EN BANC court and its ruling is not yet appealable.
In support of this contention counsel cites section
G.R. No. L-33580 February 6, 1931
MAXIMILIANO SANCHO, plaintiff-appellant,
vs.
SEVERIANO LIZARRAGA, defendant-appellee.
Jose Perez Cardenas and Jose M. Casal for appellant.
Celso B. Jamora and Antonio Gonzalez for appellee.
ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a partnership contract between himself
and the defendant, entered into on October 15, 1920, the reimbursement by the latter of his
50,000 peso investment therein, with interest at 12 per cent per annum form October 15,
1920, with costs, and any other just and equitable remedy against said defendant.
The defendant denies generally and specifically all the allegations of the complaint which are
incompatible with his special defenses, cross-complaint and counterclaim, setting up the latter
and asking for the dissolution of the partnership, and the payment to him as its manager and
administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest,
one-half of said amount to be charged to the plaintiff. He also prays for any other just and
equitable remedy.
The Court of First Instance of Manila, having heard the cause, and finding it duly proved that
the defendant had not contributed all the capital he had bound himself to invest, and that the
plaintiff had demanded that the defendant liquidate the partnership, declared it dissolved on
account of the expiration of the period for which it was constituted, and ordered the
defendant, as managing partner, to proceed without delay to liquidate it, submitting to the
court the result of the liquidation together with the accounts and vouchers within the period
of thirty days from receipt of notice of said judgment, without costs.
The plaintiff appealed from said decision making the following assignments of error:
1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership
contract, Exhibit A, and that article 1124 of the Civil Code is not applicable to the present case.
2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest
from October 15, 1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is raised purporting to
show that this appeal is premature and therefore will not lie. The point is based on the
contention that inasmuch as the liquidation ordered by the trial court, and the consequent
accounts, have not been made and submitted, the case cannot be deemed terminated in said
1|Page
123 of the Code of Civil Procedure, and the decision of this court in the case of Natividad vs.
Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered as ordered by the trial
court, and until they have been either approved or disapproved, the litigation involved in this
action cannot be considered as completely decided; and, as it was held in said case of Natividad
vs .Villarica, also with reference to an appeal taken from a decision ordering the rendition of
accounts following the dissolution of partnership, the appeal in the instant case must be
deemed premature.
But even going into the merits of the case, the affirmation of the judgment appealed from is
inevitable. In view of the lower court's findings referred to above, which we cannot revise
because the parol evidence has not been forwarded to this court, articles 1681 and 1682 of
the Civil Code have been properly applied. Owing to the defendant's failure to pay to the
partnership the whole amount which he bound himself to pay, he became indebted to it for
the remainder, with interest and any damages occasioned thereby, but the plaintiff did not
thereby acquire the right to demand rescission of the partnership contract according to article
1124 of the Code. This article cannot be applied to the case in question, because it refers to
the resolution of obligations in general, whereas article 1681 and 1682 specifically refer to the
contract of partnership in particular. And it is a well known principle that special provisions
prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed from
in full force, without special pronouncement of costs. So ordered.
Avanceña, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.
EN BANC
G.R. No. L-45464 April 28, 1939
JOSUE SONCUYA, plaintiff-appellant,
vs.
CARMEN DE LUNA, defendant-appellee.
Josue Soncuya in his own behalf.
Conrado V. Sanchez and Jesus de Veyra for appellee.
VILLA-REAL, J.:
On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First Instance of Manila
and amended complaint against Carmen de Luna in her own name and as co-administratrix of
the intestate estate, of Librada Avelino, in which, upon the facts therein alleged, he prayed
that defendant be sentenced to pay him the sum of P700,432 as damages and costs.
To the aforesaid amended complaint defendant Carmen de Luna interposed a demurrer based
on the following grounds: (1) That the complaint does not contain facts sufficient to constitute
a cause of action; and (2) that the complaint is ambiguous, unintelligible and vague.
Trial on the demurrer having been held and the parties heard, the court found the same well-
founded and sustained it, ordering the plaintiff to amend his complaint within a period of ten
days from receipt of notice of the order.
Plaintiff having manifested that he would prefer not to amend his amended complaint, the
attorney for the defendant, Carmen de Luna, filed a motion praying that the amended
complaint be dismissed with costs against the plaintiff. Said motion was granted by The Court
of First Instance of Manila which ordered the dismissal of the aforesaid amended complaint,
with costs against the plaintiff.
From this order of dismissal, the appellant took an appeal, assigning twenty alleged errors
committed by the lower court in its order referred to.
The demurrer interposed by defendant to the amended complaint filed by plaintiff having been
sustained on the grounds that the facts alleged in said complaint are not sufficient to constitute
a cause of action and that the complaint is ambiguous, unintelligible and vague, the only
questions which may be raised and considered in the present appeal are those which refer to
said grounds.
In the amended complaint it is prayed that defendant Carmen de Luna be sentenced to pay
plaintiff damages in the sum of P700,432 as a result of the administration, said to be
fraudulent, of he partnership, "Centro Escolar de Señoritas", of which plaintiff, defendant and
the deceased Librada Avelino were members. For the purpose of adjudicating to plaintiff
damages which he alleges to have suffered as a partner by reason of the supposed fraudulent
management of he partnership referred to, it is first necessary that a liquidation of the business
thereof be made to the end that the profits and losses may be known and the causes of the
latter and the responsibility of the defendant as well as the damages which each partner may
have suffered, may be determined. It is not alleged in the complaint that such a liquidation has
been effected nor is it prayed that it be made. Consequently, there is no reason or cause for
plaintiff to institute the action for damages which he claims from the managing partner
Carmen de Luna (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172).
Having reached the conclusion that the facts alleged in the complaint are not sufficient to
constitute a cause of action on the part of plaintiff as member of the partnership "Centro
Escolar de Señoritas" to collect damages from defendant as managing partner thereof, without
a previous liquidation, we do not deem it necessary to discuss the remaining question of
whether or not the complaint is ambiguous, unintelligible and vague.
In view of the foregoing considerations, we are of the opinion and so hold that for a partner to
be able to claim from another partner who manages the general copartnership, damages
2|Page
allegedly suffered by him by reason of the fraudulent administration of the latter, a previous
liquidation of said partnership is necessary.
Wherefore, finding no error in the order appealed from the same is affirmed in all its parts,
with costs against the appellant. So ordered.
Avanceña, C. J., Imperial, Diaz, Laurel, Concepcion, and Moran, JJ., concur.
EN BANC
G.R. No. L-31684 June 28, 1973
EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.
MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On
June 7, 1955 the Articles of Co-partnership was amended as to include herein respondent,
Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr.,
Leonardo Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners,
remaining in that capacity, with a contribution of P17,500 each. The amended Articles
provided, inter alia, that "the contribution of Estrella Abad Santos consists of her industry
being an industrial partner", and that the profits and losses "shall be divided and distributed
among the partners ... in the proportion of 70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among
them equally; and 30% for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other partners in the
Court of First Instance of Manila, alleging that the partnership, which was also made a party-
defendant, had been paying dividends to the partners except to her; and that notwithstanding
her demands the defendants had refused and continued to refuse and let her examine the
partnership books or to give her information regarding the partnership affairs to pay her any
share in the dividends declared by the partnership. She therefore prayed that the defendants
be ordered to render accounting to her of the partnership business and to pay her
corresponding share in the partnership profits after such accounting, plus attorney's fees and
costs.
The defendants, in their answer, denied ever having declared dividends or distributed profits
of the partnership; denied likewise that the plaintiff ever demanded that she be allowed to
examine the partnership books; and byway of affirmative defense alleged that the amended
Articles of Co-partnership did not express the true agreement of the parties, which was that
the plaintiff was not an industrial partner; that she did not in fact contribute industry to the
partnership; and that her share of 30% was to be based on the profits which might be realized
by the partnership only until full payment of the loan which it had obtained in December, 1955
from the Rehabilitation Finance Corporation in the sum of P30,000, for which the plaintiff had
signed a promisory note as co-maker and mortgaged her property as security.
The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee
(respondent here) is an industrial partner as claimed by her or merely a profit sharer entitled
to 30% of the net profits that may be realized by the partnership from June 7, 1955 until the
mortgage loan from the Rehabilitation Finance Corporation shall be fully paid, as claimed by
appellants (herein petitioners)." On that issue the Court of First Instance found for the plaintiff
and rendered judgement "declaring her an industrial partner of Evangelista & Co.; ordering the
defendants to render an accounting of the business operations of the (said) partnership ...
from June 7, 1955; to pay the plaintiff such amounts as may be due as her share in the
partnership profits and/or dividends after such an accounting has been properly made; to pay
plaintiff attorney's fees in the sum of P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the
court a quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the respondent is an industrial partner
of Evangelista & Co., notwithstanding the admitted fact that since 1954 and until after
promulgation of the decision of the appellate court the said respondent was one of the judges
of the City Court of Manila, and despite its findings that respondent had been paid for services
allegedly contributed by her to the partnership. In this connection the Court of Appeals erred:
(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive
evidence that respondent was in fact made an industrial partner of Evangelista & Co.
(B) In not finding that a portion of respondent's testimony quoted in the decision proves
that said respondent did not bind herself to contribute her industry, and she could not, and in
fact did not, because she was one of the judges of the City Court of Manila since 1954.
(C) In finding that respondent did not in fact contribute her industry, despite the
appellate court's own finding that she has been paid for the services allegedly rendered by her,
as well as for the loans of money made by her to the partnership.
II. The lower court erred in not finding that in any event the respondent was lawfully
excluded from, and deprived of, her alleged share, interests and participation, as an alleged
industrial partner, in the partnership Evangelista & Co., and its profits or net income.
3|Page
III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby
respondent was declared an industrial partner of the petitioner, and petitioners were ordered
to render an accounting of the business operation of the partnership from June 7, 1955, and
to pay the respondent her alleged share in the net profits of the partnership plus the sum of
P2,000.00 as attorney's fees and the costs of the suit, instead of dismissing respondent's
complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the facts as
found by the Court of Appeals. The evidence presented by the parties as the trial in support of
their respective positions on the issue of whether or not the respondent was an industrial
partner was thoroughly analyzed by the Court of Appeals on its decision, to the extent of
reproducing verbatim therein the lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all over again,
its jurisdiction being limited to reviewing errors of law that might have been commited by the
lower court. It should be observed, in this regard, that the Court of Appeals did not hold that
the Articles of Co-partnership, identified in the record as Exhibit "A", was conclusive evidence
that the respondent was an industrial partner of the said company, but considered it together
with other factors, consisting of both testimonial and documentary evidences, in arriving at
the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first assignment of error
are hereunder reproduced if only to demonstrate that the same were made after a through
analysis of then evidence, and hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants' first assigned error,
wherein it is pointed out that "Appellee's documentary evidence does not conclusively prove
that appellee was in fact admitted by appellants as industrial partner of Evangelista & Co." and
that "The grounds relied upon by the lower Court are untenable" (Pages 21 and 26, Appellant's
Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In
finding that the appellee is an industrial partner of appellant Evangelista & Co., herein referred
to as the partnership — the lower court relied mainly on the appellee's documentary evidence,
entirely disregarding facts and circumstances established by appellants" evidence which
contradict the said finding' (Page 21, Appellants' Brief). The lower court could not have done
otherwise but rely on the exhibits just mentioned, first, because appellants have admitted their
genuineness and due execution, hence they were admitted without objection by the lower
court when appellee rested her case and, secondly the said exhibits indubitably show the
appellee is an industrial partner of appellant company. Appellants are virtually estopped from
attempting to detract from the probative force of the said exhibits because they all bear the
imprint of their knowledge and consent, and there is no credible showing that they ever
protested against or opposed their contents prior of the filing of their answer to appellee's
complaint. As a matter of fact, all the appellant Evangelista, Jr., would have us believe — as
against the cumulative force of appellee's aforesaid documentary evidence — is the appellee's
Exhibit "A", as confirmed and corroborated by the other exhibits already mentioned, does not
express the true intent and agreement of the parties thereto, the real understanding between
them being the appellee would be merely a profit sharer entitled to 30% of the net profits that
may be realized between the partners from June 7, 1955, until the mortgage loan of
P30,000.00 to be obtained from the RFC shall have been fully paid. This version, however, is
discredited not only by the aforesaid documentary evidence brought forward by the appellee,
but also by the fact that from June 7, 1955 up to the filing of their answer to the complaint on
February 8, 1964 — or a period of over eight (8) years — appellants did nothing to correct the
alleged false agreement of the parties contained in Exhibit "A". It is thus reasonable to suppose
that, had appellee not filed the present action, appellants would not have advanced this
obvious afterthought that Exhibit "A" does not express the true intent and agreement of the
parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an
overriding fact which proves that the parties to the Amended Articles of Partnership, Exhibit
"A", did not contemplate to make the appellee Estrella Abad Santos, an industrial partner of
Evangelista & Co. It is an admitted fact that since before the execution of the amended articles
of partnership, Exhibit "A", the appellee Estrella Abad Santos has been, and up to the present
time still is, one of the judges of the City Court of Manila, devoting all her time to the
performance of the duties of her public office. This fact proves beyond peradventure that it
was never contemplated between the parties, for she could not lawfully contribute her full
time and industry which is the obligation of an industrial partner pursuant to Art. 1789 of the
Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting
it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very definite impression
that, even as she was and still is a Judge of the City Court of Manila, she has rendered services
for appellants without which they would not have had the wherewithal to operate the business
for which appellant company was organized. Article 1767 of the New Civil Code which provides
that "By contract of partnership two or more persons bind themselves, to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among
themselves, 'does not specify the kind of industry that a partner may thus contribute, hence
the said services may legitimately be considered as appellee's contribution to the common
fund. Another article of the same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership
expressly permits him to do so; and if he should do so, the capitalist partners may either
exclude him from the firm or avail themselves of the benefits which he may have obtained in
violation of this provision, with a right to damages in either case.'
4|Page
It is not disputed that the provision against the industrial partner engaging in business for
himself seeks to prevent any conflict of interest between the industrial partner and the
partnership, and to insure faithful compliance by said partner with this prestation. There is no
pretense, however, even on the part of the appellee is engaged in any business antagonistic
to that of appellant company, since being a Judge of one of the branches of the City Court of
Manila can hardly be characterized as a business. That appellee has faithfully complied with
her prestation with respect to appellants is clearly shown by the fact that it was only after filing
of the complaint in this case and the answer thereto appellants exercised their right of
exclusion under the codal art just mentioned by alleging in their Supplemental Answer dated
June 29, 1964 — or after around nine (9) years from June 7, 1955 — subsequent to the filing
of defendants' answer to the complaint, defendants reached an agreement whereby the
herein plaintiff been excluded from, and deprived of, her alleged share, interests or
participation, as an alleged industrial partner, in the defendant partnership and/or in its net
profits or income, on the ground plaintiff has never contributed her industry to the
partnership, instead she has been and still is a judge of the City Court (formerly Municipal
Court) of the City of Manila, devoting her time to performance of her duties as such judge and
enjoying the privilege and emoluments appertaining to the said office, aside from teaching in
law school in Manila, without the express consent of the herein defendants' (Record On
Appeal, pp. 24-25). Having always knows as a appellee as a City judge even before she joined
appellant company on June 7, 1955 as an industrial partner, why did it take appellants many
yearn before excluding her from said company as aforequoted allegations? And how can they
reconcile such exclusive with their main theory that appellee has never been such a partner
because "The real agreement evidenced by Exhibit "A" was to grant the appellee a share of
30% of the net profits which the appellant partnership may realize from June 7, 1955, until the
mortgage of P30,000.00 obtained from the Rehabilitation Finance Corporal shall have been
fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower Court that appellee is an industrial
partner of appellant company, with the right to demand for a formal accounting and to receive
her share in the net profit that may result from such an accounting, which right appellants take
exception under their second assigned error. Our said holding is based on the following article
of the New Civil Code:
'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its
property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and reasonable.
We find no reason in this case to depart from the rule which limits this Court's appellate
jurisdiction to reviewing only errors of law, accepting as conclusive the factual findings of the
lower court upon its own assessment of the evidence.
The judgment appealed from is affirmed, with costs.
Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.
EN BANC
G.R. No. L-5236 January 10, 1910
PEDRO MARTINEZ, plaintiff-appellee,
vs.
ONG PONG CO and ONG LAY, defendants.
ONG PONG CO., appellant.
Fernando de la Cantera for appellant.
O'Brien and DeWitt for appellee.
ARELLANO, C.J.:
On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the defendants who,
in a private document, acknowledged that they had received the same with the agreement, as
stated by them, "that we are to invest the amount in a store, the profits or losses of which we
are to divide with the former, in equal shares."
The plaintiff filed a complaint on April 25, 1907, in order to compel the defendants to render
him an accounting of the partnership as agreed to, or else to refund him the P1,500 that he
had given them for the said purpose. Ong Pong Co alone appeared to answer the complaint;
he admitted the fact of the agreement and the delivery to him and to Ong Lay of the P1,500
for the purpose aforesaid, but he alleged that Ong Lay, who was then deceased, was the one
who had managed the business, and that nothing had resulted therefrom save the loss of the
capital of P1,500, to which loss the plaintiff agreed.
The judge of the Court of First Instance of the city of Manila who tried the case ordered Ong
Pong Co to return to the plaintiff one-half of the said capital of P1,500 which, together with
Ong Lay, he had received from the plaintiff, to wit, P750, plus P90 as one-half of the profits,
calculated at the rate of 12 per cent per annum for the six months that the store was supposed
to have been open, both sums in Philippine currency, making a total of P840, with legal interest
thereon at the rate of 6 per cent per annum, from the 12th of June, 1901, when the business
terminated and on which date he ought to have returned the said amount to the plaintiff, until
the full payment thereof with costs.
From this judgment Ong Pong Co appealed to this court, and assigned the following errors:
5|Page
1. For not having taken into consideration the fact that the reason for the closing of the store
was the ejectment from the premises occupied by it.
2. For not having considered the fact that there were losses.
3. For holding that there should have been profits.
4. For having applied article 1138 of the Civil Code.
5. and 6. For holding that the capital ought to have yielded profits, and that the latter should
be calculated 12 per cent per annum; and
7. The findings of the ejectment.
As to the first assignment of error, the fact that the store was closed by virtue of ejectment
proceedings is of no importance for the effects of the suit. The whole action is based upon the
fact that the defendants received certain capital from the plaintiff for the purpose of organizing
a company; they, according to the agreement, were to handle the said money and invest it in
a store which was the object of the association; they, in the absence of a special agreement
vesting in one sole person the management of the business, were the actual administrators
thereof; as such administrators they were the agent of the company and incurred the liabilities
peculiar to every agent, among which is that of rendering account to the principal of their
transactions, and paying him everything they may have received by virtue of the mandatum.
(Arts. 1695 and 1720, Civil Code.) Neither of them has rendered such account nor proven the
losses referred to by Ong Pong Co; they are therefore obliged to refund the money that they
received for the purpose of establishing the said store — the object of the association. This
was the principal pronouncement of the judgment.
With regard to the second and third assignments of error, this court, like the court below, finds
no evidence that the entire capital or any part thereof was lost. It is no evidence of such loss
to aver, without proof, that the effects of the store were ejected. Even though this were
proven, it could not be inferred therefrom that the ejectment was due to the fact that no rents
were paid, and that the rent was not paid on account of the loss of the capital belonging to the
enterprise.
With regard to the possible profits, the finding of the court below are based on the statements
of the defendant Ong Pong Co, to the effect that "there were some profits, but not large ones."
This court, however, does not find that the amount thereof has been proven, nor deem it
possible to estimate them to be a certain sum, and for a given period of time; hence, it can not
admit the estimate, made in the judgment, of 12 per cent per annum for the period of six
months.
Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on the
part of a partner who acted as agent in receiving money for a given purpose, for which he has
rendered no accounting, such agent is responsible only for the losses which, by a violation of
the provisions of the law, he incurred. This being an obligation to pay in cash, there are no
other losses than the legal interest, which interest is not due except from the time of the
judicial demand, or, in the present case, from the filing of the complaint. (Arts. 1108 and 1100,
Civil Code.) We do not consider that article 1688 is applicable in this case, in so far as it provides
"that the partnership is liable to every partner for the amounts he may have disbursed on
account of the same and for the proper interest," for the reason that no other money than
that contributed as is involved.
As in the partnership there were two administrators or agents liable for the above-named
amount, article 1138 of the Civil Code has been invoked; this latter deals with debts of a
partnership where the obligation is not a joint one, as is likewise provided by article 1723 of
said code with respect to the liability of two or more agents with respect to the return of the
money that they received from their principal. Therefore, the other errors assigned have not
been committed.
In view of the foregoing judgment appealed from is hereby affirmed, provided, however, that
the defendant Ong Pong Co shall only pay the plaintiff the sum of P750 with the legal interest
thereon at the rate of 6 per cent per annum from the time of the filing of the complaint, and
the costs, without special ruling as to the costs of this instance. So ordered.
Torres, Johnson, Carson, and Moreland, JJ., concur.
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:
6|Page
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.
7|Page
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
8|Page
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.
Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.

THIRD DIVISION
G. R. No. 135813 - October 25, 2001
FERNANDO SANTOS, Petitioner, v. SPOUSES ARSENIO and NIEVES REYES, Respondents.
PANGANIBAN, J.:
As a general rule, the factual findings of the Court of Appeals affirming those of the trial court
are binding on the Supreme Court. However, there are several exceptions to this principle. In
the present case, we find occasion to apply both the rule and one of the exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision,1 as
well as the August 17, 1998 and the October 9, 1998 Resolutions,2 issued by the Court of
Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision disposed as follows:
"WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim which is
hereby DISMISSED. Costs against [petitioner]."3
Resolving respondent's Motion for Reconsideration, the August 17, 1998 Resolution ruled as
follows:
"WHEREFORE, [respondents'] motion for reconsideration is GRANTED. Accordingly, the court's
decision dated November 28, 1997 is hereby MODIFIED in that the decision appealed from is
AFFIRMED in toto, with costs against [petitioner]."4
The October 9, 1998 Resolution denied "for lack of merit" petitioner's Motion for
Reconsideration of the August 17, 1998 Resolution.5
The Facts
The events that led to this case are summarized by the CA as follows:
"Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes were
introduced to each other by one Meliton Zabat regarding a lending business venture proposed
by Nieves. It was verbally agreed that [petitioner would] act as financier while [Nieves] and
Zabat [would] take charge of solicitation of members and collection of loan payments. The
venture was launched on June 13, 1986, with the understanding that [petitioner] would
receive 70% of the profits while x x x Nieves and Zabat would earn 15% each.
"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of
the Monte Maria Development Corporation6 (Monte Maria, for brevity), sought short-term
loans for members of the corporation. [Petitioner] and Gragera executed an agreement
9|Page
providing funds for Monte Maria's members. Under the agreement, Monte Maria, represented
by Gragera, was entitled to P1.31 commission per thousand paid daily to [petitioner] (Exh. 'A')x
x x . Nieves kept the books as representative of [petitioner] while [Respondent] Arsenio,
husband of Nieves, acted as credit investigator.
"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the 'Article of Agreement'
which formalized their earlier verbal arrangement.
"[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same
lending business in competition with their partnership[.] Zabat was thereby expelled from the
partnership. The operations with Monte Maria continued.
"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and damages.
[Petitioner] charged [respondents], allegedly in their capacities as employees of [petitioner],
with having misappropriated funds intended for Gragera for the period July 8, 1986 up to
March 31, 1987. Upon Gragera's complaint that his commissions were inadequately remitted,
[petitioner] entrusted P200,000.00 to x x x Nieves to be given to Gragerax x x . Nieves allegedly
failed to account for the amount. [Petitioner] asserted that after examination of the records,
he found that of the total amount of P4,623,201.90 entrusted to [respondents], only
P3,068,133.20 was remitted to Gragera, thereby leaving the balance of P1,555,065.70
unaccounted for.
"In their answer, [respondents] asserted that they were partners and not mere employees of
[petitioner]. The complaint, they alleged, was filed to preempt and prevent them from claiming
their rightful share to the profits of the partnership.
"x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after
[petitioner] learned of Zabat's activities. Arsenio resigned from his job at the Asian
Development Bank to join the partnership.
"For her part, x x x Nieves claimed that she participated in the business as a partner, as the
lending activity with Monte Maria originated from her initiative. Except for the limited period
of July 8, 1986 through August 20, 1986, she did not handle sums intended for Gragera.
Collections were turned over to Gragera because he guaranteed 100% payment of all sums
loaned by Monte Maria. Entries she made on worksheets were based on this assumptive 100%
collection of all loans. The loan releases were made less Gragera's agreed commission. Because
of this arrangement, she neither received payments from borrowers nor remitted any amount
to Gragera. Her job was merely to make worksheets (Exhs. '15' to '15-DDDDDDDDDD') to
convey to [petitioner] how much he would earn if all the sums guaranteed by Gragera were
collected.
"[Petitioner] on the other hand insisted that [respondents] were his mere employees and not
partners with respect to the agreement with Gragera. He claimed that after he discovered
Zabat's activities, he ceased infusing funds, thereby causing the extinguishment of the
partnership. The agreement with Gragera was a distinct partnership [from] that of Six(6) percent of P3,064,428.00
[respondent] and Zabat. [Petitioner] asserted that [respondents] were hired as salaried
employees with respect to the partnership between [petitioner] and Gragera. - As damages from August 3, 1987 until the P3,064,428.00 is fully paid.

