mercantile partnership, and that therefore to
enable it to maintain the action it was necessary for the company to show
that its articles were recorded in the mercantile registry.

The plaintiff company on March 24, 1902, made a motion for a new trial
upon the grounds stated in the motion papers, and the court below, after
hearing the parties upon the motion, on the 22d of September, 1902, for the
reasons stated in its decision, declared that the Compañia Agricola de
Ultramar was a civil partnership, to which the provisions of the Code of
Commerce were applicable in accordance with article 1670 of the Civil Code,
and that the said company must record its articles in the mercantile registry
before it could maintain the suit against the defendants, thus modifying and
reversing its former decision of March 22 in so far as it conflicted with the
latter decision, and affirming it in so far as it was in harmony therewith. To
this decision the plaintiff duly excepted.

In the bill of exceptions, among other documents, appear the articles of

association executed February 6, 1893, before a notary of the city of Madrid,
Spain, by several citizens thereof, the founders of the company styled
the Compañia Agricola de Ultramar, which articles among other things recite
the organization of the company and its by-laws, and that the contracting
parties constituted a private civil partnership for the purpose of exploiting
and developing the agricultural industry of the Philippine Islands and other
Spanish colonies, in accordance with the Civil Code in force and upon the
following terms and conditions:

ART. 1. The company shall be styled Compañia Agricola de Ultramar, and

shall have its domicile in Manila.

ART. 2. The duration of the company shall be ninety years from the date of
the articles of association, subject to further extension by the board of
shareholders.

ART. 3. For the purpose of exploiting and developing the agricultural

industry, the company may acquire any estates, canals, irrigable lands, salt
marshes, waterfalls, quarries, and such other real and personal property as
might be of utility for agricultural purposes; to operate or dispose of the said
properties, and to let out the real property by lots or emphyteusis, establish
agricultural colonies, etc.; to invest money at interest upon the security of
mortgages or antichresis on city or country real property, and to acquire
credits so secured; to make loans upon crops, fields, cattle, agricultural
machinery, etc., and itself to borrow money upon mortgage security, and to
lease city or country property.

ART. 4. The capital stock is four million and fifty thousand pesetas, divided
into eighty-one shares of fifty thousand pesetas each, the company being
authorized to increase or diminish its capital or to subdivide it into shares of
five thousand or more pesetas each, by resolution of the general meeting of
shareholders.

ART. 5. The obligations of the company shall be enforceable against the

paid-up capital alone, and consequently neither the original members nor
the subsequent holders of shares shall be in any case responsible for the
debts of the partnership.

ART. 38. According to the provisions of article three, the company may lend
money upon crops, fields, cattle, agricultural machinery, and implements.

By an instrument executed on the 6th of March, 1899, before a notary public

in the city of Madrid, the agent of the religious corporation of Augustinians
sold and conveyed in fee simple to the Compañia Agricola de Ultramar the
nine estates described in the said deed, in consideration of the sum of
8,350,000 pesetas. Among these estates is included the hacienda of
Quingua, more commonly known by the name of Dampol and San Marcos,
which property is devoted to the cultivation of rice and other grains, and
whose area is mentioned in the deed.

In the bill of exceptions presented to this court by counsel for the Compañia
Agricola de Ultramar, against the decision of the judge entered on the 27th
of September, 1902, it is contended and this is the principal purpose of the
appeal, that this court should hold that the appellant company, by reason of
its civil character, is under no obligation to record its articles of association
in the mercantile registry, as a condition to its possession of the status of a
legal entity entitled to maintain suit as such against the defendants. It is to
be observed that the defendants did not contract with the plaintiff company,
but with the Augustinian friars.

Article 2 of the Code of Commerce provides that commercial transactions,

whether performed by merchants or others, and whether they are or are not
specified in that code, shall be controlled by its provisions. All contracts and
operations provided for in the Code of Commerce, and all others of an
analogous character are regarded as commercial acts.
Article 17 of the code reads as follows: "The record in the commercial
registry shall be optional for private merchants and compulsory for
associations established in accordance with this code or with special laws,
and for vessels."

The last clause of article 21 of the same code provides: "Foreign associations
which desire to establish themselves or create branches in the Philippines
shall present and have recorded in the registry, besides their statutes and
the documents prescribed for Spanish associations, the certificate issued by
the Spanish consul stating that said companies have been established and
authorized according to the laws of their respective countries."

From the text of these provisions of the Code of Commerce it is to be

inferred that the duty of complying with this requisite of inscription in the
registry includes all those engaged in commerce, whether matriculated or
not, and to all companies which by reason of their object of purpose and the
character of their operations are to be considered as mercantile companies,
for the character of the company is to be determined not by its external
form or mechanism by its purpose and object.

It is true that the founders of the Compañia Agricola de Ultramar stated in

the articles of association of February 6, 1893, that they thereby
constituted an anonymous private civil partnership for the purposes and
objects therein expressed. But it is also true that it was the manifest
intention of the founders of the company to create an anonymous
partnership which in every respect falls within the description of the third of
the various classes of partnerships provided for by article 122 of the Code of
Commerce, they exercising the right conferred upon them by article 1670 of
the Civil Code, and therefore the provisions of the Code of Commerce not in
conflict with those of the Civil Code should be applied to the plaintiff
company.

Article 1670 of the Civil Code, in its last paragraph says: "In such case its
provisions shall be applied to them . . ." — that is, the provisions of the Code
of Commerce. This provision of the law is obligatory, and it can not be
believed that the application of the provisions of the law merchant to
partnerships called civil, but which by reason of the purposes for which they
were created are essentially and actually mercantile companies, is merely
optional. If it had been the intention of the legislator to have made the
matter one of discretion or option, doubtless unequivocal language to that
effect would have been used and the law would have provided that these
provisions might be applied to them. By saying that the provisions of the
Code of Commerce shall be applied to them, it was intended to convey the
idea that those provisions of the Code of Commerce must be applied.

From a mere perusal of the articles of association, and especially of articles

2, 3, 4, 5, and 38 of the by-laws, it clearly appears that the purpose of the
founders was to constitute an anonymous mercantile partnership under the
denomination of a civil partnership. In the articles referred to provision is
made for the duration of the company, the firm capital is divided into shares,
and provision is made as to the liability of the paid-up capital with respect to
the obligations of the company, and the business operations proposed to be
effected by the company are enumerated. From all this it is unquestionable
that the plaintiff company, by reason of its nature and conditions, and its
object and purpose, is subject to the provisions of articles 117, 119, 121,
122, 123, 151, 152, and 212 of the Code of Commerce.

The mere fact that a company which by reason of the character of its
business is mercantile, and therefore subject to the Code of Commerce, has
seen fit to style itself a civil partnership, does not relieve it from the
obligation of complying with the provisions of article 17 above cited, and
much more so if the company is foreign (art. 21, last paragraph), because
such a company or partnership, although it calls itself civil, is beyond the
scope of the Civil Code and plainly subject to the law merchant. For this
reason the Civil Code, in article 1700, last paragraph, provides: "The
partnerships referred to in article 1670 are excepted from the provisions of
numbers three and four of this article in cases in which, in accordance with
the provisions of the Code of Commerce, they should continue to exist." This
paragraph shows that such companies are to be governed by the provisions
of the Code of Commerce.

This being so, it is evident that such a company is bound to comply with the
provisions of articles 17, 21, and 119 of the code, because if the provisions
of the law merchant must be applied to the Compañia Agricola de Ultramar,
there is no reason of law or public policy which relieves it from the fulfillment
of the condition of registration, more especially as the appellant is a foreign
company, whose organizers and members are probably all foreigners.

A company organized in the anonymous form, and composed of foreigners,

which is established in this country and proposes to engage in business or
mercantile operations, is under the unavoidable obligation of informing the
public as to who are its founders, what are its articles, the conditions of its
organization and existence, the basis of its operations, and the security it
gives for the value of the stock issued by it, and of the contents of its
articles of association. The only from of publication provided for by the
special law controlling the case is by record in the mercantile registry,
compliance with which requirement is demanded by public policy.

We are of the opinion that this is the interpretation that should be given to
article 1670 of the Civil Code, and for the purpose of dispelling any doubt
which may remain, we refer to some pertinent paragraphs of the official
preface to the Code of Commerce in force.

The principles upon which the projected code has been drawn with respect
to the different manners and forms of constituting mercantile companies
may be reduced to three: An ample liberty for the associates to organize in
such manner as they may deem convenient; the complete absence of
Governmental intervention in the private affairs of these juristic persons; the
publicity of such of the acts of these associations as may be of interest to
third persons.

These general principles having been established in harmony with the law of
1869 and the outline drawn by the Government for the drafting of the new
Code of Commerce, the draft herewith presented includes all companies
which, either by their nature or by the character of their operations, are to
be considered as mercantile . . . .

The provisions of the Code of Commerce now in force guarantee the

principles of liberty of association and of trade, harmonizing them with
protection of the rights of third persons by means of the mercantile register.

In order to enforce the performance of the duty of recording, article 24 of

the Code of Commerce provides: "Unrecorded articles of association shall be
enforceable as between the parties thereto, but shall not prejudice third
persons, who nevertheless may make use of them in so far as favorable to
them." And article 29 of the same code provides: "Unrecorded powers of
attorney shall be binding as between the principal and the agent, but can not
be used to the prejudice of third persons, who nevertheless may make use
of them in so far as they may be favorable."
If a company, created for a mercantile purpose, could be permitted to elude
the obligation of registration simply because is has been denominated a
particular civil anonymous partnership in its articles of association, this
would authorize a violation of the provisions of article 1670 of the Civil Code
and the provisions of the Code of Commerce, and make unavailing the
purpose of the legislator, which was to establish for the benefit of the public
an efficacious protection for outsiders buying the stock of an anonymous
partnership, and the result would be that the purpose of the law in imposing
the requirement of publication by means of record in the registry — the sole
check imposed upon the otherwise unrestricted right of mercantile
association — would be swept away.

It having therefore been demonstrated that the appellant company is under

an absolute obligation of recording its articles of association and by-laws in
the mercantile register in the manner prescribed by the Code of Commerce,
in the absence of proof of compliance with this provision of the law, it follows
that the company lacks the legal personality or corporate existence
necessary to maintain this suit, because inscription in the mercantile registry
is an indispensable condition to the acquisition by a mercantile company of
corporate existence and of capacity as an entity, to maintain suits in courts
against third persons.

This legal principle has been confirmed in practice by the decisions of the
supreme court of Spain, which we cite, as this case deals with the
application of laws of Spanish origin. That court in its decision of May 8,
1885, said: "The court below in allowing the complaint and intervention filed
on occasion of the levy of execution, and in basing its decision upon the
provisions of article 296 of the Code of Commerce, has violated the
provisions of the articles of that code relied upon in this appeal and
principally those of article 28 in connection with articles 22 and 25, because
the intervening company could have no legal existence, nor could it avail
itself of the provisions of the articles cited to enforce rights against third
persons, before its articles of association were recorded in the general
register of the province, and this requirement not having been complied with
until June 20, 1882, while the attachment in the executive action was
ordered on the 10th, and levied on the 13th of that month, it is evident that
the articles of association, prepared during the period intervening between
this date and that of their registration, could not constitute a bar to the
attachment or subsequently affect its validity."
This decision is an affirmance of the doctrine laid down in a former decision
on March 1, 1884. If the provisions of the Code of Commerce are applicable
to the Compañia Agricola de Ultramar, then it can not maintain an action in
court against third persons as a corporate being until it can show that its
articles are recorded in the mercantile registry in compliance with the
requirement laid down by the law and emphasized by the courts.

With respect to the appellant's contention based upon the provisions of

section 94 of the Code of Civil Procedure, as the demurrer should have been
sustained under the provisions of paragraph 2 of section 91 of that code, the
provisions of section 101 thereof should be applied to the case.

For the reasons stated, we are therefore of the opinion that the judgment of
the court below should be affirmed, and that the appellees should have
judgment for their costs
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-45624 April 25, 1939

GEORGE LITTON, petitioner-appellant,

vs.
HILL & CERON, ET AL., respondents-appellees.

George E. Reich for appellant.

Roy and De Guzman for appellees.
Espeleta, Quijano and Liwag for appellee Hill.

CONCEPCION, J.:

This is a petition to review on certiorari the decision of the Court of Appeals

in a case originating from the Court of First Instance of Manila wherein the
herein petitioner George Litton was the plaintiff and the respondents Hill &
Ceron, Robert Hill, Carlos Ceron and Visayan Surety & Insurance Corporation
were defendants.

The facts are as follows: On February 14, 1934, the plaintiff sold and
delivered to Carlos Ceron, who is one of the managing partners of Hill &
Ceron, a certain number of mining claims, and by virtue of said transaction,
the defendant Carlos Ceron delivered to the plaintiff a document reading as
follows:

Feb. 14, 1934

Received from Mr. George Litton share certificates Nos. 4428, 4429 and
6699 for 5,000, 5,000 and 7,000 shares respectively — total 17,000 shares
of Big Wedge Mining Company, which we have sold at P0.11 (eleven
centavos) per share or P1,870.00 less 1/2 per cent brokerage.

HILL & CERON

By: (Sgd.) CARLOS CERON

Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of
P720, and unable to collect this sum either from Hill & Ceron or from its
surety Visayan Surety & Insurance Corporation, Litton filed a complaint in
the Court of First Instance of Manila against the said defendants for the
recovery of the said balance. The court, after trial, ordered Carlos Ceron
personally to pay the amount claimed and absolved the partnership Hill &
Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. On
appeal to the Court of Appeals, the latter affirmed the decision of the court
on May 29, 1937, having reached the conclusion that Ceron did not intend to
represent and did not act for the firm Hill & Ceron in the transaction involved
in this litigation.

Accepting, as we cannot but accept, the conclusion arrived at by the Court of

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

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

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

Under article 226 of the Code of Commerce, the dissolution of a commercial

association shall not cause any prejudice to third parties until it has been
recorded in the commercial registry. (See also Cardell vs. Mañeru, 14 Phil.,
368.) The Supreme Court of Spain held that the dissolution of a partnership
by the will of the partners which is not registered in the commercial registry,
does not prejudice third persons. (Opinion of March 23, 1885.)

Aside from the aforecited legal provisions, the order of the Bureau of
Commerce of December 7, 1933, prohibits brokers from buying and selling
shares on their own account. Said order reads:

The stock and/or bond broker is, therefore, merely an agent or an

intermediary, and as such, shall not be allowed. . . .

(c) To buy or to sell shares of stock or bonds on his own account for
purposes of speculation and/or for manipulating the market, irrespective of
whether the purchase or sale is made from or to a private individual, broker
or brokerage firm.

In its decision the Court of Appeals states:

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

Sixth. That the management of the business affairs of the copartnership

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

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

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

There is a general presumption that each individual partner is an authorized

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

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

The second paragraph of the articles of partnership of Hill & Ceron reads in
part:

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

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

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

The appealed decision is reversed and the defendants are ordered to pay to
the plaintiff, jointly and severally, the sum of P720, with legal interest, from
the date of the filing of the complaint, minus the commission of one-half per
cent (½%) from the original price of P1,870, with the costs to the
respondents. So ordered.

Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.

RESOLUTION

July 13, 1939

CONCEPCION, J.:

A motion has been presented in this case by Robert Hill, one of the
defendants sentenced in our decision to pay to the plaintiff the amount
claimed in his complaint. It is asked that we reconsider our decision, the said
defendant insisting that the appellant had not established that Carlos Ceron,
another of the defendants, had the consent of his copartner, the movant, to
enter with the appellant into the contract whose breach gave rise to the
complaint. It is argued that, it being stipulated in the articles of partnership
that Hill and Ceron, only partners of the firm Hill & Ceron, would, as
managers, have the management of the business of the partnership, and
that either may contract and sign for the partnership with the consent of the
other; the parties of partnership having been, so it is said, recorded in the
commercial registry, the appellant could not ignore the fact that the consent
of the movant was necessary for the validity of the contract which he had
with the other partner and defendant, Ceron, and there being no evidence
that said consent had been obtained, the complaint to compel compliance
with the said contract had to be, as it must be in fact, a procedural failure.

Although this question has already been considered and settled in our
decision, we nevertheless take cognizance of the motion in order to enlarge
upon our views on the matter.

The stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the
consent of the other, undoubtedly creates an obligation between the two
partners, which consists in asking the other's consent before contracting for
the partnership. This obligation of course is not imposed upon a third person
who contracts with the partnership. Neither is it necessary for the third
person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. A third person may and has a
right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership but, on the contrary, is
acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No. 18,
section 334, Code of Civil Procedure), and that the law has been obeyed
(No. 31, section 334). This last presumption is equally applicable to
contracts which have the force of law between the parties.

Wherefore, unless the contrary is shown, namely, that one of the partners
did not consent to his copartner entering into a contract with a third person,
and that the latter with knowledge thereof entered into said contract, the
aforesaid presumption with all its force and legal effects should be taken into
account.

There is nothing in the case at bar which destroys this presumption; the only
thing appearing in he findings of fact of the Court of Appeals is that the
plaintiff "has failed to prove that Hill had consented to such contract".
According to this, it seems that the Court of Appeals is of the opinion that
the two partners should give their consent to the contract and that the
plaintiff should prove it. The clause of the articles of partnership should not
be thus understood, for it means that one of the two partners should have
the consent of the other to contract for the partnership, which is different;
because it is possible that one of the partners may not see any prospect in a
transaction, but he may nevertheless consent to the realization thereof by
his copartner in reliance upon his skill and ability or otherwise. And here we
have to hold once again that it is not the plaintiff who, under the articles of
partnership, should obtain and prove the consent of Hill, but the latter's
partner, Ceron, should he file a complaint against the partnership for
compliance with the contract; but in the present case, it is a third person,
the plaintiff, who asks for it. While the said presumption stands, the plaintiff
has nothing to prove.

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

No new obligation shall be contracted against the will of one of the managing
partners, should he have expressly stated it; but if, however, it should be
contracted it shall not be annulled for this reason, and shall have its effects
without prejudice to the liability of the partner or partners who contracted it
to reimburse the firm for any loss occasioned by reason thereof. (Emphasis
supplied.)

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

The reason or purpose behind these legal provisions is no other than to

protect a third person who contracts with one of the managing partners of
the partnership, thus avoiding fraud and deceit to which he may easily fall a
victim without this protection which the Code of Commerce wisely provides.

If we are to interpret the articles of partnership in question by holding that it

is the obligation of the third person to inquire whether the managing
copartner of the one with whom he contracts has given his consent to said
contract, which is practically casting upon him the obligation to get such
consent, this interpretation would, in similar cases, operate to hinder
effectively the transactions, a thing not desirable and contrary to the nature
of business which requires promptness and dispatch one the basis of good
faith and honesty which are always presumed.

In view of the foregoing, and sustaining the other views expressed in the
decision, the motion is denied. So ordered.
SECOND DIVISION

[G.R. No. L-11840. July 26, 1960.]

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and

ANTONIO C. GOQUIOLAY", Plaintiffs-Appellants, v. WASHINGTON Z.
SYCIP, ET AL., Defendants-Appellees.

Jose C. Colayco, Manuel O. Chan and Padilla Law Offices

for Appellants.

Sycip, Quisumbing, Salazar & Associates for Appellees.

SYLLABUS

1. PARTNERSHIP; MANAGEMENT, RIGHT OF EXCLUSIVE; PERSONAL RIGHT;

TERMINATION UPON MANAGER-PARTNER’S DEATH. — The right of exclusive
management conferred upon Tan Sin An, being premised upon trust and
confidence, was a mere personal right that terminated upon Tan’s demise.