"[Petitioner] further asserted that in Nieves' capacity as bookkeeper, she received all payments 39.2.3.
from which Nieves deducted Gragera's commission. The commission would then be remitted
to Gragera. She likewise determined loan releases. P50,000.00

"During the pre-trial, the parties narrowed the issues to the following points: whether - As moral damages
[respondents] were employees or partners of [petitioner], whether [petitioner] entrusted
money to [respondents] for delivery to Gragera, whether the P1,555,068.70 claimed under the 39.2.4.
complaint was actually remitted to Gragera and whether [respondents] were entitled to their
counterclaim for share in the profits."7 P10,000.00

Ruling of the Trial Court - As exemplary damages

In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere 39.3.
employees, of petitioner. It further ruled that Gragera was only a commission agent of
petitioner, not his partner. Petitioner moreover failed to prove that he had entrusted any The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES, the
money to Nieves. Thus, respondents' counterclaim for their share in the partnership and for following:
damages was granted. The trial court disposed as follows:
39.3.1.
"39.
P2,899,739.50
WHEREFORE, the Court hereby renders judgment as follows:
- The balance of the 15 percent share of the [respondent] ARSENIO REYES in the profits of his
39.1. joint venture with the [petitioner].

THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED. 39.3.2.

39.2. Six(6) percent of P2,899,739.50

The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES, - As damages from August 3, 1987 until the P2,899,739.50 is fully paid.
the following:
39.3.3.
39.2.1.
P25,000.00
P3,064,428.00
- As moral damages
- The 15 percent share of the [respondent] NIEVES S. REYES in the profits of her joint venture
with the [petitioner]. 39.3.4.

39.2.2. P10,000.00

10 | P a g e
- As exemplary damages
39.4.
The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:
39.4.1.
P50,000.00
- As attorney's fees; and
39.4.2.
The cost of the suit."8
Ruling of the Court of Appeals
On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents
was dismissed. Upon the latter's Motion for Reconsideration, however, the trial court's
Decision was reinstated in toto. Subsequently, petitioner's own Motion for Reconsideration
was denied in the CA Resolution of October 9, 1998.
The CA ruled that the following circumstances indicated the existence of a partnership among
the parties: (1) it was Nieves who broached to petitioner the idea of starting a money-lending
business and introduced him to Gragera; (2) Arsenio received "dividends" or "profit-shares"
covering the period July 15 to August 7, 1986 (Exh. "6"); and (3) the partnership contract was
executed after the Agreement with Gragera and petitioner and thus showed the parties'
intention to consider it as a transaction of the partnership. In their common venture, petitioner
invested capital while respondents contributed industry or services, with the intention of
sharing in the profits of the business.
The CA disbelieved petitioner's claim that Nieves had misappropriated a total of P200,000
which was supposed to be delivered to Gragera to cover unpaid commissions. It was his task
to collect the amounts due, while hers was merely to prepare the daily cash flow reports (Exhs.
"15-15DDDDDDDDDD") to keep track of his collections.
Hence, this Petition.9
Issue
Petitioner asks this Court to rule on the following issues:10
11 | P a g e
"Whether or not Respondent Court of Appeals acted with grave abuse of discretion
tantamount to excess or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers and not employees
of Santos in connection with the agreement between Santos and Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase 'Received by' on documents
signed by Nieves Reyes signified receipt of copies of the documents and not of the sums shown
thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a forgery;
4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes of P200,000.00 for
delivery to Gragera;
5 Affirming the dismissal of Santos' [Second] Amended Complaint;
6. Affirming the decision of the trial court, upholding private respondents'
counterclaim;
7. Denying Santos' motion for reconsideration dated September 11, 1998."
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties'
relationship was one of partnership or of employer employee; (2) whether Nieves
misappropriated the sums of money allegedly entrusted to her for delivery to Gragera as his
commissions; and (3) whether respondents were entitled to the partnership profits as
determined by the trial court.
The Court's Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent spouses in the money-
lending venture with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator.
That Nieves introduced Gragera to Santos did not make her a partner. She was only a witness
to the Agreement between the two. Separate from the partnership between petitioner and
Gragera was that which existed among petitioner, Nieves and Zabat, a partnership that was
dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioner's contentions and ruled
that the business relationship was one of partnership. We quote from the CA Decision, as
follows:
"[Respondents] were industrial partners of [petitioner]x x x . Nieves herself provided the
initiative in the lending activities with Monte Maria. In consonance with the agreement
between appellant, Nieves and Zabat (later replaced by Arsenio), [respondents] contributed
industry to the common fund with the intention of sharing in the profits of the partnership.
[Respondents] provided services without which the partnership would not have [had] the
wherewithal to carry on the purpose for which it was organized and as such [were] considered
industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
"While concededly, the partnership between [petitioner,] Nieves and Zabat was technically
dissolved by the expulsion of Zabat therefrom, the remaining partners simply continued the
business of the partnership without undergoing the procedure relative to dissolution. Instead,
they invited Arsenio to participate as a partner in their operations. There was therefore, no
intent to dissolve the earlier partnership. The partnership between [petitioner,] Nieves and
Arsenio simply took over and continued the business of the former partnership with Zabat,
one of the incidents of which was the lending operations with Monte Maria.
xxx - xxx - xxx
"Gragera and [petitioner] were not partners. The money-lending activities undertaken with
Monte Maria was done in pursuit of the business for which the partnership between
[petitioner], Nieves and Zabat (later Arsenio) was organized. Gragera who represented Monte
Maria was merely paid commissions in exchange for the collection of loans. The commissions
were fixed on gross returns, regardless of the expenses incurred in the operation of the
business. The sharing of gross returns does not in itself establish a partnership."11
We agree with both courts on this point. By the contract of partnership, two or more persons
bind themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves.12 The "Articles of Agreement" stipulated
that the signatories shall share the profits of the business in a 70-15-15 manner, with petitioner
getting the lion's share.13 This stipulation clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the partnership continued
lending money to the members of the Monte Maria Community Development Group, Inc.,
which later on changed its business name to Private Association for Community Development,
Inc. (PACDI). Nieves was not merely petitioner's employee. She discharged her bookkeeping
duties in accordance with paragraphs 2 and 3 of the Agreement, which states as follows:
"2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening
of prospective borrowers, and shall x x x each be responsible in handling the collection of the
loan payments of the borrowers that they each solicited.
12 | P a g e
"3. That the bookkeeping and daily balancing of account of the business operation shall
be handled by the SECOND PARTY."14
The "Second Party" named in the Agreement was none other than Nieves Reyes. On the other
hand, Arsenio's duties as credit investigator are subsumed under the phrase "screening of
prospective borrowers." Because of this Agreement and the disbursement of monthly
"allowances" and "profit shares" or "dividends" (Exh. "6") to Arsenio, we uphold the factual
finding of both courts that he replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-lending business, despite the
fact that it was formalized only after the Memorandum of Agreement had been signed by
petitioner and Gragera. Contrary to petitioner's contention, there is no evidence to show that
a different business venture is referred to in this Agreement, which was executed on August
6, 1986, or about a month after the Memorandum had been signed by petitioner and Gragera
on July 14, 1986. The Agreement itself attests to this fact:
"WHEREAS, the parties have decided to formalize the terms of their business relationship in
order that their respective interests may be properly defined and established for their mutual
benefit and understanding."15
Second Issue:
No Proof of Misappropriation of Gragera's Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money intended for
Gragera's commission. According to him, Gragera remitted his daily collection to Nieves. This
is shown by Exhibit "B." (the "Schedule of Daily Payments"), which bears her signature under
the words "received by." For the period July 1986 to March 1987, Gragera should have earned
a total commission of P4,282,429.30. However, only P3,068,133.20 was received by him. Thus,
petitioner infers that she misappropriated the difference of P1,214,296.10, which represented
the unpaid commissions. Exhibit "H." is an untitled tabulation which, according to him, shows
that Gragera was also entitled to a commission of P200,000, an amount that was never
delivered by Nieves.16
On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show that Nieves received
for delivery to Gragera any amount from which the P1,214,296.10 unpaid commission was
supposed to come, and that such exhibits were insufficient proof that she had embezzled
P200,000. Said the CA:
"The presentation of Exhibit "D" vaguely denominated as 'members ledger' does not clearly
establish that Nieves received amounts from Monte Maria's members. The document does
not clearly state what amounts the entries thereon represent. More importantly, Nieves made
the entries for the limited period of January 11, 1987 to February 17, 1987 only while the rest
were made by Gragera's own staff.

"Neither can we give probative value to Exhibit 'E' which allegedly shows acknowledgment of
the remittance of commissions to Verona Gonzales. The document is a private one and its due
execution and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of
the Rules of Court which states:
'SECTION 20. Proof of Private Document Before any private document offered as
authentic is received in evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
'Any other private document need only be identified as that which it is claimed to be.'
"The court a quo even ruled that the signature thereon was a forgery, as it found that:
'x x x . But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a forgery. The
initial stroke of Exh. E-1 starts from up and goes downward. The initial stroke of the genuine
signatures of NIEVES (Exhs. A-3, B-1, F-1, among others) starts from below and goes upward.
This difference in the start of the initial stroke of the signatures Exhs. E-1 and of the genuine
signatures lends credence to Nieves' claim that the signature Exh. E-1 is a forgery.'
xxx - xxx - xxx
"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and 'F') were based on the
predetermined 100% collection as guaranteed by Gragera is credible and clearly in accord with
the evidence. A perusal of Exhs. "B" and "F" as well as Exhs. '15' to 15-DDDDDDDDDD' reveal
that the entries were indeed based on the 100% assumptive collection guaranteed by Gragera.
Thus, the total amount recorded on Exh. 'B' is exactly the number of borrowers multiplied by
the projected collection of P150.00 per borrower. This holds true for Exh. 'F.'
"Corollarily, Nieves' explanation that the documents were pro forma and that she signed them
not to signify that she collected the amounts but that she received the documents themselves
is more believable than [petitioner's] assertion that she actually handled the amounts.
"Contrary to [petitioner's] assertion, Exhibit 'H' does not unequivocally establish that x x x
Nieves received P200,000.00 as commission for Gragera. As correctly stated by the court a
quo, the document showed a liquidation of P240.000 00 and not P200,000.00.
"Accordingly, we find Nieves' testimony that after August 20, 1986, all collections were made
by Gragera believable and worthy of credence. Since Gragera guaranteed a daily 100%
payment of the loans, he took charge of the collections. As [petitioner's] representative,
13 | P a g e
Nieves merely prepared the daily cash flow reports (Exh. '15' to '15 DDDDDDDDDD') to enable
[petitioner] to keep track of Gragera's operations. Gragera on the other hand devised the
schedule of daily payment (Exhs. 'B' and 'F') to record the projected gross daily collections.
"As aptly observed by the court a quo:
'26.1. As between the versions of SANTOS and NIEVES on how the commissions of
GRAGERA [were] paid to him[,] that of NIEVES is more logical and practical and therefore, more
believable. SANTOS' version would have given rise to this improbable situation: GRAGERA
would collect the daily amortizations and then give them to NIEVES; NIEVES would get
GRAGERA's commissions from the amortizations and then give such commission to
GRAGERA."'17
These findings are in harmony with the trial court's ruling, which we quote below:
"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received
P200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth column 'ADDITIONAL CASH'
that the additional cash was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as
alleged by SANTOS, then his claim is not true. This is so because it is a liquidation of the sum
of P240,000.00.
"21.1. SANTOS claimed that he learned of NIEVES' failure to give the P200,000.00 to
GRAGERA when he received the latter's letter complaining of its delayed release. Assuming as
true SANTOS' claim that he gave P200,000.00 to GRAGERA, there is no competent evidence
that NIEVES did not give it to GRAGERA. The only proof that NIEVES did not give it is the letter.
But SANTOS did not even present the letter in evidence. He did not explain why he did not.
"21.2. The evidence shows that all money transactions of the money-lending business of
SANTOS were covered by petty cash vouchers. It is therefore strange why SANTOS did not
present any voucher or receipt covering the P200,000.00."18
In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from
the partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his
commissions before remitting his collections. Exhibits "B" and "F" are merely computations of
what Gragera should collect for the day; they do not show that Nieves received the amounts
stated therein. Neither is there sufficient proof that she misappropriated P200,000, because
Exhibit "H." does not indicate that such amount was received by her; in fact, it shows a
different figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is
warranted. Well-entrenched is the basic rule that factual findings of the Court of Appeals
affirming those of the trial court are binding and conclusive on the Supreme Court.19 Although
there are exceptions to this rule, petitioner has not satisfactorily shown that any of them is
applicable to this issue.

Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents' claims on the profits of the partnership. He
maintains that "both business propositions were flops," as his investments were "consumed
and eaten up by the commissions orchestrated to be due Gragera" a situation that "could not
have been rendered possible without complicity between Nieves and Gragera."
Respondent spouses, on the other hand, postulate that petitioner instituted the action below
to avoid payment of the demands of Nieves, because sometime in March 1987, she "signified
to petitioner that it was about time to get her share of the profits which had already
accumulated to some P3 million." Respondents add that while the partnership has not
declared dividends or liquidated its earnings, the profits are already reflected on paper. To
prove the counterclaim of Nieves, the spouses show that from June 13, 1986 up to April 19,
1987, the profit totaled P20,429,520 (Exhs. "10" et seq. and "15" et seq.). Based on that
income, her 15 percent share under the joint venture amounts to P3,064,428 (Exh. "10-I-3");
and Arsenio's, P2,026,000 minus the P30,000 which was already advanced to him (Petty Cash
Vouchers, Exhs. "6, 6-A to 6-B").
The CA originally held that respondents' counterclaim was premature, pending an accounting
of the partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face.
Affirming the trial court's ruling on the counterclaim, it held as follows:
"We earlier ruled that there is still need for an accounting of the profits and losses of the
partnership before we can rule with certainty as to the respective shares of the partners. Upon
a further review of the records of this case, however, there appears to be sufficient basis to
determine the amount of shares of the parties and damages incurred by [respondents]. The
fact is that the court a quo already made such a determination [in its] decision dated August
13, 1991 on the basis of the facts on record."20
The trial court's ruling alluded to above is quoted below:
"27. The defendants' counterclaim for the payment of their share in the profits of their
joint venture with SANTOS is supported by the evidence.
"27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement
(Exhs. 5, 5-A and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I, inclusive)
which she prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports of
which Exh. 3 is a sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D(10)
were given to SANTOS. The joint venture had a net profit of P20,429,520.00 (Exh. 10-I-1), from
its operations from June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share of
P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about P2,926,000.00, in the profits.
14 | P a g e
"27.1.1 SANTOS never denied NIEVES' testimony that the money-lending business he was
engaged in netted a profit and that the originals of the daily case flow reports were furnished
to him. SANTOS however alleged that the money-lending operation of his joint venture with
NIEVES and ZABAT resulted in a loss of about half a million pesos to him. But such loss, even if
true, does not negate NIEVES' claim that overall, the joint venture among them SANTOS,
NIEVES and ARSENIO netted a profit. There is no reason for the Court to doubt the veracity of
[the testimony of] NIEVES.
"27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6,
6-A and 6-B) should be deducted from his total share."21
After a close examination of respondents' exhibits, we find reason to disagree with the CA.
Exhibit "10-I"22 shows that the partnership earned a "total income" of P20,429,520 for the
period June 13, 1986 until April 19, 1987. This entry is derived from the sum of the amounts
under the following column headings: "2-Day Advance Collection," "Service Fee," "Notarial
Fee," "Application Fee," "Net Interest Income" and "Interest Income on Investment." Such
entries represent the collections of the money-lending business or its gross income.
The "total income" shown on Exhibit "10-I" did not consider the expenses sustained by the
partnership. For instance, it did not factor in the "gross loan releases" representing the money
loaned to clients. Since the business is money-lending, such releases are comparable with the
inventory or supplies in other business enterprises.
Noticeably missing from the computation of the "total income" is the deduction of the weekly
allowance disbursed to respondents. Exhibits "I" et seq. and "J" et seq.23 show that Arsenio
received allowances from July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500;
and Nieves, from July 12, 1986 to March 27, 1987, in the total amount of P25,600. These
allowances are different from the profit already received by Arsenio. They represent expenses
that should have been deducted from the business profits. The point is that all expenses
incurred by the money-lending enterprise of the parties must first be deducted from the "total
income" in order to arrive at the "net profit" of the partnership. The share of each one of them
should be based on this "net profit" and not from the "gross income" or "total income"
reflected in Exhibit "10-I," which the two courts invariably referred to as "cash flow" sheets.
Similarly, Exhibits "15" et seq.,24 which are the "Daily Cashflow Reports," do not reflect the
business expenses incurred by the parties, because they show only the daily cash collections.
Contrary to the rulings of both the trial and the appellate courts, respondents' exhibits do not
reflect the complete financial condition of the money-lending business. The lower courts
obviously labored over a mistaken notion that Exhibit " 10-I-1" represented the "net profits"
earned by the partnership.
For the purpose of determining the profit that should go to an industrial partner (who shares
in the profits but is not liable for the losses), the gross income from all the transactions carried
on by the firm must be added together, and from this sum must be subtracted the expenses
or the losses sustained in the business. Only in the difference representing the net profits does
the industrial partner share. But if, on the contrary, the losses exceed the income, the
industrial partner does not share in the losses.25
When the judgment of the CA is premised on a misapprehension of facts or a failure to notice
certain relevant facts that would otherwise justify a different conclusion, as in this particular
issue, a review of its factual findings may be conducted, as an exception to the general rule
applied to the first two issues.26
The trial court has the advantage of observing the witnesses while they are testifying, an
opportunity not available to appellate courts. Thus, its assessment of the credibility of
witnesses and their testimonies are accorded great weight, even finality, when supported by
substantial evidence; more so when such assessment is affirmed by the CA. But when the issue
involves the evaluation of exhibits or documents that are attached to the case records, as in
the third issue, the rule may be relaxed. Under that situation, this Court has a similar
opportunity to inspect, examine and evaluate those records, independently of the lower
courts. Hence, we deem the award of the partnership share, as computed by the trial court
and adopted by the CA, to be incomplete and not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision is
AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998 are
REVERSED and SET ASIDE. No costs.
SO ORDERED.
Melo, and Sandoval-Gutierrez, JJ., concur. Vitug, J., on official leave.
FIRST DIVISION
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the decision of the respondent Court of Appeals
which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that: têñ.£îhqwâ£
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would
contribute P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to
15 | P a g e
the 1971 Constitutional Convention), with Moran actually supervising the work; that Pecson
would receive a commission of P l,000 a month starting on April 15, 1971 up to December 15,
1971; that on December 15, 1971, a liquidation of the accounts in the distribution and printing
of the 95,000 posters would be made, that Pecson gave Moran P10,000 for which the latter
issued a receipt; that only a few posters were printed; that on or about May 28, 1971, Moran
executed in favor of Pecson a promissory note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on or before
June 30, 1971), the whole sum becoming due upon default in the payment of the first
installment on the date due, complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action for the
recovery of a sum of money and alleged in his complaint three (3) causes of action, namely:
(1) on the alleged partnership agreement, the return of his contribution of P10,000.00,
payment of his share in the profits that the partnership would have earned, and, payment of
unpaid commission; (2) on the alleged promissory note, payment of the sum of P20,000.00;
and, (3) moral and exemplary damages and attorney's fees.
After the trial, the Court of First Instance held that: têñ.£îhqwâ£
From the evidence presented it is clear in the mind of the court that by virtue of the
partnership agreement entered into by the parties-plaintiff and defendant the plaintiff did
contribute P10,000.00, and another sum of P7,000.00 for the Voice of the Veteran or Delegate
Magazine. Of the expected 95,000 copies of the posters, the defendant was able to print 2,000
copies only authorized of which, however, were sold at P5.00 each. Nothing more was done
after this and it can be said that the venture did not really get off the ground. On the other
hand, the plaintiff failed to give his full contribution of P15,000.00. Thus, each party is entitled
to rescind the contract which right is implied in reciprocal obligations under Article 1385 of the
Civil Code whereunder 'rescission creates the obligation to return the things which were the
object of the contract ...
WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to
return to plaintiff Mariano E. Pecson the sum of P17,000.00, with interest at the legal rate from
the filing of the complaint on June 19, 1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim is hereby dismissed.
From this decision, both parties appealed to the respondent Court of Appeals. The latter
likewise rendered a decision against the petitioner. The dispositive portion of the decision
reads: têñ.£îhqwâ£
PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a new one is
hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant
Mariano E. Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to
Pecson under their agreement);
(b) Eight thousand (P8,000), (the commission for eight months);
(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time
payment is made)
The petitioner contends that the respondent Court of Appeals decided questions of substance
in a way not in accord with law and with Supreme Court decisions when it committed the
following errors:
I Convention;
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO
C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE
SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO
C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS
SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO
C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A
SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT, THE
HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED
BY PECSON FROM MORAN.
V and bridges despite its deficient capital." Besides, there was evidence to show that the
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE
PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.
16 | P a g e
The first question raised in this petition refers to the award of P47,500.00 as the private
respondent's share in the unrealized profits of the partnership. The petitioner contends that
the award is highly speculative. The petitioner maintains that the respondent court did not
take into account the great risks involved in the business undertaking.
We agree with the petitioner that the award of speculative damages has no basis in fact and
law.
There is no dispute over the nature of the agreement between the petitioner and the private
respondent. It is a contract of partnership. The latter in his complaint alleged that he was
induced by the petitioner to enter into a partnership with him under the following terms and
conditions: têñ.£îhqwâ£
1. That the partnership will print colored posters of the delegates to the Constitutional
2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of the said posters;
4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month starting
April 15, 1971 up to December 15, 1971;
5. That upon the termination of the partnership on December 15, 1971, a liquidation of the
account pertaining to the distribution and printing of the said 95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence of the partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails to do so,
he becomes a debtor of the partnership for whatever he may have promised to contribute
(Art. 1786, Civil Code) and for interests and damages from the time he should have complied
with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted
Art. 2200 of the Civil Code of the Philippines, we allowed a total of P200,000.00 compensatory
damages in favor of the appellee because the appellant therein was remiss in his obligations
as a partner and as prime contractor of the construction projects in question. This case was
decided on a particular set of facts. We awarded compensatory damages in the Uy case
because there was a finding that the constructing business is a profitable one and that the UP
construction company derived some profits from its contractors in the construction of roads
partnership made some profits during the periods from July 2, 1956 to December 31, 1957 and
from January 1, 1958 up to September 30, 1959. The profits on two government contracts
worth P2,327,335.76 were not speculative. In the instant case, there is no evidence
whatsoever that the partnership between the petitioner and the private respondent would
have been a profitable venture. In fact, it was a failure doomed from the start. There is
therefore no basis for the award of speculative damages in favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed
much more than what was expected of him. In this case, however, there was mutual breach.
Private respondent failed to give his entire contribution in the amount of P15,000.00. He
contributed only P10,000.00. The petitioner likewise failed to give any of the amount expected
of him. He further failed to comply with the agreement to print 95,000 copies of the posters.
Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides: têñ.£îhqwâ£
The losses and profits shall be distributed in conformity with the agreement. If only the share
of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.
Being a contract of partnership, each partner must share in the profits and losses of the
venture. That is the essence of a partnership. And even with an assurance made by one of the
partners that they would earn a huge amount of profits, in the absence of fraud, the other
partner cannot claim a right to recover the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. In this case, on an investment of P15,000.00, the
respondent was supposed to earn a guaranteed P1,000.00 a month for eight months and
around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which were sold at
P5.00 each. The fantastic nature of expected profits is obvious. We have to take various factors
into account. The failure of the Commission on Elections to proclaim all the 320 candidates of
the Constitutional Convention on time was a major factor. The petitioner undesirable his best
business judgment and felt that it would be a losing venture to go on with the printing of the
agreed 95,000 copies of the posters. Hidden risks in any business venture have to be
considered.
It does not follow however that the private respondent is not entitled to recover any amount
from the petitioner. The records show that the private respondent gave P10,000.00 to the
petitioner. The latter used this amount for the printing of 2,000 posters at a cost of P2.00 per
poster or a total printing cost of P4,000.00. The records further show that the 2,000 copies
were sold at P5.00 each. The gross income therefore was P10,000.00. Deducting the printing
costs of P4,000.00 from the gross income of P10,000.00 and with no evidence on the cost of
distribution, the net profits amount to only P6,000.00. This net profit of P6,000.00 should be
divided between the petitioner and the private respondent. And since only P4,000.00 was
undesirable by the petitioner in printing the 2,000 copies, the remaining P6,000.00 should
therefore be returned to the private respondent.
Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as
Pecson's supposed commission has no justifiable basis in law.
17 | P a g e
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the private respondent a
monthly commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight
(8) monthly commissions. The agreement does not state the basis of the commission. The
payment of the commission could only have been predicated on relatively extravagant profits.
The parties could not have intended the giving of a commission inspite of loss or failure of the
venture. Since the venture was a failure, the private respondent is not entitled to the P8,000.00
commission.
Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals
erred in holding him liable to the private respondent in the sum of P7,000.00 as a supposed
return of investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed return of investment in the
"Voice of the Veterans" magazine venture, the respondent court ruled that: têñ.£îhqwâ£
xxx xxx xxx
... Moran admittedly signed the promissory note of P20,000 in favor of Pecson. Moran does
not question the due execution of said note. Must Moran therefore pay the amount of
P20,000? The evidence indicates that the P20,000 was assigned by Moran to cover the
following: têñ.£îhqwâ£
(a) P 7,000 — the amount of the PNB check given by Pecson to Moran representing Pecson's
investment in Moran's other project (the publication and printing of the 'Voice of the
Veterans');
(b) P10,000 — to cover the return of Pecson's contribution in the project of the Posters;
(c) P3,000 — representing Pecson's commission for three months (April, May, June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the Veterans'
project, for this project never left the ground) ...
As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be
reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out
by the record or are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA
332). However, this rule admits of certain exceptions. Thus, in Carolina Industries Inc. v. CMS
Stock Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review
and rectify the findings of fact of the Court of Appeals when (1) the conclusion is a finding
grounded entirely on speculation, surmises and conjectures; (2) when the inference made is
manifestly mistaken absurd and impossible; (3) where there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; and (5) when the court, in making
its findings, went beyond the issues of the case and the same are contrary to the admissions
of both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private respondent himself
shows that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The
remaining P4,000.00 was the amount of profit that the private respondent expected to receive.
The records show the following exhibits- têñ.£îhqwâ£
E — Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor of
defendant. Defendant admitted the authenticity of this check and of his receipt of the
proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being offered for the purpose
of showing plaintiff's capital investment in the printing of the "Voice of the Veterans" for which
he was promised a fixed profit of P8,000. This investment of P6,000.00 and the promised profit
of P8,000 are covered by defendant's promissory note for P14,000 dated March 31, 1971
marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff as Exhibit
P. Later, defendant returned P3,000.00 of the P6,000.00 investment thereby proportionately
reducing the promised profit to P4,000. With the balance of P3,000 (capital) and P4,000
(promised profit), defendant signed and executed the promissory note for P7,000 marked
Exhibit 3 for the defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000
representing full return of the capital investment and P1,000 partial payment of the promised
profit. The P3,000 balance of the promised profit was made part consideration of the P20,000
promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore, being presented to show the
consideration for the P20,000 promissory note.
F — Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of defendant.
The authenticity of the check and his receipt of the proceeds thereof were admitted by the
defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and in cash, of the
P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972), and it is being presented to show the
consideration for the P20,000 note and the existence and validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being offered for the purpose of showing the
subject matter of the other partnership agreement and in which plaintiff invested the P6,000
(Exhibit E) which, together with the promised profit of P8,000 made up for the consideration
of the P14,000 promissory note (Exhibit 2; Exhibit P). As explained in connection with Exhibit
E. the P3,000 balance of the promised profit was later made part consideration of the P20,000
promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit E. This
document is being offered for the purpose of further showing the transaction as explained in
connection with Exhibits E and L.
18 | P a g e
N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his capital
investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P). This is also
defendant's Exhibit 4. This document is being offered in support of plaintiff's explanation in
connection with Exhibits E, L, and M to show the transaction mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered for the
purpose of showing the transaction as explained in connection with Exhibits E, L, M, and N
above.
Explaining the above-quoted exhibits, respondent Pecson testified that: têñ.£îhqwâ£
Q During the pre-trial of this case, Mr. Pecson, the defendant presented a promissory note in
the amount of P14,000.00 which has been marked as Exhibit 2. Do you know this promissory
note?
A Yes, sir.
Q What is this promissory note, in connection with your transaction with the
defendant?
A This promissory note is for the printing of the "Voice of the Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
A It is a book.têñ.£îhqwâ£
(T.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00 indicated in the promissory note, Exhibit
2, represent?
A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the Philippine
National Bank Manager's check and the P8,000.00 profit assured me by Mr. Moran which I will
derive from the printing of this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is covered by, a Manager's check. I show you
Exhibit E, is this the Manager's check that mentioned?
A Yes, sir.
Q What happened to this promissory note of P14,000.00 which you said represented P6,000.00
of your investment and P8,000.00 promised profits?

A Latter, Mr. Moran returned to me P3,000.00 which represented one-half (1/2) of the
P6,000.00 capital I gave to him.
Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00 capital you
gave to him, what happened to the promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in connection with the Balance of
P3,000.00 of your capital investment and the P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of P7,000.00 dated March 30, 1971 which for
purposes of Identification I request the same to be marked as Exhibit M. . .
Court têñ.£îhqwâ£
Mark it as Exhibit M.
Q (continuing) is this the promissory note which you said was executed by Mr. Moran in
connection with your transaction regarding the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the promissory note.
Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of P4,000.00 on account of the P7,000.00
covered by the promissory note, Exhibit M. What does this P4,000.00 covered by Exhibit N
represent?
A This P4,000.00 represents the P3,000.00 which he has returned of my P6,000.00 capital
investment and the P1,000.00 represents partial payment of the P4,000.00 profit that was
promised to me by Mr. Moran.
19 | P a g e
Q And what happened to the balance of P3,000.00 under the promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit was applied as part of the consideration
of the promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never left the ground because
the project did take place. Only it failed. It was the private respondent himself who presented
a copy of the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore,
it would be error to state that the project never took place and on this basis decree the return
of the private respondent's investment.
As already mentioned, there are risks in any business venture and the failure of the
undertaking cannot entirely be blamed on the managing partner alone, specially if the latter
exercised his best business judgment, which seems to be true in this case. In view of the
foregoing, there is no reason to pass upon the fourth and fifth assignments of errors raised by
the petitioner. We likewise find no valid basis for the grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the
petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND
(P6,000.00) PESOS representing the amount of the private respondent's contribution to the
partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS
representing one half (1/2) of the net profits gained by the partnership in the sale of the two
thousand (2,000) copies of the posters, with interests at the legal rate on both amounts from
the date the complaint was filed until full payment is made.
SO ORDERED.1äwphï1.ñët
Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.
De la Fuente J., took no part.
EN BANC
G.R. No. L-13680 April 27, 1960
MAURO LOZANA, plaintiff-appellee,
vs.
SERAFIN DEPAKAKIBO, defendant-appellant.
Antonio T. Lozada for appellee.
Agustin T. Misola and Tomas D. Dominado for appellant.
LABRADOR, J.:
This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us by the
Court of Appeals, for the reason that only questions of law are involved in said appeal.
The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a contract
with defendant Serafin Depakakibo wherein they established a partnership capitalized at the
sum of P30,000, plaintiff furnishing 60% thereof and the defendant, 40%, for the purpose of
maintaining, operating and distributing electric light and power in the Municipality of
Dumangas, Province of Iloilo, under a franchise issued to Mrs. Piadosa Buenaflor. However,
the franchise or certificate of public necessity and convenience in favor of the said Mrs. Piadosa
Buenaflor was cancelled and revoked by the Public Service Commission on May 15, 1955. But
the decision of the Public Service Commission was appealed to Us on October 21, 1955. A
temporary certificate of public convenience was issued in the name of Olimpia D. Decolongon
on December 22, 1955 (Exh. "B"). Evidently because of the cancellation of the franchise in the
name of Mrs. Piadosa Buenaflor, plaintiff herein Mauro Lozana sold a generator, Buda (diesel),
75 hp. 30 KVA capacity, Serial No. 479, to the new grantee Olimpia D. Decolongon, by a deed
dated October 30, 1955 (Exhibit "C"). Defendant Serafin Depakakibo, on the other hand, sold
one Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the spouses Felix Jimenea and Felina
Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant,
alleging that he is the owner of the Generator Buda (Diesel), valued at P8,000 and 70 wooden
posts with the wires connecting the generator to the different houses supplied by electric
current in the Municipality of Dumangas, and that he is entitled to the possession thereof, but
that the defendant has wrongfully detained them as a consequence of which plaintiff suffered
damages. Plaintiff prayed that said properties be delivered back to him. Three days after the
filing of the complaint, that is on November 18, 1955, Judge Pantaleon A. Pelayo issued an
order in said case authorizing the sheriff to take possession of the generator and 70 wooden
posts, upon plaintiff's filing of a bond in the amount of P16,000 in favor of the defendant (for
subsequent delivery to the plaintiff). On December 5, 1955, defendant filed an answer, denying
that the generator and the equipment mentioned in the complaint belong to the plaintiff and
alleging that the same had been contributed by the plaintiff to the partnership entered into
between them in the same manner that defendant had contributed equipments also, and
therefore that he is not unlawfully detaining them. By way of counterclaim, defendant alleged
that under the partnership agreement the parties were to contribute equipments, plaintiff
contributing the generator and the defendant, the wires for the purpose of installing the main
and delivery lines; that the plaintiff sold his contribution to the partnership, in violation of the
terms of their agreement. He, therefore, prayed that the complaint against him be dismissed;
that plaintiff be adjudged guilty of violating the partnership contract and be ordered to pay
the defendant the sum of P3,000, as actual damages, P600.00 as attorney's fees and P2,600
annually as actual damages; that the court order dissolution of the partnership, after the
accounting and liquidation of the same.
On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his
counterclaim, but this was denied by the court. Hearings on the case were conducted on
20 | P a g e
October 25, 1956 and November 5, 1956, and on the latter date the judge entered a decision
declaring plaintiff owner of the equipment and entitled to the possession thereof, with costs
against defendant. It is against this judgment that the defendant has appealed.
The above judgment of the court was rendered on a stipulation of facts, which is as follows:
1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff, and the
defendant entered into a contract of Partnership, a copy of which is attached as Annex "A" of
defendant's answer and counterclaim, for the purpose set forth therein and under the national
franchise granted to Mrs. Piadosa Buenaflor;
2. That according to the aforementioned Partnership Contract, the plaintiff Mr. Mauro Lozana,
contributed the amount of Eighteen Thousand Pesos (P18,000.00); said contributions of both
parties being the appraised values of their respective properties brought into the partnership;
3. That the said Certificate of Public Convenience and Necessity was revoked and cancelled by
order of the Public Service Commission dated March 15, 1955, promulgated in case No. 58188,
entitled, "Piadosa Buenaflor, applicant", which order has been appealed to the Supreme Court
by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold properties brought into by him to the said
partnership in favor of Olimpia Decolongon in the amount of P10,000.00 as per Deed of Sale
dated October 30, 1955 executed and ratified before Notary Public, Delfin Demaisip, in and for
the Municipality of Dumangas, Iloilo and entered in his Notarial Registry as Doc. No. 832; Page
No. 6; Book No. XIII; and Series of 1955, a copy thereof is made as Annex "B" of defendant's
answer and counterclaim;
5. That there was no liquidation of partnership and that at the time of said Sale on October 30,
1955, defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court dated November 18, 1955, those
properties sold were taken by the Provincial Sheriff on November 20, 1955 and delivered to
the plaintiff on November 25, 1955 upon the latter posting the required bond executed by
himself and the Luzon Surety Co., dated November 17, 1955 and ratified before the Notary
Public, Eleuterio del Rosario in and for the province of Iloilo known as Doc. No. 200; Page 90;
Book No. VII; and Series of 1955; of said Notary Public;
7. That the said properties sold are now in the possession of Olimpia Decolongon, the
purchaser, who is presently operating an electric light plant in Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea and Felisa
Harder contributed by him to the partnership for P3,500.00 as per Deed of Sale executed and
ratified before the Notary Public Rodrigo J. Harder in and for the Province of Iloilo, known as
Doc. No. 76; Page 94; Book No. V; and Series of 1955, a certified copy of which is hereto
attached marked as Annex "A", and made an integral part hereof; (pp, 27-29 ROA).
As it appears from the above stipulation of facts that the plaintiff and the defendant entered
into the contract of partnership, plaintiff contributing the amount of P18,000, and as it is not
stated therein that there bas been a liquidation of the partnership assets at the time plaintiff
sold the Buda Diesel Engine on October 15, 1955, and since the court below had found that
the plaintiff had actually contributed one engine and 70 posts to the partnership, it necessarily
follows that the Buda diesel engine contributed by the plaintiff had become the property of
the partnership. As properties of the partnership, the same could not be disposed of by the
party contributing the same without the consent or approval of the partnership or of the other
partner. (Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of partnership was null and void, because by the
contract of partnership, the parties thereto have become dummies of the owner of the
franchise. The reason for this holding was the admission by defendant when being cross-
examined by the court that he and the plaintiff are dummies. We find that this admission by
the defendant is an error of law, not a statement of a fact. The Anti-Dummy law has not been
violated as parties plaintiff and defendant are not aliens but Filipinos. The Anti-Dummy law
refers to aliens only (Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially the provision thereon wherein the
parties agreed to maintain, operate and distribute electric light and power under the franchise
belonging to Mrs. Buenaflor, we do not find the agreement to be illegal, or contrary to law and
public policy such as to make the contract of partnership, null and void ab initio. The
agreement could have been submitted to the Public Service Commission if the rules of the
latter require them to be so presented. But the fact of furnishing the current to the holder of
the franchise alone, without the previous approval of the Public Service Commission, does not
per se make the contract of partnership null and void from the beginning and render the
partnership entered into by the parties for the purpose also void and non-existent. Under the
circumstances, therefore, the court erred in declaring that the contract was illegal from the
beginning and that parties to the partnership are not bound therefor, such that the
contribution of the plaintiff to the partnership did not pass to it as its property. It also follows
that the claim of the defendant in his counterclaim that the partnership be dissolved and its
assets liquidated is the proper remedy, not for each contributing partner to claim back what
he had contributed.
For the foregoing considerations, the judgment appealed from as well as the order of the court
for the taking of the property into custody by the sheriff must be, as they hereby are set aside
and the case remanded to the court below for further proceedings in accordance with law.
Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Concepcion, Endencia, Barrera and
Gutierrez David, JJ., concur.
21 | P a g e
SECOND DIVISION
G.R. No. L-19819 October 26, 1977
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.
R.P. Sarandi for appellant.
Jose L. Uy & Andres P. Salvador for appellee.
CONCEPCION JR., J.
Appeal from the decision of the Court of First Instanre of Manila, dissolving the "U.P.
Construction Company" and ordering the defendant Bartolome Puzon to pay the plaintiff the
amounts of: (1) P115,102.13, with legal interest thereon from the date of the filing of the
complaint until fully paid; (2) P200,000.00, as plaintiffs share in the unrealized profits of the
"U.P. Construction Company" and (3) P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon had a contract with the Republic of the
Philippines for the construction of the Ganyangan Bato Section of the Pagadian Zamboanga
City Road, province of Zamboanga del Sur 1 and of five (5) bridges in the Malangas-Ganyangan
Road. 2 Finding difficulty in accomplishing both projects, Bartolome Puzon sought the financial
assistance of the plaintiff, William Uy. As an inducement, Puzon proposed the creation of a
partnership between them which would be the sub-contractor of the projects and the profits
to be divided equally between them. William Uy inspected the projects in question and,
expecting to derive considerable profits therefrom, agreed to the proposition, thus resulting
in the formation of the "U.P. Construction Company" 3 which was subsequently engaged as
subcontractor of the construction projects. 4
The partners agreed that the capital of the partnership would be P100,000.00 of which each
partner shall contribute the amount of P50,000.00 in cash. 5 But, as heretofore stated, Puzon
was short of cash and he promised to contribute his share in the partnership capital as soon as
his application for a loan with the Philippine National Bank in the amount of P150,000.00 shall
have been approved. However, before his loan application could be acted upon, he had to
clear his collaterals of its incumbrances first. For this purpose, on October 24, 1956, Wilham
Uy gave Bartolome Puzon the amount of P10,000.00 as advance contribution of his share in
the partnership to be organized between them under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be used by Puzon to pay his obligations with
the Philippine National Bank to effect the release of his mortgages with the said Bank. 6 On
October 29, 1956, William Uy again gave Puzon the amount of P30,000.00 as his partial
contribution to the proposed partnership and which the said Puzon was to use in payment of
his obligation to the Rehabilitation Finance Corporation. 7 Puzon promised William Uy that the
amount of P150,000.00 would be given to the partnership to be applied thusly: P40,000.00, as
reimbursement of the capital contribution of William Uy which the said Uy had advanced to
clear the title of Puzon's property; P50,000.00, as Puzon's contribution to the partnership; and
the balance of P60,000.00 as Puzon's personal loan to the partnership. 8

Although the partnership agreement was signed by the parties on January 18, 1957,9 work on
the projects was started by the partnership on October 1, 1956 in view of the insistence of the
Bureau of Public Highways to complete the project right away. 10 Since Puzon was busy with
his other projects, William Uy was entrusted with the management of the projects and
whatever expense the latter might incur, would be considered as part of his contribution. 11
At the end of December, 1957, William Uy had contributed to the partnership the amount of
P115,453.39, including his capital. 12
The loan of Puzon was approved by the Philippine National Bank in November, 1956 and he
gave to William Uy the amount of P60,000.00. Of this amount, P40,000.00 was for the
reimbursement of Uy's contribution to the partnership which was used to clear the title to
Puzon's property, and the P20,000.00 as Puzon's contribution to the partnership capital. 13
To guarantee the repayment of the above-mentioned loan, Bartolome Puzon, without the
knowledge and consent of William Uy, 14 assigned to the Philippine National Bank all the
payments to be received on account of the contracts with the Bureau of Public Highways for
the construction of the afore-mentioned projects. 15 By virtue of said assignment, the Bureau
of Public Highways paid the money due on the partial accomplishments on the government
projects in question to the Philippine National Bank which, in turn, applied portions of it in
payment of Puzon's loan. Of the amount of P1,047,181.07, released by the Bureau of Public
Highways in payment of the partial work completed by the partnership on the projects, the
amount of P332,539.60 was applied in payment of Puzon's loan and only the amount of
P27,820.80 was deposited in the partnership funds, 16 which, for all practical purposes, was
also under Puzon's account since Puzon was the custodian of the common funds.
As time passed and the financial demands of the projects increased, William Uy, who
supervised the said projects, found difficulty in obtaining the necessary funds with which to
pursue the construction projects. William Uy correspondingly called on Bartolome Puzon to
comply with his obligations under the terms of their partnership agreement and to place, at
lest, his capital contribution at the disposal of the partnership. Despite several promises,
Puzon, however, failed to do so. 17 Realizing that his verbal demands were to no avail, William
Uy consequently wrote Bartolome Puzon pormal letters of demand, 18 to which Puzon replied
that he is unable to put in additional capital to continue with the projects. 19
Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of the
construction projects, wrote the subcontractor, U.P. Construction Company, on November 20,
1957, advising the partnership, of which he is also a partner, that unless they presented an
immediate solution and capacity to prosecute the work effectively, he would be constrained
to consider the sub-contract terminated and, thereafter, to assume all responsibilities in the
construction of the projects in accordance with his original contract with the Bureau of Public
Highways. 20 On November 27, 1957, Bartolome Puzon again wrote the U.P.Construction
Company finally terminating their subcontract agreement as of December 1, 1957. 21
22 | P a g e
Thereafter, William Uy was not allowed to hold office in the U.P. Construction Company and
his authority to deal with the Bureau of Public Highways in behalf of the partnership was
revoked by Bartolome Puzon who continued with the construction projects alone. 22
On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the terms of their
partnership agreement, instituted an action in court, seeking, inter alia, the dissolution of the
partnership and payment of damages.
Answering, Bartolome Puzon denied that he violated the terms of their agreement claiming
that it was the plaintiff, William Uy, who violated the terms thereof. He, likewise, prayed for
the dissolution of the partnership and for the payment by the plaintiff of his, share in the losses
suffered by the partnership.
After appropriate proceedings, the trial court found that the defendant, contrary to the terms
of their partnership agreement, failed to contribute his share in the capital of the partnership
applied partnership funds to his personal use; ousted the plaintiff from the management of
the firm, and caused the failure of the partnership to realize the expected profits of at least
P400,000.00. As a consequence, the trial court dismissed the defendant's counterclaim and
ordered the dissolution of the partnership. The trial court further ordered the defendant to
pay the plaintiff the sum of P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the
appeal before this Court, the said Bartolome Puzon died, and was substituted by Franco Puzon.
The appellant makes in his brief nineteen (19) assignment of errors, involving questions of fact,
which relates to the following points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order to pay the appellee is not
supported by the evidence and the law.
After going over the record, we find no reason for rejecting the findings of fact below, justifying
the reversal of the decision appealed from.
The findings of the trial court that the appellant failed to contribute his share in the capital of
the partnership is clear incontrovertible. The record shows that after the appellant's loan the
amount of P150,000.00 was approved by the Philippin National Bank in November, 1956, he
gave the amount P60,000.00 to the appellee who was then managing the construction
projects. Of this amount, P40,000.00 was to be applied a reimbursement of the appellee's
contribution to the partnership which was used to clear the title to the appellant's property,
and th balance of P20,000.00, as Puzon's contribution to the partnership. 23 Thereafter, the
appellant failed to make any further contributions the partnership funds as shown in his letters
to the appellee wherein he confessed his inability to put in additional capital to continue with
the projects. 24
Parenthetically, the claim of the appellant that the appellee is equally guilty of not contributing
his share in the partnership capital inasmuch as the amount of P40,000.00, allegedly given to
him in October, 1956 as partial contribution of the appellee is merely a personal loan of the
appellant which he had paid to the appellee, is plainly untenable. The terms of the receipts
signed by the appellant are clear and unequivocal that the sums of money given by the
appellee are appellee's partial contributions to the partnership capital. Thus, in the receipt for
P10,000.00 dated October 24, 1956, 25 the appellant stated:ñé+.£ªwph!1
Received from Mr. William Uy the sum of TEN THOUSAND PESOS (P10,000.00) in Check No. SC
423285 Equitable Banking Corporation, dated October 24, 1956, as advance contribution of
the share of said William Uy in the partnership to be organized between us under the firm
name U.P. CONSTRUCTION COMPANY which amount mentioned above will be used by the
undersigned to pay his obligations with the Philippine National Bank to effect the release of
his mortgages with the said bank. (Emphasis supplied)
In the receipt for the amount of P30,000.00 dated October 29, 1956, 26 the appellant also
said:ñé+.£ªwph!1
Received from William Uy the sum of THIRTY THOUSAND PESOS (P30,000.00) in Check No.
SC423287, of the Equitable Banking Corporation, as partial contribution of the share of the
said William Uy to the U.P. CONSTRUCTION COMPANY for which the undersigned will use the
said amount in payment of his obligation to the Rehabilitation Finance Corporation. (Emphasis
supplied)
The findings of the trial court that the appellant misapplied partnership funds is, likewise,
sustained by competent evidence. It is of record that the appellant assigned to the Philippine
National Bank all the payments to be received on account of the contracts with the Bureau of
Public Highways for the construction of the aforementioned projects to guarantee the
repayment of the bank. 27 By virtue of the said appeflant's personal loan with the said bank
assignment, the Bureau of Public Highways paid the money due on the partial
accomplishments on the construction projects in question to the Philippine National Bank who,
in turn, applied portions of it in payment of the appellant's loan. 28
The appellant claims, however, that the said assignment was made with the consent of the
appellee and that the assignment not prejudice the partnership as it was reimbursed by the
appellant.
But, the appellee categorically stated that the assignment to the Philippine National Bank was
made without his prior knowledge and consent and that when he learned of said assignment,
he cal the attention of the appellant who assured him that the assignment was only temporary
23 | P a g e
as he would transfer the loan to the Rehabilitation Finance Corporation within three (3)
months time. 29
The question of whom to believe being a matter large dependent on the trier's discretion, the
findings of the trial court who had the better opportunity to examine and appraise the fact
issue, certainly deserve respect.
That the assignment to the Philippine National Bank prejudicial to the partnership cannot be
denied. The record show that during the period from March, 1957 to September, 1959, the
appellant Bartolome Puzon received from the Bureau of Public highways, in payment of the
work accomplished on the construction projects, the amount of P1,047,181.01, which amount
rightfully and legally belongs to the partnership by virtue of the subcontract agreements
between the appellant and the U.P. Construction Company. In view of the assignemt made by
Puzon to the Philippine National Bank, the latter withheld and applied the amount of
P332,539,60 in payment of the appellant's personal loan with the said bank. The balance was
deposited in Puzon's current account and only the amount of P27,820.80 was deposited in the
current account of the partnership. 30 For sure, if the appellant gave to the partnership all that
were eamed and due it under the subcontract agreements, the money would have been used
as a safe reserve for the discharge of all obligations of the firm and the partnership would have
been able to successfully and profitably prosecute the projects it subcontracted.
When did the appellant make the reimbursement claimed by him?
For the same period, the appellant actually disbursed for the partnership, in connection with
the construction projects, the amount of P952,839.77. 31 Since the appellant received from
the Bureau of Public Highways the sum of P1,047,181.01, the appellant has a deficit balance
of P94,342.24. The appellant, therefore, did not make complete restitution.
The findings of the trial court that the appellee has been ousted from the management of the
partnership is also based upon persuasive evidence. The appellee testified that after he had
demanded from the appellant payment of the latter's contribution to the partnership capital,
the said appellant did not allow him to hold office in the U.P. Construction Company and his
authority to deal with the Bureau of Public Highways was revoked by the appellant. 32
As the record stands, We cannot say, therefore, that the decis of the trial court is not sustained
by the evidence of record as warrant its reverw.
Since the defendantappellant was at fauh, the tral court properly ordered him to reimburse
the plaintiff-appellee whatever amount latter had invested in or spent for the partnership on
account of construction projects.
How much did the appellee spend in the construction projects question?
It appears that although the partnership agreement stated the capital of the partnership is
P100,000.00 of which each part shall contribute to the partnership the amount of P50,000.00
cash 33 the partners of the U.P. Construction Company did contribute their agreed share in
the capitalization of the enterprise in lump sums of P50,000.00 each. Aside from the initial
amount P40,000.00 put up by the appellee in October, 1956, 34 the partners' investments
took, the form of cash advances coveting expenses of the construction projects as they were
incurred. Since the determination of the amount of the disbursements which each of them had
made for the construction projects require an examination of the books of account, the trial
court appointed two commissioners, designated by the parties, "to examine the books of
account of the defendant regarding the U.P. Construction Company and his personal account
with particular reference to the Public Works contract for the construction of the Ganyangan-
Bato Section, Pagadian-Zamboanga City Road and five (5) Bridges in Malangas-Ganyangan
Road, including the payments received by defendant from the Bureau of Public Highways by
virtue of the two projects above mentioned, the disbursements or disposition made by
defendant of the portion thereof released to him by the Philippine National Bank and in whose
account these funds are deposited . 35
In due time, the loners so appointed, 36 submitted their report 37 they indicated the items
wherein they are in agreement, as well as their points of disagreement.
In the commissioners' report, the appellant's advances are listed under Credits; the money
received from the firm, under Debits; and the resulting monthly investment standings of the
partners, under Balances. The commissioners are agreed that at the end of December, 1957,
the appellee had a balance of P8,242.39. 38 It is in their respective adjustments of the capital
account of the appellee that the commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge the appellee with the sum of
P24,239.48, representing the checks isssued by the appellant, 39 and encashed by the appellee
or his brother, Uy Han so that the appellee would owe the partnership the amount of
P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee the
following additional amounts:
(1) P7,497.80 — items omitted from the books of partnership but recognized and
charged to Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 — payrolls paid by the appellee in the amount P128,103.77 less payroll
remittances from the appellant in amount of P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee at construction site.
With respect to the amount of P24,239.48, claimed by appellant, we are hereunder adopting
the findings of the trial which we find to be in accord with the evidence:
24 | P a g e
To enhance defendant's theory that he should be credited P24,239.48, he presented checks
allegedly given to plaintiff and the latter's brother, Uy Han, marked as Exhibits 2 to 11.
However, defendant admitted that said cheeks were not entered nor record their books of
account, as expenses for and in behalf of partnership or its affairs. On the other hand, Uy Han
testified that of the cheeks he received were exchange for cash, while other used in the
purchase of spare parts requisitioned by defendant. This testimony was not refuted to the
satisfaction of the Court, considering that Han's explanation thereof is the more plausible
because if they were employed in the prosecution of the partners projects, the corresponding
disbursements would have certainly been recorded in its books, which is not the case. Taking
into account defendant is the custodian of the books of account, his failure to so enter therein
the alleged disbursements, accentuates the falsity of his claim on this point. 40
Besides, as further noted by the trial court, the report Commissioner Ablaza is unreliable in
view of his proclivity to favor the appellant and because of the inaccurate accounting
procedure adopted by him in auditing the books of account of the partnership unlike Mr.
Tayag's report which inspires faith and credence. 41
As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the appellee
out of his personal funds which not been entered in the books of the partnership but which
been recognized and conceded to by the auditor designated by the appellant who included the
said amount under Expenses. 42
The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is likewise clear
and convincing. 43
As for the sum of of P26,027.04, the same represents the expenses which the appelle paid in
connection withe the projects and not entered in the books of the partnership since all
vouchers and receipts were sent to the Manila office which were under the control of the
appellant. However, officer which were under the control of the appellant. However, a list of
these expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ-4.
In resume', the appelllee's credit balance would be as follows:
ñé+.£ªwph!1
Undisputed balance as of Dec. 1967
Add: Items omitted from the books but
P 8,242.
recognized and charged to Miscellaneous
Expenses by Mr. Ablaza
7,497.80
Add: Payrolls paid by the appellee
P128,103.77
Less: Payroll remittances received
63,000.00 This argument must be overruled in the light of the law and evidence on the matter. Under
65,103.77 Article 2200 of the Civil Code, indemnification for damages shall comprehend not only the
Add: Other expenses incurred at the value of the loss suffered, but also that of the profits which the obligee failed to obtain. In
other words lucrum cessans is also a basis for indemnification.
site (Exhs, ZZ, ZZ-1 to ZZ-4)
Has the appellee failed to make profits because of appellant's breach of contract?
26,027.04
TOTAL There is no doubt that the contracting business is a profitable one and that the U.P.
Construction Company derived some profits from' co io oa ects its sub ntracts in the
P106,871.00 construction of the road and bridges projects its deficient working capital and the juggling of
its funds by the appellant.
At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00 which
he also advanced for the construction projects but which were not included in the Contrary to the appellant's claim, the partnership showed some profits during the period from
Commissioner's Report. 44 July 2, 1956 to December 31, 1957. If the Profit and Loss Statement 45 showed a net loss of
P134,019.43, this was primarily due to the confusing accounting method employed by the
Appellee's total investments in the partnership would, therefore, be: auditor who intermixed h and accthe cas ruamethod of accounting and the erroneous inclusion
of certain items, like personal expenses of the appellant and afteged extraordinary losses due
Appellee's total credits to an accidental plane crash, in the operating expenses of the partnership, Corrected, the Profit
and Loss Statement would indicate a net profit of P41,611.28.
P106,871.00
For the period from January 1, 1958 to September 30, 1959, the partnership admittedly made
Add: unrecorded balances for the month of Dec. 1957 (Exhs. KKK, KK-1 to KKK_19, KKK-22) a net profit of P52,943.89. 46