2. ARTICLES OF CO-PARTNERSHIP; RIGHT OF HEIRS TO REPRESENT

DECEASED PARTNER; MANAGERIAL RIGHT; PROPRIETARY INTEREST. — The
provision in the Articles of Co-Partnership stating that "in the event of death
of any one of the partners within the 10-year term of the partnership, the
deceased partner shall be represented by his heirs", could not have referred
to the managerial right given to Tan Sin An; more appropriately, it relates to
the succession in the proprietary interest of each partner.

3. ID.; ID.; EFFECT OF HEIRS’ FAILURE TO REPUDIATE; HEIRS BECOME

INDIVIDUAL PARTNERS; MINORITY OF HEIRS. — Consonant with the articles
of co-partnership providing for the continuation of the firm notwithstanding
the death of one of the partners, the heirs of the deceased, by never
repudiating or refusing to be bound under the said provision in the articles,
became individual partners with Antonio Goquiolay upon Tan’s demise.
Minority of the heirs is not a bar to the application of that clause in the
articles of co-partnership. Heirs liability in the partnership being limited to
the value of their importance, they become no more than limited partners,
when they manifest their intent to be bound as general partners.

4. ID.; SALE OF PARTNERSHIP PROPERTIES; CONSENT OF ALL PARTNERS

UNNECESSARY; STRANGERS DEALING WITH PARTNERSHIPS; POWER TO
BIND PARTNERSHIP. — As to whether or not the consent of the other
partners was necessary to perfect the sale of the partnership properties, the
Court believes that it is not. Strangers dealing with a partnership have the
right to assume, in the absence of restrictive clauses in the co- partnership
agreement, that every general partner has power to bind the partnership.

5. ID.; ID.; ESTOPPEL. — By allowing defendant Kong Chai Pin to retain

control of the partnership properties from 1942 to 1949, plaintiff Goquiolay
estopped himself from denying her (Kong Chai Pin’s) legal representation of
the partnership, with the power to bind it by proper contracts.

6. PARTNERSHIP; GENERAL PARTNER BY ESTOPPEL; WIDOW OF MANAGING

PARTNER AUTHORIZED BY OTHER PARTNER TO MANAGE PARTNERSHIP. —
By authorizing the widow of the managing partner to manage partnership
property (which a limited partner could not be authorized to do), the other
general partner recognized her as a general partner, and is now in estoppel
to deny her position as a general partner, with authority to administer and
alienate partnership property.

7. ID.; HEIR OF PARTNER, STATUS ORDINARILY AS LIMITED PARTNER BUT

MAY WAIVE IT AND BECOME AS GENERAL PARTNER. — Although the heir of
a partner ordinarily becomes a limited partner for his own protection, yet the
heir may disregard it and instead elect to become a collective or general
partner, with all the rights and obligations of one. This choice pertains
exclusively to the heir, and does not require the assent of the surviving
partner.

8. ID.; PRESUMPTIONS; AUTHORITY OF PARTNER TO DEAL WITH

PROPERTY. — A third person has the right to presume that a general partner
dealing with partnership property has the requisite authority from his co-
partners.
9. ID.; PROPERTY OF PARTNERSHIP; SALE OF IMMOVABLES, WHEN
CONSIDERED WITHIN THE ORDINARY POWERS OF A GENERAL PARTNER. —
Where the express and avowed purpose of the partnership is to buy and sell
real estate (as in the present case), the immovables thus acquired by the
firm form part of its stock-in-trade, and the sale thereof is in pursuance of
partnership purposes, hence within the ordinary powers of the partner.

10. ID.; SALE OF PARTNERSHIP PROPERTY; ACTION FOR RESCISSION ON

GROUND OF FRAUD; NO INADEQUACY OF PRICE; CASE AT BAR. —
Appellant’s claim that the price was inadequate, relies on the testimony of a
realtor, who in 1955, six years after the sale in the question, asserted that
the land was by then worth double the price for which it was sold. But taking
into account the continued rise of real estate values since liberation, and the
fact that the sale in question was practically a forced sale because the
partnership has no other means to pay the legitimate debts, this evidence
certainly does not show such "gross inadequacy" as to justify the rescission
of the sale.

11. ID.; ID.; ID.; RELATIONSHIP ALONE IN NO BADGE OF FRAUD. — The

Supreme court has ruled that relationship alone is not a badge of fraud (Oria
Hnos. v. McMicking, 21 Phil., 243; Hermandad de Smo. Nombre de Jesus v.
Sanchez, 40 Official Gazette 1685).

12. ID.; ID.; ID.; FRAUD OF CREDITORS DISTINGUISHED FROM FRAUD TO

OBTAIN CONSENT. — Fraud used to obtain a party’s consent to a contract
(deceit or dolus in contrahendo) is different from fraud of creditors that
gives rise to a rescission of contract.

13. ID.; ID.; ID.; SUBSIDIARY NATURE; ALLEGATION OF NO OTHER MEANS

TO OBTAIN REPARATION, NECESSARY. — The action for rescission is
subsidiary; it can not be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same. hence, if there
is no allegation or evidence that the plaintiff can not obtain reparation from
the widow and heirs of the deceased partner, the suit to rescind the sale in
question s not maintainable, even if the fraud charged actually did exist.
DECISION

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

Direct appeal from the decision of the Court of First Instance of Davao (the
amount involved being more than P200,000) dismissing the plaintiffs-
appellants’ complaint.

From the stipulation of facts of the parties and the evidence on record, it
would appear that on May 29, 1940, Tan Sin An and Antonio C. Goquiolay
entered into a general commercial partnership under the partnership name
"Tan Sin An and Antonio C. Goquiolay", for the purpose of dealing in real
estate. The partnership had a capital of P30,000.00, P18,000.00 of which
was contributed by Goquiolay and P12,000.00 by Tan Sin An. The agreement
lodged upon Tan Sin An the sole management of the partnership affairs,
stipulating that —

"III. The co-partnership shall be composed of said Tan Sin An as sole

managing and partner (sic), and Antonio C. Goquiolay as co-partner.

"VIII. The affairs of the co-partnership shall be managed exclusively by the

managing and partner (sic) or by his authorized agent, and it is expressly
stipulated that the managing and partner (sic) may delegate the entire
management of the affairs of the co- partnership by irrevocable power of
attorney to any person, firm or corporation he may select upon such terms
as regards compensation as he may deem proper, and vest in such person,
firm or corporation full power and authority, as the agent of the co-
partnership and in his name, place and stead to do anything for it or on his
behalf which he as such managing and partner (sic) might do or cause to be
done.

"IX. The co-partner shall have no voice or participation in the management

of the affairs of the co-partnership; but he may examine its accounts once
every six (6) months at any time during ordinary business hours, and in
accordance with the provisions of the Code of Commerce." (Articles of Co-
Partnership).

The lifetime of the partnership was fixed at ten (10) years and also that —

"In the event of the death of any of the partners at any time before the
expiration of said term, the co-partnership shall not be dissolved but will
have to be continued and the deceased partner shall be represented by his
heirs or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).

However, the partnership could be dissolved and its affairs liquidated at any
time upon mutual agreement in writing of the partners (Art. XIII, articles of
Co-Partnership).

On May 31, 1940, Antonio Goquiolay executed a general power of attorney

to this effect:jgc:chanrobles.com.ph

"That besides the powers and duties granted the said Tan Sin An by the
articles of co-partnership of said co-partnership "Tan Sin An and Antonio
Goquiolay", the said Tan Sin An should act as my Manager for said co-
partnership for the full period of the term for which said co-partnership was
organized or until the whole period that the said capital of P30,000.00 of the
co-partnership should last, to carry on to the best advantage and interest of
the said co-partnership, to make and execute, sign, seal and deliver for the
co-partnership, and in its name, all bills, bonds, notes, specialties, and trust
receipts or other instruments or documents in writing whatsoever kind or
nature which shall be necessary to the proper conduction of the said
businesses, including the power to mortgage and pledge real and personal
properties, to secure the obligation of the co-partnership, to buy real or
personal properties for cash or upon such terms as he may deem advisable,
to sell personal or real properties, such as lands and buildings of the co-
partnership in any manner he may deem advisable for the best interest of
said co-partnership, to borrow money on behalf of the co-partnership and to
issue promissory notes for the repayment thereof, to deposit the funds of
the co-partnership in any local bank or elsewhere and to draw checks
against funds so deposited . . .

On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay"
purchased the three (3) parcels of land, known as Lots Nos. 526, 441 and
521 of the Cadastral Survey of Davao, subject-matter of the instant
litigation, assuming the payment of a mortgage obligation of P25,000.00,
payable to "La Urbana Sociedad Mutua de Construcción y Prestamos" for a
period of ten (10) years, with 10% interest per annum. Another 46 parcels
were purchased by Tan Sin An in his individual capacity, and he assumed
payment of a mortgage debt thereon for P35,000.00, with interest. The
down payment and the amortization were advanced by Yutivo and Co., for
the account of the purchasers.

On September 25, 1940, the two separate obligations were consolidated in

an instrument executed by the partnership and Tan Sin An, whereby the
entire 49 lots were mortgaged in favor of the "Banco Hipotecario de
Filipinas" (as successor to "La Urbana") and the covenantors bound
themselves to pay, jointly and severally, the remaining balance of their
unpaid accounts amounting to P52,282.80 within eight 8 years, with 8%
annual interest, payable in 96 equal monthly installments.

On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow,
Kong Chai Pin, and four minor children, namely: Tan L. Cheng, Tan L. Hua,
Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin was appointed
administratrix of the intestate estate of her deceased husband.

In the meantime, repeated demands for payment were made by the Banco
Hipotecario on the partnership and on Tan Sin An. In March, 1944, the
defendant Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo
Sons Hardware Co., paid the remaining balance of the mortgage debt, and
the mortgage was cancelled.

Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc.
filed their claims in the intestate proceedings of Tan Sin An for P62,415.91
and P54,310.13, respectively, as alleged obligations of the partnership "Tan
Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interests
and taxes paid in amortizing and discharging their obligations to "La Urbana"
and the "Banco Hipotecario." Disclaiming knowledge of said claims at first,
Kong Chai Pin later admitted the claims in her amended answer and they
were accordingly approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for
authority to sell all the 49 parcels of land to Washington Z, Sycip and Betty
Y. Lee, for the purpose primarily of settling the aforesaid debts of Tan Sin An
and the partnership. Pursuant to a court order of April 2, 1949, the
administratrix executed on April 4, 1949, a deed of sale 1 of the 49 parcels
of land to the defendants Washington Sycip and Betty Lee in consideration of
P37,000.00 and of vendees’ assuming payment of the claims filed by Yutivo
Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949,
defendants Sycip and Betty Lee executed in favor of the Insular
Development Co., Inc. a deed of transfer covering the said 49 parcels of
land.

Learning about the sale to Sycip and Lee, the surviving partner Antonio
Goquiolay filed, on or about July 25, 1949, a petition in the intestate
proceedings seeking to set aside the order of the probate court approving
the sale in so far as his interest over the parcels of land sold was concerned.
In its order of December 29, 1949, the probate court annulled the sale
executed by the administratrix with respect to the 60% interest of Antonio
Goquiolay over the properties sold. King Chai Pin appealed to the Court of
Appeals, which court later certified the case to us (93 Phil., 413; 49 Off.
Gaz. [7] 2307). On June 30, 1953, we rendered decision setting aside the
orders of the probate court complained of and remanding the case for new
trial, due to the non-inclusion of indispensable parties. Thereafter, new
pleadings were filed.

The second amended complaint in the case at bar prays, among other
things, for the annulment of the sale in favor of Washington Sycip and Betty
Lee, and their subsequent conveyance in favor of the Insular Development
Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership
are concerned. The answer averred the validity of the sale by Kong Chai Pin
as successor partner, in lieu of the late Tan Sin An. After hearing, the
complaint was dismissed by the lower court in its decision dated October 30,
1956; hence, this appeal taken directly to us by the plaintiffs, as the amount
involved is more than P200,000.00. Plaintiffs-appellants assign as errors that
—

"I. — The lower court erred in holding that Kong Chai Pin became the
managing partner of the partnership upon the death of her husband, Tan Sin
An, by virtue of the articles of Partnership executed between the Tan Sin An
and Antonio Goquiolay, and the general power of attorney granted by
Antonio Goquiolay.

II — The lower court erred in holding that Kong Chai Pin could act alone as
sole managing partner in view of the minority of the other heirs.

III — The lower court erred in holding that Kong Chai Pin was the only heir
qualified to act as managing partner.

IV — The lower court erred in holding that Kong Chai Pin had authority to
sell the partnership properties by virtue of the articles of partnership and the
general power of attorney granted to Tan Sin An in order to pay the
partnership indebtedness.

V — The lower court erred in finding that the partnership did not pay its
obligation to the Banco Hipotecario.

VI — The lower court erred in holding that the consent of Antonio Goquiolay
was not necessary to consummate the sale of the partnership properties.

VII — The lower court erred in finding that Kong Chai Pin managed the
business of the partnership after the death of her husband, and that Antonio
Goquiolay knew it.

VIII — The lower court erred in holding that the failure of Antonio Goquiolay
to oppose the management of the partnership by Kong Chai Pin estops him
now from attacking the validity of the sale of the partnership properties.

IX — The lower court erred in holding that the buyers of the partnership
properties acted in good faith.

X — The lower court erred in holding that the sale was not fraudulent
against the partnership and Antonio Goquiolay.

XI — The lower court erred in holding that the sale was not only necessary
but beneficial to the partnership.
XII — The lower court erred in dismissing the complaint and in ordering
Antonio Goquiolay to pay the costs of suit."cralaw virtua1aw library

There is merit in the contention that the lower court erred in holding that the
widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole
management of the partnership, upon the latter’s death. While, as we
previously stated in our narration of facts, the Articles of Co-Partnership and
the power of attorney executed by Antonio Goquiolay conferred upon Tan
Sin An the exclusive management of the business, such power, premised as
it is upon trust and confidence, was a mere personal right that terminated
upon Tan’s demise. The provision in the articles stating that "in the event of
death of any one of the partners within the 10-year term of the partnership,
the deceased partner shall be represented by his heirs", could not have
referred to the managerial right given to Tan Sin An; more appropriately, it
related to the succession in the proprietary interest of each partner. The
covenant that Antonio Goquiolay shall have no voice or participation in the
management of the partnership, being a limitation upon his right as a
general partner, must be held coextensive only with Tan’s right to manage
the affairs, the contrary not being clearly apparent.

Upon the other hand, consonant with the articles of co- partnership
providing for the continuation of the firm notwithstanding the death of one of
the partners, the heirs of the deceased, by never repudiating or refusing to
be bound under the said provision in the articles, became individual partners
with Antonio Goquiolay upon Tan’s demise. The validity of like clauses in
partnership agreements is expressly sanctioned under Article 222 of the
Code of Commerce. 1

Minority of the heirs is not a bar to the application of that clause in the
articles of co-partnership (2 Vivante, Tratado de Derecho Mercantil, 493;
Planiol, Traite Elementaire de Droit Civil, English translation by the Louisiana
State Law Institute, Vol. 2, Pt. 2, p. 177).

Appellants argue, however, that since the "new" members’ liability in the
partnership was limited merely to the value of the share or estate left by the
deceased Tan Sin An, they became no more than limited partners and, as
such, were disqualified from the management of the business under Article
148 of the Code of Commerce. Although ordinarily, this effect follows from
the continuance of the heirs in the partnership, 2 it was not so with respect
to the widow Kong Chai Pin, who, by her affirmative actions, manifested her
intent to be bound by the partnership agreement not only as a limited but as
a general partner. Thus, she managed and retained possession of the
partnership properties and was admittedly deriving income therefrom up to
and until the same were sold to Washington Sycip and Betty Lee. In fact, by
executing the deed of sale of the parcels of land in dispute in the name of
the partnership, she was acting no less than as a managing partner. Having
thus preferred to act as such, she could be held liable for the partnership
debts and liabilities as a general partner, beyond what she might have
derived only from the estate of her deceased husband. By allowing her to
retain control of the firm’s property from 1942 to 1949, plaintiff estopped
himself to deny her legal representation of the partnership, with the power
to bind it by proper contracts.

The question now arises as to whether or not the consent of the other
partners was necessary to perfect the sale of the partnership properties to
Washington Sycip and Betty Lee. The answer is, we believe, in the negative.
Strangers dealing with a partnership have the right to assume, in the
absence of restrictive clauses in the co-partnership agreement, that every
general partner has power to bind the partnership, specially those partners
acting with ostensible authority. And so, we held in one
case:jgc:chanrobles.com.ph

". . . Third persons, like the plaintiff, are not bound in entering into a
contract with any of the two partners, to ascertain whether or not this
partner with whom the transaction is made has the consent of the other
partner. The public need not make inquiries as to the agreements had
between the partners. Its knowledge is enough that it is contracting with the
partnership which is represented by one of the managing partners.

‘There is a general presumption that each individual partner is an agent for

the firm and that he has authority to bind the firm in carrying on the
partnership transactions.’ [Mills v. Riggle, 112 Pac., 617]

‘The presumption is sufficient to permit third persons to hold the firm liable
on transactions entered into by one of the members of the firm acting
apparently in its behalf and within the scope of his authority.’ [Le Roy v.
Johnson, 7 U.S. Law, Ed., 391](George Litton v. Hill & Ceron, Et Al., 67 Phil.,
513-514)."cralaw virtua1aw library

We are not unaware of the provision of Article 129 of the Code of Commerce
to the effect that —

"If the management of the general partnership has not been limited by
special agreement to any of the members, all shall have the power to take
part in the direction and management of the common business, and the
members present shall come to an agreement for all contracts or obligations
which may concern the association." (Emphasis supplied)

but this obligation is one imposed by law on the partners among themselves,
that does not necessarily affect the validity of the acts of a partner, while
acting within the scope of the ordinary course of business of the partnership,
as regards third persons without notice. The latter may rightfully assume
that the contracting partner was duly authorized to contract for and in behalf
of the firm and that, furthermore, he would not ordinarily act to the
prejudice of his co- partners. The regular course of business procedure does
not require that each time a third person contracts with one of the managing
partners, he should inquire as to the latter’s authority to do so, or that he
should first ascertain whether or not the other partners had given their
consent thereto. In fact, Article 130 of the same Code of Commerce provides
that even if a new obligation was contracted against the express will of one
of the managing partners, "it shall not be annulled for such reason, and it
shall produce its effects without prejudice to the responsibility of the
member or members who contracted it, for the damages they may have
caused to the common fund."cralaw virtua1aw library

Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points

out:jgc:chanrobles.com.ph

"367. Primera hipotesis. — A falta de factos especiales, la facultad de

administrar corresponde a cada socio personalmente. No hay que esperar
ciertamente concordia con tantas cabezas, y para cuando no vayan de
acuerdo, la disciplina del Código no ofrece un sistema eficaz que evite los
inconvenientes. Pero, ante el silencio del contrato, debia quiza el legislador
privar de la administración a uno de los socios en beneficio del otro? Seria
una arbitrariedad. Debera quiza declarar nula la Sociedad que no haya
elegido Administrador? El remedio seria peor que el mal. Debera, tal vez,
pretender que todos los socios concurran en todo acto de la Sociedad? Pero
este concurso de todos habria reducido a la impotencia la administración,
que es asunto de todos los dias y de todas horas. Hubieran sido
disposiciones menos oportunas que lo adoptado por el Código, el cual se
confia al espiritu de reciproca confianza que deberia animar la colaboración
de los socios, y en la ley inflexible de responsabilidad que implica comunidad
en los intereses de los mismos.