3,917,39 Besides, as We have heretofore pointed out, the appellant received from the Bureau of Public
Highways, in payment of the zonstruction projects in question, the amount of P1,047,181.01
Add: Payments to Munoz, as subcontractor of five,(5) Bridges (p. 264 tsn; Exhs. KKK-20, KKK- 47 and disbursed the amount of P952,839.77, 48 leaving an unaccounted balance of
21) P94,342.24. Obviously, this amount is also part of the profits of the partnership.

4,665.00
Total Investments
Pl 15,453.39
Regarding the award of P200,000.00 as his share in the unrealized profits of the partnership,
the appellant contends that the findings of the trial court that the amount of P400,000.00 as
reasonable profits of the partnership venture is without any basis and is not supported by the
evidence. The appemnt maintains that the lower court, in making its determination, did not
take into consideration the great risks involved in business operations involving as it does the
completion of the projects within a definite period of time, in the face of adverse and often
unpredictable circumstances, as well as the fact that the appellee, who was in charge of the
projects in the field, contributed in a large measure to the failure of the partnership to realize
such profits by his field management.
During the trial of this case, it was discovered that the appellant had money and credits
receivable froin the projects in question, in the custody of the Bureau of Public Highways, in
the amount of P128,669.75, representing the 10% retention of said projects.49 After the trial
of this case, it was shown that the total retentions Wucted from the appemnt amounted to
P145,358.00. 50 Surely, these retained amounts also form part of the profits of the
partnership.
Had the appellant not been remiss in his obligations as partner and as prime contractor of the
construction projects in question as he was bound to perform pursuant to the partnership and
subcontract agreements, and considering the fact that the total contract amount of these two
projects is P2,327,335.76, it is reasonable to expect that the partnership would have earned
much more than the P334,255.61 We have hereinabove indicated. The award, therefore, made
by the trial court of the amount of P200,000.00, as compensatory damages, is not speculative,
but based on reasonable estimate.