En esta hipótesis, cada socio puede ejercer todos los negocios comprendidos
en el contrato social sin dar de ello noticia a los otros, porque cada uno de
ellos ejerce la administración en la totalidad de sus relaciones, salvo su
responsabilidad en el caso de una administración culpable. Si debiera dar
noticia, el beneficio de su simultania actividad, frecuentemente distribuida
en lugares y en tiempos diferentes, se echaria a perder. Se objetara el que
de esta forma, el derecho de oposición de cada uno de los socios puede
quedar frustrado. Pero se puede contestar que este derecho de oposición
concedido por la ley como un remedio excepcional, debe subordinarse al
derecho de ejercer el oficio de Administrador, que el Código concede sin
limite: ‘se presume que los socios se han concedido reciprocamente la
facultad de administrar uno para otro.’ Se haria precipitar esta hipótesis en
la otra de una administración colectiva (art. 1.721, Código Civil) y se
acabaria con pedir el consentimiento, a lo menos tacito, de todos los socios
— lo que el Código excluye . . ., si se obligase al socio Administrador a dar
noticia previa del negocio a los otros, a fin de que pudieran oponerse si no
consintieran."cralaw virtua1aw library

Commenting on the same subject, Gay de Montella (Código de Comercio,

Tomo II, 147-148) opines:jgc:chanrobles.com.ph

"Para obligar a las Compañias enfrente de terceros (art. 128 del Código), no
es bastante que los actos y contratos hayan sido ejecutados por un socio o
varios en nombre colectivo, sino que es preciso el concurso de estos dos
elementos, uno, que el socio o socios tengan reconocida la facultad de
administrar la Compañia, y otro, que el acto o contrato haya sido ejecutado
en nombre de la Sociedad y usando de su firma social. Asi es que toda
obligación contraida bajo la razon social, se presume contraida por la
Compañia. Esta presuncion es impuesta por motivos de necesidad practica.
El tercero no puede cada vez que trata con la Compañia, inquirir si
realmente el negocio concierne a la Sociedad. La presuncion es juris tantum
y no juris et de jure, de modo que si el gerente suscribe bajo la razón social
una obligación que no interesa a la Sociedad, éste podra rechazar la acción
del tercero probando que el acreedor conocia que la obligación no tenia
ninguna relación con ella. Si tales actos y contratos no comportasen la
concurrencia de ambos elementos, serian nulos y podria decretarse la
responsabilidad civil o penal contra sus autores.

En el caso que tales actos o contratos hayan sido tacitamente aprobados por
la Compañia, o contabilizados en sus libros, si el acto o contrato ha sido
convalidado sin protesta y se trata de acto o contrato que ha producido
beneficio social, tendria plena validez, aun cuando le faltase algunos o
ambos de aquellos requisitos antes señalados.

Cuando los Estatutos o la escritura social no contienen ninguna clausula

relativa al nombramiento o designación de uno o mas de un socio para
administrar la Compañia (art. 129 del Código) todos tienen por un igual el
derecho de concurir a la decisión y manejo de los negocios comunes . .
."cralaw virtua1aw library

Although the partnership under consideration is a commercial partnership

and, therefore, to be governed by the Code of Commerce, the provisions of
the old Civil Code may give us some light on the right of one partner to bind
the partnership. States Art. 1695 thereof:jgc:chanrobles.com.ph

"Should no agreement have been made with respect to the form of

management, the following rules shall be observed:chanrob1es virtual 1aw
library

1. All the partners shall be considered agents, and whatever any one of
them may do individually shall bind the partnership; but each one may
oppose any act of the others before it has become legally binding."cralaw
virtua1aw library

The records fail to disclose that appellant Goquiolay made any opposition to
the sale of the partnership realty to Washington Z. Sycip and Betty Lee; on
the contrary, it appears that he (Goquiolay) only interposed his objections
after the deed of conveyance was executed and approved by the probate
court, and, consequently, his opposition came too late to be effective.

Appellants assail the correctness of the amounts paid for the account of the
partnership as found by the trial court. This question, however, need not be
resolved here, as in the deed of conveyance executed by Kong Chai Pin, the
purchasers Washington Sycip and Betty Lee assumed, as part consideration
of the purchase, the full claims of the two creditors, Sing Yee and Cuan Co.,
Inc. and Yutivo Sons Hardware Co.

Appellants also question the validity of the sale covering the entire firm
realty, on the ground that it, in effect, threw the partnership into dissolution,
which requires consent of all the partners. This view is untenable. That the
partnership was left without the real property it originally had will not work
its dissolution, since the firm was not organized to exploit these precise lots
but to engage in buying and selling real estate, and "in general real estate
agency and brokerage business." Incidentally, it is to be noted that the
payment of the solidary obligation of both the partnership and the late Tan
Sin An, leaves open the question of accounting and contribution between the
co-debtors, that should be ventilated separately.

Lastly, appellants point out that the sale of the partnership properties was
only a fraudulent device by the appellees, with the connivance of Kong Chai
Pin, to ease out Antonio Goquiolay from the partnership. The "devise",
according to the appellants, started way back sometime in 1945, when one
Yu Khe Thai sounded out Antonio Goquiolay on the possibility of selling his
share in the partnership; and upon his refusal to sell, was followed by the
filing of the claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co.,
Inc. in the intestate estate proceedings of Tan Sin An. As creditors of Tan
Sin An and the plaintiff partnership (whose liability was alleged to be joint
and several), Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc.
had every right to file their claims in the intestate proceedings. The denial of
the claims at first by Kong Chai Pin (for lack of sufficient knowledge)
negatives any conspiracy on her part in the alleged fraudulent scheme, even
if she subsequently decided to admit their validity after studying the claims
and finding it best to admit the same. It may not be amiss to remark that
the probate court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which the
properties were sold was unreasonably low, or in any way unfair, since
appellants presented no evidence of the market value of the lots as of the
time of their sale to appellees Sycip and Lee. The alleged value of
P31,056.58 in May of 1955 is no proof of the market value in 1949, specially
because in the interval, the new owners appear to have converted the land
into a subdivision, which they could not do without opening roads and
otherwise improving the property at their own expense. Upon the other
hand, Kong Chai Pin hardly had any choice but to execute the questioned
sale, as it appears that the partnership had neither cash nor other properties
with which to pay its obligations. Anyway, we cannot consider seriously the
inferences freely indulged in by the appellants as allegedly indicating fraud in
the questioned transactions, leading to the conveyance of the lots in dispute
to the appellee Insular Development Co., Inc.

Wherefore, finding no reversible error in the appealed judgment, we affirm

the same, with costs against appellant Antonio Goquiolay.

Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia,

Barrera and Gutierrez David, JJ., concur.

RESOLUTION

December 10, 1963

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

The matter now pending is the appellant’s motion for reconsideration of our
main decision, wherein we have upheld the validity of the sale of the lands
owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the
widow of the managing partner, Tan Sin An (executed in her dual capacity of
Administratrix of her husband’s estate and as partner, in lieu of the
husband), in favor of buyers Washington Sycip and Betty Lee for the
following consideration:chanrob1es virtual 1aw library

Cash paid P37,000.00

Debts assumed by purchaser:chanrob1es virtual 1aw library

To Yutivo 62,415.91

To Sing Yee Cuan & Co. 54,310.13

__________

TOTAL P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insists that, contrary

to our holding, Kong Chai Pin, widow of the deceased partner Tan Sin An,
never became more than a limited partner, incapacitated by law to manage
the affairs of the partnership; that the testimony of her witnesses Young and
Lim belies that she took over administration of the partnership property; and
that, in any event, the sale should be set aside because it was executed with
the intent to defraud appellant of his share in the properties sold.

Three things must be always held in mind in the discussion of this motion to
reconsider, being basic and beyond controversy:chanrob1es virtual 1aw
library

(a) That we are dealing here with the transfer of partnership property by one
partner, acting in behalf of the firm, to a stranger. There is no question
between partners inter se, and this aspect of the case was expressly
reserved in the main decision of 26 July 1960;

(b) That the partnership was expressly organized "to engage in real estate
business, either by buying and selling real estate." The Articles of co-
partnership, in fact, expressly provided that:jgc:chanrobles.com.ph

"IV. The object and purpose of the co-partnership are as follows:chanrob1es

virtual 1aw library

1. To engage in real estate business, either by buying and selling real

estates; to subdivide real estates into lots for the purpose of leasing and
selling them." ;

(c) That the properties sold were not part of the contributed capital (which
was in cash) but land precisely acquired to be sold, although subject to a
mortgage in favor of the original owners, from whom the partnership had
acquired them.

With these points firmly in mind, let us turn to the points insisted upon
by Appellant.

It is first averred that there is "not one iota of evidence" that Kong Chai Pin
managed and retained possession of the partnership properties. Suffice it to
point out that appellant Goquiolay himself admitted that —

". . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to
manage the properties (as) she had no other means of income. Then I said,
because I wanted to help Mrs. Kong Chai Pin, she could just do it and
besides I am not interested in agricultural lands. I allowed her to take care
of the properties in order to help her and because I believe in God and I
wanted to help her."cralaw virtua1aw library

Q. So the answer to my question is you did not take any steps?

A. I did not.

Q. And this conversation which you had with Mrs. Yu Eng Lai was few
months after 1945?

A. In the year 1945." (Emphasis supplied)

The appellant subsequently ratified this testimony in his deposition of 30

June 1956, page 8-9, wherein he stated:jgc:chanrobles.com.ph

"that plantation was being occupied at that time by the widow, Mrs. Tan Sin
An, and of course they are receiving quite a lot of benefit from that
plantation."cralaw virtua1aw library

Discarding the self-serving expressions, these admissions of Goquiolay are

certainly entitled to greater weight than those of Hernando Young and Rufino
Lim, having been made against the party’s own interest.

Moreover, the appellant’s reference to the testimony of Hernando Young,

that the witness found the properties "abandoned and undeveloped", omits
to mention that said part of the testimony started with the
question:jgc:chanrobles.com.ph

"Now, you said that about 1942 or 1943 you returned to Davao. Did you
meet Mrs. Kong Chai Pin there in Davao at that time?

Similarly, the testimony of Rufino Lim, to the effect that the properties of the
partnership were undeveloped, and the family of the widow (Kong Chai Pin)
did not receive any income from the partnership properties, was given in
answer to the question:jgc:chanrobles.com.ph

"According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and
his family lived on the plantation of the partnership and derived their
subsistence from that plantation. What can you say to that?" (Dep. 19 July
1956, p. 8)

And also —

"What can you say as to the development of these other properties of the
partnership which you saw during the occupation?" (Dep., p. 13, Emphasis
supplied)

to which witness gave the following answer:chanrob1es virtual 1aw library

I saw the properties in Mamay still undeveloped. The third property which is
in Tigatto is about eleven (11) hectares and planted with abaca seedlings
planted by Mr. Sin An. When I went there with Hernando Young we saw all
the abaca destroyed. The place was occupied by the Japanese Army. They
planted camotes and vegetables to feed the Japanese Army. Of course they
never paid any money to Tan Sin An or his family." (Dep., Lim, pp. 13-14.
(Emphasis supplied)

Plainly, Both Young and Lim’s testimonies do not belie, or contradict,

Goquiolay’s admission that he told Mr. Yu Eng Lai that the widow "could just
do it" (i. e., continue to manage the properties). Witnesses Lim and Young
referred to the period of Japanese occupation; but Goquiolay’s authority
was, in fact, given to the widow in 1945, after the occupation.

Again, the disputed sale by the widow took place in 1949. That Kong Chai
Pin carried out no acts of management during the Japanese occupation
(1942-1944) does not mean that she did not do so from 1945 to 1949.

We thus find that Goquiolay did not merely rely on reports from Lim and
Young; he actually manifested his willingness that the widow should manage
the partnership properties. Whether or not she complied with this authority
is a question between her and the appellant, and is not here involved. But
the authority was given, and she did have it when she made the questioned
sale, because it was never revoked.

It is argued that the authority given by Goquiolay to the widow Kong Chai
Pin was only to manage the property, and that it did not include the power
to alienate, citing Article 1713 of the Civil Code of 1889. What this argument
overlooks is that the widow was not a mere agent, because she had become
a partner upon her husband’s death, as expressly provided by the articles of
co-partnership. Even more, granting that by succession to her husband, Tan
Sin An, the widow only became a limited partner, Goquiolay’s authorization
to manage the partnership property was proof that he considered and
recognized her as general partner, at least since 1945. The reason is plain:
Under the law (Article 148, last paragraph, Code of Commerce), appellant
could not empower the widow, if she were only a limited partner, to
administer the properties of the firm, even as a mere
agent:jgc:chanrobles.com.ph

"Limited partners may not perform any act of administration with respect to
the interests of the co-partnership, not even in the capacity of agents of the
managing partners." (Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin An’s widow
showed that she desired to be considered a general partner. By authorizing
the widow to manage partnership property (which a limited partner could
not be authorized to do), Goquiolay recognized her as such partner, and is
now in estoppel to deny her position as a general partner, with authority to
administer and alienate partnership property.

Besides, as we pointed out in our main decision, the heir ordinarily (and we
did not say "necessarily") becomes a limited partner for his own protection,
because he would normally prefer to avoid any liability in excess of the value
of the estate inherited so as not to jeopardize his personal assets. But this
statutory limitation of responsibility being designed to protect the heir, the
latter may disregard it and instead elect to become a collective or general
partner, with all the rights and privileges of one, and answering for the debts
of the firm not only with the inheritance but also with the heir’s personal
fortune. This choice pertains exclusively to the heir, and does not require the
assent of the surviving partner.

It must be remembered that the articles of co-partnership here involved

expressly stipulated that:jgc:chanrobles.com.ph

"In the event of the death of any of the partners at any time before the
expiration of said term, the co-partnership shall not be dissolved but will
have to be continued and the deceased partner shall be represented by his
heirs or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).

The Articles did not provide that the heirs of the deceased would be merely
limited partner; on the contrary, they expressly stipulated that in case of
death of either partner "the co-partnership . . . will have to be continued"
with the heirs or assigns. It certainly could not be continued if it were to be
converted from a general partnership into a limited partnership, since the
difference between the two kinds of associations is fundamental; and
specially because the conversion into a limited association would leave the
heirs of the deceased partner without a share in the management. Hence,
the contractual stipulation does actually contemplate that the heirs would
become general partners rather than limited ones.

Of course, the stipulation would not bind the heirs of the deceased partner
should they refuse to assume personal and unlimited responsibility for the
obligations of the firm. The heirs, in other words, can not be compelled to
become general partners against their wishes. But because they are not so
compellable, it does not legitimately follow that they may not voluntarily
choose to become general partners, waiving the protective mantle of the
general laws of succession. And in the latter event, it is pointless to discuss
the legality of any conversion of a limited partner into a general one. The
heir never was a limited partner, but chose to be, and became, a general
partner right at the start.

It is immaterial that the heir’s name was not included in the firm name,
since no conversion of status is involved, and the articles of co-partnership
expressly contemplated the admission of the partner’s heirs into the
partnership.

It must never be overlooked that this case involves the rights acquired by
strangers, and does not deal with the rights arising between partners
Goquiolay and the widow of Tan Sin An. The issues between the partners
inter se were expressly reserved in our main decision. Now, in determining
what kind of partner the widow of partner Tan Sin An had elected to
become, strangers had to be guided by her conduct and actuations and
those of appellant Goquiolay. Knowing that by law a limited partner is barred
from managing the partnership business or property, third parties (like the
purchasers) who found the widow possessing and managing the firm
property with the acquiescence (or at least without apparent opposition) of
the surviving partners were perfectly justified in assuming that she had
become a general partner, and, therefore, in negotiating with her as such a
partner, having authority to act for, and in behalf of, the firm. This belief, be
it noted, was shared even by the probate court that approved the sale by
the widow of the real property standing in the partnership name. That belief
was fostered by the very inaction of appellant Goquiolay. Note that for seven
long years, from partner Tan Sin An’s death in 1942 to the sale in 1949,
there was more than ample time for Goquiolay to take up the management
of these properties, or at least ascertain how its affairs stood. For seven
years Goquiolay could have asserted his alleged rights, and by suitable
notice in the commercial registry could have warned strangers that they
must deal with him alone, as sole general partner. But he did nothing of the
sort, because he was not interested (supra), and he did not even take steps
to pay, or settle, the firm debts that were overdue since before the outbreak
of the last war. He did not even take steps, after Tan Sin An died, to cancel,
or modify, the provisions of the partnership articles that he (Goquiolay)
would have no intervention in the management of the partnership. This
laches certainly contributed to confirm the view that the widow of Tan Sin An
had, or was given, authority to manage and deal with the firm’s properties,
apart from the presumption that a general partner dealing with partnership
property has the requisite authority from his co-partners (Litton v. Hill and
Cerón, Et Al., 67 Phil., 513; quoted in our main decision, p. 11).

"The stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the
consent of the other, undoubtedly creates an obligation between the two
partners, which consists in asking the other’s consent before contracting for
the partnership. This obligation of course is not imposed upon a third person
who contracts with the partnership. Neither is it necessary for the third
person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. A third person may and has a
right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his co-partner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership, but on the contrary, is
acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No. 18,
section 334, Code of Civil Procedure), and that the law has been obeyed
(No. 31, section 334). This last presumption is equally applicable to
contracts which have the force of law between the parties." (Litton v. Hill &
Cerón, Et Al., 67 Phil., 509, 516) (Emphasis supplied)

It is next urged that the widow, even as a partner, had no authority to sell
the real estate of the firm. This argument is lamentably superficial because it
fails to differentiate between real estate acquired and held as stock-in-trade
and real state held merely as business site (Vivante’s "taller ó banco social")
for the partnership. Where the partnership business is to deal in
merchandise and goods, i.e., movable property, the sale of its real property
(immovables) is not within the ordinary powers of a partner, because it is
not in line with the normal business of the firm. But where the express and
avowed purpose of the partnership is to buy and sell real estate (as in the
present case), the immovables thus acquired by the firm form part of its
stock-in-trade, and the sale thereof is in pursuance of partnership purposes,
hence within the ordinary powers of the partner. This distinction is supported
by the opinion of Gay de Montella 1 , in the very passage quoted in the
appellant’s motion for reconsideration:jgc:chanrobles.com.ph

"La enajenación puede entrar en las facultades del gerente: cuando es

conforme a los fines sociales. Pero esta facultad de enajenar limitada a las
ventas conforme a los fines sociales, viene limitada a los objetos de comecio
ó a los productos de la fabrica para explotación de los cuales se ha
constituido la Sociedad. Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo caso el gerente
estaria facultado para otorgar las ventas que fuere necesario." (Montella)
(Emphasis supplied)

The same rule obtains in American law.

In Rosen v. Rosen, 212 N. Y. Supp. 405, 406, it was

held:jgc:chanrobles.com.ph

"a partnership to deal in real estate may be created and either partner has
the legal right to sell the firm real estate"

In Chester v. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:jgc:chanrobles.com.ph

"And hence, when the partnership business is to deal in real estate, one
partner has ample power, as a general agent of the firm, to enter into an
executory contract for the sale of real estate."cralaw virtua1aw library

And in Rovelsky v. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep.
83:jgc:chanrobles.com.ph

"If the several partners engaged in the business of buying and selling real
estate can not bind the firm by purchases or sales of such property made in
the regular course of business, then they are incapable of exercising the
essential rights and powers of general partners and their association is not
really a partnership at all, but a several agency."cralaw virtua1aw library
Since the sale by the widow was in conformity with the express objective of
the partnership, "to engage . . . in buying and selling real estate" (Art. IV,
No. 1, Articles of Copartnership), it can not be maintained that the sale was
made in excess of her powers as general partner.

Considerable stress is laid by appellant in the ruling of the Supreme Court of

Ohio in McGrath, Et Al., v. Cowen, Et Al., 49 N. E., 338. But the facts of that
case are vastly different from the one before us. In the McGrath case, the
Court expressly found that:jgc:chanrobles.com.ph

"The firm was then, and for some time had been, insolvent, in the sense that
its property was insufficient to pay its debts, though it still had good credit,
and was actively engaged in the prosecution of its business. On that day,
which was Saturday, the plaintiff caused to be prepared, ready for
execution, the four chattel mortgages in question, which cover all the
tangible property then belonging to the firm, including the counters,
shelving, and other furnishings and fixtures necessary for, and used in
carrying on, its business, and signed the same in this form: "In witness
whereof, the said Cowen & McGrath, a firm, and Owen McGrath, surviving
partner of said firm, and Owen McGrath, individually, have hereunto set their
hands, this 20th day of May, A. D. 1893. Cowen & McGrath, by Owen
McGrath. Owen McGrath, Surviving partner of Cowen & McGrath. Owen
McGrath" At the same time, the plaintiff had prepared, ready for filing, the
petition for the dissolution of the partnership and appointment of a receiver,
which he subsequently filed, as hereinafter stated. On the day the
mortgages were signed, they were placed in the hands of the mortgagees,
which was the first intimation to them that there was any intention to make
then. At that time none of the claims secured by the mortgages were due,
except, it may be, a small part of one of them, and none of the creditors to
whom the mortgages were made had requested security, or were pressing
for the payment of their debts . . . The mortgages appear to be without a
sufficient condition of defeasance, and contain a stipulation authorizing the
mortgagees to take immediate possession of the property, which they did as
soon as the mortgages were filed, through the attorney who then
represented them, as well as the plaintiff; and the stores were at once
closed, and possession delivered by them to the receiver appointed upon the
filing of the petition. The avowed purpose of the plaintiff in the course
pursued by him, was to terminate the partnership, place its property beyond
the control of the firm, and insure the preference of the mortgages, all of
which was known to them at the time; . . ." (Cas cit., p. 343, Italics
supplied)

It is natural that from these facts the Supreme Court of Ohio should draw
the conclusion that conveyances were made with intent to terminate the
partnership, and that they were not within the powers of McGrath as
partner. But there is no similarity between those acts and the sale by the
widow of Tan Sin An. In the McGrath case, the sale included even the
fixtures used in the business, in our case, the lands sold were those acquired
to be sold. In the McGrath case, none of the creditors were pressing for
payment; in our case, the creditors had been unpaid for more than seven
years, and their claims had been approved by the probate court for
payment. In the McGrath case, the partnership received nothing beyond the
discharge of its debts; in the present case, not only were its debts assumed
by the buyers, but the latter paid, in addition, P37,000.00 in cash to the
widow, to the profit of the partnership. Clearly, the McGrath ruling is not
applicable.

We will now turn to the question of fraud. No direct evidence of it exists; but
appellant points out, as indicia thereof, the allegedly low price paid for the
property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.

First, as to the price: As already noted, this property was actually sold for a
total of P153,726.04, of which P37,000.00 was in cash, and the rest in
partnership debts assumed by the purchaser. These debts (P62,415.91 to
Yutivo, and P54,310.13 to Sing Yee Cuan & Co.) are not questioned; they
were approved by the Court, and its approval is now final. The claims were,
in fact, for the balance on the original purchase price of the land sold (due
first to La Urbana, later to the Banco Hipotecario) plus accrued interests and
taxes, redeemed by the two creditors-claimants. To show that the price was
inadequate, appellant relies on the testimony of the realtor Mata, who in
1955, six years after the sale in question, asserted that the land was worth
P312,000.00. Taking into account the continued rise of real estate values
since liberation, and the fact that the sale in question was practically a
forced sale because the partnership had no other means to pay its legitimate
debts, this evidence certainly does not show such "gross inadequacy" as to
justify rescission of the sale. If at the time of the sale (1949) the price of
P153,726.04 was really low, how is it that appellant was not able to raise the
amount, even if the creditor’s representative, Yu Khe Thai, had already
warned him four years before (1945) that the creditors wanted their money
back, as they were justly entitled to?

It is argued that the land could have been mortgaged to raise the sum
needed to discharge the debts. But the lands were already mortgaged, and
had been mortgaged since 1940, first to La Urbana, and then to the Banco
Hipotecario. Was it reasonable to expect that other persons would loan
money to the partnership when it was unable even to pay the taxes on the
property, and the interest on the principal since 1940? If it had been
possible to find lenders willing to take a chance on such a bad financial
record, would not Goquiolay have taken advantage of it? But the fact is clear
on the record that since liberation until 1949 Goquiolay never lifted a finger
to discharge the debts of the partnership. Is he entitled now to cry fraud
after the debts were discharged with no help from him?

With regard to the relationship between the parties, suffice it to say that the
Supreme Court has ruled that relationship alone is not a badge of fraud (Oria
Hnos. v. McMicking, 21 Phil., 243; also Hermandad de Smo. Nombre de
Jesus v. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original
buyers, Washington Sycip and Betty Lee, were without independent means
to purchase the property. That the Yutivos should be willing to extend credit
to them, and not to appellant, is neither illegal nor immoral; at the very
least, these buyers did not have a record of inveterate defaults like the
partnership "Tan Sin An & Goquiolay."

Appellant seeks to create the impression that he was the victim of a

conspiracy between the Yutivo firm and their component members. But no
proof is adduced. If he was such a victim, he could have easily defeated the
conspirators by raising money and paying off the firm’s debts between 1945
and 1949; but he did not; he did not even care to look for a purchaser of the
partnership assets. Were it true that the conspiracy to defraud him arose (as
he claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai
asked him to do so, it is certainly strange that the conspirators should wait 4
years, until 1949, to have the sale effected by the widow of Tan Sin An, and
that the sale should have been routed through the probate court taking
cognizance of Tan Sin An’s estate, all of which increased the risk that the
supposed fraud should be detected.

Neither was there any anomaly in the filing of the claims of Yutivo and Sing
Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in proceedings for
the settlement of the estate of Tan Sin An. This for two reasons: First, Tan
Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (joint
and several) debtors (Exhibit "N" mortgage to the Banco Hipotecario), and
Rule 87, section 6, is to the effect that:jgc:chanrobles.com.ph

"Where the obligation of the decedent is joint and several with another
debtor, the claim shall be filed against the decedent as if he were the only
debtor, without prejudice to the right of the estate to recover contribution
from the other debtor." (Emphasis supplied)

Secondly, the solidary obligation was guaranteed by a mortgage on the

properties of the partnership and those of Tan Sin An personally, and a
mortagage in indivisible, in the sense that each and every parcel under
mortgage answers for the totality of the debt (Civ. Code of 1889, Article
1860; New Civil Code, Art. 2089).

A final and conclusive consideration. The fraud charged not being one used
to obtain a party’s consent to a contract (i.e., not being deceit or dolus in
contrahendo), if there is fraud at all, it can only be a fraud of creditors that
gives rise to a rescission of the offending contract. But by express provision
of law (Article 1294, Civil Code of 1889; Article 1383, New Civil Code), "the
action for rescission is subsidiary; it can not be instituted except when the
party suffering damage has no other legal means to obtain reparation for the
same." Since there is no allegation, or evidence, that Goquiolay can not
obtain reparation from the widow and heirs of Tan Sin An, the present suit to
rescind the sale in question is not maintenable, even if the fraud charged
actually did exist.

Premises considered, the motion for reconsideration is denied.

Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.

Separate Opinions
BAUTISTA ANGELO, J., dissenting:chanrob1es virtual 1aw library

This is an appeal from a decision of the Court of First Instance of Davao

dismissing the complaint filed by Antonio C. Goquiolay, Et Al., seeking to
annul the sale made by Kong Chai Pin of three parcels of land to Washington
Z. Sycip and Betty Y. Lee on the ground that it was executed without proper
authority and under fraudulent circumstances. In a decision rendered on July
26, 1960, we affirmed this decision although on grounds different from those
on which the latter is predicated. The case is once more before us on a
motion for reconsideration filed by appellants raising both questions of fact
and of law.

On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao
City a commercial partnership for a period of ten years with a capital of
P30,000.00 of which Goquiolay contributed P18,000.00 representing 60%
while Tan Sin An P12,000.00 representing 40%. The business of the
partnership was to engage in buying real estate properties for subdivision,
resale and lease. The partnership was duly registered, and among the
conditions agreed upon in the partnership agreement which are material to
this case are: (1) that Tan Sin An would be the exclusive managing partner,
and (2) in the event of the death of any of the partners the partnership
would continue, the deceased to be represented by his heirs. On May 31,
1940, Goquiolay executed a general power of attorney in favor of Tan Sin An
appointing the latter manager of the partnership and conferring upon him
the usual powers of management.

On May 29, 1940, the partnership acquired three parcels of land known as
Lots Nos. 526, 441 and 521 of the cadastral survey of Davao, the only
assets of the partnership, with the capital originally invested, financing the
balance of the purchase price with a mortgage in favor of "La Urbana
Sociedad Mutua de Construcción Prestamos" in the amount of P25,000.00
payable in ten years. On the same date, Tan Sin An, in his individual
capacity, acquired 46 parcels of land executing a mortgage thereon in favor
of the same company for the sum of P35,000.00. On September 25, 1940,
these two mortgage obligations were consolidated and transferred to the
Banco Hipotecario de Filipinas and as a result Tan Sin An, in his individual
capacity, and the partnership bound themselves to pay jointly and severally
the total amount of P52,282.80, with 8% annual interest thereon within the
period of eight years mortgaging in favor of said entity the 3 parcels of land
belonging to the partnership to Tan Sin An.

Tan Sin An died on June 26, 1942 and was survived by his widow, defendant
Kong Chai Pin, and four children, all of whom are minors of tender age. On
March 18, 1944, Kong Chai Pin was appointed administratrix of the intestate
estate of Tan Sin An. And on the same date, Sing, Yee and Cuan Co., Inc.
paid to the Banco Hipotecario the remaining unpaid balance of the mortgage
obligation of the partnership amounting to P46,116.75 in Japanese
currency.

Sometime in 1945, after the liberation of Manila, Yu Khe Thai, president and
general manager of Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co.,
Inc., called for Goquiolay and the two had a conference in the office of the
former during which he offered to buy the interest of Goquiolay in the
partnership. In 1948, Kong Chai Pin, the widow, sent her counsel, Atty.
Dominador Zuño, to ask Goquiolay to execute in her favor a power of
attorney. Goquiolay refused both to sell his interest in the partnership as
well as to execute the power of attorney.

Having failed to get Goquiolay to sell his share in the partnership, Yutivo
Sons Hardware Co., and Sing, Yee and Cuan Co., Inc. filed in November,
1946 a claim each in the intestate proceedings of Tan Sin An for the sum of
P84,705.48 and P66,529.91, respectively, alleging that they represent
obligations of both Tan Sin An and the partnership. After first denying any
knowledge of the claims, Kong Chai Pin, as administratrix, admitted later
without qualification the two claims in an amended answer she file on
February 28, 1947. The admission was predicated on the ground that she
and the creditors were closely related by blood, affinity and business ties. In
due course, these two claims were approved by the court.

On March 29, 1949, more than two years after the approval of the claims,
Kong Chai Pin filed a petition in the probate court to sell all the properties of
the partnership as well as some of the conjugal properties left by Tan Sin An
for the purpose of paying the claims. Following approval by the court of the
petition for authority to sell, Kong Chai Pin, in her capacity as administratrix,
and presuming to act as managing partner of the partnership, executed on
April 4, 1949 a deed of sale of the properties owned by Tan Sin An and by
the partnership in favor of Betty Y. Lee and Washington Z. Sycip in
consideration of the payment to Kong Chai Pin of the sum of P37,000.00,
and the assumption by the buyers of the claims filed by Yutivo Sons
Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose favor the buyers
executed a mortgage on the properties purchased. Betty Y. Lee and
Washington Z. Sycip subsequently executed a deed of sale of the same
properties in favor of their co-defendant Insular Development Company, Inc.
It should be noted that these transactions took place without the knowledge
of Goquiolay and it is admitted that Betty Y. Lee and Washington Z. Sycip
bought the properties on behalf of the ultimate buyer, the Insular
Development Company, Inc., with money given by the latter.

Upon learning of the sale of the partnership properties, Goquiolay filed on

July 25, 1949 in the intestate proceedings a petition to set aside the order of
the court approving the sale. The court granted the petition. While the order
was pending appeal in the Supreme Court, Goquiolay filed the present case
on January 15, 1953 seeking to nullify the sale as stated in the early part of
this decision. In the meantime, the Supreme Court remanded the original
case to the probate court for rehearing due to lack of necessary parties.

The plaintiffs in their complaint challenged the authority of Kong Chai Pin to
sell the partnership properties on the ground that she had no authority to
sell because even granting that she became a partner upon the death of Tan
Sin An the power of attorney granted in favor of the latter expired after his
death.

Defendants, on the other hand, defended the validity of the sale on the
theory that she succeeded to all the rights and prerogatives of Tan Sin An as
managing partner.

The trial court sustained the validity of the sale on the ground that under the
provisions of the articles of partnership allowing the heirs of the deceased
partner to represent him in the partnership after his death Kong Chai Pin
became a managing partner, this being the capacity held by Tan Sin An
when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this
decision but on different grounds, among which the salient points are: (1)
the power of attorney given by Goquiolay to Tan Sin An as manager of the
partnership expired after his death; (2) his widow Kong Chai Pin did not
inherit the management of the partnership, it being a personal right; (3) as
a general rule, the heirs of a deceased general partner come into the
partnership in the capacity only of limited partners; (4) Kong Chai Pin,
however, became a general partner because she exercised certain alleged
acts of management; and (5) the sale being necessary to pay the obligations
of the partnership, she was therefore authorized to sell the partnership
properties without the consent of Goquiolay under the principle of estoppel,
the buyers having the right to rely on her acts of management and to
believe her to be in fact the managing partner.

Considering that some of the above findings of fact and conclusions of law
are without legal or factual basis, appellants have in due course filed a
motion for reconsideration which because of the importance of the issues
therein raised has been the subject of mature deliberation.

In support of said motion, appellants advanced the following

arguments:chanrob1es virtual 1aw library

1. If the conclusion of the Court is that heirs as a general rule enter the
partnership as limited partners only, therefore Kong Chai Pin, who must
necessarily have entered the partnership as a limited partner originally,
could have not chosen to be a general partner by exercising the alleged acts
of management, because under Article 148 of the Code of Commerce a
limited partner cannot intervene in the management of the partnership,
even if given a power of attorney by the general partners. An Act prohibited
by law cannot give rise to any right and is void under the express provisions
of the Civil Code.

2. The buyers were not strangers to Kong Chai Pin, all of them being
members of the Yu (Yutivo) family, the rest, members of the law firm which
handles the Yutivo interests and handled the papers of sale. They did not
rely on the alleged acts of management — they believed (this was the
opinion of their lawyers) that Kong Chai Pin succeeded her husband as a
managing partner and it was on this theory alone that they submitted the
case in the lower court.

3. The alleged acts of management were denied and repudiated by the very
witnesses presented by the defendants themselves.

The arguments advanced by appellants are in our opinion well-taken and

furnish sufficient basis to reconsider our decision if we want to do justice to
Antonio C. Goquiolay. And to justify this conclusion, it is enough that we lay
stress on the following points: (1) there is no sufficient factual basis to
conclude that Kong Chai Pin executed acts of management to give her the
character of general manager of the partnership, or to serve as basis for
estoppel that may benefit the purchasers of the partnership properties; (2)
the alleged acts of management, even if proven, could not give Kong Chai
Pin the character of general manager for the same is contrary to law and
well- known authorities; (3) even if Kong Chai Pin acted as general manager
she had no authority to sell the partnership properties as to make it legal
and valid; and (4) Kong Chai Pin had no necessity to sell the properties to
pay the obligation of the partnership and if she did so it was merely to favor
the purchasers who were close relatives to the prejudice of Goquiolay.

1. This point is pivotal for if Kong Chai Pin did not execute the acts of
management imputed to her our ruling cannot be sustained. In making our
aforesaid ruling we apparently gave particular importance to the fact that it
was Goquiolay himself who tried to prove the acts of management.
Appellants, however, have emphasized the fact, and with reason, that the
appellees themselves are the ones who denied and refuted the so-called acts
of management imputed to Kong Chai Pin. to have a clear view of this
factual situation, it becomes necessary that we analyze the evidence of
record.

Plaintiff Goquiolay, it is intimated, testified on cross- examination that he

had a conversion with one Hernando Young in Manila in the year 1945 who
informed him that Kong Chai Pin "was attending to the properties and
deriving some income therefrom and she had no other means of livelihood
except those properties and some rentals derived from the properties." He
went on to say by way of remark that she could continue doing this because
he wanted to help her. On point that he emphasized was that he was "not
interested in agricultural lands."cralaw virtua1aw library
On the other hand, defendants presented Hernando Young, the same person
referred to by Goquiolay, who was a close friend of the family of Kong Chai
Pin, for the purpose of denying the testimony of Goquiolay. Young testified
that in 1945 he was still in Davao, and insisted no less than six times during
his testimony that he was not in Manila in 1945, the year when he allegedly
gave the information to Goquiolay, stating that he arrived in Manila for the
first time in 1947. He testified further that he had visited the partnership
properties during the period covered by the alleged information given by him
to Goquiolay and that he found them "abandoned and underdeveloped," and
that Kong Chai Pin was not deriving any income from them.

The other witness for the defendants, Rufino Lim, also testified that he had
seen the partnership properties and corroborated the testimony of Hernando
Young in all respects: "the properties in Mamay were underdeveloped, the
shacks were destroyed in Tigato, and the family of Kong Chai Pin did not
receive any income from the partnership properties." He specifically rebutted
the testimony of Goquiolay in his deposition given on June 30, 1956 that
Kong Chai Pin and her family were living in the partnership properties and
stated that the ‘family never actually lived in the properties of the
partnership even before the war or after the war."cralaw virtua1aw library

It is unquestionable that Goquiolay was merely repeating an information

given to him by a third person, Hernando Young - he stressed this point
twice. A careful analysis of the substance of Goquiolay’s testimony will show
that he merely had no objection to allowing Kong Chai Pin to continue
attending to the properties in order to give her some means of livelihood,
because, according to the information given him by Hernando Young, which
he assumed to be true, Kong Chai Pin had no other means of livelihood. But
certainly he made it very clear that he did not allow her to manage the
partnership when he explained his reason for refusing to sign a general
power of attorney for Kong Chai Pin which her counsel, Atty. Zuño, brought
with him to his house in 1948. He said:jgc:chanrobles.com.ph

". . . Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuño and
he asked me if I could execute a general power of attorney for Mrs. Kong
Chai Pin. Then I told Atty. Zuño what is the use of executing a general power
of attorney for Mrs. Kong Chai Pin when Mrs. Kong Chai Pin had already got
that plantation for agricultural purposes, I said for agricultural purposes she
can use that plantation . . ." (T.s.n., p. 9, Hearing on May 5, 1955)

It must be noted that in his testimony Goquiolay was categorically stating

his opposition to the management of the partnership by Kong Chai Pin and
carefully made the distinction that his conformity was for her to attend to
the partnership properties in order to give her merely a means of livelihood.
It should be stated that the period covered by the testimony refers to the
period of occupation when living condition was difficult and precarious. And
Atty. Zuño, it should also be stated, did not deny the statement of
Goquiolay.

It can therefore be seen that the question as to whether Kong Chai Pin
exercised certain acts of management of the partnership properties is highly
controverted. The most that we can say is that the alleged acts are doubtful
more so when they are disputed by the defendants themselves who later
became the purchasers of the properties, and yet these alleged acts, if at all,
only refer to management of the properties and not to management of the
partnership, which are two different things.