25 | P a g e
WHEREFORE, finding no error in the decision appealed from, the said decision is hereby
affirmed with costs against the appellant, it being understood that the liability mentioned
herein shall be home by the estate of the deceased Bartolome Puzon, represented in this
instance by the administrator thereof, Franco Puzon.
SO ORDERED.
Fernando (Chairman), Barredo, Antonio and Santos, JJ., concur.1äwphï1.ñët
Aquino, J., concurs in the result.
EN BANC
G.R. No. L-14617 February 18, 1920
R. Y. HANLON, plaintiff-appellee,
vs.
JOHN W. HAUSSERMANN and A. W. BEAM, defendants-appellants.
GEORGE C. SELLNER, intervener.
Cohn and Fisher for appellants.
Thomas D. Aitken and Gibbs, McDonough and Johnson for appellees.
STREET, J.:
This action was originally instituted by R. Y. Hanlon to compel the defendants, John W.
Haussermann and A. W. Beam, to account for a share of the profits gained by them in
rehabilitating the plant of the Benguet Consolidated Mining Company and in particular to
compel them to surrender to the plaintiff 50,000 shares of the stock of said company, with
dividends paid thereon. A few days after the action was begun G. C. Sellner was permitted to
intervene in like interest with Hanlon and to the same extent. Thereafter the case was
conducted in all respects as if Hanlon and Sellner had been co-plaintiffs from the beginning. At
the hearing judgment was rendered requiring the defendants to surrender to Hanlon and
Sellner respectively 24,000 shares each of the stock of said company, and to pay the dividends
declared and paid on said stock for the years 1916 and 1917. From this judgment the
defendants appealed.
The controlling features of this controversy are disclosed in documentary evidence, and the
other facts necessary to a proper understanding of the case are stated in the narrative part of
the opinion of the trial judge. As both parties to the appeal agree that his statement of facts is
substantially correct, we adopt his findings of fact as the basis of our own statement, with such
transposition, omissions, and additions as seen desirable for the easier comprehension of the
case.
The Benguet Consolidated Mining Company is a corporation which was organized in 1903 with
an authorized capital stock of one million dollars, of the par value of one dollar per share, of
which stock 499,000 shares had been issued prior to November 1913, and 501,000 shares then
26 | P a g e
remained in the treasury as unissued stock. The par value of the shares was changed to one
peso per share after the organization of the corporation.
In the year 1909 the milling plant of said company, situated near Baguio in the subprovince of
Benguet, Philippine Islands upon a partially developed quartz mine, was badly damaged and
partly destroyed by high water, and in 1911 it was completely destroyed by like causes. The
company was thereafter without working capital, and without credit, and therefore unable to
rebuild the plant.
In October and November 1913, and for a long time prior thereto, the defendant John W.
Haussermann and A. W. Beam were shareholders in said mining company and members of its
board of directors, and were at said time vice-president and secretary-treasurer, respectively,
of said company.
In October, 1913, the plaintiff R. Y. Hanlon, an experienced mining engineer, upon the
solicitation of the defendant Beam, presented to the board of directors of the Benguet
Consolidated Mining Company a proposition for the rehabilitation of the company, and asked
an option for thirty days within which to thoroughly examine the property; which proposition,
with certain amendments, was finally accepted by said company; and thereafter, on November
6, 1913, within the option period, the terms of that proposition and acceptance were
incorporated in a written contract between the plaintiff and the company, in which the said
company acted by and through the defendant John W. Haussermann as vice-president and the
defendant A. W. Beam as secretary. In this contract it appears that for and in consideration of
the issuance and delivery to said Hanlon or to his order of the 501,000 shares of the unissued
capital stock of said mining company, the said Hanlon undertook, promised, and agreed to do
or cause to be done sufficient development work on the mining properties of said company to
enable the company to mine and take out not less than sixty tons of ore per day, and to give
an extraction of not less than 85 per cent of the gold content of the ore; and the terms and
conditions upon which said undertaking was based may be briefly stated as follows: (1) said
Hanlon was to pay into the treasury of the mining company the sum of P75,000 in cash within
six months from that date; (2) upon the payment of said P75,000 in cash there was to be issued
and delivered to said Hanlon or to his order 250,000 shares of said unissued stock; (3)
prescribing the purposes for which said P75,000 should be disbursed by said mining company
upon the order of said Hanlon; (4) providing for raising an additional sum of P75,000 by
obtaining a loan in the name of said mining company upon the security of its properties and
assets, such additional indebtedness to be paid and discharged within eighteen months from
date of said agreement; (5) providing for the payment of the then indebtedness of said mining
company amounting to P13,105.08; (6) providing for the distribution of the net earnings after
the payment of the indebtedness mentioned in paragraphs 4 and 5; (7) providing that, for the
purpose of securing and guaranteeing the faithful performance of each and every undertaking
in said agreement mentioned to be fulfilled by said Hanlon, 250,000 of said 501,000 shares
should remain on deposit with said mining company, to be released, surrendered and
delivered to said Hanlon or to his order, as follows: "151,000 shares to be released,
surrendered and delivered to the said party of the first part, or his order, when said milling
plant shall have been duly completed and the operation thereof commenced; the balance of
said shares to wit: 100,000, shall remain on deposit with the party of the second part until the
above mentioned loan to be secured by the assets of the company shall have been fully paid
and discharged, in which event said shares shall be released, surrendered and delivered to the
party of the first part, or his order;" (8) providing that in the event the earnings of the company
should be insufficient to pay all indebtedness within the time provided in paragraphs 4 and 6,
the balance remaining due thereon was to be paid by said Hanlon, and if he neglected to pay
off and discharge the balance due, then the said mining company was to have the right and
authority to sell and dispose of the 100,000 shares of stock remaining in its possession at public
or private sale at the prevailing market price, or as many of said shares as might be necessary
to fully liquidate and discharge the balance of said indebtedness remaining unpaid; (9)
providing for taking out insurance by said mining company for the protection of said Hanlon,
to cover the full value of said plant during its erection and after the completion thereof for a
period of not less than eighteen months after the same shall have been placed in operation.
As was at the time well known to all parties concerned herein the plaintiff Hanlon was
personally without the financial resources necessary to enable him to contribute P75,000
towards the project indicated in the contract Exhibit B, above set forth; and in order to
overcome this obstacle he was compelled to seek the assistance of others. Haussermann and
Beam, being cognizant of this necessity, agreed to find P25,000 of the necessary capital, and
for the remainder the plaintiff relied upon G. C. Sellner, a business man of the city of Manila,
who, upon being approached, agreed to advance P50,000. A verbal understanding with
reference to his matter had been attained by the four parties to this litigation before the
contract Exhibit B between Hanlon and the mining company had been formally executed, and
this agreement was in fact reduced to writing and signed on November 5, 1913, one day prior
to the execution of the contract between Hanlon and the mining company.
In this contract of November 5, 1913, (Exhibit A), the four parties, to wit: Hanlon, Sellner,
Haussermann, and Beam, agreed to collaborate in the flotation of the project outlined in the
contract Exhibit B, and defined the manner in which the necessary capital of P75,000 was to
be raised. As this contract is absolutely vital in the present litigation its provisions are set out
in full:
Whereas, R. Y. Hanlon has submitted a proposition to the Benguet Consolidated Mining Co., a
copy of which is hereto attached for reference; and
Whereas, the Board of Directors of the Benguet Consolidated Mining Co., has accepted such
proposition as amended; and
Whereas, said parties have agreed to cooperate and assist the said Hanlon in the flotation of
said proposition;
Now, therefore, this agreement made by and between the undersigned as follows:
27 | P a g e
I.
It is mutually agreed by and between the parties hereto that each shall do all in his power to
float said proposition and make the same a success.
II.
It is mutually agreed that said proposition shall be floated in the following manner, to wit:
(a) That 301,000 shares of the Benguet Consolidated Mining Company shall be set aside
and offered for sale for the purpose of raising the sum of P75,000 required to be paid to the
Benguet Consolidated Mining Company in accordance with said proposition.
(b) That of said sum of P75,000, the said George Seller agrees and undertakes to secure
and obtain subscriptions for the sum of P50,000.
(c) That John W. Haussermann and A. W. Beam undertake and agree to secure and
obtain subscriptions for the sum of P25,000.
(d) The said Sellner, Haussermann and Beam hereby guarantee that the subscriptions to
be obtained by them as hereinabove stated shall be fully paid within six (6) months from the
date of the acceptance on the part of the said Hanlon of the option granted by said company;
it being understood and agreed that if for any cause the said Sellner shall fail to obtain
subscriptions and payment thereof to the amount of P50,000 within the time herein specified,
then and in that event the obligation of said Haussermann and Beam shall be discharged; and,
on the other hand, if for any cause said Haussermann and Beam shall fail to obtain
subscriptions for the P25,000 and payment thereof within the time herein mentioned, then
and in that event, the said Sellner shall be released from his obligation.
It is mutually understood and agreed that each of the parties mentioned in this paragraph shall
from time to time advise the other parties as to the number of subscriptions obtained and the
amount of payments thereon.
III.
That out of the remaining 200,000 shares of the Benguet Consolidated Mining Co., to be issued
under said proposition each of said parties hereto, that is to say: George Sellner, John W.
Haussermann, A. W. Beam and R. Y. Hanlon shall be entitled to receive one-fourth thereof, or
50,000 shares, as compensation for the services rendered in the flotation of this proposition.
IV.
They necessary funds to cover preliminary expenses, such as expenses to examining the
properties of the Benguet Consolidated Mining Co., freight charges and other charges on ore
samples, costs of testing same, etc., shall be supplied by Messrs. Sellner, Haussermann and
Beam, which said sum shall be reimbursed to said parties out of the P75,000 fund raised by
the sale of the P301,000 shares of stock hereinabove in Paragraph II, Subsection A, hereof,
mentioned.
V.Cash for the loan of P5,000 to be made to the Benguet Consolidated Mining Co., as provided
in the proposition of the said Hanlon, shall be furnished by Messrs. Sellner, Haussermann and
Beam, in equal proportions as needed by the company.
In witness whereof, the respective parties hereto have hereunto set their hands at Manila, P.
I., this 5th day of November, 1913.
(Sgd.) R. Y. HANLON,
(Sgd.)GEORGE C. SELLER,
(Sgd.)JOHN W. HAUSSERMANN,
(Sgd.)A. W. BEAM.
During the period which intervened between the making of the preliminary verbal agreement
and the final execution of this contract, the plaintiff, Hanlon, at the expenses of the joint
adventure went from Manila to the Benguet Consolidated mining properties, near Baguio,
accompanied by the defendant Beam at the expense of said mining company, and said Hanlon
made a preliminary investigation and examination of the properties, selected and surveyed a
suitable mill site and took out about half a ton of ore samples which it had been agreed were
to be forwarded to the United States for tests for use by him in the selection of the machinery
best suited for the treatment of such ore; and said Hanlon reported to his coadventurers that
it was a very feasible scheme, and that there was enough ore in sight to well repay the
investment of P125,000, which was the sum estimated by said Hanlon to be necessary to equip
the property.
Soon after the contract Exhibits B and A were made the plaintiff Hanlon departed for the
United States, in contemplation of which event he executed a special power of attorney, on
November 10, 1913, constituting and appointing Beam his special agent and attorney in fact,
for and in his name, to do and perform the following acts:
To vote at the meetings of any company or companies, and otherwise to act as my proxy or
representative, in respect of any shares of stock now held, or which may hereafter be acquired
by me therein, and for that purpose to sign and execute any proxy or other instrument in my
name and on my behalf;
To secure subscriptions in my name for the shares of the Benguet Consolidated Mining Co., to
be issued to me under and by virtue of an agreement entered into with said company on
November 6, 1013, and to enter into the necessary agreements for the same of said shares.
28 | P a g e
To demand, sue for, and receive all debts, moneys, securities for money, goods, chattels or
other personal property to which I am now or may hereafter become entitled, or which are
now or may become due, owing or payable to me from any person or persons whomsoever,
and in my name to give effectual receipts and discharges for the same.
Prior to that time, on May 27, 1913, the plaintiff Hanlon had given one A. Gnandt of the city of
Manila a power of attorney with general and comprehensive powers, and "with full power of
substitution and revocation;" and thereafter on March 14, 1914, said Gnandt, owing to his
intended departure from the Philippine Islands, executed a power of attorney in favor of said
A. W. Beam, with the same general powers which had been conferred upon him, and Beam
became Hanlon's sole agent in the Philippine Islands. Said original power of attorney had no
special relation to the substitute specifically authorized the attorney in fact:
To make, sign, execute and deliver any and all contracts, agreements, receipts and documents
of any nature and kind whatsoever.
After the enumeration of other general and specific powers, Beam was finally authorized:
To do any and all things necessary or proper for the due performance and execution of the
foregoing powers.
By reference to the contract of November 5, 1913, (Exhibit A), it will be seen that 301,000
shares of the stock of the Benguet Consolidated Mining Company were to be used to raise the
P75,000 which Hanlon was bound to supply to the mining company; and the contract
contemplated that these shares should be disposed of at 25 centavos per share. As Sellner had
agreed to raise P50,000, it resulted that 200,000 shares had to be allocated to him; while
Haussermann and Beam had at their disposal 100,000 shares, with which to raise P25,000.
Sellner, Haussermann, and Beam furthermore guaranteed that the subscriptions to be
obtained by them should be fully paid within six months from the date of the acceptance by
Hanlon of the contract with the mining company, that is, from November 6, 1913.
In prosecution of the common purpose, Haussermann and Beam proceeded, after the
departure of Hanlon, to procure subscriptions upon the stock at their disposal, part being
subscribed by themselves severally and part sold upon subscription to outsiders; and during
the next two or three months the block of shares allotted to them was subscribed. As a
consequence of this they were thereafter prepared to pay in, or to cause to be paid in, the
entire amount which they were obligated to raise. Doubts, however, presently arose as to the
ability of Sellner to obtain subscriptions or produce the P75,000, which he obligated to bring
in; and as early as in February of 1914, Beam cabled to Hanlon in America "Sellner unable to
pay. Have you any instructions?" Upon receipt of this cablegram, Hanlon cabled Sellner to use
every effort to raise the money and also cable Beam to obtain the money elsewhere if Sellner
could not supply it. Furthermore, in order to be prepared against the contingency of Sellner's
ultimate inability to respond, Hanlon attempted to enlist the interest of capitalists in San
Francisco but in this was unsuccessful. It will be observed that, although by the exact letter of
the contract, Sellner was obligated to obtain subscriptions for the sum of P50,000, he
nevertheless desired to keep the entire 200,000 shares assigned to him exclusively for himself,
and proceeding on the assumption that he had in effect underwritten a subscription for the
whole block of shares, he made no effort to obtain subscriptions from anybody else for any
part of these shares. Meanwhile Haussermann and Beam were in touch with Sellner, urging
him to action but without avail, Sellner being in fact wholly unable to fulfill his undertaking. In
this condition of affairs the period of six months specified in the contracts of November 5 and
6 for the raising of the sum of P75,000 passed.
Thereafter Haussermann and Beam assumed that they were absolved from the obligations of
their contract of November 5, 1913, with Hanlon and Sellner, and that the mining company
was no longer bound by its contract of November 6, 1913, with Hanlon. They therefore
proceeded, as parties interest in the rehabilitation of the mining company, to make other
arrangements for financing the project. They found it possible to effectuate this through the
offices of Sendres of the Bank of the Philippine Islands, and in order to do so, a new contract
was made between the mining company and Beam, with Haussermann as silent partner of the
latter, whereby a bonus of 96,000 shares was conceded to the promoter instead of the 100,000
shares which would have accrued to Haussermann and Beam if the Hanlon project had gone
through. As a result of this, the profits of each were reduced by the amount of 2,000 shares
below what they might have realized under the Hanlon contract of November 5. Another
feature of the new project was that some of those who had subscribed to the stock of the
mining company through Beam under the Hanlon project were retained as stockholders in the
new scheme of flotation. Some, however, dropped out, with the result that Haussermann and
Beam were compelled to increase their subscriptions materially.
As preliminary to the new scheme of financing the corporation, the board of directors of the
mining company, composed of Haussermann Beam, and Sendres, saw fit at a special meeting
on June 19, 1914, to adopt a resolution declaring the contract of November 6, 1913, between
Hanlon and the company to be cancelled by reason of the failure of Hanlon to pay in the sum
of P75,000 in cash on or before May 6, 1914.
Immediately after the adoption of this resolution, the new plan for financing the mining
company was unfolded by Mr. Beam to the Board in a letter, addressed by him to the Directors.
In its parts relating to financial arrangements said letter is as follows:
MANILA, P. I., June 17, 1914.
To the DIRECTORS OF THE BENGUET CONSOLIDATED MINING
CO.,
Manila, P. I.
GENTLEMEN:
29 | P a g e
The undersigned hereby applies for an option for 30 days over 501,000 shares of unissued
stock of your corporation. . . .
I have canvassed the local field for capital and am reasonably assured that the required capital
will be available as follows:
405,000 shares have been subscribed for at 20 and 25 cents per share, making up a total of
P86,000, which sums is payable to the company in four equal monthly installments
commencing July 15, 1914. . . . . Arrangements have been made whereby the Bank of Philippine
Islands will grant the company an overdraft to the extent of P50,000, thus affording P136,000.
...
The balance of the 501,000 shares of unissued stock, or 96,000 shares, are to be issued to my
order when the total sum of 86,000 subscribed as above stated shall have been paid to the
company. The said shares are to be placed in the hands of the Bank of the Philippine Islands in
escrow to be held by the said bank and delivered to my order as soon as the overdraft
hereinbefore mentioned shall be fully paid and liquidated.
It is further understood that the bank shall have full power and authority to vote said shares
until such time as said overdraft is repaid to the company.
For the payment of the overdraft guaranteed by the Bank of the Philippine Islands, it is
understood that the total net earning of the company shall be used, and the term "net
earnings" shall be understood to mean the gross value of gold recovered less actual operation
expense.
Trusting that the foregoing may meet with your approval and acceptance, I am
Yours very truly,
(Sgd.) A. W. BEAM.
Upon motion of Senders, the proposition of Beam was accepted; Sendres and Haussermann
voting in favor of the same. At the same special meeting it was moved and seconded and
unanimously carried that a meeting of the shareholders of the company be called for the
purpose of passing upon the action of the directors in accepting the proposition made by
Beam. At this special meeting of the shareholders, held at 4:30 p. m., June 29, 1914, there
were 310,405 shares of the 499,000 shares of issued stock represented at the meeting. The
stockholders personally present were A. W. Beam, E. Sendres, and O. M. Shuman; and various
other shareholders were represented by Beam as proxy, and the Bank of the Philippine Islands
was represented by Sendres as proxy. It appears from the minutes of said special meeting that
Beam's proposition, which had been accepted by the board of directors, as above stated, was
submitted to the meeting and after being read was ordered to be attached to the minutes.
After due discussion by the shareholders present, Shuman moved that the action of the board
of directors accepting Beam's proposition be approved, and this motion was duly seconded
and unanimously carried.
The Beam project was carried out, and the mining company was brought to a dividend-paying
basis, paying a quarterly dividend of five per cent; and at the time of the trial of this case the
shares of stock in the market had risen from twenty centavos to P1.50 or higher. The
defendants about 1916 received 48,000 shares each as their profits. It is stated in the
appellants' brief, without denial from the appellee, that said shares have appreciated
subsequently to the trial below to the value of P2 each. The trial court held that the plaintiffs,
as coadventurers with the defendants in the project for the rehabilitation of the mining
company, are each entitled to recover the one-fourth part of the 96,000 shares obtained from
the mining company by the defendants, or 24,000 shares, with dividends paid, and to be paid
beginning with the year 1916. It is thus apparent that the value of the interest awarded to each
of the plaintiffs is considerably in excess of $25,000 (U. S. currency).
So far as Beam's material scheme for the improvement of the mining property is concerned it
followed the same lines and embodied the same ideas as had been entertained while the
Hanlon project was in course of promotion; and it is contended for the plaintiffs that there was
an unfair appropriation by Beam of the labors and ideas of Hanlon. This is denied by the
defendants, whose testimony tends to minimize the extent of Hanlon's contribution to the
project in labor and ideas. We believe it unnecessary to enter into the merits of this contention,
as in our opinion the solution of the case must be determined by other considerations.
An examination of the rights of the parties to this litigation must begin with the interpretation
of the contract of November 5, 1913. Some discussion is indulged in the briefs of counsel upon
the question whether that contract constitutes a partnership among the four signatories or a
mere enterprise upon joint account (cuenta en participacion) under the Code of Commerce.
This question seems to us of academy rather than practical importance; for whatever be the
character of the relation thus created, each party was undoubtedly bound to use good faith
towards the other, so long as the relation subsisted.
In paragraph I of said contract each party obligates himself to do all in his power to "float" the
Hanlon proposition, i. e., as indicated in the contract of November 6, between Hanlon and the
mining company. This means of course that each was to do what he could to make that project
for the rehabilitation of the mining company a success. The word flotation, however, points
more particularly to the effort to raise money, since, as all man know, it takes capital to make
any enterprise of this kind go. In paragraph II of the same contract the manner in which the
flotation is to be effected is described, namely, that Sellner is to obtain subscriptions for
P50,000 and Haussermann and Beam for P25,000. This involved, as we have already stated,
the allocation of 200,000 shares to Sellner and 100,000 to Hanlon and Beam.
Now the two paragraphs of the contract to which reference has been made must be construed
together, and it is entirely clear that the general language used in the first paragraph is limited
by that used in the second paragraph. In other words, though in the first paragraph the parties
30 | P a g e
agree to help float the project, they are tied up, in regard to the manner of effecting the
flotation, to the method agreed upon in the second. We can by no means lend our assent to
the proposition that the first paragraph created an obligation, independent of the provisions
of paragraph II, which continued to subsist after the method of flotation described in
paragraph II became impossible of fulfillment. It is a rudimentary canon of interpretation that
all parts of a writing are to be construed together (6 R. C. L., p. 837) and that the particular
controls the general. (Art. 1283, Civ. Code; 13 C. J., p. 537.)
It seems too plain for argument that so long as that contract was in force, Sellner did not have
any right to inter-meddle with the 100,000 shares allotted to Haussermann and Beam. Neither
could the latter dispose of the 200,000 shares allotted to Sellner. Indeed, Sellner, by reserving
to himself all of these 200,000 shares and sitting tightly, as he did, on this block of stock, made
it impossible for Haussermann, Beam, or anybody else, to raise money by selling those shares
within the period fixed as the limit of his guaranty. There was absolutely, as everybody knew,
no other means to raise money except by the sale of stock; and when Hanlon cabled to Beam
in February to obtain the money elsewhere if Sellner could not supply it, he was directing the
impossible, unless Sellner should release the block of shares assigned to him, which he never
did. As a matter of fact it appears that this quantity of the stock of the mining company could
not then have been sold at 25 cents per share in the Manila market to anybody; and in the end
in order to get Sendres and the Bank of the Philippine Islands to take part in the Beam project
260,000 shares had to go at 20 centavos per share.
By referring to subsection (d) to paragraph II of the contract of November 5, 1913, it will be
seen that the promises with reference to the obtaining of subscriptions are mutual concurrent
conditions; and it is expressly declared in the contract that upon the default of either party the
obligation of the other shall be discharged. From this it is clear that upon the happening of the
condition which occurred in this case, i.e., the default of Sellner to pay to the mining company
on or before May 6, 1914, the sum of money which he had undertaken to find, Haussermann
and Beam were discharged.
This is a typical case of a resolutory condition under the civil law. The contract expressly
provides that upon the happening of a future and uncertain negative event, the obligation
created by the agreement shall cease to exist.
In conditional obligations the acquisition of rights as well as the extinction of those already
acquired shall depend upon the event constituting the condition. (Civ. Code, art. 1114.)
If the condition consists in the happening of an event within a fixed period the obligation shall
be extinguished from the time the period elapses or when it becomes certain that the event
will not take place. (Civ. code, art. 1117.)
The right of Hanlon to require any further aid or assistance from these defendants after May
6, 1914, was expressly subordinated to a resolutory condition, and the contract itself declares
in precise language that the effect of the non-fulfillment of the condition shall be precisely the
same as that which the statute attaches to it — the extinction of the obligation.
In the argument of the plaintiffs at this point a distinction is drawn between the discharge from
the guaranty to raise money at the stated time and the discharge from the contract as an
entirety; and it is insisted that while the defendants were discharged from liability to Sellner
on their guaranty to have the money forthcoming on May 6, they were not discharged from
their liability on the contract, considered in its broader features, and especially were not
discharged with reference to their obligation to Hanlon. This argument proceeds on the
erroneous assumption that the defendants were bound to discover some other method of
flotation after the plan prescribed in the contract had become impossible of fulfillment and to
proceeds therewith for the benefit of all four of the parties. Furthermore, this conception of
the case is apparently over-refined and not in harmony with the common-sense view of the
situation as it must have presented itself to the contracting parties at the time. The obtaining
of capital was fundamentally necessary before the project could be proceeded with; and it was
obvious enough that, if the parties should fail to raise the money, the whole scheme must
collapse like a stock of cards. The provisions relative to the getting in of capital are the principal
features of the contract, other matters being of subordinate importance. In our opinion the
contracting parties must have understood and intended that Haussermann and Beam would
be discharged from the contract in its entirety by the failure of Sellner to comply with his
obligation. This is the plainest, simplest, and most obvious meaning of which the words used
are capable and we believe it to be their correct interpretation. We are not to suppose that
either of the signatories intended for those words to operate as a trap for the others; and such
would certainly be the effect of the provision in question if the words are to be understood as
referring to a discharge from the guaranty merely, leaving the contract intact in other respects.
It is insisted in behalf of the plaintiffs that Haussermann and Beam, as well as Sellner, defaulted
in the performance of the contract of November 5, 1913, and that not having performed their
obligation to obtain subscriptions for the sum of P25,000 and to cause payment to be made
into the company's treasury on or before May 6, 1914, they cannot take advantage of the
similar default of Sellner. This suggestion is irrelevant to the fundamental issue. The question
here is not whether Haussermann and Beam have a right of action for damaged against Sellner.
If they were suing him, it would be pertinent to say that they could not maintain the action
because they themselves had not caused the money to be paid in which they had agreed to
raise. The question here is different, namely, whether Haussermann and Beam have been
discharged from the contract of November 5, 1913, by the default of Sellner; and this question
must, under the contract, be answered by reference to the acts of Sellner. Upon this point it is
irrelevant to say that the discharged was mutual as between the two parties and not merely
one-sided.
The interpretation which we have placed upon the contract of November 5, 1913, exerts a
decisive influence upon this litigation, and makes a reversal of the appealed judgment
inevitable. There are, however, certain subordinate features of the case which, as disposed in
31 | P a g e
the appellee's brief, appear to justify the conclusion of the trial judge; and we deem it desirable
to say something with reference to the questions thus presented.
It will be noted that there is no resolutory provision in the contract of November 6, 1913,
between Hanlon and the mining company, declaring that said contract would be discharged or
abrogated upon the failure of Hanlon to supply, within the period specified, the money which
he had obligated himself to raise. In other words, time is not expressly made of the essence of
this contract. From this it is argued for the plaintiffs that this contract remained in force after
May 6, 1914, notwithstanding the failure of Hanlon to supply the funds which he had agreed
to find, and indeed it is insisted upon the authority of Ocejo, Perez & Co. vs. International
Banking Corporation (37 Phil. Rep., 631), that the mining company could not be relieved from
that contract without obtaining a judicial rescission in an action specially brought for that
purpose. The reply to this is two-fold.
In the first place the present action is not based upon the contract between Hanlon and the
mining company; and it is clear that if Hanlon had sued the mining company, as for example,
in an action seeking to recover damages for breach of its contract with him, he would have
been confronted by the insuperable obstacle that he had never supplied, nor offered to supply,
one penny of the P75,000, which he had obligated himself to bind, and which was absolutely
necessary to the rehabilitation of the company. The benefits of a contract are not for him who
has failed to comply with its obligations. It may be admitted that the resolution of the Board
of Directors of the mining company, on June 19, 1914, declaring the contract of November 6,
1913, with Hanlon to be cancelled, considered alone, was without legal effect, since one party
to a contract cannot absolve himself from its obligations without the consent of the other.
With reference to the second point, namely, that a judicial rescission was necessary to absolve
the mining company from its obligations to Hanlon under the contract of December 6, 1913,
we will say that we consider the doctrine of Ocejo, Perez & Co., vs. International Banking
Corporation (37 Phil. Rep., 631), to be inapplicable. The contract there in question was one
relating to a sale of goods, and it had been fully performed on the part of the vendor by
delivery. This court held that delivery had the effect of passing title, and that while the failure
of the purchaser to pay the price gave the seller a right to sue for a rescission of the contract,
the failure of the buyer to pay the purchase price did not ipso facto produce a reversion of title
to the vendor, or authorize him, upon his election to rescind, to treat the goods as his own
property and retake them by writ of replevin. In the present case the contract between Hanlon
and the mining company was executory as to both parties, and the obligation of the company
to deliver the shares could not arise until Hanlon should pay or tender payment of the money.
The situation is similar to that which arises every day in business transactions in which the
purchaser of goods upon an executory contract fails to take delivery and pay the purchase
price. The vendor in such case is entitled to resell the goods. If he is obliged to sell for less than
the contract price, he holds the buyer for the difference; if he sells for as much as or more than
the contract price, the breach of the contract by the original buyer is damnum absque injuria.
But it has never been held that there is any need of an action of rescission to authorize the
vendor, who is still in possession, to dispose of the property where the buyer fails to pay the
price and take delivery. Of course no judicial proceeding could be necessary to rescind a
contract which, like that of November 5, 1913, contains a resolutory provision by virtue of
which the obligation is already extinguished.
Much reliance is placed by counsel for the plaintiffs upon certain American decisions holding
that partners, agents, joint adventurers, and other persons occupying similar fiduciary
relations to one another, must not be allowed to obtain any undue advantage of their
associates or to retain any profit which others do not share. We have no criticism to make
against this salutary doctrine when properly applied and would be slow to assume that our
civil law requires any less degree of good faith between parties so circumstanced than is
required by the courts of equity in other countries. For instance, we feel quite sure that this
Court would have no difficulty in subscribing to the doctrine which is stated in Lind vs. Webber
(36 Nev., 623; 50 L. R. A. [N. S.], 1046}, with reference to joint adventurers as follows:
We further find that the law is well established that the relation between joint adventurers is
fiduciary in its character and the utmost good faith is required of the trustee, to whom the deal
or property may be instrusted, and such trustee will be held strictly to account to his co-
adventurers, and that he will not be permitted, by reason of the possession of the property or
profits whichever the case may be to enjoy an unfair advantage, or have any greater rights in
the property or profits as trustee, than his co-adventurers are entitled to. The mere fact that
he is intrusted with the rights of his co-adventurers imposes upon him the sacred duty of
guarding their rights equally with his own, and he is required to account strictly to his co-
adventurers, and, if he is recreant to his trust, any rights they may be denied are recoverable.
In Flagg vs. Mann (9 Fed. Cas., 202; Fed. Case No. 4847), it appeared that Flagg and Mann had
an agreement to purchase a tract of land on joint account. The court held that where parties
are interested together by mutual agreement, and a purchase is made agreeably thereto,
neither party can excuse the other from what was intended to be for the common benefit; and
any private benefit, touching the common right, which is secured by either party must be
shared by both. Justice Story, acting as Circuit Justice, said that the doctrine in question was
"a wholesome and equitable principle, which by declaring the sole purchase to be for the joint
benefit, takes away the temptation to commit a dishonest act, founded in the desire of
obtaining a selfish gain to the injury of a co-contractor, and thus adds strength to wavering
virtue, by making good faith an essential ingredient in the validity of the purchase. There is
not, therefore, any novelty in the doctrine of Mr. Chancellor Kent, notwithstanding the
suggestion at the bar to the contrary; and it stands approved equally by ancient and modern
authority, by the positive rule of the Roman Law, the general recognition of continental
Europe, and the actual jurisprudence of England and America."
We deem it unnecessary to proceed to an elaborate analysis of the array of cases cited by the
appellee as containing applications of the doctrine above stated. Suffice it to say that, upon
examination, such of these decisions as have reference to joint adventures will be found to
deal with the situation where the associates are not only joint adventurers but are joint
adventurers merely. In the present case Haussermann and Beam were stockholders and
32 | P a g e
officials in the mining company from a time long anterior to the beginning of their relations
with Hanlon. They were not merely co-adventurers with Hanlon, but in addition were in a
fiduciary relation with the mining company and its other shareholders, to whom they owned
duties as well as to Hanlon. It does not appear that the defendants acquired any special
knowledge of the mine or of the feasibility of its reconstruction by reason of their relation with
Hanlon which they did not already have; and they probably were in no better situation as
regards the facts relating to the mine after the failure of the Hanlon contract than they were
before. The fact of their having been formerly associated with Hanlon certainly did not
preclude them from making use of the information which they possessed as stockholders and
officers of the mining company long before they came into contact with him.
After the termination of an agency, partnership, or joint adventure, each of the parties is free
to act in his own interest, provided he has done nothing during the continuance of the relation
to lay a foundation for an undue advantage to himself. To act as agent for another does not
necessarily imply the creation of a permanent disability in the agent to act for himself in regard
to the same subject-matter; and certainly no case has been called to our attention in which
the equitable doctrine above referred to has been so applied as to prevent an owner of
property from doing what he pleased with his own after such a contract as that of November
5, 1913, between the parties to this lawsuit had lapsed.
In the present case so far as we can see, the defendants acted in good faith for the
accomplishment of the common purpose and to the full extent of their obligation during the
continuance of their contract; and if Sellner had not defaulted, or if Hanlon had been able to
produce the necessary capital from some other source, during the time set for raising the
money, the original project would undoubtedly have proceeded to its consummation.
Certainly, no act of the defendants can be pointed to which prevented or retarded its
realization; and we are of the opinion that, under the circumstances, nothing more could be
required of the defendants than a full and honest compliance with their contract. As this had
been discharge through the fault of another they can not be held liable upon it. Certainly, we
cannot accede to the proposition that the defendants by making the contracts in question had
discapacitated themselves and their company for an indefinite period from seeking other
means of financing the company's necessities, save only upon the penalty of surrendering a
share of their ultimate gain to the two adventurers who are plaintiffs in this action.
The power of attorney which Hanlon left with Beam upon departing for America was executed
chiefly to enable Haussermann and Beam to comply with their obligation to raise P25,000 by
the sale of shares. This feature of the power of attorney was manifestly subordinate to the
purpose of the joint agreement of November 5, 1913. Certainly, under that power, Beam could
not have disposed of any of the stock allotted to Sellner; neither was he bound, or even
authorized, after the joint agreement was at an end, to use the power for Hanlon's benefit,
even supposing — contrary to the proven fact — that purchasers to the necessary extent could
have been found for the shares at 25 centavos per share.
As we have already stated, some of the individuals who originally subscribed to the Hanlon
project were carried as stockholders into the new project engineered by Beam, being credited
with any payments previously made by them. In other words, the mining company honored
these subscriptions, although the Hanlon project on which they were based had fallen through.
This circumstance cannot in our opinion alter the fundamental features of the case. Taken all
together these subscriptions were for only a part of the P25,000 which the defendants had
undertaken to raise and were by no means sufficient to finance the Hanlon project without the
assistance which Sellner had agreed to give. Of course if Beam, acting as attorney in fact of
Hanlon, had obtained a sufficient number of subscriptions to finance the Hanlon project, and
concealing this fact, had subsequently utilized the same subscriptions to finance his own
scheme, the case would be different. But the revealed facts do not bear out this imputation.
It should be noted in this connection that the mining company had approved the subscriptions
obtained by Haussermann and Beam and had, prior to May 6, 1914, accepted part payment of
the amount due upon some of them. It is not at all clear that, under these circumstances, the
company could have repudiated these subscriptions, even if its officers had desired to do so;
and if the mining company was bound either legally or morally to recognize them, if cannot be
imputed to the defendants as an act of bad faith that such subscriptions were so recognized.
The trial court held that Haussermann, by reason of his interest in the Beam project, was
disqualified to act as a director of the mining company upon the resolution accepting that
project; and it was accordingly declared that said resolution was without legal effect. We are
of the opinion that the circumstance referred to could at the most have had no further effect
than to render the contract with Beam voidable and not void; and the irregularity involved in
Haussermann's participation in that resolution was doubtless cured by the later ratification of
the contract at a meeting of the stockholders. However this may be, the plaintiffs are not in a
position to question the validity of the contract of the mining company with Beam since the
purpose of the action is to secure a share in the gains acquired under that contract.
In the course of the preceding discussion we have already noted the fact that no resolutory
provision contemplating the possible failure of Hanlon to supply the necessary capital within
the period of six months is found in the contract of November 6, 1913, between Hanlon and
the mining company. In other words, time was not expressly made of the essence of that
contract. It should not be too hastily inferred from this that the mining company continued to
be bound by that contract after Hanlon dad defaulted in procuring the money which he had
obligated himself to supply. Whether that contract continued to be binding after the date
stated is a question which does not clearly appear to be necessary to the decision of this case,
but the attorneys for Hanlon earnestly insist that said contract did in fact continue to be
binding upon the mining company after May 6, 1914; and upon this assumption taken in
connection with the power held by Beam as attorney in fact of Hanlon, It is argued that the
right of action of Hanlon is complete, as against Beam and Haussermann, even without
reference to the profit-sharing agreement of November 5. We consider this contention to be
unsound; and the correctness of our position on this point can, we think, be clearly
demonstrated by considering for a moment the question whether time was in fact of the
33 | P a g e
essence of the contract of November 6, 1913, in other words, Was the mining company
discharged by the default of Hanlon in the performance of that agreement?
Whether a party to a contract is impliedly discharged by the failure of the other to comply with
a certain stipulation on or before the time set for performance, must be determined with
reference to the intention of the parties as deduced from the contract itself in relation with
the circumstances under which the contract was made.
Upon referring to the contract now in question — i. e., the contract of November 6, 1913 — it
will be seen that the leading stipulation following immediately after the general paragraph at
the beginning of the contract, is that which relates to the raising of capital by Hanlon. It reads
as follows:
1. Said party of the first part agrees to pay into the treasury of the party of the second part the
sum of Seventy-five Thousand Pesos ( P75,000) in cash within six (6) months from the date of
this agreement.
Clearly, all the possibilities and potentialities of the situation with respect to the rehabilitation
of the Benguet mining property, depended upon the fulfillment of that stipulation; and in fact
nearly all the other subsequent provisions of the contract are concerned in one way or another
with the acts and things that were contemplated to be done with that money after it should
be paid into the company's treasury. Only in the event of such payment were shares to be
issued to Hanlon, and it was stipulated that the money so to be paid in should be disbursed to
pay the expenses of the very improvements which Hanlon had agreed to make. There can then
be no doubt that compliance on the part of Hanlon with this stipulation was viewed by the
parties as the pivotal fact in the whole scheme.
Again, it will be recalled that this contract (Exhibit B) between Hanlon and the mining company
was not in fact executed until the day following that on which the profit-sharing agreement
(Exhibit A) was executed by the four parties to this lawsuit. In other words, Haussermann and
Beam, as officials of the mining company, refrained from executing the company's contract
until Hanlon had obligated himself by the profit-sharing agreement. Indeed, these two
contracts should really be considered as constituting a single transaction; and it is obvious
enough that the prime motive which induced Haussermann and Beam to place their signature
upon the contract of November 6 was that they already had the profit-sharing agreement
securely in their hands. Therefore, when the contract of November 6, between Hanlon and the
mining company was signed, all the parties who participated therein acted with full knowledge
of the provisions contained in the profit-sharing agreement; and in particular the minds of all
must have riveted upon the provisions of paragraph II of the profit-sharing agreement, wherein
is described the manner in which the project to which the parties were then affixing their
signatures should be financially realized ("floated"). In subsection (d) of the same paragraph II,
as will be remembered, are found the words which declare that Haussermann and Beam would
be discharged if Sellner should fail to pay into the company's treasury on or before the
expiration of the prescribed period the money which he had agreed to raise. Under these
conditions it is apparent enough that the parties to the later contract treated time as of the
essence of the agreement and intended that the failure of Hanlon to supply the necessary
capital within the time stated should put an end to the whole project. In view of the fact that
an express resolutory provision had been inserted in the profit-sharing agreement, it must
have seemed superfluous to insert such express clause in the later contract. Any extension of
time, therefore, that the mining company might have made after May 6, 1914, with respect to
the date of performance by Hanlon would have been purely a matter of grace, and not
demandable by Hanlon as of absolute right. It is needless to say in this connection that the
default of Sellner was the default of Hanlon.
An examination of the decisions of the American and English courts reveals a great mass of
material devoted to the discussion of the question whether in a given case time is of the
essence of a contract. As presented in those courts, the question commonly arises where a
contracting party, who has himself failed to comply with some agreement, tenders
performance after the stipulated time has passed, and upon the refusal of the other party to
accept the delayed performance the delinquent party resorts to the court of equity to compel
the other party to proceed. The equitable doctrine there recognized as applicable in such
situation is that if the contracting parties have treated time as of the essence of the contract,
the delinquency will not be excused and specific performance will not be granted; but on the
other hand, if it appears that time has not been made of the essence of the contract, equity
will relieve from the delinquency and specific performance may be granted, due compensation
being made for the damage caused by the delay. In such cases the courts take account of the
difference between that which is matter of substance and that which is matter of mere form.
To illustrate: the rule has been firmly established from an early date in courts of equity that in
agreements for the sale of land, time is not ordinarily of the essence of the contract; that is to
say, acts which one of the parties has stipulated to perform on a given date may be performed
at a later date. Delay in the payment of the purchase money, for instance, does not necessarily
result in the forfeiture of the rights of the purchaser under the contract, since mere delay in