In resume, we may conclude that the sale of the partnership properties by

Kong Chai Pin cannot be upheld on the ground of estoppel, first, because the
alleged acts of management have not been clearly proven; second, because
the record clearly shows that the defendants, or the buyers, were not misled
nor did they rely on the acts of management, but instead they acted solely
on the opinion of their counsel, Atty. Quisumbing, to the effect that she
succeeded her husband in the partnership as managing partner by operation
of law; and third, because the defendants are themselves estopped to
invoke a defense which they tried to dispute and repudiate.

2. Assuming arguendo that the acts of management imputed to Kong Chai

Pin are true, could such acts give her the character of general manager of
the partnership as we have concluded in our decision?

Our answer is in the negative because it is contrary to law and precedents.

Garrigues, a well-known commentator, is clearly of the opinion that mere
acceptance of the inheritance does not make the heir of a general partner a
general partner himself. He emphasized that the heir must declare that he is
entering the partnership as a general partner unless the deceased partner
has made it an express condition in his will that the heir accepts the
condition of entering the partnership as a prerequisite of inheritance, in
which case acceptance of the inheritance is enough. 1 But here Tan Sin An
died intestate.

Now, could Kong Chai Pin be deemed to have declared her intention to
become general partner by exercising acts of management? We believe not,
for, in consonance with our ruling that as a general rule the heirs of a
deceased partner succeed as limited partners only by operation of law, it is
obvious that the heir, upon entering the partnership, must make a
declaration of his character, otherwise he should be deemed as having
succeeded as limited partner by the mere acceptance of inheritance. And
here Kong Chai Pin did not make such declaration. Being then a limited
partner upon the death of Tan Sin An by operation of law, the peremptory
prohibition contained in Article 148 2 of the Code of Commerce became
binding upon her and as a result she could not change her status by
violating its provisions not only under the general principle that prohibited
acts cannot produce any legal effect, but also because under the provisions
of Article 147 3 of the same Code she was precluded from acquiring more
rights than those pertaining to her as a limited partner. The alleged acts of
management, therefore, did not give Kong Chai Pin the character of general
manager to authorize her to bind the partnership.

Assuming also arguendo that the alleged acts of management imputed to

Kong Chai Pin gave her the character of a general partner, could she sell the
partnership properties without authority from the other partners?

Our answer is also in the negative in the light of the provisions of the articles
of partnership and the pertinent provisions of the Code of Commerce and the
Civil Code. Thus, Article 129 of the Code of Commerce
says:jgc:chanrobles.com.ph

"If the management of the general partnership has not been limited by
special agreement to any of the members, all shall have the power to take
part in the direction and management of the common business, and the
members present shall come to an agreement for all contracts or obligations
which may concern the association."cralaw virtua1aw library
And the pertinent portions of the Articles of partnership
provides:jgc:chanrobles.com.ph

"VII. The affairs of the co-partnership shall be managed exclusively by the

managing partner or by his authorized agent, and it is expressly stipulated
that the managing partner may delegate the entire management of the
affairs of the co-partnership by irrevocable power of attorney to any person,
firm or corporation he may select, upon such terms as regards compensation
as he may deem proper, and vest in such person, firm or corporation full
power and authority, as the agent of the co-partnership and in his name,
place and stead to do anything for it or on his behalf which he as such
managing partner might do or cause to be done." (Page 23, Record on
Appeal)

It would thus be seen that the powers of the managing partner are not
defined either under the provisions of the Code of Commerce or in the
articles of partnership, a situation which, under Article 2 of the same Code,
renders applicable herein the provisions of the Civil Code. And since,
according to well-known authorities, the relationship between a managing
partner and the partnership is substantially the same as that of the agent
and his principal, 4 the extent of the power of Kong Chai Pin must,
therefore, be determined under the general principles governing agency.
And, on this point, the law says that an agency created in general terms
includes only acts of administration, but with regard to the power to
compromise, sell, mortgage, and other acts of strict ownership, an express
power of attorney is required. 5 Here Kong Chai Pin did not have such power
when she sold the properties of the partnership.

Of course, there is authority to the effect that a managing partner, even

without express power of attorney, may perform acts affecting ownership if
the same are necessary to promote or accomplish a declared object of the
partnership, but here the transaction is not for this purpose. It was effected
not to promote any avowed object of the partnership. 6 Rather, the sale was
effected to pay an obligation of the partnership by selling its real properties
which Kong Chai Pin could not do without express authority. The authorities
supporting this view are overwhelming.
"La enajenación puede entrar en las facultades del gerente, cuando es
conforme a los fines sociales. Pero esta facultad de enajenar limitada a las
ventas conforme a los fines sociales, viene limitada a los objetos de
comercio, o los productos de la fabrica para explotación de los cuales se ha
constituido la Sociedad. Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo caso el gerente
estaria facultado para otorgar las ventas que fuere necesario. Por el
contrario, el gerente no tiene atribuciones para vender las instalaciones del
comercio ni la fabrica, ni las maquinarias, vehiculos de transporte, etc., que
forman parte de la explotación social. En todos estas casos, igualmente que
si tratase de la venta de una marca o procedimiento mecanico o quimico,
etc., siendo actos de disposición seria necesario contar con la conformidad
expresa de todos los socios." (R. Gay de Montella, id., pp. 223-224, Italics
supplied)

"Los poderes de los Administradores no tienen ante el silencio del contrato

otros limites que los señalados por el objeto de la Sociedad y, por
consiguiente, pueden llevar a cabo todas las operaciones que sirven para
aquel ejercicio, incluso cambiando repetidas veces los propios acuerdos
según el interés convenido de la Sociedad. Pueden contratar y despedir a los
empleados, tomar en arriendo almacenes y tiendas, expedir cambiales,
girarlas, avalarlas, dar en prenda o en hipoteca los bienes de la sociedad y
adquirir inmuebles destinados a su explotación o al empleo estable de sus
capitales. Pero no podran ejecutar los actos que estan en contradicción con
la explotación que les fue confiada no podran cambiar el objeto, el domicilio
la razón social; fundir a la Sociedad en otra; ceder la acción, y por tanto, el
uso de la firma social a otro renunciar definitivamente el ejercicio de uno de
otro ramo comercio que se les haya confiado y enajenar o pignorar el taller o
el banco social excepto que la venta o piqnoracion tengan por el objeto
procurar los medios necesarios para la continuación de la empresa social."
(Cesar Vivante, Tratado de Derecho Mercantil, pp. 124-125, Vol. II, la.
ed.; Italics supplied).

"The act of one partner to bind the firm, must be necessary for the carrying
on of its business. If all that can be said of it was that it was convenient, or
that it facilitated the transaction of the business of the firm, that is not
sufficient, in the absence of evidence of sanction by other partners. Nor, it
seems, will necessity itself be sufficient if it be an extraordinary necessity.
What is necessary for carrying on the business of the firm under ordinary
circumstances and in the usual way, is the test. Lindl. Partn. Sec. 126.
While, within this rule, one member of a partnership may, in the usual and
ordinary course of its business, make a valid sale or pledge, by way of
mortgage or otherwise, of all or part of its effects intended for sale, to a
bona fide purchaser or mortgagee, without the consent of the other
members of the firm, it is not within the scope of his implied authority to
make a final disposition of all of its effects, including those employed as the
means of carrying on its business, the object and effect of which is to
immediately terminate the partnership, and place its property beyond its
control. Such a disposition, instead of being within the scope of the
partnership business, or in the usual and ordinary way of carrying it on, is
necessarily subversive of the object of the partnership, and contrary to the
presumed intention of the partnership in its formation." (McGrath, Et. Al. v.
Cowen, Et Al., 49 N.F. 338, 343; Italics supplied)

Since Kong Chai Pin sold the partnership properties not in line with the
business of the partnership but to pay its obligation without first obtaining
the consent of the other partners, the sale is invalid being in excess of her
authority.

4. Finally, the sale under consideration was effected in a suspicious manner

as may be gleaned from the following circumstances:chanrob1es virtual 1aw
library

(a) The properties subject of the instant sale which consist of three parcels
of land situated in the City of Davao have an area of 200 hectares more or
less, or 2,000,000 square meters. These properties were purchased by the
partnership for purposes of subdivision. According to realtor Mata, who
testified in court, these properties could command at the time he testified a
value of not less than P312,000.00, and according to Dalton Chen, manager
of the firm which took over the administration, since the date of sale no
improvement was ever made thereon precisely because of this litigation. And
yet, for said properties, aside from the sum of P37,000.00 which was paid
for the properties of the deceased and the partnership, only the paltry sum
of P66,529.91 was paid as a consideration therefor, of which the sum of
P46,116.75 was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid reason
to sell them if her purpose was only to pay the partnership’s obligation. She
could have negotiated a loan if she wanted to pay it by placing the
properties as security, but preferred to sell them even at such low prices
because of her close relationship with the purchasers and creditors who
conveniently organized a partnership to exploit them, as may be seen from
the following relationship of their pedigree:chanrob1es virtual 1aw library

KONG CHAI PIN, the administratrix, was a granddaughter of Jose P. Yutivo,

founder of the defendant Yutivo Sons Hardware Co. YUTIVO SONS
HARDWARE CO, and SIN YEE CUAN CO, INC., alleged creditors, are owned
by the heirs of Jose P. Yutivo (Sing, Yee & Cuan are the three children of
Jose). YU KHE THAI is a grandson of the same Jose P. Yutivo, and president
of the two alleged creditors. He is the acknowledged head of the Yu families.
WASHINGTON Z. SYCIP, one of the original buyers, ‘is married to Ana Yu, a
daughter of Yu Khe Thai, BETTY Y. LEE, the other original buyer is also a
daughter of Yu Khe Thai. The INSULAR DEVELOPMENT CO., the ultimate
buyer, was organized for the specific purpose of buying the partnership
properties. Its incorporators were: Ana Yu and Betty V. Lee, Atty.
Quisumbing and Salazar the lawyers who studied the papers of sale and
have been counsel for the Yutivo interests; Dalton Chen a brother-in-law of
Yu Khe Thai and an executive of Sing Yee & Cuan Co; Lillian Yu, daughter of
Yu Eng Poh, an executive of Yutivo Sons Hardware, and Simeon Daguiwag, a
trusted employee of the Yutivos.

(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close
relatives of Kong Chai Pin, have already conceived the idea of possessing the
lands for purposes of subdivision, excluding Goquiolay from their plan, and
this is evident from the following sequence of events:chanrob1es virtual 1aw
library

Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In
1946, the creditors of the partnership filed their claim against the
partnership in the intestate proceedings. The creditors studied ways and
means of liquidating the obligation of the partnership, leading to the
formation of the defendant Insular Development Co., composed of members
of the Yutivo family and the counsel of record of the defendants, which
subsequently bought the properties of the partnership and assumed the
obligation of the latter in favor of the creditors of the partnership, Yutivo
Sons Hardware and Sing, Yee & Cuan, also of the Yutivo family. The buyers
took time to study the commercial potentialities of the partnership properties
and their lawyers carefully studied the document and other papers involved
in the transaction. All these steps led finally to the sale of the three
partnership properties.

Upon the strength of the foregoing considerations, I vote to grant motion for
reconsideration.

Labrador, Paredes and Makalintal, JJ., concur.

EN BANC

[G.R. No. 929. October 8, 1903. ]

THUNGA CHUI, Plaintiff-Appellee, v. QUE BENTEC, Defendant-

Appellant.

Manuel Torres for Appellant.

W .H . Bishop for Appellee.

SYLLABUS

1. CONTRACT; ENFORCEABILITY; FORMAL REQUISITES. — When the

essential requisites for the existence of a contract are present, the contract
is binding upon the parties whatever may be the amount involved, and,
although required to be in writing by article 1280 of the Civil Code, the
plaintiff can maintain an action on the verbal agreement without first
bringing an action under article 1279 to compel the execution of a written
instrument.

2. ID.; CIVIL PARTNERSHIP. — An oral contract of partnership under the

Civil Code is valid and binding between the parties, even if the amount of
capital contributed is in excess of the sum of 1,500 pesetas.

3. ID.; MERCANTILE PARTNERSHIP; FORMAL REQUISITES. — Although a

mercantile partnership, to affect persons, must be reduced to writing and
recorded in the mercantile registry, a verbal contract of partnership is good
as between the parties themselves.

DECISION

WILLARD, J. :
This case was before this court in November, 1902. It was then decided that
the only question open to the appellant was whether the findings of fact
made by the trial judge in his decision supported the judgment. (Thunga
Chui v. Que Bentec, 1 Off. Gaz., p. 4.) 1

The appellant claims that the partnership contract was required to be in

writing by article 119 of the Code of Commerce and, the amount of the
capital being more than 1,500 pesetas, by article 1280 of the Civil Code and
article 51 of the Code of Commerce.

We think it fairly appears from the decision that the contract of partnership
was not in writing. Whether this was a civil or a commercial partnership we
consider immaterial, for in neither case do we think that the contention of
the appellant can prevail.

1. Considered as a civil partnership, that part of article 1280 of the Civil

Code applicable to the case is as follows:jgc:chanrobles.com.ph

"All other contracts, on which the amount of the prestaciones of one or of

the two contracting parties exceed 1,500 pesetas, must also be drawn in
writing, even when they are private documents.’’

Articles 1278 and 1279 of the same code are as

follows:jgc:chanrobles.com.ph

"ART. 1278. Contracts shall be binding, whatever the form may be in which
they have been entered into, provided the essential conditions required for
their validity are present.

"ART. 1279. When the law exacts the execution of a deed or other special
form for making effectual suitable obligations of a contract, the contracting
parties may compel each other to comply with such forms, from the moment
in which consent and the other requirements, necessary for their validity,
have taken place."cralaw virtua1aw library

The plaintiff contributed to the partnership 1,000 pesos and the defendant
2,000, and it is therefore claimed by the latter that the case falls under
article 1280, and that before the plaintiff can maintain any action on the
verbal contract he must proceed under article 1279 to compel the defendant
to reduce it to writing. whatever may be said of earlier decisions of the
supreme court of Spain upon the proper construction of these three articles,
the later ones have, we think, settled the question involved against the claim
of the Appellant.

In the judgment of May 3, 1897, the court said:jgc:chanrobles.com.ph

"Article 1279 does not impose an obligation, but confers a privilege upon
both contracting parties, and the fact that plaintiff has not made use of same
does not bar his action."cralaw virtua1aw library

In the judgment of October 19, 1901 (Alcubilla, Appendix, 1902, p. 139), it

appeared that the plaintiff, Doña Ana Laborda, agreed with the defendant,
Don Nemesio Alamanzon, to leave the employment which she then had and
to enter the defendant’s service, and he agreed that if she left his service he
would pay her during life an annuity equal to the salary which she was
receiving in her former employment. This contract was verbal. Having been
dismissed, she sued for several months’ salary and the annuity. The
judgment of the audiencia was in her favor, and the defendant removed the
case to the Supreme Court, assigning as error that the court had infringed
article 1280. The judgment was affirmed the court
saying:jgc:chanrobles.com.ph

"Contracts are binding and therefore enforceable reciprocally by the

contracting parties, whatever may be the form in which the contract has
been entered into, provided that the essential conditions for their validity are
present. The observance of this general rule, expressly established by article
1278 of the Civil Code, is not in opposition to the provisions of the two
following articles, as this Supreme Court has repeatedly held, and especially
in its judgment of July 4, 1899. Article 1280 is limited to an enumeration of
the acts and contracts which should be reduced to writing in a public or
private document. Article 1279, far from making the enforceability of the
contract dependent upon any special extrinsic form, recognizes its
enforceability by the mere act of granting to the contracting parties an
adequate remedy whereby to compel the execution of a public writing, or
any other special form, whenever such form is necessary in order that the
contract may produce the effect which is desired, according to whatever may
be its object. This, in substance, is equivalent to establishing as an implied
condition of every contract that these formal requisites shall be complied
with, notwithstanding the absence of any express agreement by the
contracting parties to that effect, but does not subordinate the principal
action for the enforcement of the agreement to the bringing of the
secondary action concerning the form. Such subordination would be
unnecessary, as the cause of action would be the same in both cases, i. e.,
the existence of a valid contract. Hence it follows that the court below in its
judgment has not committed the error assigned as the sole ground for its
reversal, even supposing that the contract upon which this case turns is one
of the class which should be reduced to writing."cralaw virtua1aw library

The same doctrine was announced in the judgment of June 18, 1902
(Alcubilla, Appendix, 1902, p. 806), the court there
saying:jgc:chanrobles.com.ph

"As has been repeatedly held by this court, the enforceability of contracts
does not depend upon their extrinsic form, but solely upon the presence of
the conditions necessary for their validity — which it is not denied are
present in the contract in question — that contracts are binding whatever
may be the form of their celebration. The reduction to writing in a public or
private document, required by the law with respect to certain contracts, is
not an essential requisite of their existence, but is simply a coercive power
granted to the contracting parties by which they can reciprocally compel the
observance of these formal requisites. It follows, hence, that article 1280 of
the Civil Code has not been violated as alleged in the first assignment of
error because the contract was not reduced to writing, notwithstanding the
fact that the amount involved exceeds 1,500 pesetas, even supposing this
article to be applicable to a contract of a mercantile character such as that in
question which is specially covered by the Code of Commerce."cralaw
virtua1aw library

In the judgment of July 4, 1899, it was found by the Audiencia that the
plaintiff had sold to the defendants by a verbal contract her rights in an
inheritance. she, claiming that the case fell under article 1280 (4), appealed
from the judgment against her, alleging that such rights could only be
transferred by a public document. This contention was not sustained.

In the judgment of April 17, 1897, cited by the appellant, the judgment was
annulled only in one particular, and the decision of the Supreme Court is
capable of the construction that, in ordering judgment against the
defendants for the price of certain lands sold by a private document, the
Audiencia should have inserted a clause requiring the plaintiff on receiving
the amount to execute the proper public document. As so construed it is
consistent with the decisions heretofore cited.

We think that it can now be said that when the question arises between the
immediate parties to the contract the constant doctrine of the Supreme
Court is that stated in these decisions.

The same result must be reached if we consider the question without

reference to the authorities. If the requisites of article 1261 exist, the
contract is valid between the parties. This is expressly stated in article 1278.
Although a contract is by article 1280 required to be in writing, yet if it can
be "made effective" without that writing, the plaintiff can maintain an action
against the other contracting party at once on the verbal contract without
resort to article 1279. That need be done only when by reason of the
subject-matter of the contract, or for other causes, the plaintiff can not
make the contract fully effective without the prescribed document.

The cause of Elias Gueb v. Trinidad Ruiz, decided by this court on November
7, 1901, was placed upon the ground that, in the assignment by the creditor
to plaintiff of a demand against the defendant, the latter was a third person,
and that as against him the assignment could not be made effective without
the writing mentioned in article 2. If the Civil Code is to govern this contract,
what has been said disposes of the claim of the appellant based on article
1280. The appellant, however, assigns as error the infringement of articles
119 and 51 of the Code of Commerce.