the payment of money may be compensated by the allowance of interest. (36 Cyc., 707-708.)
In discussing this subject, Pomeroy says: "Time may be essential. It is so whenever the
intention of the parties is clear that the performance of its terms shall be accomplished exactly
at the stipulated day. The intention must then govern. A delay cannot be excused. A
performance at the time is essential; any default will defeat the right to specific enforcement."
(4 Pomeroy Eq. Jur., 3rd ed., sec. 1408.) Again, says the same writer: "It is well settled that
where the parties have so stipulated as to make the time of payment of the essence of the
contract, within the view of equity as well as of the law, a court of equity cannot relieve a
vendee who has made default. With respect to this rule there is no doubt; the only difficulty is
in determining when time has thus been made essential. It is also equally certain that when
the contract is made to depend upon a condition precedent — in other words, when no right
shall vest until certain acts have been done, as, for example, until the vendee has paid certain
sums at certain specified times — then, also a court of equity will not relieve the vendee
against the forfeiture incurred by a breach of such condition precedent." (1 Pomeroy Eq. Jur.,
3rd ed., sec. 455.)
34 | P a g e
As has been determined in innumerable cases it is not necessary, in order to make time of the
essence of a contract, that the contract should expressly so declare. Words of this import need
not to be used. It is sufficient that the intention to this effect should appear; and there are
certain situations wherein it is held, from the nature of the agreement itself, that time is of the
essence of the contract.
Time may be of the essence, without express stipulation to that effect, by implication from the
nature of the contract itself, or of the subject-matter, or of the circumstances under which the
contract is made. (36 Cyc., 709.)
In agreements which are executed in the form of options, time is always held to be of the
essence of the contract; and it is well recognized that in such contracts acceptance of the
option and payment of the purchase price constitute conditions precedent to specific
enforcement. The same is true generally of all unilateral contracts. (36 Cyc., 711.) In mercantile
contracts for the manufacture and sale of goods time is also held to be of the essence of the
agreement. (13 C. J., 688.) Likewise, where the subject-matter of a contract is of speculative or
fluctuating value it is held that the parties must have intended time to be of the essence (13
C. J., 668.) Most conspicuous among all the situations where time is presumed to be of the
essence of a contract from the mere nature of the subject-matter is that where the contract
relates to mining property. As has been well said by the Supreme Court of the United States,
such property requires, and of all properties perhaps the most requires, the persons interested
in it to be vigilant and active in asserting their rights. (Waterman vs. Banks, 144 U. S., 394; 36
L. ed., 479, 483.) Hence it is uniformly held that time is of the essence of the contract for the
sale of an option on mining property, or a contract for the sale thereof, even though there is
no express stipulation to that effect. (27 Cyc., 675). The same idea is clearly applicable to a
contract like that now under consideration which provides for the rehabilitation of a mining
plant with funds to be supplied by the contractor within a limited period.
Under the doctrine above expounded it is evident that Hanlon would be entitled to no relief
against the mining company in an action of specific performance, even if he had been prepared
and had offered, after May 6, 1914, to advance the requisite money and proceed with the
performance of the contract. Much less can he be considered entitled to relief where he has
remained in default throughout and has at no time offered to comply with the obligations
incumbent upon himself.
Our conclusion, upon a careful examination of the whole case, is that the action cannot be
maintained. The judgment is accordingly reversed and the defendants are absolved from the
complaint. No express pronouncement will be made as to costs of either instance.
Arellano, C.J., Torres, Araullo, Malcolm and Avanceña, JJ., concur.
SECOND DIVISION
G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN PUT,
respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain actuations of respondent Court of First
Instance of Cebu Branch III in its Civil Case No. 12328, an action for accounting of properties
and money totalling allegedly about P15 million pesos filed with a common cause of action
against six defendants, in which after declaring four of the said defendants herein petitioners,
in default and while the trial as against the two defendants not declared in default was in
progress, said court granted plaintiff's motion to dismiss the case in so far as the non-defaulted
defendants were concerned and thereafter proceeded to hear ex-parte the rest of the
plaintiffs evidence and subsequently rendered judgment by default against the defaulted
defendants, with the particularities that notice of the motion to dismiss was not duly served
on any of the defendants, who had alleged a compulsory counterclaim against plaintiff in their
joint answer, and the judgment so rendered granted reliefs not prayed for in the complaint,
and (2) prohibition to enjoin further proceedings relative to the motion for immediate
execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put only
against the spouses-petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in an
amended complaint dated September 26, 1972, their son Lim Teck Chuan and the other
spouses-petitioners Alfonso Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo
were included as defendants. In said amended complaint, respondent Tan alleged that she "is
the widow of Tee Hoon Lim Po Chuan, who was a partner in the commercial partnership, Glory
Commercial Company ... with Antonio Lim Tanhu and Alfonso Ng Sua that "defendant Antonio
Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo, through fraud
and machination, took actual and active management of the partnership and although Tee
Hoon Lim Po Chuan was the manager of Glory Commercial Company, defendants managed to
use the funds of the partnership to purchase lands and building's in the cities of Cebu,
Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla, some of which were
hidden, but the description of those already discovered were as follows: (list of properties) ...;"
and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without liquidation
continued the business of Glory Commercial Company by purportedly organizing a corporation
known as the Glory Commercial Company, Incorporated, with paid up capital in the sum of
P125,000.00, which money and other assets of the said Glory Commercial Company,
Incorporated are actually the assets of the defunct Glory Commercial Company partnership,
of which the plaintiff has a share equivalent to one third (¹/3 ) thereof;
35 | P a g e
14. (P)laintiff, on several occasions after the death of her husband, has asked defendants
of the above-mentioned properties and for the liquidation of the business of the defunct
partnership, including investments on real estate in Hong Kong, but defendants kept on
promising to liquidate said properties and just told plaintiff to
15. (S)ometime in the month of November, 1967, defendants, Antonio Lim Tanhu, by
means of fraud deceit and misrepresentations did then and there, induce and convince the
plaintiff to execute a quitclaim of all her rights and interests, in the assets of the partnership
of Glory Commercial Company, which is null and void, executed through fraud and without any
legal effect. The original of said quitclaim is in the possession of the adverse party defendant
Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of said quitclaim, defendant Antonio Lim
Tanhu offered to pay the plaintiff the amount P65,000.00 within a period of one (1) month, for
which plaintiff was made to sign a receipt for the amount of P65,000.00 although no such
amount was given and plaintiff was not even given a copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants who had earlier promised to
liquidate the aforesaid properties and assets in favor among others of plaintiff and until the
middle of the year 1970 when the plaintiff formally demanded from the defendants the
accounting of real and personal properties of the Glory Commercial Company, defendants
refused and stated that they would not give the share of the plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be rendered:
a) Ordering the defendants to render an accounting of the real and personal properties
of the Glory Commercial Company including those registered in the names of the defendants
and other persons, which properties are located in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after accounting, one third (¹/3 )
of the total value of all the properties which is approximately P5,000,000.00 representing the
just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff the sum of Two Hundred
Fifty Thousand Pesos (P250,000.00) by way of attorney's fees and damages in the sum of One
Million Pesos (P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs consistent with law and equity
and order the defendants to pay the costs. (Page 38, Record.)
The admission of said amended complaint was opposed by defendants upon the ground that
there were material modifications of the causes of action previously alleged, but respondent
judge nevertheless allowed the amendment reasoning that:
The present action is for accounting of real and personal properties as well as for the recovery
of the same with damages.
An objective consideration of pars. 13 and 15 of the amended complaint pointed out by the
defendants to sustain their opposition will show that the allegations of facts therein are merely
to amplify material averments constituting the cause of action in the original complaint. It
likewise include necessary and indispensable defendants without whom no final
determination can be had in the action and in order that complete relief is to be accorded as
between those already parties.
Considering that the amendments sought to be introduced do not change the main causes of
action in the original complaint and the reliefs demanded and to allow amendments is the rule,
and to refuse them the exception and in order that the real question between the parties may
be properly and justly threshed out in a single proceeding to avoid multiplicity of actions. (Page
40, Record.)
In a single answer with counterclaim, over the signature of their common counsel, defendants
denied specifically not only the allegation that respondent Tan is the widow of Tee Hoon
because, according to them, his legitimate wife was Ang Siok Tin still living and with whom he
had four (4) legitimate children, a twin born in 1942, and two others born in 1949 and 1965,
all presently residing in Hongkong, but also all the allegations of fraud and conversion quoted
above, the truth being, according to them, that proper liquidation had been regularly made of
the business of the partnership and Tee Hoon used to receive his just share until his death, as
a result of which the partnership was dissolved and what corresponded to him were all given
to his wife and children. To quote the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the answer, and further most
respectfully declare:
1. That in the event that plaintiff is filing the present complaint as an heir of Tee Hoon
Lim Po Chuan, then, she has no legal capacity to sue as such, considering that the legitimate
wife, namely: Ang Siok Tin, together with their children are still alive. Under Sec. 1, (d), Rule 16
of the Revised Rules of Court, lack of legal capacity to sue is one of the grounds for a motion
to dismiss and so defendants prays that a preliminary hearing be conducted as provided for in
Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the present case under Art.
144 of the Civil Code, then, her claim or demand has been paid, waived abandoned or
36 | P a g e
otherwise extinguished as evidenced by the 'quitclaim' Annex 'A' hereof, the ground cited is
another ground for a motion to dismiss (Sec. 1, (h), Rule 16) and hence defendants pray that a
preliminary hearing be made in connection therewith pursuant to Section 5 of the
aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and were blessed
with the following children, to wit: Ching Siong Lim and Ching Hing Lim (twins) born on
February 16, 1942; Lim Shing Ping born on March 3, 1949 and Lim Eng Lu born on June 25,
1965 and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no longer
his common law wife and even though she was not entitled to anything left by Tee Hoon Lim
Po Chuan, yet, out of the kindness and generosity on the part of the defendants, particularly
Antonio Lain Tanhu, who, was inspiring to be monk and in fact he is now a monk, plaintiff was
given a substantial amount evidenced by the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their own personal fund and
certainly not from the funds belonging to the partnership, just as Tee Hoon Lim Po Chuan had
acquired properties out of his personal fund and which are now in the possession of the widow
and neither the defendants nor the partnership have anything to do about said properties;
6. That it would have been impossible to buy properties from funds belonging to the
partnership without the other partners knowing about it considering that the amount taken
allegedly is quite big and with such big amount withdrawn the partnership would have been
insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children who would
have been lawfully entitled to succeed to the properties left by the latter together with the
widow and legitimate children;
8. That despite the fact that plaintiff knew that she was no longer entitled to anything
of the shares of the late Tee Hoon Lim Po Chuan, yet, this suit was filed against the defendant
who have to interpose the following —
COUNTERCLAIM
A. That the defendants hereby reproduced, by way of reference, all the allegations and
foregoing averments as part of this counterclaim; .
B. That plaintiff knew and was aware she was merely the common-law wife of Tee Hoon
Lim Po Chuan and that the lawful and legal is still living, together with the legitimate children,
and yet she deliberately suppressed this fact, thus showing her bad faith and is therefore liable
for exemplary damages in an amount which the Honorable Court may determine in the
exercise of its sound judicial discretion. In the event that plaintiff is married to Tee Hoon Lim
Po Chuan, then, her marriage is bigamous and should suffer the consequences thereof;
C. That plaintiff was aware and had knowledge about the 'quitclaim', even though she
was not entitled to it, and yet she falsely claimed that defendants refused even to see her and
for filing this unfounded, baseless, futile and puerile complaint, defendants suffered mental
anguish and torture conservatively estimated to be not less than P3,000.00;
D. That in order to defend their rights in court, defendants were constrained to engage
the services of the undersigned counsel, obligating themselves to pay P500,000.00 as
attorney's fees;
E. That by way of litigation expenses during the time that this case will be before this
Honorable Court and until the same will be finally terminated and adjudicated, defendants will
have to spend at least P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is merely permissive and should be
dismissed for non-payment of the corresponding filing fee, and after being overruled by the
court, in due time, plaintiff answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-
spouses the Lim Tanhus and Ng Suas, did not appear, for which reason, upon motion of plaintiff
dated February 16, 1973, in an order of March 12, 1973, they were all "declared in DEFAULT
as of February 3, 1973 when they failed to appear at the pre-trial." They sought to hive this
order lifted thru a motion for reconsideration, but the effort failed when the court denied it.
Thereafter, the trial started, but at the stage thereof where the first witness of the plaintiff by
the name of Antonio Nuñez who testified that he is her adopted son, was up for re-cross-
examination, said plaintiff unexpectedly filed on October 19, 1974 the following simple and
unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned counsel, unto the Honorable Court most
respectfully moves to drop from the complaint the defendants Lim Teck Chuan and Eng Chong
Leonardo and to consider the case dismissed insofar as said defendants Lim Teck Chuan and
Eng Chong Leonardo are concerned.
WHEREFORE, it is most respectfully prayed of the Honorable Court to drop from the complaint
the defendants Lim Teck Chuan and Eng Chong Leonardo and to dismiss the case against them
without pronouncement as to costs. (Page 50, Record.)
which she set for hearing on December 21, 1974. According to petitioners, none of the
defendants declared in default were notified of said motion, in violation of Section 9 of Rule
37 | P a g e
13, since they had asked for the lifting of the order of default, albeit unsuccessfully, and as
regards the defendants not declared in default, the setting of the hearing of said motion on
October 21, 1974 infringed the three-day requirement of Section 4 of Rule 15, inasmuch as
Atty. Adelino Sitoy of Lim Teck Chuan was served with a copy of the motion personally only on
October 19, 1974, while Atty. Benjamin Alcudia of Eng Chong Leonardo was served by
registered mail sent only on the same date.
Evidently without even verifying the notices of service, just as simply as plaintiff had couched
her motion, and also without any legal grounds stated, respondent court granted the prayer
of the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for the dismissal of the complaint as against
defendants Lim Teck Chuan and Eng Chong Leonardo. —
The same is hereby GRANTED. The complaint as against defendant Lim Teck Chuan and Eng
Chong Leonardo is hereby ordered DISMISSED without pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay as well as defendants
Alfonso Ng Sua and his spouse Co Oyo have been declared in default for failure to appear
during the pre-trial and as to the other defendants the complaint had already been ordered
dismissed as against them.
Let the hearing of the plaintiff's evidence ex-parte be set on November 20, 1974, at 8:30 A.M.
before the Branch Clerk of Court who is deputized for the purpose, to swear in witnesses and
to submit her report within ten (10) days thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte reception of evidence did not
take place on November 20, 1974, for on October 28, 1974, upon verbal motion of plaintiff,
the court issued the following self-explanatory order: .
Acting favorably on the motion of the plaintiff dated October 18, 1974, the Court deputized
the Branch Clerk of Court to receive the evidence of the plaintiff ex-parte to be made on
November 20, 1974. However, on October 28, 1974, the plaintiff, together with her witnesses,
appeared in court and asked, thru counsel, that she be allowed to present her evidence.
Considering the time and expenses incurred by the plaintiff in bringing her witnesses to the
court, the Branch Clerk of Court is hereby authorized to receive immediately the evidence of
the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant Lim Teck Cheng, thru
counsel, Atty. Sitoy, filed a motion for reconsideration thereof, and on November 1, 1974,
defendant Eng Chong Leonardo, thru counsel Atty. Alcudia, filed also his own motion for
reconsideration and clarification of the same orders. These motions were denied in an order
dated December 6, 1974 but received by the movants only on December 23, 1974. Meanwhile,
respondent court rendered the impugned decision on December 20, 1974. It does not appear
when the parties were served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to quash the
order of October 28, 1974. Without waiting however for the resolution thereof, on January 13,
1974, Lim Teck Chuan and Eng Chong Leonardo went to the Court of Appeals with a petition
for certiorari seeking the annulment of the above-mentioned orders of October 21, 1974 and
October 28, 1974 and decision of December 20, 1974. By resolution of January 24, 1975, the
Court of Appeals dismissed said petition, holding that its filing was premature, considering that
the motion to quash the order of October 28, 1974 was still unresolved by the trial court. This
holding was reiterated in the subsequent resolution of February 5, 1975 denying the motion
for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants, petitioners herein, filed their
notice of appeal, appeal bond and motion for extension to file their record on appeal, which
was granted, the extension to expire after fifteen (15) days from January 26 and 27, 1975, for
defendants Lim Tanhu and Ng Suas, respectively. But on February 7, 1975, before the
perfection of their appeal, petitioners filed the present petition with this Court. And with the
evident intent to make their procedural position clear, counsel for defendants, Atty. Manuel
Zosa, filed with respondent court a manifestation dated February 14, 1975 stating that "when
the non-defaulted defendants Eng Chong Leonardo and Lim Teck Chuan filed their petition in
the Court of Appeals, they in effect abandoned their motion to quash the order of October 28,
1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and
Co Oyo, filed their petition for certiorari and prohibition ... in the Supreme Court, they likewise
abandoned their motion to quash." This manifestation was acted upon by respondent court
together with plaintiffs motion for execution pending appeal in its order of the same date
February 14, 1975 this wise:
ORDER
38 | P a g e
When these incidents, the motion to quash the order of October 28, 1974 and the motion for
execution pending appeal were called for hearing today, counsel for the defendants-movants
submitted their manifestation inviting the attention of this Court that by their filing for
certiorari and prohibition with preliminary injunction in the Court of Appeals which was
dismissed and later the defaulted defendants filed with the Supreme Court certiorari with
prohibition they in effect abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The resolution of the motion
for execution pending appeal shall be resolved after the petition for certiorari and prohibition
shall have been resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent court acted illegally, in
violation of the rules or with grave abuse of discretion in acting on respondent's motion to
dismiss of October 18, 1974 without previously ascertaining whether or not due notice thereof
had been served on the adverse parties, as, in fact, no such notice was timely served on the
non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and no notice at all was
ever sent to the other defendants, herein petitioners, and more so, in actually ordering the
dismissal of the case by its order of October 21, 1974 and at the same time setting the case for
further hearing as against the defaulted defendants, herein petitioners, actually hearing the
same ex-parte and thereafter rendering the decision of December 20, 1974 granting
respondent Tan even reliefs not prayed for in the complaint. According to the petitioners, to
begin with, there was compulsory counterclaim in the common answer of the defendants the
nature of which is such that it cannot be decided in an independent action and as to which the
attention of respondent court was duly called in the motions for reconsideration. Besides, and
more importantly, under Section 4 of Rule 18, respondent court had no authority to divide the
case before it by dismissing the same as against the non-defaulted defendants and thereafter
proceeding to hear it ex-parte and subsequently rendering judgment against the defaulted
defendants, considering that in their view, under the said provision of the rules, when a
common cause of action is alleged against several defendants, the default of any of them is a
mere formality by which those defaulted are not allowed to take part in the proceedings, but
otherwise, all the defendants, defaulted and not defaulted, are supposed to have but a
common fate, win or lose. In other words, petitioners posit that in such a situation, there can
only be one common judgment for or against all the defendant, the non-defaulted and the
defaulted. Thus, petitioners contend that the order of dismissal of October 21, 1974 should be
considered also as the final judgment insofar as they are concerned, or, in the alternative, it
should be set aside together with all the proceedings and decision held and rendered
subsequent thereto, and that the trial be resumed as of said date, with the defendants Lim
Teck Chuan and Eng Chong Leonardo being allowed to defend the case for all the defendants.
On the other hand, private respondent maintains the contrary view that inasmuch as
petitioners had been properly declared in default, they have no personality nor interest to
question the dismissal of the case as against their non-defaulted co-defendants and should
suffer the consequences of their own default. Respondent further contends, and this is the
only position discussed in the memorandum submitted by her counsel, that since petitioners
have already made or at least started to make their appeal, as they are in fact entitled to
appeal, this special civil action has no reason for being. Additionally, she invokes the point of
prematurity upheld by the Court of Appeals in regard to the above-mentioned petition therein
of the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she argues
that in any event, the errors attributed to respondent court are errors of judgment and may
be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the court below and mature
deliberation, the Court has arrived at the conclusion that petitioners should be granted relief,
if only to stress emphatically once more that the rules of procedure may not be misused and
abused as instruments for the denial of substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative instance of how some members of
the bar, availing of their proficiency in invoking the letter of the rules without regard to their
real spirit and intent, succeed in inducing courts to act contrary to the dictates of justice and
equity, and, in some instances, to wittingly or unwittingly abet unfair advantage by ironically
camouflaging their actuations as earnest efforts to satisfy the public clamor for speedy
disposition of litigations, forgetting all the while that the plain injunction of Section 2 of Rule 1
is that the "rules shall be liberally construed in order to promote their object and to assist the
parties in obtaining not only 'speedy' but more imperatively, "just ... and inexpensive
determination of every action and proceeding." We cannot simply pass over the impression
that the procedural maneuvers and tactics revealed in the records of the case at bar were
deliberately planned with the calculated end in view of depriving petitioners and their co-
defendants below of every opportunity to properly defend themselves against a claim of more
than substantial character, considering the millions of pesos worth of properties involved as
found by respondent judge himself in the impugned decision, a claim that appears, in the light
of the allegations of the answer and the documents already brought to the attention of the
court at the pre-trial, to be rather dubious. What is most regrettable is that apparently, all of
these alarming circumstances have escaped respondent judge who did not seem to have
hesitated in acting favorably on the motions of the plaintiff conducive to the deplorable
objective just mentioned, and which motions, at the very least, appeared to be 'of highly
controversial' merit, considering that their obvious tendency and immediate result would be
to convert the proceedings into a one-sided affair, a situation that should be readily
condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more on the contentions
of private respondent may be discerned from the manner it resolved the attempts of
defendants Dy Ochay and Antonio Lim Tanhu to have the earlier order of default against them
lifted. Notwithstanding that Dy Ochay's motion of October 8, 1971, co-signed by her with their
counsel, Atty. Jovencio Enjambre (Annex 2 of respondent answer herein) was over the jurat of
39 | P a g e
the notary public before whom she took her oath, in the order of November 2, 1971, (Annex 3
id.) it was held that "the oath appearing at the bottom of the motion is not the one
contemplated by the abovequoted pertinent provision (See. 3, Rule 18) of the rules. It is not
even a verification. (See. 6, Rule 7.) What the rule requires as interpreted by the Supreme
Court is that the motion must have to be accompanied by an affidavit of merits that the
defendant has a meritorious defense, thereby ignoring the very simple legal point that the
ruling of the Supreme Court in Ong Peng vs. Custodio, 1 SCRA 781, relied upon by His Honor,
under which a separate affidavit of merit is required refers obviously to instances where the
motion is not over oath of the party concerned, considering that what the cited provision
literally requires is no more than a "motion under oath." Stated otherwise, when a motion to
lift an order of default contains the reasons for the failure to answer as well as the facts
constituting the prospective defense of the defendant and it is sworn to by said defendant,
neither a formal verification nor a separate affidavit of merit is necessary.
What is worse, the same order further held that the motion to lift the order of default "is an
admission that there was a valid service of summons" and that said motion could not amount
to a challenge against the jurisdiction of the court over the person of the defendant. Such a
rationalization is patently specious and reveals an evident failure to grasp the import of the
legal concepts involved. A motion to lift an order of default on the ground that service of
summons has not been made in accordance with the rules is in order and is in essence verily
an attack against the jurisdiction of the court over the person of the defendant, no less than if
it were worded in a manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default as
against defendant Lim Tanhu, His Honor posited that said defendant "has a defense (quitclaim)
which renders the claim of the plaintiff contentious." We have read defendants' motion for
reconsideration of November 25, 1971 (Annex 5, id.), but We cannot find in it any reference to
a "quitclaim". Rather, the allegation of a quitclaim is in the amended complaint (Pars. 15-16,
Annex B of the petition herein) in which plaintiff maintains that her signature thereto was
secured through fraud and deceit. In truth, the motion for reconsideration just mentioned,
Annex 5, merely reiterated the allegation in Dy Ochay's earlier motion of October 8, 1971,
Annex 2, to set aside the order of default, that plaintiff Tan could be but the common law wife
only of Tee Hoon, since his legitimate wife was still alive, which allegation, His Honor held in
the order of November 2, 1971, Annex 3, to be "not good and meritorious defense". To top it
all, whereas, as already stated, the order of February 19, 1972, Annex 6, lifted the default
against Lim Tanhu because of the additional consideration that "he has a defense (quitclaim)
which renders the claim of the plaintiff contentious," the default of Dy Ochay was maintained
notwithstanding that exactly the same "contentions" defense as that of her husband was
invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the legal
postures in the orders in question can hardly convince Us that the matters here in issue were
accorded due and proper consideration by respondent court. In fact, under the circumstances
herein obtaining, it seems appropriate to stress that, having in view the rather substantial
value of the subject matter involved together with the obviously contentious character of
plaintiff's claim, which is discernible even on the face of the complaint itself, utmost care
should have been taken to avoid the slightest suspicion of improper motivations on the part
of anyone concerned. Upon the considerations hereunder to follow, the Court expresses its
grave concern that much has to be done to dispel the impression that herein petitioners and
their co-defendants are being railroaded out of their rights and properties without due process
of law, on the strength of procedural technicalities adroitly planned by counsel and seemingly
unnoticed and undetected by respondent court, whose orders, gauged by their tenor and the
citations of supposedly pertinent provisions and jurisprudence made therein, cannot be said
to have proceeded from utter lack of juridical knowledgeability and competence.
–1–
The first thing that has struck the Court upon reviewing the record is the seeming alacrity with
which the motion to dismiss the case against non-defaulted defendants Lim Teck Chuan and
Eng Chong Leonardo was disposed of, which definitely ought not to have been the case. The
trial was proceeding with the testimony of the first witness of plaintiff and he was still under
re-cross-examination. Undoubtedly, the motion to dismiss at that stage and in the light of the
declaration of default against the rest of the defendants was a well calculated surprise move,
obviously designed to secure utmost advantage of the situation, regardless of its apparent
unfairness. To say that it must have been entirely unexpected by all the defendants, defaulted
and non-defaulted , is merely to rightly assume that the parties in a judicial proceeding can
never be the victims of any procedural waylaying as long as lawyers and judges are imbued
with the requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact that the adverse parties who
were entitled to be notified of such unanticipated dismissal motion did not get due notice
thereof. Certainly, the non-defaulted defendants had the right to the three-day prior notice
required by Section 4 of Rule 15. How could they have had such indispensable notice when the
motion was set for hearing on Monday, October 21, 1974, whereas the counsel for Lim Teck
Chuan, Atty. Sitoy was personally served with the notice only on Saturday, October 19, 1974
and the counsel for Eng Chong Leonardo, Atty. Alcudia, was notified by registered mail which
was posted only that same Saturday, October 19, 1974? According to Chief Justice Moran,
"three days at least must intervene between the date of service of notice and the date set for
the hearing, otherwise the court may not validly act on the motion." (Comments on the Rules
of Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct construction of Section 4 of
Rule 15. And in the instant case, there can be no question that the notices to the non-defaulted
defendants were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is
the seeming inattention of respondent judge to the explicit mandate of the pertinent rule, not
to speak of the imperatives of fairness, considering he should have realized the far-reaching
implications, specially from the point of view he subsequently adopted, albeit erroneously, of
his favorably acting on it. Actually, he was aware of said consequences, for simultaneously with
40 | P a g e
his order of dismissal, he immediately set the case for the ex-parte hearing of the evidence
against the defaulted defendants, which, incidentally, from the tenor of his order which We
have quoted above, appears to have been done by him motu propio As a matter of fact,
plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores or is inconsistent
with a number of known juridical principles concerning defaults, which We will here take
occasion to reiterate and further elucidate on, if only to avoid a repetition of the unfortunate
errors committed in this case. Perhaps some of these principles have not been amply projected
and elaborated before, and such paucity of elucidation could be the reason why respondent
judge must have acted as he did. Still, the Court cannot but express its vehement
condemnation of any judicial actuation that unduly deprives any party of the right to be heard
without clear and specific warrant under the terms of existing rules or binding jurisprudence.
Extreme care must be the instant reaction of every judge when confronted with a situation
involving risks that the proceedings may not be fair and square to all the parties concerned.
Indeed, a keen sense of fairness, equity and justice that constantly looks for consistency
between the letter of the adjective rules and these basic principles must be possessed by every
judge, If substance is to prevail, as it must, over form in our courts. Literal observance of the
rules, when it is conducive to unfair and undue advantage on the part of any litigant before it,
is unworthy of any court of justice and equity. Withal, only those rules and procedure
informed, with and founded on public policy deserve obedience in accord with their
unequivocal language or words..
Before proceeding to the discussion of the default aspects of this case, however, it should not
be amiss to advert first to the patent incorrectness, apparent on the face of the record, of the
aforementioned order of dismissal of October 21, 1974 of the case below as regards non-
defaulted defendants Lim and Leonardo. While it is true that said defendants are not
petitioners herein, the Court deems it necessary for a full view of the outrageous procedural
strategy conceived by respondent's counsel and sanctioned by respondent court to also make
reference to the very evident fact that in ordering said dismissal respondent court disregarded
completely the existence of defendant's counterclaim which it had itself earlier held if
indirectly, to be compulsory in nature when it refused to dismiss the same on the ground
alleged by respondent Tan that he docketing fees for the filing thereof had not been paid by
defendants.
Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be noted
in the allegations hereof aforequoted, it arose out of or is necessarily connected with the
occurrence that is the subject matter of the plaintiff's claim, (Section 4, Rule 9) namely,
plaintiff's allegedly being the widow of the deceased Tee Hoon entitled, as such, to demand
accounting of and to receive the share of her alleged late husband as partner of defendants
Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory Commercial Company, the truth of
which allegations all the defendants have denied. Defendants maintain in their counterclaim
that plaintiff knew of the falsity of said allegations even before she filed her complaint, for she
had in fact admitted her common-law relationship with said deceased in a document she had
jointly executed with him by way of agreement to terminate their illegitimate relationship, for
which she received P40,000 from the deceased, and with respect to her pretended share in
the capital and profits in the partnership, it is also defendants' posture that she had already
quitclaimed, with the assistance of able counsel, whatever rights if any she had thereto in
November, 1967, for the sum of P25,000 duly receipted by her, which quitclaim was, however,
executed, according to respondent herself in her amended complaint, through fraud. And
having filed her complaint knowing, according to defendants, as she ought to have known, that
the material allegations thereof are false and baseless, she has caused them to suffer damages.
Undoubtedly, with such allegations, defendants' counterclaim is compulsory, not only because
the same evidence to sustain it will also refute the cause or causes of action alleged in plaintiff's
complaint, (Moran, supra p. 352) but also because from its very nature, it is obvious that the
same cannot "remain pending for independent adjudication by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has been
pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss, the
action shall not be dismissed against the defendant's objection unless the counterclaim can
remain pending for independent adjudication by the court." Defendants Lim and Leonardo had
no opportunity to object to the motion to dismiss before the order granting the same was
issued, for the simple reason that they were not opportunity notified of the motion therefor,
but the record shows clearly that at least defendant Lim immediately brought the matter of
their compulsory counterclaim to the attention of the trial court in his motion for
reconsideration of October 23, 1974, even as the counsel for the other defendant, Leonardo,
predicated his motion on other grounds. In its order of December 6, 1974, however,
respondent court not only upheld the plaintiffs supposed absolute right to choose her
adversaries but also held that the counterclaim is not compulsory, thereby virtually making
unexplained and inexplicable 180-degree turnabout in that respect.
There is another equally fundamental consideration why the motion to dismiss should not
have been granted. As the plaintiff's complaint has been framed, all the six defendants are
charged with having actually taken part in a conspiracy to misappropriate, conceal and convert
to their own benefit the profits, properties and all other assets of the partnership Glory
Commercial Company, to the extent that they have allegedly organized a corporation, Glory
Commercial Company, Inc. with what they had illegally gotten from the partnership. Upon such
allegations, no judgment finding the existence of the alleged conspiracy or holding the capital
of the corporation to be the money of the partnership is legally possible without the presence
of all the defendants. The non-defaulted defendants are alleged to be stockholders of the
corporation and any decision depriving the same of all its assets cannot but prejudice the
interests of said defendants. Accordingly, upon these premises, and even prescinding from the
other reasons to be discussed anon it is clear that all the six defendants below, defaulted and
non-defaulted, are indispensable parties. Respondents could do no less than grant that they
are so on page 23 of their answer. Such being the case, the questioned order of dismissal is
exactly the opposite of what ought to have been done. Whenever it appears to the court in
the course of a proceeding that an indispensable party has not been joined, it is the duty of
the court to stop the trial and to order the inclusion of such party. (The Revised Rules of Court,
41 | P a g e
Annotated & Commented by Senator Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See also
Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable, for the "general rule with
reference to the making of parties in a civil action requires the joinder of all necessary parties
wherever possible, and the joinder of all indispensable parties under any and all conditions,
the presence of those latter being a sine qua non of the exercise of judicial power." (Borlasa
vs. Polistico, 47 Phil. 345, at p. 347.) It is precisely " when an indispensable party is not before
the court (that) the action should be dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.)
The absence of an indispensable party renders all subsequent actuations of the court null and
void, for want of authority to act, not only as to the absent parties but even as to those present.
In short, what respondent court did here was exactly the reverse of what the law ordains — it
eliminated those who by law should precisely be joined.
As may he noted from the order of respondent court quoted earlier, which resolved the
motions for reconsideration of the dismissal order filed by the non-defaulted defendants, His
Honor rationalized his position thus:
It is the rule that it is the absolute prerogative of the plaintiff to choose, the theory upon which
he predicates his right of action, or the parties he desires to sue, without dictation or
imposition by the court or the adverse party. If he makes a mistake in the choice of his right of
action, or in that of the parties against whom he seeks to enforce it, that is his own concern as
he alone suffers therefrom. The plaintiff cannot be compelled to choose his defendants, He
may not, at his own expense, be forced to implead anyone who, under the adverse party's
theory, is to answer for defendant's liability. Neither may the Court compel him to furnish the
means by which defendant may avoid or mitigate their liability. (Vaño vs. Alo, 95 Phil. 495-
496.)
This being the rule this court cannot compel the plaintiff to continue prosecuting her cause of
action against the defendants-movants if in the course of the trial she believes she can enforce
it against the remaining defendants subject only to the limitation provided in Section 2, Rule
17 of the Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion of
October 18, 1974 by referring to the action he had taken as being "dismissal of the complaint
against them or their being dropped therefrom", without perceiving that the reason for the
evidently intentional ambiguity is transparent. The apparent idea is to rely on the theory that
under Section 11 of Rule 3, parties may be dropped by the court upon motion of any party at
any stage of the action, hence "it is the absolute right prerogative of the plaintiff to choose—
the parties he desires to sue, without dictation or imposition by the court or the adverse
party." In other words, the ambivalent pose is suggested that plaintiff's motion of October 18,
1974 was not predicated on Section 2 of Rule 17 but more on Section 11 of Rule 3. But the
truth is that nothing can be more incorrect. To start with, the latter rule does not comprehend
whimsical and irrational dropping or adding of parties in a complaint. What it really
contemplates is erroneous or mistaken non-joinder and misjoinder of parties. No one is free
to join anybody in a complaint in court only to drop him unceremoniously later at the pleasure
of the plaintiff. The rule presupposes that the original inclusion had been made in the honest
conviction that it was proper and the subsequent dropping is requested because it has turned
out that such inclusion was a mistake. And this is the reason why the rule ordains that the
dropping be "on such terms as are just" — just to all the other parties. In the case at bar, there
is nothing in the record to legally justify the dropping of the non-defaulted defendants, Lim
and Leonardo. The motion of October 18, 1974 cites none. From all appearances, plaintiff just
decided to ask for it, without any relevant explanation at all. Usually, the court in granting such
a motion inquires for the reasons and in the appropriate instances directs the granting of some
form of compensation for the trouble undergone by the defendant in answering the complaint,
preparing for or proceeding partially to trial, hiring counsel and making corresponding
expenses in the premises. Nothing of these, appears in the order in question. Most
importantly, His Honor ought to have considered that the outright dropping of the non-
defaulted defendants Lim and Leonardo, over their objection at that, would certainly be unjust
not only to the petitioners, their own parents, who would in consequence be entirely
defenseless, but also to Lim and Leonardo themselves who would naturally correspondingly
suffer from the eventual judgment against their parents. Respondent court paid no heed at all
to the mandate that such dropping must be on such terms as are just" — meaning to all
concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order of dismissal of October
21, 1974 as well as its order of December 6, 1974 denying reconsideration of such dismissal.
As We make this ruling, We are not oblivious of the circumstance that defendants Lim and
Leonardo are not parties herein. But such consideration is inconsequential. The fate of the case
of petitioners is inseparably tied up with said order of dismissal, if only because the order of
ex-parte hearing of October 21, 1974 which directly affects and prejudices said petitioners is
predicated thereon. Necessarily, therefore, We have to pass on the legality of said order, if We
are to decide the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further their questioning
of the dismissal is from another point of view understandable. On the one hand, why should
they insist on being defendants when plaintiff herself has already release from her claims? On
the other hand, as far as their respective parents-co-defendants are concerned, they must
have realized that they (their parents) could even be benefited by such dismissal because they
could question whether or not plaintiff can still prosecute her case against them after she had
secured the order of dismissal in question. And it is in connection with this last point that the
true and correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court of Appeals of January 24,
1975 in G. R. No. SP-03066 dismissing the petition for certiorari of non-defaulted defendants
Lim and Leonardo impugning the order of dismissal of October 21, 1974, has no bearing at all
in this case, not only because that dismissal was premised by the appellate court on its holding
that the said petition was premature inasmuch as the trial court had not yet resolved the
motion of the defendants of October 28, 1974 praying that said disputed order be quashed,
but principally because herein petitioners were not parties in that proceeding and cannot,
42 | P a g e
therefore, be bound by its result. In particular, We deem it warranted to draw the attention of
private respondent's counsel to his allegations in paragraphs XI to XIV of his answer, which
relate to said decision of the Court of Appeals and which have the clear tendency to make it
appear to the Court that the appeals court had upheld the legality and validity of the actuations
of the trial court being questioned, when as a matter of indisputable fact, the dismissal of the
petition was based solely and exclusively on its being premature without in any manner delving
into its merits. The Court must and does admonish counsel that such manner of pleading, being
deceptive and lacking in candor, has no place in any court, much less in the Supreme Court,
and if We are adopting a passive attitude in the premises, it is due only to the fact that this is
counsel's first offense. But similar conduct on his part in the future will definitely be dealt with
more severely. Parties and counsel would be well advised to avoid such attempts to befuddle
the issues as invariably then will be exposed for what they are, certainly unethical and
degrading to the dignity of the law profession. Moreover, almost always they only betray the
inherent weakness of the cause of the party resorting to them.
–2–
Coming now to the matter itself of default, it is quite apparent that the impugned orders must
have proceeded from inadequate apprehension of the fundamental precepts governing such
procedure under the Rules of Court. It is time indeed that the concept of this procedural device
were fully understood by the bench and bar, instead of being merely taken for granted as being
that of a simple expedient of not allowing the offending party to take part in the proceedings,
so that after his adversary shall have presented his evidence, judgment may be rendered in
favor of such opponent, with hardly any chance of said judgment being reversed or modified.
The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule is
concerned solely with default resulting from failure of the defendant or defendants to answer
within the reglementary period. Referring to the simplest form of default, that is, where there
is only one defendant in the action and he fails to answer on time, Section 1 of the rule provides
that upon "proof of such failure, (the court shall) declare the defendant in default. Thereupon
the court shall proceed to receive the plaintiff's evidence and render judgment granting him
such relief as the complaint and the facts proven may warrant." This last clause is clarified by
Section 5 which says that "a judgment entered against a party in default shall not exceed the
amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not readily convey the full
import of what they contemplate. To begin with, contrary to the immediate notion that can
be drawn from their language, these provisions are not to be understood as meaning that
default or the failure of the defendant to answer should be "interpreted as an admission by
the said defendant that the plaintiff's cause of action find support in the law or that plaintiff is
entitled to the relief prayed for." (Moran, supra, p. 535 citing Macondary & Co. v. Eustaquio,
64 Phil. 466, citing with approval Chaffin v. McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark.
599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 111. 328; Ken v. Leopold 21 111. A.
163; Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)