Article 117 of the Code of Commerce is as follows:jgc:chanrobles.com.ph

"The contract of mercantile partnership entered into with the essential

requisites of the law shall be valid and binding upon the parties thereto,
whatever may be its form, or whatever lawful and fair conditions and
combinations may enter into it, provided they are not expressly prohibited
by this Code . . ."cralaw virtua1aw library

We hold that under this article a verbal contract of partnership is good as

between the parties themselves. The phrase "essential requisites of the law’
means those general requirements of the law which are of the essence of
every contract, namely, parties who are capable of contracting, the meeting
of the minds, the absence of fraud, and those enumerated in article 1261 of
the Civil Code. If the intention was to require a compliance with article 119,
it would have been more natural to have used the expression found in article
116, namely, "according to the provisions of this Code." The word "form"
refers to the manner in which the contract is made, whether by parol or in
writing, and not the class to which it may belong as general, limited, or
corporate. In view of the fact that organization in one of these three forms is
expressly prescribed in subsequent sections, it would be unusual to expect a
statement in this section that the contract should be valid between the
parties even if it was in one of these forms. In article 1667 of the Civil Code,
the word "form" is used in the sense which we have given to the word here.
This article, 117, is expressly limited to partners, and as to them it is
declared that a verbal contract is sufficient.

But when third persons are involved, the Code has established a different
rule. Articles 118 and 119 are as follows:jgc:chanrobles.com.ph

"ART. 118. Contracts executed between commercial associations and any

other persons capable of binding themselves shall be valid and binding,
provided the same are legal and honest, and that the requisites mentioned
in the following article are complied with.

"ART. 119. Every commercial association, before beginning business, shall

be obliged to record its establishment, agreements, and conditions in a
public instrument, which shall be presented for record in the commercial
registry, in accordance with the provisions of article 17.

"Additional instruments which modify or alter in any manner whatsoever the

original contracts of the association are subject to the same formalities, in
accordance with the provisions of article 25.
"Partners can not make private agreements, but all must appear in the
articles of partnership."cralaw virtua1aw library

It is expressly provided in article 118 that contracts with third persons shall
not be valid unless the provisions of article 119 are complied with. There is
no such provision in article 117. It is not there said that the contract shall
not be valid between the parties unless article 119 is complied with.

The effect of a failure to comply with article 119 is the subject of several
articles. This article requires the contract to be recorded in the Mercantile
Registry. This is required also by article 17; yet article 24 says that even if it
is not so recorded it shall be valid as between the partners, but not as to
third persons. Article 120 declares that -the managers of the partnership
who fail to comply with article 119 shall be liable to third persons with whom
they have dealt. But we can find nothing in the Code which declares that a
failure to comply with the article in respect to the public writing shall have
any effect upon the partners as between themselves. The last paragraph of
article 119 is applicable only to third persons, for as between the partners
themselves there could be no secret agreements in the contract.

Article 285 of the Code of Commerce of 1829 plainly required a public

instrument, even as between the partners. If the intention was to make no
change in the law in this respect, that article would have been retained. But
as it appears from the preface cited below, the intention was to change that
provision.

The most reliable commentary on this Code is the preface attached to the
Code of the Peninsula of 1885. Therein is declared the meaning of the law,
and upon the question here at issue are made the following
statements:jgc:chanrobles.com.ph

"The provisions of the projected Code with respect to the different manners
and forms under which mercantile partnerships can be organized are based
upon similar principles. These principles may be reduced to three, to wit:
Absolute lack of restriction on the part of associations to organize as they
may see fit; complete absence of governmental intervention in the interior
regime of these entities; publicity of such partnership matters as may be of
interest to third persons. . . . In consequence of the third principle, i. e., the
guaranty of the interest of third persons, it is provided that, although every
contract of partnership is binding upon the associates in whatsoever manner
it may appear the contract has been entered into, it is not so with respect to
outsiders until such time as the contract is evidenced by a public writing
recorded in the Mercantile Registry, in which office, furthermore, must be
recorded all contracts introducing reforms into the original contract of
partnership, the emission of shares and bonds payable to bearer, and the
dissolution of partnership . . . Although the projected Code does not impose
any penalty or establish any coercive measures in order to compel the
associates to make public the organization of the partnership by means of
the Mercantile Registry, it holds all persons directly in charge of the
management of the company personally liable for all damages which a
failure to comply with this requisite may cause to third persons, who in no
case will be bound by the terms or conditions of the contract of partnership
of the contents of which they are ignorant. But for this same reason the
partners can not avail themselves of this lack of publicity, for they having
full knowledge of the terms and conditions of the agreement by which the
partnership is created, it is binding upon them from the very moment of its
celebration. This is the doctrine of the projected Code, in this respect
repealing the present Code, which establishes a contrary principle."cralaw
virtua1aw library

In the case of Prautch, Scholes & Co. v. Hernandez (1 Off. Gaz., 203) 1 we
held that a commercial partnership which had not complied with article 119
could not maintain an action in its partnership name against a third person.
That case is consistent with our present holding.

There being no provision of the Code of Commerce which requires the

contract of partnership to be in any particular form as between the partners,
this case does not fall within the terms of article 52 of this Code, and that
article is not applicable.

Article 117, expressly authorizing, as we hold, a verbal contract of

partnership as between the partners, such a contract is thereby excepted
from the operations of article 51. The case at bar is covered by the former
article and not the latter. Whether, therefore, this be a civil partnership and
so governed by the Civil Code, or a commercial partnership and so governed
by the Code of Commerce, in neither case can the objections made by the
appellant be sustained.

The judgment of the court below is affirmed, with the costs of this instance
to the Appellant.

Arellano, C.J., Cooper, Mapa and McDonough, JJ., concur.

Torres and Johnson, JJ., did not sit in this case.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-27343 February 28, 1979

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE

L. ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN,
ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband
CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and
THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants,
MARGARITA G. SALDAJENO and her husband CECILIO
SALDAJENO, defendants-appellants.

FERNANDEZ, J.:

This is an appeal to the Court of Appeals from the judgment of the Court of
First Instance of Negros Occidental in Civil Cage No. 5343, entitled "Manuel
G. Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of
which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that

the contract, Appendix "F", of the Partial Stipulation of Facts, Exh. "A", has
not created a chattel mortgage lien on the machineries and other chattels
mentioned therein, all of which are property of the defendant partnership
"Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant
partnership, have a preferred right over the assets of the said partnership
and over the proceeds of their sale at public auction, superior to the right of
the defendant Margarita G. Saldajeno, as creditor of the partners Leon
Garibay and Timoteo Tubungbanua; (3) that the defendant Isabela Sawmill'
is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89,
with legal interest thereon from the filing of the complaint on June 5, 1959;
(4) that the same defendant is indebted to the plaintiff Manuel G. Singsong
in the total amount of P5,723.50, with interest thereon at the rate of 1 %
per month from May 6, 1959, (the date of the statements of account, Exhs.
"L" and "M"), and 25% of the total indebtedness at the time of payment, for
attorneys' fees, both interest and attorneys fees being stipulated in Exhs. "I"
to "17", inclusive; (5) that the same defendant is indebted to the plaintiff
Agustin E. Tonsay in the amount of P933.73, with legal interest thereon from
the filing of the complaint on June 5, 1959; (6) that the same defendant is
indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44, with
legal interest thereon from the filing of the complaint on June 5, 1959; (7)
that the same defendant is indebted to the plaintiff Bacolod Southern
Lumber Yard in the amount of Pl,048.78, with legal interest thereon from the
filing of the complaint on June 5, 1959; (8) that the same defendant is
indebted to the plaintiff Jose Belzunce in the amount of P2,052.10, with legal
interest thereon from the filing of the complaint on June 5. 1959; (9) that
the defendant Margarita G. Saldajeno, having purchased at public auction
the assets of the defendant partnership over which the plaintiffs have a
preferred right, and having sold said assets for P 45,000.00, is bound to pay
to each of the plaintiffs the respective amounts for which the defendant
partnership is held indebted to, them, as above indicated and she is hereby
ordered to pay the said amounts, plus attorneys fees equivalent to 25% of
the judgment in favor of the plaintiff Manuel G. Singson, as stipulated in
Exhs. "I" "to I-17", inclusive, and 20% of the respective judgments in favor
of the other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of the Civil
Code of the Philippines; (10) The defendants Leon Garibay and Timoteo
Tibungbanua are hereby ordered to pay to the plaintiffs the respective
amounts adjudged in their favor in the event that said plaintiffs cannot
recover them from the defendant Margarita G. Saldajeno and the surety on
the bond that she has filed for the lifting of the injunction ordered by this
court upon the commencement of this case.

The cross-claim cf the defendant Margarita G. Saldajeno against the

defendants Leon Garibay arid Timoteo Tubungbanua is hereby discussed
Margarita G. Saldajeno shall pay the costs.

SO ORDERED.1

In a resolution promulgated on February 3, 1967, the Court of Appeals

certified the records of this case to the Supreme Court "considering that the
resolution of this appeal involves purely questions or question of law over
which this Court has no jurisdiction ...2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay,
Jose L. Espinos, Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc.
filed in the Court of first Instance of Negros Occidental, Branch I, against
"Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio
Saldajeno, Leon Garibay, Timoteo Tubungbanua and the Provincial Sheriff of
Negros Occidental a complaint the prayer of which reads:

WHEREFORE, the plaintiffs respectfully pray:

(1) That a writ of preliminary injunction be issued restraining the defendant

Provincial Sheriff of Negros Occidental from proceeding with the sales at
public auction that he advertised in two notices issued by him on May 18,
1959 in connection with Civil Case No. 5223 of this Honorable Court, until
further orders of this Court; and to make said injunction permanent after
hearing on the merits:

(2) That after hearing, the defendant partnership be ordered; to pay to the
plaintiff Manuel G. Singson the sum of P3,723.50 plus 1% monthly interest
thereon and 25% attorney's fees, and costs; to pay to the plaintiff
JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and
25% for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay
the sum of P993.73 plus 6% annual interest thereon and 25% attorney's
fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the
sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's fees,
and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of
P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and
costs:

(3) That the so-called Chattel Mortgage executed by the defendant Leon
Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G.
Saldajeno on May 26, 1958 be declared null and void being in fraud of
creditors of the defendant partnership and without valuable consideration
insofar as the said defendant is concerned:

(4) That the Honorable Court order the sale of public auction of the assets of
the defendnat partnership in case the latter fails to pay the judgment that
the plaintiffs may recover in the action, with instructions that the proceeds
of the sale b e applied in payment of said judgment before any part of saod
proceeds is paid to the defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita
G. Saldajeno be declared jointly liable to the plaintifs for whatever deficiency
may remain unpaid after the proceeds of the sale of the assets of the
defendnt partnership are supplied in payment of the judgment that said
plaintiffs may recover in this action;

(6) The plaintiffs further pray for all other remedies to which the Honorable
Court will find them entitled to, with costs to the defendants.

Bacolod City, June 4, 1959.3

The action was docketed as Civil Case No. 5343 of said court.

In their amended answer, the defendants Margarita G. Saldajeno and her

husband, Cecilio Saldajeno, alleged the following special and affirmative
defenses:

xxx xxx xxx

2. That the defendant Isabela Sawmill has been dissolved by virtue of an

action entitled "In the matter of: Dissolution of Isabela Sawmill as
partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al.,
Civil Case No. 4787, Court of First Instance of Negros Occidental;

3. That as a result of the said dissolution and the decision of the Court of
First Instance of Negros Occidental in the aforesaid case, the other
defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua became
the successors-in-interest to the said defunct partnership and have bound
themselves to answere for any and all obligations of the defunct partnership
to its creditors and third persons;

4. That to secure the performance of the obligations of the other defendants

Leon Garibay and Timoteo Tubungbanua to the answering defendant herein,
the former have constituted a chattel mortgage over the properties
mentioned in the annexes to that instrument entitled "Assignment of Rights
with Chattel Mortgage" entered into on May 26, 1968 and duly registered in
the Register of Deeds of Negros Occidental on the same date:

5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen,
Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo
Tubungbanua and not of the defunct Isabela Sawmill and as such they have
no cause of action against answering defendant herein and the defendant
Isabela Sawmill;

6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc.
granted cash advances, gasoline, crude oil, motor oil, grease, rice and nipa
to the defendants Leon Garibay and Timoteo Tubungbanua with the
knowledge and notice that the Isabela Sawmill as a former partnership of
defendants Margarita G. Isabela Sawmill as a former partnership of
defendants Margarita G. Saldajeno, Leon Garibay and Timoteo
Tubungbanua, has already been dissolved;

7. That this Honorable Court has no jurisdictionover the claims of the

plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the
Bacolod Southern Lumber Yard, it appearing that the amounts sought to be
recovered by them in this action is less than P2,000.00 each, exclusive of
interests;

8. That in so far as the claims of these alleged creditors plaintiffs are

concerned, there is a misjoinder of parties because this is not a class suit,
and therefore this Honorable Court cannot take jurisdictionof the claims for
payment;

9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go

beyond the limit mentioned inthe statute of frauds, Art. 1403 of the Civil
Code, and are therefor unenforceable, even assuming that there were such
credits and claims;

10. That this Honorable Court has no jurisdiction in this case for it is well
settled in law and in jurisprudence that a court of first instance has no power
or jurisdiction to annul judgments or decrees of a coordinate court because
other function devolves upon the proper appellate court; (Lacuna, et al. vs.
Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao vs. del
Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124), as it
appears from the complaint in this case to annul the decision of this same
court, but of another branch (Branch II, Judge Querubin presiding).4

Said defendants interposed a cross-claim against the defendsants Leon

Garibay and Timoteo Tubungbanua praying "that in the event that judgment
be rendered ordering defendant cross claimant to pay to the plaintiffs the
amount claimed in the latter's complaint, that the cross claimant whatever
amount is paid by the latter to the plaintiff in accordance to the said
judgment. ...5

After trial, judgment was rendered in favor of the plaintiffs and against the
defendants.

The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno,

appealed to the Court of Appeals assigning the following errors:

THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.

II

THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE
TO THE WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO FROM THE PARTNERSHIP "SABELA SAWMILL" WAS WHETHER
OR NOT SUCH WITHDRAWAL CAUSED THE "COMPLETE DISAPPEARANCE" OR
"EXTINCTION" OF SAID PARTNERSHIP.

III

THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF

DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AS A PARTNER
THEREIN DISSOLVED THE PARTNERSHIP "ISABELA SAWMILL" (FORMED ON
JAN. 30, 1951 AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND SAID
MARGARITA G. SALDAJENO).

IV

THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY

INJUNCTION.

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE

DATED MAY 26, 1958, WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE
NO. 4797 AND WHICH WAS FORECLOSED IN CIVIL CASE NO. 5223 (BOTH
OF THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS NULL
AND VOID.

VI
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE
SALE IN CIVIL CASE NO. 5223 CONSTITUTED 'ALL THE ASSETS OF THE
DEFENDNAT PARTNERSHIP.

VII

THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT

MARGARITA G. SALDAJENO BECAME PRIMARILY LIABLE TO THE PLAINTFFS-
APPELLEES FOR HAVING ACQUIRED THE MORTGAGED CHATTLES IN THE
FORECLOSURE SALE CONDUCTED IN CONNECTION WITH CIVIL CASE NO.
5223.

VIII

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT

MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS.
LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED BY THE LATTER
AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE DISSOLUTION
OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO
WAS A PARTNER.

IX

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT

MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR
ATTORNEY'S FEES.

THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE

PLAINTIFFS-APPELLEES.

XI

THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF

DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST CROSS-
DEFENDANTS LEON GARIBAY AND TIMOTEO TUBUNGBANUA.6

The facts, as found by the trial court, are:

At the commencement of the hearing of the case on the merits the plaintiffs
and the defendant Cecilio and Margarita g. Saldajeno submittee a Partial
Stipulation of Facts that was marked as Exh. "A". Said stipulation reads as
folows:

1. That on January 30, 1951 the defendants Leon Garibay, Margarita G.

Saldejeno, and Timoteo Tubungbanua entered into a Contract of Partnership
under the firm name "Isabela Sawmill", a copy of which is hereto attached
Appendix "A".

2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor
Truck and two Tractors to the partnership Isabela Sawmill for the sum of
P20,500.00. In order to pay the said purcahse price, the said partnership
agreed to make arrangements with the International Harvester Company at
Bacolod City so that the latter would sell farm machinery to Oppen, Esteban,
Inc. with the understanding that the price was to be paid by the partnership.
A copy of the corresponding contract of sle is attached hereto as Appendix
"B".

3. That through the method of payment stipulated in the contract marked as

Appendix "B" herein, the International Harvester Company has been paid a
total of P19,211.11, leaving an unpaid balance of P1,288.89 as shown in the
statements hereto attached as Appendices "C", "C-1", and "C-2".

4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses
Cecilio Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill,
Leon Garibay, and Timoteo Tubungbanua, a copy of which Complaint is
attached as Appendix 'D'.

5. That on April 27, 1958 the defendants LeonGaribay, Timoteo

Tubungbanua and Margarita G. Saldajeno entered into a "Memorandum
Agreement", a copy of which is hereto attached as Appendix 'E' in Civil Case
4797 of the Court of First Instance of Negros Occidental.

6. That on May 26, 1958 the defendants Leon Garibay, Timoteo

Tubungbanua and Margarita G. Saldajeno executed a document entitled
"Assignment of Rights with Chattel Mortgage", a copy of which documents
and its Annexes "A" to "A-5" forming a part of the record of the above
mentioned Civil Case No. 4797, which deed was referred to in the Decision
of the Court ofFirst Instance of Negros Occidental in Civil Case No. 4797
dated May 29, 1958, a copy of which is hereto attached as Appendix "F" and
"F-1" respectively.
7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua
did not divide the assets and properties of the "Isabela Sawmill" between
them, but they continued the business of said partnership under the same
firm name "Isabela Sawmill".

8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental

published two (2) notices that he would sell at public auction on June 5,
1959 at Isabela, Negros Occidental certain trucks, tractors, machinery,
officeequipment and other things that were involved in Civil Case No. 5223
of the Court of First Instance of Negros Occidental, entitled "Margarita G.
Saldajeno vs. Leon Garibay, et al." See Appendices "G" and "G-1".

9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental

executed a Certificate ofSale in favor of the defendant Margarita G.
Saldajeno, as a result of the sale conducted by him on October 14 and 15,
1959 for the enforcement of the judgment rendered in Civil Case No. 5223
of the Court of First Instance of Negros Occidental, a certified copy of which
certificte of sale is hereto attached as Appendix "H".

10. That on October 20, 1959 the defendant Margarita G. Saldajeno

executed a deed of sale in favor of the Pan Oriental Lumber Company
transfering to the latter for the sum of P45,000.00 the trucks, tractors,
machinery, and other things that she had purchashed at a public auction
referred to in the foregoing paragraph, a certified true copy of which Deed of
Sale is hereto attached as Appendix "I".

11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G.
Saldajeno reserve the right to present additional evidence at the hearing of
this case.

Forming parts of the above copied stipulation are documents that were
marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G",
"G-1", "H", and "I".

The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno

presented additional evidence, mostly documentary, while the cross-
defendants did not present any evidence. The case hardly involves quetions
of fact at all, but only questions of law.

The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff

Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of
an obligation of P20,500.00 contracted on February 3, 10956 is expressly
admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its
Appendices "B", "C", "C-1", and "C-2".

The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs.
"B" to"G" that from October 6, 1958 to November 8, 1958 he advanced a
total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the said
advances said defendant delivered to Tonsay P3,266.27 worth of lumber,
leavng an unpaid balance of P933.73, which balance was confirmed on May
15, 1959 by the defendant Leon Garibay, as Manager of the defendant
partnership.

The plaintiff Manuel G. Singsong proved by his own testimony and by his
Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold on
credit to the defendnat "Isabela Sawmill" rice and bran, on account of which
business transaction there remains an unpaid balance of P3,580.50. The
same plaintiff also proved that the partnership ownes him the sum of
P143.00 for nipa shingles bought from him on credit and unpaid for.

The plaintiff Jose L. Espinos proved through the testimony of his witness
Cayetano Palmares and his Exhs. "N" to "O-3" that he owns the "Guia
Lumber Yard", that on October 11, 1958 said lumber yard advanced the sum
of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash
advance, the defendant partnership delivered to Guia Lumber Yard P920.56
worth of lumber, leaving an outstanding balance of P1,579.44.

The plaintiff Bacolod Southern Lumber Yard proved through the testimony of
the witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on October 11,
1958 said plaintiff advanced the sum of P1,500.00 to the defendsant 'Isabela
Sawmill', that against the said cash advance, the defendant partnership
delivered to the said plaintiff on November 19, 1958 P377.72 worth of
lumber, and P73.54 worth of lumber on January 27, 1959, leaving an
outstanding balance of P1,048.78.

The plaintiff Jose Balzunce proved through the testimony of Leon Garibay
whom he called as his witness, and through the Exhs. "R" to "E" that from
September 14, 1958 to November 27, 1958 he sold to the defedant "Isabela
Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of
said transactions, the defendant partnersip ownes him an unpaid balance of
P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14,
1959 the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for
P38,040.00 the assets of the defendsant "Isabela Sawmill" which the
defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to
her, and said purchase price was applied to the judgment that she has
obtained against he said mortgagors in Civil Case No. 5223 of this Court.

Appendix "I" of the same stipulation Exh. "A" shows that on October 20,
1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL
LUMBER COMPANY for P45,000.00 part of the said properties that she had
bought at public aucton one week before.

xxx xxx xxx7

It is contended by the appellants that the Court of First Instance of Negros

Occidental had no jurisdiction over Civil Case No. 5343 because the plaintiffs
Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod
Southern Lumber Yard sought to collect sums of moeny, the biggest amount
of which was less than P2,000.00 and, therefore, within the jurisdiction of
the municipal court.

This contention is devoid of merit because all the plaintiffs also asked for the
nullity of the assignment of right with chattel mortgage entered into by and
between Margarita G. Saldajeno and her former partners Leon Garibay and
Timoteo Tubungbanua. This cause of action is not capable of pecuniary
estimation and falls under the jurisdiction of the Court of First Instnace.
Where the basic issue is something more than the right to recover a sum of
money and where the money claim is purely incidental to or a consequence
of the principal relief sought, the action is as a case where the subject of the
litigation is not capable of pecuniary estimation and is cognizable exclusively
by the Court of First Instance.

The jurisdiction of all courts in the Philippines, in so far as the authority

thereof depends upon the nature of litigation, is defined in the amended
Judiciary Act, pursuant to which courts of first instance shall have exclusive
original jurisdiction over any case the subject matter of which is not capable
of pecuniary estimation. An action for the annulment of a judgment and an
order of a court of justice belongs to th category.8

In determining whether an action is one the subject matter of which is not

capable of pecuniary estimation this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy sought. If it is
primarily for the recovery of a sum of money, the cliam is considered
capable of pecuniary estimation, and whether jurisdiciton is in the municipal
courts or in the courts of first instance would depend on the amount of the
claim. However, where the basic issue is something other than the right to
recover a sum of money, where the money claim is purely incidental to, or a
consequence of, the principal relief sought, this Court has considered such
actions as cases where the subject ogf the litigation may not be estimated in
terms of money, and are cognizable exclusively by courts of first instance.

In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this Court held:

Actions for specific performance of contracts have been expressly

prounounced to be exclusively cognizable by courts of first instance: De
Jesus vs. Judge Garcia, L-26816, February 28, 1967; Manufacturers'
Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent
reason appears, and none is here advanced by the parties, why an actin for
rescission (or resolution) should be differently treated, a "rescission" being a
counterpart, so to speak, of "specific performance'. In both cases, the court
would certainly have to undertake an investigation into facts that would
justify one act of the other. No award for damages may be had in an action
for resicssion without first conducting an inquiry into matters which would
justify the setting aside of a contract, in the same manner that courts of first
instance would have to make findings of fact and law in actions not capable
of pecuniary estimnation espressly held to be so by this Court, arising from
issues like those arised in Arroz v. Alojado, et al., L-22153, March 31, 1967
(the legality or illegality of the conveyance sought for and the determination
of the validity of the money deposit made); De Ursua v. Pelayo, L-13285,
April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707,
December 23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105,
August 25, 1960 (the relations of the parties, the right to support created by
the relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159,
September 30, 1963 (the validity or nullity of documents upon which claims
are predicated). Issues of the same nature may be raised by a party against
whom an action for rescission has been brought, or by the plaintiff himself.
It is, therefore, difficult to see why a prayer for damages in an action for
rescission should be taken as the basis for concluding such action for
resiccison should be taken as the basis for concluding such action as one
cpable of pecuniary estimation - a prayer which must be included in the
main action if plaintiff is to be compensated for what he may have suffered
as a result of the breach committed by defendant, and not later on
precluded from recovering damages by the rule against splitting a cause of
action and discouraging multiplicitly of suits.

The foregoing doctrine was reiterated in The Good Development Corporation

vs. Tutaan, 10 where this Court held:

On the issue of which court has jurisdiction, the case of SENO vs. Pastolante,
et al., is in point. It was ruled therein that although the purposes of an
action is to recover an amount plus interest which comes within the original
jurisidction of the Justice of the Peace Court, yet when said action involves
the foreclosure of a chattel mortgage covering personal properties valued at
more than P2,000, (now P10,000.00) the action should be instituted before
the Court of First Instance.

In the instanct, case, the action is to recover the amount of P1,520.00 plus
interest and costs, and involves the foreclosure of a chattel mortgage of
personal properties valued at P15,340.00, so that it is clearly within the
competence of the respondent court to try and resolve.

In the light of the foregoing recent rulings, the Court of First Instance of
Negros Occidental did no err in exercising jurisidction over Civil Case No.
5343.

The appellants also contend that the chattel mortgage may no longer be
annulled because it had been judicially approved in Civil Case No. 4797 of
the Court of First Instance of Negros Occidental and said chattel mortgage
had been ordered foreclosed in Civil Case No. 5223 of the same court.

On the question of whether a court may nullify a final judgment of another

court of co-equal, concurrent and coordinate jusridiction, this Court originally
ruled that:

A court has no power to interfere with the judgments or decrees of a court of

concurrent or coordinate jurisdiction having equal power to grant the relief
sought by the injunction.

The various branches of the Court of First Instance of Manila are in a sense
coordinate courts and cannot be allowed to interfere with each others'
judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case 12 where this Court
said:

The rule which prohibits a Judge from intertering with the actuations of the
Judge of another branch of the same court is not infringed when the Judge
who modifies or annuls the order isued by the other Judge acts in the same
case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But
the rule is infringed when the Judge of a branch of the court issues a writ of
preliminary injunction in a case to enjoint the sheriff from carrying out an
order by execution issued in another case by the Judge of another branch of
the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182).

This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment
sought to be annulled was rendered by the Court of First Instance of Iloilo
and the action for annullment was filed with the Court of First Instance of
Antique, both courts belonging to the same Judicial District. This Court held
that:

The power to open, modify or vacant a judgment is not only possessed by

but restricted to the court in which the judgment was rendered.

The reason of this Court was:

Pursuant to the policy of judicial stability, the judgment of a court of

competent jurisdiction may not be interfered with by any court concurrrent
jurisdiction.

Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of
a branch of the court of First Instance belongs solely to the very same
branch which rendered the judgement. 14

Two years later, the same doctrine was laid down in the Sterling Investment
case.15

In December 1971, however, this court re-examined and reversed its earlier
doctrine on the matter. In Dupla v. Court of Appeals, 16 this Tribunal,
speaking through Mr. Justice Villamor declared:

... the underlying philosophy expressed in the Dumara-og case, the policy of
judicial stability, to the end that the judgment of a court of competent
jurisdiction may not be interfered with by any court of concurrent jurisdiction
may not be interfered with by any court of concurrent jurisdiciton, this Court
feels that this is as good an occasion as any to re-examine the doctrine laid
down ...

In an action to annul the judgment of a court, the plaintiff's cause of action

springs from the alleged nullity of the judgment based on one ground or
another, particularly fraud, which fact affords the plaintiff a right to judicial
interference in his behalf. In such a suit the cause of action is entirely
different from that in the actgion which grave rise to the judgment sought to
be annulled, for a direct attack against a final and executory judgment is not
a incidental to, but is the main object of the proceeding. The cause of action
in the two cases being distinct and separate from each other, there is no
plausible reason why the venue of the action to annul the judgment should
necessarily follow the venue of the previous action ...

The present doctrine which postulate that one court or one branch of a court
may not annul the judgment of another court or branch, not only opens the
door to a violation of Section 2 of Rule 4, (of the Rules of Court) but also
limit the opportunity for the application of said rule.

Our conclusion must therefore be that a court of first instance or a branch

thereof has the authority and jurisdiction to take cognizance of, and to act
in, suit to annul final and executory judgment or order rendered by another
court of first instance or by another branch of the same court...

In February 1974 this Court reiterated the ruling in the Dulap case.17

In the light of the latest ruling of the Supreme Court, there is no doubt that
one branch of the Court of First Instance of Negros Occidental can take
cognizance of an action to nullify a final judgment of the other two branches
of the same court.

It is true that the dissolution of a partnership is caused by any partner

ceasing to be associated in the carrying on of the business. 18 However, on
dissolution, the partnershop is not terminated but continuous until the
winding up to the business. 19

The remaining partners did not terminate the business of the partnership
"Isabela Sawmill". Instead of winding up the business of the partnership,
they continued the business still in the name of said partnership. It is
expressly stipulated in the memorandum-agreement that the remaining
partners had constituted themselves as the partnership entity, the "Isabela
Sawmill". 20

There was no liquidation of the assets of the partnership. The remaining

partners, Leon Garibay and Timoteo Tubungbanua, continued doing the
business of the partnership in the name of "Isabela Sawmill". They used the
properties of said partnership.

The properties mortgaged to Margarita G. Saldajeno by the remaining

partners, Leon Garibay and Timoteo Tubungbanua, belonged to the
partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was
correctly held liable by the trial court because she purchased at public
auction the properties of the partnership which were mortgaged to her.

It does not appear that the withdrawal of Margarita G. Saldajeno from the
partnership was published in the newspapers. The appellees and the public
in general had a right to expect that whatever, credit they extended to Leon
Garibay and Timoteo Tubungbanua doing the business in the name of the
partnership "Isabela Sawmill" could be enforced against the proeprties of
said partnership. The judicial foreclosure of the chattel mortgage executed in
favor of Margarita G. Saldajeno did not relieve her from liability to the
creditors of the partnership.

The appellant, margrita G. Saldajeno, cannot complain. She is partly to

blame for not insisting on the liquidaiton of the assets of the partnership.
She even agreed to let Leon Garibay and Timoteo Tubungbanua continue
doing the business of the partnership "Isabela Sawmill" by entering into the
memorandum-agreement with them.

Although it may be presumed that Margarita G. Saldajeno had action in good

faith, the appellees aslo acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the
consequences. Had Margarita G. Saldajeno not entered into the
memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua
to continue doing the business of the aprtnership, the applees would not
have been misled into thinking that they were still dealing with the
partnership "Isabela Sawmill". Under the facts, it is of no moment that
technically speaking the partnership "Isabela Sawmill" was dissolved by the
withdrawal therefrom of Margarita G. Saldajeno. The partnership was not
terminated and it continued doping business through the two remaining
partners.

The contention of the appellant that the appleees cannot bring an action to
annul the chattel mortgage of the propertiesof the partnership executed by
Leon Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno
has no merit.

As a rule, a contract cannot be assailed by one who is not a party thereto.

However, when a contract prejudices the rights of a third person, he may file
an action to annul the contract.

This Court has held that a person, who is not a party obliged principally or
subsidiarily under a contract, may exercised an action for nullity of the
contract if he is prejudiced in his rights with respect to one of the contracting
parties, and can show detriment which would positively result to him from
the contract in which he has no intervention. 21

The plaintiffs-appellees were prejudiced in their rights by the execution of

the chattel mortgage over the properties of the partnership "Isabela
Sawmill" in favopr of Margarita G. Saldajeno by the remaining partners,
Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right
to file the action to nullify the chattel mortgage in question.

The portion of the decision appealed from ordering the appellants to pay
attorney's fees to the plaintiffs-appellees cannot be sustained. There is no
showing that the appellants displayed a wanton disregard of the rights of the
plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously,
that they are not liable to pay the claims.

The defendants-appellants have a right to be reimbursed whatever amounts

they shall pay the appellees by their co-defendants Leon Garibay and
Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay and
Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from any
obligation of "Isabela Sawmill" to third persons. 22

WHEREFORE, the decision appealed from is hereby affirmed with the

elimination of the portion ordering appellants to pay attorney's fees and with
the modification that the defendsants, Leon Garibay and Timoteo
Tubungbanua, should reimburse the defendants-appellants, Margarita G.
Saldajeno and her husband Cecilio Saldajeno, whatever they shall pay to the
plaintiffs-appellees, without pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero, De Castro and Melencio-

Herrera, JJ., concur.
G.R. No. L-39780 November 11, 1985

ELMO MUÑASQUE, petitioner,

vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL
COMPANY and RAMON PONS, respondents.

John T. Borromeo for petitioner.

Juan D. Astete for respondent C. Galan.

Paul Gornes for respondent R. Pons.

Viu Montecillo for respondent Tropical.

Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the
decision of the Court of Appeals affirming the existence of a partnership
between petitioner and one of the respondents, Celestino Galan and holding
both of them liable to the two intervenors which extended credit to their
partnership. The petitioner wants to be excluded from the liabilities of the
partnership.

Petitioner Elmo Muñasque filed a complaint for payment of sum of money

and damages against respondents Celestino Galan, Tropical Commercial,
Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered into
a contract with respondent Tropical through its Cebu Branch Manager Pons
for remodelling a portion of its building without exchanging or expecting any
consideration from Galan although the latter was casually named as partner
in the contract; that by virtue of his having introduced the petitioner to the
employing company (Tropical). Galan would receive some kind of
compensation in the form of some percentages or commission; that Tropical,
under the terms of the contract, agreed to give petitioner the amount of
P7,000.00 soon after the construction began and thereafter, the amount of
P6,000.00 every fifteen (15) days during the construction to make a total
sum of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered
a check for P7,000.00 not to the plaintiff but to a stranger to the contract,
Galan, who succeeded in getting petitioner's indorsement on the same check
persuading the latter that the same be deposited in a joint account; that on
January 26, 1967 when the second check for P6,000.00 was due, petitioner
refused to indorse said cheek presented to him by Galan but through later
manipulations, respondent Pons succeeded in changing the payee's name
from Elmo Muñasque to Galan and Associates, thus enabling Galan to cash
the same at the Cebu Branch of the Philippine Commercial and Industrial
Bank (PCIB) placing the petitioner in great financial difficulty in his
construction business and subjecting him to demands of creditors to pay' for
construction materials, the payment of which should have been made from
the P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16, 1967
deadline;that because of the unauthorized disbursement by respondents
Tropical and Pons of the sum of P13,000.00 to Galan petitioner demanded
that said amount be paid to him by respondents under the terms of the
written contract between the petitioner and respondent company.

The respondents answered the complaint by denying some and admitting

some of the material averments and setting up counterclaims.

During the pre-trial conference, the petitioners and respondents agreed that
the issues to be resolved are:

(1) Whether or not there existed a partners between Celestino Galan and
Elmo Muñasque; and

(2) Whether or not there existed a justifiable cause on the part of

respondent Tropical to disburse money to respondent Galan.

The business firms Cebu Southern Hardware Company and Blue Diamond
Glass Palace were allowed to intervene, both having legal interest in the
matter in litigation.

After trial, the court rendered judgment, the dispositive portion of which
states:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and
severally the intervenors Cebu and Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company and Ramon Pons
from any liability,

No damages awarded whatsoever.

The petitioner and intervenor Cebu Southern Company and its proprietor,
Tan Siu filed motions for reconsideration.

On January 15, 197 1, the trial court issued 'another order amending its
judgment to make it read as follows:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and
severally the intervenors Cebu Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively,

(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern
Hardware Company and Tan Siu jointly and severally interest at 12% per
annum of the sum of P6,229.34 until the amount is fully paid;

(3) ordering plaintiff and defendant Galan to pay P500.00 representing

attorney's fees jointly and severally to Intervenor Cebu Southern Hardware
Company:

(4) absolving the defendants Tropical Commercial Company and Ramon Pons
from any liability,

No damages awarded whatsoever.

On appeal, the Court of Appeals affirmed the judgment of the trial court with
the sole modification that the liability imposed in the dispositive part of the
decision on the credit of Cebu Southern Hardware and Blue Diamond Glass
Palace was changed from "jointly and severally" to "jointly."

Not satisfied, Mr. Muñasque filed this petition.

The present controversy began when petitioner Muñasque in behalf of the

partnership of "Galan and Muñasque" as Contractor entered into a written
contract with respondent Tropical for remodelling the respondent's Cebu
branch building. A total amount of P25,000.00 was to be paid under the
contract for the entire services of the Contractor. The terms of payment
were as follows: thirty percent (30%) of the whole amount upon the signing
of the contract and the balance thereof divided into three equal installments
at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working
days.

The first payment made by respondent Tropical was in the form of a check
for P7,000.00 in the name of the petitioner.Petitioner, however, indorsed the
check in favor of respondent Galan to enable the latter to deposit it in the
bank and pay for the materials and labor used in the project.

Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his
personal use so that when the second check in the amount of P6,000.00
came and Galan asked the petitioner to indorse it again, the petitioner
refused.

The check was withheld from the petitioner. Since Galan informed the Cebu
branch of Tropical that there was a"misunderstanding" between him and
petitioner, respondent Tropical changed the name of the payee in the second
check from Muñasque to "Galan and Associates" which was the duly
registered name of the partnership between Galan and petitioner and under
which name a permit to do construction business was issued by the mayor of
Cebu City. This enabled Galan to encash the second check.

Meanwhile, as alleged by the petitioner, the construction continued through

his sole efforts. He stated that he borrowed some P12,000.00 from his
friend, Mr. Espina and although the expenses had reached the amount of
P29,000.00 because of the failure of Galan to pay what was partly due the
laborers and partly due for the materials, the construction work was finished
ahead of schedule with the total expenditure reaching P34,000.00.

The two remaining checks, each in the amount of P6,000.00,were

subsequently given to the petitioner alone with the last check being given
pursuant to a court order.

As stated earlier, the petitioner filed a complaint for payment of sum of

money and damages against the respondents,seeking to recover the
following: the amounts covered by the first and second checks which fell into
the hands of respondent Galan, the additional expenses that the petitioner
incurred in the construction, moral and exemplary damages, and attorney's
fees.
Both the trial and appellate courts not only absolved respondents Tropical
and its Cebu Manager, Pons, from any liability but they also held the
petitioner together with respondent Galan, hable to the intervenors Cebu
Southern Hardware Company and Blue Diamond Glass Palace for the credit
which the intervenors extended to the partnership of petitioner and Galan

In this petition the legal questions raised by the petitioner are as follows: (1)
Whether or not the appellate court erred in holding that a partnership
existed between petitioner and respondent Galan. (2) Assuming that there
was such a partnership, whether or not the court erred in not finding Galan
guilty of malversing the P13,000.00 covered by the first and second checks
and therefore, accountable to the petitioner for the said amount; and (3)
Whether or not the court committed grave abuse of discretion in holding that
the payment made by Tropical through its manager Pons to Galan was "good
payment, "

Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham and
a perfidious partner who misappropriated the amount of P13,000.00 due to
the petitioner.Petitioner also contends that the appellate court committed
grave abuse of discretion in holding that the payment made by Tropical to
Galan was "good" payment when the same gave occasion for the latter to
misappropriate the proceeds of such payment.

The contentions are without merit.

The records will show that the petitioner entered into a con-tract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muñasque." This is readily seen in the first
paragraph of the contract where it states:

This agreement made this 20th day of December in the year 1966 by Galan
and Muñasque hereinafter called the Contractor, and Tropical Commercial
Co., Inc., hereinafter called the owner do hereby for and in consideration
agree on the following: ... .

There is nothing in the records to indicate that the partner-ship organized by

the two men was not a genuine one. If there was a falling out or
misunderstanding between the partners, such does not convert the
partnership into a sham organization.
Likewise, when Muñasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he indorsed the
check in favor of Galan. Respondent Tropical therefore, had every right to
presume that the petitioner and Galan were true partners. If they were not
partners as petitioner claims, then he has only himself to blame for making
the relationship appear otherwise, not only to Tropical but to their other
creditors as well. The payments made to the partnership were, therefore,
valid payments.

In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:

Although it may be presumed that Margarita G. Saldajeno had acted in good

faith, the appellees also acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the
consequences.

No error was committed by the appellate court in holding that the payment
made by Tropical to Galan was a good payment which binds both Galan and
the petitioner. Since the two were partners when the debts were incurred,
they, are also both liable to third persons who extended credit to their
partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil.
513, 514), we ruled:

There is a general presumption that each individual partner is an authorized

agent for the firm and that he has authority to bind the firm in carrying on
the partnership transactions. (Mills vs. Riggle,112 Pan, 617).

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

Petitioner also maintains that the appellate court committed grave abuse of
discretion in not holding Galan liable for the amounts which he "malversed"
to the prejudice of the petitioner. He adds that although this was not one of
the issues agreed upon by the parties during the pretrial, he, nevertheless,
alleged the same in his amended complaint which was, duly admitted by the
court.
When the petitioner amended his complaint, it was only for the purpose of
impleading Ramon Pons in his personal capacity. Although the petitioner
made allegations as to the alleged malversations of Galan, these were the
same allegations in his original complaint. The malversation by one partner
was not an issue actually raised in the amended complaint but the alleged
connivance of Pons with Galan as a means to serve the latter's personal
purposes.

The petitioner, therefore, should be bound by the delimitation of the issues

during the pre-trial because he himself agreed to the same. In Permanent
Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:

xxx xxx xxx

... The appellant is bound by the delimitation of the issues contained in the
trial court's order issued on the very day the pre-trial conference was held.
Such an order controls the subsequent course of the action, unless modified
before trial to prevent manifest injustice.In the case at bar, modification of
the pre-trial order was never sought at the instance of any party.

Petitioner could have asked at least for a modification of the issues if he

really wanted to include the determination of Galan's personal liability to
their partnership but he chose not to do so, as he vehemently denied the
existence of the partnership. At any rate, the issue raised in this petition is
the contention of Muñasque that the amounts payable to the intervenors
should be shouldered exclusively by Galan. We note that the petitioner is not
solely burdened by the obligations of their illstarred partnership. The records
show that there is an existing judgment against respondent Galan, holding
him liable for the total amount of P7,000.00 in favor of Eden Hardware which
extended credit to the partnership aside from the P2, 000. 00 he already
paid to Universal Lumber.

We, however, take exception to the ruling of the appellate court that the
trial court's ordering petitioner and Galan to pay the credits of Blue Diamond
and Cebu Southern Hardware"jointly and severally" is plain error since the
liability of partners under the law to third persons for contracts executed
inconnection with partnership business is only pro rata under Art. 1816, of
the Civil Code.

While it is true that under Article 1816 of the Civil Code,"All partners,
including industrial ones, shall be liable prorate with all their property and
after all the partnership assets have been exhausted, for the contracts which
may be entered into the name and fm the account cd the partnership, under
its signature and by a person authorized to act for the partner-ship. ...". this
provision should be construed together with Article 1824 which provides
that: "All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823." In short, while
the liability of the partners are merely joint in transactions entered into by
the partnership, a third person who transacted with said partnership can
hold the partners solidarily liable for the whole obligation if the case of the
third person falls under Articles 1822 or 1823.

Articles 1822 and 1823 of the Civil Code provide:

Art. 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partner-ship or with the authority
of his co-partners, loss or injury is caused to any person, not being a partner
in the partnership or any penalty is incurred, the partnership is liable
therefor to the same extent as the partner so acting or omitting to act.

Art. 1823. The partnership is bound to make good:

(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or
property of a third person and t he money or property so received is
misapplied by any partner while it is in the custody of the partnership.

The obligation is solidary, because the law protects him, who in good faith
relied upon the authority of a partner, whether such authority is real or
apparent. That is why under Article 1824 of the Civil Code all partners,
whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable.

In the case at bar the respondent Tropical had every reason to believe that a
partnership existed between the petitioner and Galan and no fault or error
can be imputed against it for making payments to "Galan and Associates"
and delivering the same to Galan because as far as it was concerned, Galan
was a true partner with real authority to transact on behalf of the
partnership with which it was dealing. This is even more true in the cases of
Cebu Southern Hardware and Blue Diamond Glass Palace who supplied
materials on credit to the partnership. Thus, it is but fair that the
consequences of any wrongful act committed by any of the partners therein
should be answered solidarily by all the partners and the partnership as a
whole

However. as between the partners Muñasque and Galan,justice also dictates

that Muñasque be reimbursed by Galan for the payments made by the
former representing the liability of their partnership to herein intervenors, as
it was satisfactorily established that Galan acted in bad faith in his dealings
with Muñasque as a partner.

WHEREFORE, the decision appealed from is hereby AFFIRMED with the

MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to
be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors,

SO ORDERED.
G.R. No. 3186 March 7, 1907

THE GREAT COUNCIL OF THE UNITED STATES OF THE IMPROVED

ORDER OF RED MEN, plaintiff-appellee,
vs.
THE VETERAN ARMY OF THE PHILIPPINES, defendant-appellant.

Hartigan, Rohde, & Gutierrez for appellant.

W. A. Kincaid for appellee.

WILLAR, J.:

Article 3 of the Constitution of the Veteran Army of the Philippines provides

as follows:

The object of this association shall be to perpetuate the spirit of patriotism

and fraternity those men who upheld the Stars and Stripes in the Philippine
Islands during the Spanish war and the Philippine insurrection, and to
promote the welfare of its members in every just and honorable way; to
assist the sick and afflicted and to bury the dead, to maintain among its
members in time of peace the same union and harmony with which they
served their country in times of war and insurrection.

Article 5 provides that:

This association shall be composed of —

(a) A department.

(b) Two or more posts.

It is provided in article 6 that the department shall be composed of a

department commander, fourteen officers, and the commander of each post,
or some member of the post appointed by him. Six members of the
department constitute a quorum for the transaction of business.

The Constitution also provides for the organization of posts. Among the
posts thus organized is the General Henry W. Lawton Post, No. 1. On the 1st
day of March, 1903, a contract of lease of parts of a certain buildings in the
city of Manila was signed by W.W. Lewis, E.C. Stovall, and V.O., Hayes, as
trustees of the Apache Tribe, No. 1, Improved Order of Red Men, as lessors,
and Albert E. McCabe, citing for and on behalf of Lawton Post, Veteran Army
of the Philippines as lessee. The lease was for the term of two years
commencing February 1, 903, and ending February 28, 1905. The Lawton
Post occupied the premises in controversy for thirteen months, and paid the
rent for that time. It them abandoned them and this action was commenced
to recover the rent for the unexpired term. Judgment was rendered in the
court below on favor of the defendant McCabe, acquitting him of the
complaint. Judgment was rendered also against the Veteran Army of the
Philippines for P1,738.50, and the costs. From this judgment, the last named
defendant has appealed. The plaintiff did not appeal from the judgment
acquitting defendant McCabe of the complaint.

It is claimed by the appellant that the action can not be maintained by the
plaintiff, The Great Council of the United States of the Improved Order of
Red Men, as this organization did not make the contract of lease.

It is also claimed that the action can not be maintained against the Veteran
Army of the Philippines because it never contradicted, either with the
plaintiff or with Apach Tribe, No. 1, and never authorized anyone to so
contract in its name.

We do not find it necessary to consider the first point because we think the
contention of the appellant on the second point must be sustained.

It is difficult to determine the exact nature of the defendant organization. It

is of course not a mercantile partnership. There is some doubt as to whether
it is a civil partnership, in view of the definition of the term in article 1665 of
the Civil Code. That article is as follows:

Partnership is a contract by which 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.

It seems to be the opinion of the commentators that where the society is not
constituted for the purpose of gain. it does not fall within this article of the
Civil Code. Such an organization is fully covered by the Law of Associations
of 1887, but that law was never extended to the Philippine Islands.
According to some commentators it would be governed by the provisions
relating to the community of property. However, the questions thus
presented we do not find necessary to , and to not resolve. The view most
favorable to the appellee is the one that makes the appellant a civil
partnership. Assuming that is such, and is covered by the provisions of title
8, book 4 of the Civil Code, it is necessary for the appellee to prove that the
contract in question was executed by some authorized to so by the Veteran
Army of the Philippines.

Article 1695 of the Civil Code provides as follows:

Should no agreement have been made with regard to the form of

management, the following rules shall be observed:

1 All the partners shall be considered as agents, and whatever any one of
them may do by himself shall bind the partnership; but each one may
oppose the act of the others before they may have produced any legal
effect.

One partner, therefore, is empowered to contract in the name of the

partnership only when the articles of partnership make no provision for the
management of the partnership business. In the case at bar we think that
the articles of the Veteran Army of the Philippines do so provide. It is true
that an express disposition to that effect is not found therein, but we think
one may be fairly deduced from the contents of those articles. They declare
what the duties of the several officers are. In these various provisions there
is nothing said about the power of making contracts, and that faculty is not
expressly given to any officer. We think that it was, therefore, reserved to
the department as a whole; that is, that in any case not covered expressly
by the rules prescribing the duties of the officers, the department were
present. It is hardly conceivable that the members who formed this
organization should have had the intention of giving to any one of the
sixteen or more persons who composed the department the power to make
any contract relating to the society which that particular officer saw fit to
make, or that a contract when so made without consultation with, or
knowledge of the other members of the department should bind it. We
therefore, hold, that no contract, such as the one in question, is binding on
the Veteran Army of the Philippines unless it was authorized at a meeting of
the department. No evidence was offered to show that the department had
never taken any such action. In fact, the proof shows that the transaction in
question was entirely between Apache Tribe, No. 1, and the Lawton Post,
and there is nothing to show that any member of the department ever knew
anything about it, or had anything to do with it. The liability of the Lawton
Post is not presented in this appeal.
Judgment against the appellant is reversed, and the Veteran Army of the
Philippines is acquitted of the complaint. No costs will be allowed to either
party in this court. After the expiration of twenty days let judgment be
rendered in accordance to the lower court for proper action. So ordered.

Arellano, C.J., Torres, Mapa, Johnson and Tracey, JJ., concur.

Carson, J., did not sit in this case.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-4597 November 23, 1908

JOSE GARCIA RON, plaintiff-appellee,

vs.
LA COMPAÑIA DE MINAS DE BATAN, defendant-appellant.

Ortigas and Fisher, for appellant.

C.W. O'Brien, for appellee.

CARSON, J.:

This was an action brought by the plaintiff to recover from the defendant the
sum of 9,558 1/3 Spanish pesetas for services rendered. The trial judge
found, and the evidence of record fully sustains his finding, that the plaintiff
was employed as foreman or capataz by one Genaro Ansuategui, the local
manager of certain mines of the defendant company, situated on the Islands
of Bataan; and that this employment continued from November 1, 1903;
until August 4, 1904. The trial judge found further that, while the plaintiff
failed to establish satisfactorily his claim that the salary promised him by the
company's manager was 1,000 pesestas per month, nevertheless he is
entitled to reasonable compensation for the services rendered which were
fixed at P5 per day, or P150 per month, the record disclosing that the
plaintiff had worked for the defendant company as foreman or capataz and
received compensation that the rate a short time prior to his employment
under his contract with Ansuategui.

The defendant comply alleged that it had never received such services of the
plaintiff and denied the fact of the employment, but us we have said, the
evidence of record affirmatively establishes the finding of the trial judge that
the services were rendered, and that they were rendered under contract of
employment between the plaintiff and one Ansuategui, the local manager of
the defendant company; the only evidence introduced by the defendant in
this connection being the testimony of the general manager of the company,
who lived in Manila, to the effect that it does not appear from the books of
the company that the plaintiff was employed by the defendants, or that any
record of the employment was forwarded to the central office in Manila.

Counsel for the defendant company insists, however, that, granting that the
plaintiff did in fact work in the mines of the defendant company and was
employed by its local manager, nevertheless, defendant is not indebted to
the plaintiff for these service, because the local manager at the mines was
not authorized to enter into the alleged contract of employment, such
authority not having been granted to him under his letter of instructions, a
copy of which appears in the record.

It is not necessary for us to discuss the question of the liability of the

defendant company to the plaintiff for the value of the services rendered, if
it in fact appeared that the manager at the mines was not expressly
authorized to employ the plaintiff and to contract for his services, because
we are of opinion that the authority to contract for the employment of the
plaintiff was clearly conferred upon Ansuategui by the terms of this letter of
instructions.

These transactions, which were introduced into the record, were dated in
Manila, May 23, 1903, and among other provisions contain the following:

Es tambien derroche los sueldos que dicen pagan a los faginantes y el

exceso de gente para poco trabajo; debe tenerse la gente necesaria y pagar
lo razonable, y al que no le convenga que se marche. Deben hacer por
contrata el corte de trozos y maderas de todas clases, y a sueldo le gente
que se emplea para hacer los barracones y otros trabajos que su criterio le
dicte, pero no permitiendo por ningun concepto que abusen.

(The salaries which it is said are paid to the faginantes and the excess of
employees for little work is also a waste. The necessary employees should
be kept and paid reasonably, and he who is not needed [satisfied], let him
go. The cutting of logs and wood of all kinds ought to be done by contract,
and the persons employed in digging the barracones and other work at
wages which your good judgment may dictate, but on account permitting
abuses.)

And at the conclusion of the letter of instructions, we find the following:

Lo que aqui no va anotado, esperamos lo subsane Vd. con su buen criterio, y
le recomendamos por ultimo nos tenga al corriente de todo.

(We trust you to correct and supply (subsanar) anything which is not noted
herein, in accordance with your good judgment, and finally we urgently
request that you keep us informed of everything.)

Other provisions of the letter of instructions expressly authorized

Ansuategui, as the local manager of the defendant company at the mines, to
discharge employees who did not prove satisfactory, and leave no room for
doubt that he was duly authorized to represent the company at the mines so
far as this was necessary for their proper local management.lawphil.net

Taking into consideration the fact that the mines of the defendant company
are located upon an island some two days' distance by steamer from the
office of the company at Manila, that the only communication therewith was
by mail a few times per month, and that in the very nature of the enterprise,
it was necessary, in order that the local manager might successfully perform
his duties, to confer upon him wide scope in the employment and discharge
of labor, we think that there can be no doubt that Genaro Ansuategui was
fully and expressly authorized by the terms of this letter of instructions to
enter into the alleged contract of employment with the plaintiff on behalf of
the defendant company; and the evidence of record establishing the fact
that he did so, and that the plaintiff worked for the company for the period
set out in the findings of the trial court, we are of opinion that the trial court
properly rendered judgment in favor of the plaintiff and against the
defendant for the value of the services rendered.

The plaintiff not having appealed from the judgment of the trial court
denying him the alleged contract value of the services rendered, and the
evidence of record fully sustaining the findings as to the reasonable value of
these services, the judgment of the trial court should be and is hereby
affirmed, with the costs of this instance against the defendant. So ordered.

Arellano, C.J., Torres, Mapa, Willard, and Tracey, JJ., concur.

EN BANC

[G.R. No. 2253. January 19, 1906. ]

MARIANO GARCIA MARTINEZ, Plaintiff-Appellants, v. CORDOBA &

CONDE, Defendants-Appellees.

W.A. Kincaid, for Appellant.

Willard J. Rohde, for Appellees.

SYLLABUS

1. PARTNERSHIP; MANAGING PARTNERS; DISMISSAL OF EMPLOYEES. —

When the articles of partnership make each of the two partners managers,
either one has the right to dismiss an employee engaged for no definite
term.

2. ID.; ACTION AGAINST; ANSWER BY ONE PARTNER. — In an action

against a general partnership an answer in the name of the firm made by
one of the partners can not be disregarded.

DECISION

WILLARD, J. :

In 1902 and 1903 the partners in the defendant firm, Cordoba & Conde,
were Luciano Cordoba and Angel Conde. Prior to the month of September,
1902, the plaintiff had been employed by the defendant firm in the store
which it then had on the Escolta, in Manila. In that month Cordoba returned
from a visit to Spain. At his return a disagreement arose between the
partners in connection with their business. At an interview between the
parties Conde stated to Cordoba that he wished to discharge the plaintiff.
Cordoba stated that he did not wish to have him discharged. Conde then told
the plaintiff not to return to the store again as an employee of the firm.
Cordoba told him to return the next day. On the next morning he presented
himself at the store, and Conde refused him admission, while Cordoba told
him to enter. He thereupon seated himself in a chair near the door, stayed
there that day, and returned and occupied the same position every day for
thirteen months thereafter. During this time he rendered no service
whatever to the firm. He has now brought this action against the firm to
recover the value of his services during that time.

Judgment was entered against Cordoba by the court below for P1,350.
Judgment was also entered against the plaintiff and in favor of Conde. From
this judgment Cordoba has not appealed, but from the judgment in favor of
Conde plaintiff has appealed.

The articles of partnership contained the following

clause:jgc:chanrobles.com.ph

"Primera: La sociedad que en este acto se constituye sera mercantil

colectiva, girara bajo la razon de ’Cordoba y Conde’ y en ella la gerencia y el
uso de la firma social correra a cargo de ambos socios Don Luciano Cordoba
y Pascual y Don Angel Conde Y Moreno, cada uno de los cueles
indistintamente tanto en juicio como fuera de el y enalquier punto en que se
encuentren, tendran la plena representacion de la sociedad."cralaw
virtua1aw library

The contract of employment existing between plaintiff and the firm prior to
September, 1902, was for no definite time. By the terms of article 302 of the
Code of Commerce the firm had the right to discharge the plaintiff at any
time. By the terms of the contract of partnership which made each one of
the partners a manager, Conde had the right to discharge the plaintiff at any
time. He did discharge him at the interview above referred to. This discharge
was in no sense the making of a new contract, as is claimed by the appellant
in his brief. If it be claimed that by the terms of the articles of partnership
Cordoba had the right to and did employ the plaintiff again immediately
upon his discharge by Conde, it is also true that Conde at once discharged
him, and as often as Cordoba employed him, Conde dismissed him. He was
therefore never in the employ of the firm, and the evidence shows that he
rendered no service to the firm.

The defendant in this case is the partnership of Cordoba & Conde, a juridical
person. Conde appeared and presented an answer as one of the partners.
The prayer of this answer is as follows:jgc:chanrobles.com.ph

"Por esta suplica el Juzgado se sirva dictar sentencia absolviendole de la

demanda por la parte que a el le corresponde como socio de la sociedad
demandada condenando en costas al demandante."cralaw virtua1aw library

The appellant claims in this court that the judge below committed an error in
considering the answer of Conde as the answer of the partnership. This
contention can not be sustained.

The judgment is affirmed, with the costs of this instance against the plaintiff,
and after the expiration of twenty days judgment should be entered in
accordance herewith and the case remanded to the court below for
execution. So ordered.

Arellano, C.J., Mapa, Johnson and Carson, JJ., concur.