Being declared in default does not constitute a waiver of rights except that of being heard and
of presenting evidence in the trial court. According to Section 2, "except as provided in Section
9 of Rule 13, a party declared in default shall not be entitled to notice of subsequent
proceedings, nor to take part in the trial." That provision referred to reads: "No service of
papers other than substantially amended pleadings and final orders or judgments shall be
necessary on a party in default unless he files a motion to set aside the order of default, in
which event he shall be entitled to notice of all further proceedings regardless of whether the
order of default is set aside or not." And pursuant to Section 2 of Rule 41, "a party who has
been declared in default may likewise appeal from the judgment rendered against him as
contrary to the evidence or to the law, even if no petition for relief to set aside the order of
default has been presented by him in accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out of court. While in a sense it
may be said that by defaulting he leaves himself at the mercy of the court, the rules see to it
that any judgment against him must be in accordance with law. The evidence to support the
plaintiff's cause is, of course, presented in his absence, but the court is not supposed to admit
that which is basically incompetent. Although the defendant would not be in a position to
object, elementary justice requires that, only legal evidence should be considered against him.
If the evidence presented should not be sufficient to justify a judgment for the plaintiff, the
complaint must be dismissed. And if an unfavorable judgment should be justifiable, it cannot
exceed in amount or be different in kind from what is prayed for in the complaint.
Incidentally, these considerations argue against the present widespread practice of trial
judges, as was done by His Honor in this case, of delegating to their clerks of court the
reception of the plaintiff's evidence when the defendant is in default. Such a Practice is wrong
in principle and orientation. It has no basis in any rule. When a defendant allows himself to be
declared in default, he relies on the faith that the court would take care that his rights are not
unduly prejudiced. He has a right to presume that the law and the rules will still be observed.
The proceedings are held in his forced absence, and it is but fair that the plaintiff should not
be allowed to take advantage of the situation to win by foul or illegal means or with inherently
incompetent evidence. Thus, in such instances, there is need for more attention from the
court, which only the judge himself can provide. The clerk of court would not be in a position
much less have the authority to act in the premises in the manner demanded by the rules of
fair play and as contemplated in the law, considering his comparably limited area of discretion
and his presumably inferior preparation for the functions of a judge. Besides, the default of
the defendant is no excuse for the court to renounce the opportunity to closely observe the
demeanor and conduct of the witnesses of the plaintiff, the better to appreciate their
truthfulness and credibility. We therefore declare as a matter of judicial policy that there being
no imperative reason for judges to do otherwise, the practice should be discontinued.
Another matter of practice worthy of mention at this point is that it is preferable to leave
enough opportunity open for possible lifting of the order of default before proceeding with
the reception of the plaintiff's evidence and the rendition of the decision. "A judgment by
43 | P a g e
default may amount to a positive and considerable injustice to the defendant; and the
possibility of such serious consequences necessitates a careful and liberal examination of the
grounds upon which the defendant may seek to set it aside." (Moran, supra p. 534, citing
Coombs vs. Santos, 24 Phil. 446; 449-450.) The expression, therefore, in Section 1 of Rule 18
aforequoted which says that "thereupon the court shall proceed to receive the plaintiff's
evidence etc." is not to be taken literally. The gain in time and dispatch should the court
immediately try the case on the very day of or shortly after the declaration of default is far
outweighed by the inconvenience and complications involved in having to undo everything
already done in the event the defendant should justify his omission to answer on time.
The foregoing observations, as may be noted, refer to instances where the only defendant or
all the defendants, there being several, are declared in default. There are additional rules
embodying more considerations of justice and equity in cases where there are several
defendants against whom a common cause of action is averred and not all of them answer
opportunely or are in default, particularly in reference to the power of the court to render
judgment in such situations. Thus, in addition to the limitation of Section 5 that the judgment
by default should not be more in amount nor different in kind from the reliefs specifically
sought by plaintiff in his complaint, Section 4 restricts the authority of the court in rendering
judgment in the situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and other make difficult. — When a
complaint states a common cause of action against several defendant some of whom answer,
and the others fail to do so, the court shall try the case against all upon the answer thus filed
and render judgment upon the evidence presented. The same proceeding applies when a
common cause of action is pleaded in a counterclaim, cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision and the controlling
jurisprudence explanatory thereof this wise:
Where a complaint states a common cause of action against several defendants and some
appear to defend the case on the merits while others make default, the defense interposed by
those who appear to litigate the case inures to the benefit of those who fail to appear, and if
the court finds that a good defense has been made, all of the defendants must be absolved. In
other words, the answer filed by one or some of the defendants inures to the benefit of all the
others, even those who have not seasonably filed their answer. (Bueno v. Ortiz, L-22978, June
27, 1968, 23 SCRA 1151.) The proper mode of proceeding where a complaint states a common
cause of action against several defendants, and one of them makes default, is simply to enter
a formal default order against him, and proceed with the cause upon the answers of the others.
The defaulting defendant merely loses his standing in court, he not being entitled to the service
of notice in the cause, nor to appear in the suit in any way. He cannot adduce evidence; nor
can he be heard at the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.) although he may appeal
the judgment rendered against him on the merits. (Rule 41, sec. 2.) If the case is finally decided
in the plaintiff's favor, a final decree is then entered against all the defendants; but if the suit
should be decided against the plaintiff, the action will be dismissed as to all the defendants
alike. (Velez v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.) In other
words the judgment will affect the defaulting defendants either favorably or adversely. (Castro
v. Peña, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his favor. (Castro v. Peña, supra.)
(Moran, Rules of Court, Vol. 1, pp. 538-539.)
In Castro vs. Peña, 80 Phil. 488, one of the numerous cases cited by Moran, this Court
elaborated on the construction of the same rule when it sanctioned the execution, upon
motion and for the benefit of the defendant in default, of a judgment which was adverse to
the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel, also was a movant in the petition for
execution Annex 1. Did she have a right to be such, having been declared in default? In Frow
vs. De la Vega, supra, cited as authority in Velez vs. Ramas, supra, the Supreme Court of the
United States adopted as ground for its own decision the following ruling of the New York
Court of Errors in Clason vs. Morris, 10 Jons., 524:
It would be unreasonable to hold that because one defendant had made default, the plaintiff
should have a decree even against him, where the court is satisfied from the proofs offered by
the other, that in fact the plaintiff is not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The complaint stating a common cause of
action against several defendants, the complainant's rights — or lack of them — in the
controversy have to be the same, and not different, as against all the defendant's although
one or some make default and the other or others appear, join issue, and enter into trial. For
instance, in the case of Clason vs. Morris above cited, the New York Court of Errors in effect
held that in such a case if the plaintiff is not entitled to a decree, he will not be entitled to it,
not only as against the defendant appearing and resisting his action but also as against the one
who made default. In the case at bar, the cause of action in the plaintiff's complaint was
common against the Mayor of Manila, Emilia Matanguihan, and the other defendants in Civil
Case No. 1318 of the lower court. The Court of First Instance in its judgment found and held
upon the evidence adduced by the plaintiff and the defendant mayor that as between said
plaintiff and defendant Matanguihan the latter was the one legally entitled to occupy the stalls;
and it decreed, among other things, that said plaintiff immediately vacate them. Paraphrasing
the New York Court of Errors, it would be unreasonable to hold now that because Matanguihan
had made default, the said plaintiff should be declared, as against her, legally entitled to the
occupancy of the stalls, or to remain therein, although the Court of First Instance was so firmly
satisfied, from the proofs offered by the other defendant, that the same plaintiff was not
entitled to such occupancy that it peremptorily ordered her to vacate the stalls. If in the cases
of Clason vs. Morris, supra, Frow vs. De la Vega, supra, and Velez vs. Ramas, supra the decrees
entered inured to the benefit of the defaulting defendants, there is no reason why that entered
in said case No. 1318 should not be held also to have inured to the benefit of the defaulting
defendant Matanguihan and the doctrine in said three cases plainly implies that there is
44 | P a g e
nothing in the law governing default which would prohibit the court from rendering judgment
favorable to the defaulting defendant in such cases. If it inured to her benefit, it stands to
reason that she had a right to claim that benefit, for it would not be a benefit if the supposed
beneficiary were barred from claiming it; and if the benefit necessitated the execution of the
decree, she must be possessed of the right to ask for the execution thereof as she did when
she, by counsel, participated in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to the above considerations. It
provides that when a complaint states a common cause of action against several defendants,
some of whom answer, and the others make default, 'the court shall try the case against all
upon the answer thus filed and render judgment upon the evidence presented by the parties
in court'. It is obvious that under this provision the case is tried jointly not only against the
defendants answering but also against those defaulting, and the trial is held upon the answer
filed by the former; and the judgment, if adverse, will prejudice the defaulting defendants no
less than those who answer. In other words, the defaulting defendants are held bound by the
answer filed by their co-defendants and by the judgment which the court may render against
all of them. By the same token, and by all rules of equity and fair play, if the judgment should
happen to be favorable, totally or partially, to the answering defendants, it must
correspondingly benefit the defaulting ones, for it would not be just to let the judgment
produce effects as to the defaulting defendants only when adverse to them and not when
favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the
following words:
In answer to the charge that respondent Judge had committed a grave abuse of discretion in
rendering a default judgment against the PC, respondents allege that, not having filed its
answer within the reglementary period, the PC was in default, so that it was proper for Patanao
to forthwith present his evidence and for respondent Judge to render said judgment. It should
be noted, however, that in entering the area in question and seeking to prevent Patanao from
continuing his logging operations therein, the PC was merely executing an order of the Director
of Forestry and acting as his agent. Patanao's cause of action against the other respondents in
Case No. 190, namely, the Director of Forestry, the District Forester of Agusan, the Forest
Officer of Bayugan, Agusan, and the Secretary of Agriculture and Natural Resources. Pursuant
to Rule 18, Section 4, of the Rules of Court, 'when a complaint states a common cause of action
against several defendants some of whom answer and the others fail to do so, the court shall
try the case against all upon the answer thus filed (by some) and render judgment upon the
evidence presented.' In other words, the answer filed by one or some of the defendants inures
to the benefit of all the others, even those who have not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a common cause of action against all of
the respondents therein, a decision in favor of one of them would necessarily favor the others.
In fact, the main issue, in said case, is whether Patanao has a timber license to undertake
logging operations in the disputed area. It is not possible to decide such issue in the negative,
insofar as the Director of Forestry, and to settle it otherwise, as regards the PC, which is merely
acting as agent of the Director of Forestry, and is, therefore, his alter ego, with respect to the
disputed forest area.
Stated differently, in all instances where a common cause of action is alleged against several
defendants, some of whom answer and the others do not, the latter or those in default acquire
a vested right not only to own the defense interposed in the answer of their co- defendant or
co-defendants not in default but also to expect a result of the litigation totally common with
them in kind and in amount whether favorable or unfavorable. The substantive unity of the
plaintiff's cause against all the defendants is carried through to its adjective phase as
ineluctably demanded by the homogeneity and indivisibility of justice itself. Indeed, since the
singleness of the cause of action also inevitably implies that all the defendants are
indispensable parties, the court's power to act is integral and cannot be split such that it cannot
relieve any of them and at the same time render judgment against the rest. Considering the
tenor of the section in question, it is to be assumed that when any defendant allows himself
to be declared in default knowing that his defendant has already answered, he does so trusting
in the assurance implicit in the rule that his default is in essence a mere formality that deprives
him of no more than the right to take part in the trial and that the court would deem anything
done by or for the answering defendant as done by or for him. The presumption is that
otherwise he would not -have seen to that he would not be in default. Of course, he has to
suffer the consequences of whatever the answering defendant may do or fail to do, regardless
of possible adverse consequences, but if the complaint has to be dismissed in so far as the
answering defendant is concerned it becomes his inalienable right that the same be dismissed
also as to him. It does not matter that the dismissal is upon the evidence presented by the
plaintiff or upon the latter's mere desistance, for in both contingencies, the lack of sufficient
legal basis must be the cause. The integrity of the common cause of action against all the
defendants and the indispensability of all of them in the proceedings do not permit any
possibility of waiver of the plaintiff's right only as to one or some of them, without including
all of them, and so, as a rule, withdrawal must be deemed to be a confession of weakness as
to all. This is not only elementary justice; it also precludes the concomitant hazard that plaintiff
might resort to the kind of procedural strategem practiced by private respondent herein that
resulted in totally depriving petitioners of every opportunity to defend themselves against her
claims which, after all, as will be seen later in this opinion, the record does not show to be
invulnerable, both in their factual and legal aspects, taking into consideration the tenor of the
pleadings and the probative value of the competent evidence which were before the trial court
when it rendered its assailed decision where all the defendants are indispensable parties, for
which reason the absence of any of them in the case would result in the court losing its
competency to act validly, any compromise that the plaintiff might wish to make with any of
them must, as a matter of correct procedure, have to await until after the rendition of the
judgment, at which stage the plaintiff may then treat the matter of its execution and the
satisfaction of his claim as variably as he might please. Accordingly, in the case now before Us
together with the dismissal of the complaint against the non-defaulted defendants, the court
should have ordered also the dismissal thereof as to petitioners.
45 | P a g e
Indeed, there is more reason to apply here the principle of unity and indivisibility of the action
just discussed because all the defendants here have already joined genuine issues with
plaintiff. Their default was only at the pre-trial. And as to such absence of petitioners at the
pre-trial, the same could be attributed to the fact that they might not have considered it
necessary anymore to be present, since their respective children Lim and Leonardo, with
whom they have common defenses, could take care of their defenses as well. Anything that
might have had to be done by them at such pre-trial could have been done for them by their
children, at least initially, specially because in the light of the pleadings before the court, the
prospects of a compromise must have appeared to be rather remote. Such attitude of
petitioners is neither uncommon nor totally unjustified. Under the circumstances, to declare
them immediately and irrevocably in default was not an absolute necessity. Practical
considerations and reasons of equity should have moved respondent court to be more
understanding in dealing with the situation. After all, declaring them in default as respondent
court did not impair their right to a common fate with their children.
–3–
Another issue to be resolved in this case is the question of whether or not herein petitioners
were entitled to notice of plaintiff's motion to drop their co-defendants Lim and Leonardo,
considering that petitioners had been previously declared in default. In this connection, the
decisive consideration is that according to the applicable rule, Section 9, Rule 13, already
quoted above, (1) even after a defendant has been declared in default, provided he "files a
motion to set aside the order of default, — he shall be entitled to notice of all further
proceedings regardless of whether the order of default is set aside or not" and (2) a party in
default who has not filed such a motion to set aside must still be served with all "substantially
amended or supplemented pleadings." In the instant case, it cannot be denied that petitioners
had all filed their motion for reconsideration of the order declaring them in default.
Respondents' own answer to the petition therein makes reference to the order of April 3, 1973,
Annex 8 of said answer, which denied said motion for reconsideration. On page 3 of
petitioners' memorandum herein this motion is referred to as "a motion to set aside the order
of default." But as We have not been favored by the parties with a copy of the said motion,
We do not even know the excuse given for petitioners' failure to appear at the pre-trial, and
We cannot, therefore, determine whether or not the motion complied with the requirements
of Section 3 of Rule 18 which We have held to be controlling in cases of default for failure to
answer on time. (The Philippine-British Co. Inc. etc. et al. vs. The Hon. Walfrido de los Angeles
etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default for failure to answer but
one for failure to appear at the pre-trial. We reiterate, in the situation now before Us, issues
have already been joined. In fact, evidence had been partially offered already at the pre-trial
and more of it at the actual trial which had already begun with the first witness of the plaintiff
undergoing re-cross-examination. With these facts in mind and considering that issues had
already been joined even as regards the defaulted defendants, it would be requiring the
obvious to pretend that there was still need for an oath or a verification as to the merits of the
defense of the defaulted defendants in their motion to reconsider their default. Inasmuch as
none of the parties had asked for a summary judgment there can be no question that the issues
joined were genuine, and consequently, the reason for requiring such oath or verification no
longer holds. Besides, it may also be reiterated that being the parents of the non-defaulted
defendants, petitioners must have assumed that their presence was superfluous, particularly
because the cause of action against them as well as their own defenses are common. Under
these circumstances, the form of the motion by which the default was sought to be lifted is
secondary and the requirements of Section 3 of Rule 18 need not be strictly complied with,
unlike in cases of default for failure to answer. We can thus hold as We do hold for the
purposes of the revival of their right to notice under Section 9 of Rule 13, that petitioner's
motion for reconsideration was in substance legally adequate regardless of whether or not it
was under oath.
In any event, the dropping of the defendants Lim and Leonardo from plaintiff's amended
complaint was virtually a second amendment of plaintiffs complaint. And there can be no
doubt that such amendment was substantial, for with the elimination thereby of two
defendants allegedly solidarily liable with their co-defendants, herein petitioners, it had the
effect of increasing proportionally what each of the remaining defendants, the said petitioners,
would have to answer for jointly and severally. Accordingly, notice to petitioners of the
plaintiff's motion of October 18, 1974 was legally indispensable under the rule above-quoted.
Consequently, respondent court had no authority to act on the motion, to dismiss, pursuant
to Section 6 of Rule 15, for according to Senator Francisco, "(t) he Rules of Court clearly provide
that no motion shall be acted upon by the Court without the proof of service of notice thereof,
together with a copy of the motion and other papers accompanying it, to all parties concerned
at least three days before the hearing thereof, stating the time and place for the hearing of the
motion. (Rule 26, section 4, 5 and 6, Rules of Court (now Sec. 15, new Rules). When the motion
does not comply with this requirement, it is not a motion. It presents no question which the
court could decide. And the Court acquires no jurisdiction to consider it. (Roman Catholic
Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Laserna
vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing Roman Catholic Bishop of
Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The
Revised Rules of Court in the Philippines, pp. 861-862.) Thus, We see again, from a different
angle, why respondent court's order of dismissal of October 21, 1974 is fatally ineffective.
–4–
The foregoing considerations notwithstanding, it is respondents' position that certiorari is not
the proper remedy of petitioners. It is contended that inasmuch as said petitioners have in fact
made their appeal already by filing the required notice of appeal and appeal bond and a motion
for extension to file their record on appeal, which motion was granted by respondent court,
their only recourse is to prosecute that appeal. Additionally, it is also maintained that since
petitioners have expressly withdrawn their motion to quash of January 4, 1975 impugning the
order of October 28, 1974, they have lost their right to assail by certiorari the actuations of
46 | P a g e
respondent court now being questioned, respondent court not having been given the
opportunity to correct any possible error it might have committed.
We do not agree. As already shown in the foregoing discussion, the proceedings in the court
below have gone so far out of hand that prompt action is needed to restore order in the
entangled situation created by the series of plainly illegal orders it had issued. The essential
purpose of certiorari is to keep the proceedings in lower judicial courts and tribunals within
legal bounds, so that due process and the rule of law may prevail at all times and arbitrariness,
whimsicality and unfairness which justice abhors may immediately be stamped out before
graver injury, juridical and otherwise, ensues. While generally these objectives may well be
attained in an ordinary appeal, it is undoubtedly the better rule to allow the special remedy of
certiorari at the option of the party adversely affected, when the irregularity committed by the
trial court is so grave and so far reaching in its consequences that the long and cumbersome
procedure of appeal will only further aggravate the situation of the aggrieved party because
other untoward actuations are likely to materialize as natural consequences of those already
perpetrated. If the law were otherwise, certiorari would have no reason at all for being.
No elaborate discussion is needed to show the urgent need for corrective measures in the case
at bar. Verily, this is one case that calls for the exercise of the Supreme Court's inherent power
of supervision over all kinds of judicial actions of lower courts. Private respondent's procedural
technique designed to disable petitioners to defend themselves against her claim which
appears on the face of the record itself to be at least highly controversial seems to have so
fascinated respondent court that none would be surprised should her pending motion for
immediate execution of the impugned judgment receive similar ready sanction as her previous
motions which turned the proceedings into a one-sided affair. The stakes here are high. Not
only is the subject matter considerably substantial; there is the more important aspect that
not only the spirit and intent of the rules but even the basic rudiments of fair play have been
disregarded. For the Court to leave unrestrained the obvious tendency of the proceedings
below would be nothing short of wittingly condoning inequity and injustice resulting from
erroneous construction and unwarranted application of procedural rules.
–5–
The sum and total of all the foregoing disquisitions is that the decision here in question is
legally anomalous. It is predicated on two fatal malactuations of respondent court namely (1)
the dismissal of the complaint against the non-defaulted defendants Lim and Leonardo and (2)
the ex-parte reception of the evidence of the plaintiff by the clerk of court, the subsequent
using of the same as basis for its judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed above, the order of dismissal
of October 21, 1974 is unworthy of Our sanction: (1) there was no timely notice of the motion
therefor to the non-defaulted defendants, aside from there being no notice at all to herein
petitioners; (2) the common answer of the defendants, including the non-defaulted, contained
a compulsory counterclaim incapable of being determined in an independent action; and (3)
the immediate effect of such dismissal was the removal of the two non-defaulted defendants
as parties, and inasmuch as they are both indispensable parties in the case, the court
consequently lost the" sine qua non of the exercise of judicial power", per Borlasa vs. Polistico,
supra. This is not to mention anymore the irregular delegation to the clerk of court of the
function of receiving plaintiff's evidence. And as regards the ex-parte reception of plaintiff's
evidence and subsequent rendition of the judgment by default based thereon, We have seen
that it was violative of the right of the petitioners, under the applicable rules and principles on
default, to a common and single fate with their non-defaulted co-defendants. And We are not
yet referring, as We shall do this anon to the numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws in respondent
court's actuations do not call for a common corrective remedy. We cannot simply rule that all
the impugned proceedings are null and void and should be set aside, without being faced with
the insurmountable obstacle that by so doing We would be reviewing the case as against the
two non-defaulted defendants who are not before Us not being parties hereto. Upon the other
hand, for Us to hold that the order of dismissal should be allowed to stand, as contended by
respondents themselves who insist that the same is already final, not only because the period
for its finality has long passed but also because allegedly, albeit not very accurately, said 'non-
defaulted defendants unsuccessfully tried to have it set aside by the Court of Appeals whose
decision on their petition is also already final, We would have to disregard whatever evidence
had been presented by the plaintiff against them and, of course, the findings of respondent
court based thereon which, as the assailed decision shows, are adverse to them. In other
words, whichever of the two apparent remedies the Court chooses, it would necessarily entail
some kind of possible juridical imperfection. Speaking of their respective practical or pragmatic
effects, to annul the dismissal would inevitably prejudice the rights of the non-defaulted
defendants whom We have not heard and who even respondents would not wish to have
anything anymore to do with the case. On the other hand, to include petitioners in the
dismissal would naturally set at naught every effort private respondent has made to establish
or prove her case thru means sanctioned by respondent court. In short, We are confronted
with a legal para-dilemma. But one thing is certain — this difficult situations has been brought
about by none other than private respondent who has quite cynically resorted to procedural
maneuvers without realizing that the technicalities of the adjective law, even when apparently
accurate from the literal point of view, cannot prevail over the imperatives of the substantive
law and of equity that always underlie them and which have to be inevitably considered in the
construction of the pertinent procedural rules.
All things considered, after careful and mature deliberation, the Court has arrived at the
conclusion that as between the two possible alternatives just stated, it would only be fair,
equitable and proper to uphold the position of petitioners. In other words, We rule that the
order of dismissal of October 21, 1974 is in law a dismissal of the whole case of the plaintiff,
including as to petitioners herein. Consequently, all proceedings held by respondent court
subsequent thereto including and principally its decision of December 20, 1974 are illegal and
should be set aside.
47 | P a g e
This conclusion is fully justified by the following considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted to by private respondent
in securing the decision in her favor was ill-conceived. It was characterized by that which every
principle of law and equity disdains — taking unfair advantage of the rules of procedure in
order to unduly deprive the other party of full opportunity to defend his cause. The idea of
"dropping" the non-defaulted defendants with the end in view of completely incapacitating
their co-defendants from making any defense, without considering that all of them are
indispensable parties to a common cause of action to which they have countered with a
common defense readily connotes an intent to secure a one-sided decision, even improperly.
And when, in this connection, the obvious weakness of plaintiff's evidence is taken into
account, one easily understands why such tactics had to be availed of. We cannot directly or
indirectly give Our assent to the commission of unfairness and inequity in the application of
the rules of procedure, particularly when the propriety of reliance thereon is not beyond
controversy.
2. The theories of remedial law pursued by private respondents, although approved by
His Honor, run counter to such basic principles in the rules on default and such elementary
rules on dismissal of actions and notice of motions that no trial court should be unaware of or
should be mistaken in applying. We are at a loss as to why His Honor failed to see through
counsel's inequitous strategy, when the provisions (1) on the three-day rule on notice of
motions, Section 4 of Rule 15, (2) against dismissal of actions on motion of plaintiff when there
is a compulsory counterclaim, Section 2, Rule 17, (3) against permitting the absence of
indispensable parties, Section 7, Rule 3, (4) on service of papers upon defendants in default
when there are substantial amendments to pleadings, Section 9, Rule 13, and (5) on the unity
and integrity of the fate of defendants in default with those not in default where the cause of
action against them and their own defenses are common, Section 4, Rule 18, are so plain and
the jurisprudence declaratory of their intent and proper construction are so readily
comprehensible that any error as to their application would be unusual in any competent trial
court.
3. After all, all the malactuations of respondent court are traceable to the initiative of
private respondent and/or her counsel. She cannot, therefore, complain that she is being made
to unjustifiably suffer the consequences of what We have found to be erroneous orders of
respondent court. It is only fair that she should not be allowed to benefit from her own
frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis of its own recitals,
the decision in question cannot stand close scrutiny. What is more, the very considerations
contained therein reveal convincingly the inherent weakness of the cause of the plaintiff. To
be sure, We have been giving serious thought to the idea of merely returning this case for a
resumption of trial by setting aside the order of dismissal of October 21, 1974, with all its
attendant difficulties on account of its adverse effects on parties who have not been heard,
but upon closer study of the pleadings and the decision and other circumstances extant in the
record before Us, We are now persuaded that such a course of action would only lead to more
legal complications incident to attempts on the part of the parties concerned to desperately
squeeze themselves out of a bad situation. Anyway, We feel confident that by and large, there
is enough basis here and now for Us to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would immediately reveal that it is littered on
its face with deficiencies and imperfections which would have had no reason for being were
there less haste and more circumspection in rendering the same. Recklessness in jumping to
unwarranted conclusions, both factual and legal, is at once evident in its findings relative
precisely to the main bases themselves of the reliefs granted. It is apparent therein that no
effort has been made to avoid glaring inconsistencies. Where references are made to codal
provisions and jurisprudence, inaccuracy and inapplicability are at once manifest. It hardly
commends itself as a deliberate and consciencious adjudication of a litigation which,
considering the substantial value of the subject matter it involves and the unprecedented
procedure that was followed by respondent's counsel, calls for greater attention and skill than
the general run of cases would.
Inter alia, the following features of the decision make it highly improbable that if We took
another course of action, private respondent would still be able to make out any case against
petitioners, not to speak of their co-defendants who have already been exonerated by
respondent herself thru her motion to dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is the widow of the
late Tee Hoon Po Chuan (Po Chuan, for short) who was then one of the partners in the
commercial partnership, Glory Commercial Co. with defendants Antonio Lim Tanhu (Lim
Tanhu, for short) and Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-partners; that after
the death of her husband on March 11, 1966 she is entitled to share not only in the capital and
profits of the partnership but also in the other assets, both real and personal, acquired by the
partnership with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to the following effect: .
That the herein plaintiff Tan Put and her late husband Po Chuan married at the Philippine
Independent Church of Cebu City on December, 20, 1949; that Po Chuan died on March 11,
1966; that the plaintiff and the late Po Chuan were childless but the former has a foster son
Antonio Nuñez whom she has reared since his birth with whom she lives up to the present;
that prior to the marriage of the plaintiff to Po Chuan the latter was already managing the
partnership Glory Commercial Co. then engaged in a little business in hardware at Manalili St.,
Cebu City; that prior to and just after the marriage of the plaintiff to Po Chuan she was engaged
in the drugstore business; that not long after her marriage, upon the suggestion of Po Chuan
the plaintiff sold her drugstore for P125,000.00 which amount she gave to her husband in the
presence of defendant Lim Tanhu and was invested in the partnership Glory Commercial Co.
sometime in 1950; that after the investment of the above-stated amount in the partnership its
48 | P a g e
business flourished and it embarked in the import business and also engaged in the wholesale
and retail trade of cement and GI sheets and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership
Glory Commercial Co. he was the one who made the final decisions and approved the
appointments of new personnel who were taken in by the partnership; that the late Po Chuan
and defendants Lim Tanhu and Ng Sua are brothers, the latter two (2) being the elder brothers
of the former; that defendants Lim Tanhu and Ng Sua are both naturalized Filipino citizens
whereas the late Po Chuan until the time of his death was a Chinese citizen; that the three (3)
brothers were partners in the Glory Commercial Co. but Po Chuan was practically the owner
of the partnership having the controlling interest; that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere employees of Po Chuan .... (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is not clear in the decision
whether or not in making its findings of fact the court took into account the allegations in the
pleadings of the parties and whatever might have transpired at the pre-trial. All that We can
gather in this respect is that references are made therein to pre-trial exhibits and to Annex A
of the answer of the defendants to plaintiff's amended complaint. Indeed, it was incumbent
upon the court to consider not only the evidence formally offered at the trial but also the
admissions, expressed or implied, in the pleadings, as well as whatever might have been placed
before it or brought to its attention during the pre-trial. In this connection, it is to be regretted
that none of the parties has thought it proper to give Us an idea of what took place at the pre-
trial of the present case and what are contained in the pre-trial order, if any was issued
pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every opportunity to
compromise or settle their differences, is for the court to be apprised of the unsettled issues
between the parties and of their respective evidence relative thereto, to the end that it may
take corresponding measures that would abbreviate the trial as much as possible and the judge
may be able to ascertain the facts with the least observance of technical rules. In other words
whatever is said or done by the parties or their counsel at the pre- trial serves to put the judge
on notice of their respective basic positions, in order that in appropriate cases he may, if
necessary in the interest of justice and a more accurate determination of the facts, make
inquiries about or require clarifications of matters taken up at the pre-trial, before finally
resolving any issue of fact or of law. In brief, the pre-trial constitutes part and parcel of the
proceedings, and hence, matters dealt with therein may not be disregarded in the process of
decision making. Otherwise, the real essence of compulsory pre-trial would be insignificant
and worthless.
Now, applying these postulates to the findings of respondent court just quoted, it will be
observed that the court's conclusion about the supposed marriage of plaintiff to the deceased
Tee Hoon Lim Po Chuan is contrary to the weight of the evidence brought before it during the
trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting parties that they take
each other as husband and wife "shall be set forth in an instrument" signed by the parties as
well as by their witnesses and the person solemnizing the marriage. Accordingly, the primary
evidence of a marriage must be an authentic copy of the marriage contract. While a marriage
may also be proved by other competent evidence, the absence of the contract must first be
satisfactorily explained. Surely, the certification of the person who allegedly solemnized a
marriage is not admissible evidence of such marriage unless proof of loss of the contract or of
any other satisfactory reason for its non-production is first presented to the court. In the case
at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop, Philippine
Independent Church, Cebu City, is not, therefore, competent evidence, there being absolutely
no showing as to unavailability of the marriage contract and, indeed, as to the authenticity of
the signature of said certifier, the jurat allegedly signed by a second assistant provincial fiscal
not being authorized by law, since it is not part of the functions of his office. Besides, inasmuch
as the bishop did not testify, the same is hearsay.
As regards the testimony of plaintiff herself on the same point and that of her witness Antonio
Nuñez, there can be no question that they are both self-serving and of very little evidentiary
value, it having been disclosed at the trial that plaintiff has already assigned all her rights in
this case to said Nuñez, thereby making him the real party in interest here and, therefore,
naturally as biased as herself. Besides, in the portion of the testimony of Nuñez copied in Annex
C of petitioner's memorandum, it appears admitted that he was born only on March 25, 1942,
which means that he was less than eight years old at the supposed time of the alleged
marriage. If for this reason alone, it is extremely doubtful if he could have been sufficiently
aware of such event as to be competent to testify about it.
Incidentally, another Annex C of the same memorandum purports to be the certificate of birth
of one Antonio T. Uy supposed to have been born on March 23, 1937 at Centro Misamis,
Misamis Occidental, the son of one Uy Bien, father, and Tan Put, mother. Significantly,
respondents have not made any adverse comment on this document. It is more likely,
therefore, that the witness is really the son of plaintiff by her husband Uy Kim Beng. But she
testified she was childless. So which is which? In any event, if on the strength of this document,
Nuñez is actually the legitimate son of Tan Put and not her adopted son, he would have been
but 13 years old in 1949, the year of her alleged marriage to Po Chuan, and even then,
considering such age, his testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of
great weight belying the pretended marriage. We refer to (1) Exhibit LL, the income tax return
of the deceased Tee Hoon Lim Po Chuan indicating that the name of his wife was Ang Sick Tin
and (2) the quitclaim, Annex A of the answer, wherein plaintiff Tan Put stated that she had
been living with the deceased without benefit of marriage and that she was his "common-law
49 | P a g e
wife". Surely, these two documents are far more reliable than all the evidence of the plaintiff
put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence offered
to the judge himself, not to the clerk of court, and should have at least moved him to ask
plaintiff to explain if not rebut it before jumping to the conclusion regarding her alleged
marriage to the deceased, Po Chuan. And in regard to the quitclaim containing the admission
of a common-law relationship only, it is to be observed that His Honor found that "defendants
Lim Tanhu and Ng Sua had the plaintiff execute a quitclaim on November 29, 1967 (Annex "A",
Answer) where they gave plaintiff the amount of P25,000 as her share in the capital and profits
of the business of Glory Commercial Co. which was engaged in the hardware business",
without making mention of any evidence of fraud and misrepresentation in its execution,
thereby indicating either that no evidence to prove that allegation of the plaintiff had been
presented by her or that whatever evidence was actually offered did not produce persuasion
upon the court. Stated differently, since the existence of the quitclaim has been duly
established without any circumstance to detract from its legal import, the court should have
held that plaintiff was bound by her admission therein that she was the common-law wife only
of Po Chuan and what is more, that she had already renounced for valuable consideration
whatever claim she might have relative to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these considerations, there are mentioned
and discussed in the memorandum of petitioners (1) the certification of the Local Civil Registrar
of Cebu City and (2) a similar certification of the Apostolic Prefect of the Philippine
Independent Church, Parish of Sto. Niño, Cebu City, that their respective official records
corresponding to December 1949 to December 1950 do not show any marriage between Tee
Hoon Lim Po Chuan and Tan Put, neither of which certifications have been impugned by
respondent until now, it stands to reason that plaintiff's claim of marriage is really unfounded.
Withal, there is still another document, also mentioned and discussed in the same
memorandum and unimpugned by respondents, a written agreement executed in Chinese, but
purportedly translated into English by the Chinese Consul of Cebu, between Tan Put and Tee
Hoon Lim Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with Mr. Lim Po Chuan alias
TeeHoon since 1949 but it recently occurs that we are incompatible with each other and are
not in the position to keep living together permanently. With the mutual concurrence, we
decided to terminate the existing relationship of common law-marriage and promised not to
interfere each other's affairs from now on. The Forty Thousand Pesos (P40,000.00) has been
given to me by Mr. Lim Po Chuan for my subsistence.
Witnesses:

Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the Republic of China (corresponding
to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiff's relation to the deceased was that of
a common-law wife but that they had settled their property interests with the payment to her
of P40,000.
In the light of all these circumstances, We find no alternative but to hold that plaintiff Tan Put's
allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily
established and that, on the contrary, the evidence on record convincingly shows that her
relation with said deceased was that of a common-law wife and furthermore, that all her
claims against the company and its surviving partners as well as those against the estate of the
deceased have already been settled and paid. We take judicial notice of the fact that the
respective counsel who assisted the parties in the quitclaim, Attys. H. Hermosisima and Natalio
Castillo, are members in good standing of the Philippine Bar, with the particularity that the
latter has been a member of the Cabinet and of the House of Representatives of the
Philippines, hence, absent any credible proof that they had allowed themselves to be parties
to a fraudulent document His Honor did right in recognizing its existence, albeit erring in not
giving due legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po
Chuan is not only unconvincing but has been actually overcome by the more competent and
weighty evidence in favor of the defendants, her attempt to substantiate her main cause of
action that defendants Lim Tanhu and Ng Sua have defrauded the partnership Glory
Commercial Co. and converted its properties to themselves is even more dismal. From the very
evidence summarized by His Honor in the decision in question, it is clear that not an iota of
reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is actually admitted
impliedly in defendants' affirmative defense that Po Chuan's share had already been duly
settled with and paid to both the plaintiff and his legitimate family. But the evidence as to the
actual participation of the defendants Lim Tanhu and Ng Sua in the operation of the business
that could have enabled them to make the extractions of funds alleged by plaintiff is at best
confusing and at certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is
entitled to ¹/3 share of the assets and properties of the partnership. In fact, her prayer in said
50 | P a g e
complaint is, among others, for the delivery to her of such ¹/3 share. His Honor's statement of
the case as well as his findings and judgment are all to that same effect. But what did she
actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had money of her own when she
"married" Po Chuan and "that prior to and just after the marriage of the plaintiff to Po Chuan,
she was engaged in the drugstore business; that not long after her marriage, upon the
suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000 which amount she gave
to her husband in the presence of Tanhu and was invested in the partnership Glory Commercial
Co. sometime in 1950; that after the investment of the above-stated amount in the
partnership, its business flourished and it embarked in the import business and also engaged
in the wholesale and retail trade of cement and GI sheets and under (sic) huge profits." (pp.
25-26, Annex L, petition.)
To begin with, this theory of her having contributed of P125,000 to the capital of the
partnership by reason of which the business flourished and amassed all the millions referred
to in the decision has not been alleged in the complaint, and inasmuch as what was being
rendered was a judgment by default, such theory should not have been allowed to be the
subject of any evidence. But inasmuch as it was the clerk of court who received the evidence,
it is understandable that he failed to observe the rule. Then, on the other hand, if it was her
capital that made the partnership flourish, why would she claim to be entitled to only to ¹/3 of
its assets and profits? Under her theory found proven by respondent court, she was actually
the owner of everything, particularly because His Honor also found "that defendants Lim
Tanhu and Ng Sua were partners in the name but they were employees of Po Chuan that
defendants Lim Tanhu and Ng Sua had no means of livelihood at the time of their employment
with the Glory Commercial Co. under the management of the late Po Chuan except their
salaries therefrom; ..." (p. 27, id.) Why then does she claim only ¹/3 share? Is this an indication
of her generosity towards defendants or of a concocted cause of action existing only in her
confused imagination engendered by the death of her common-law husband with whom she
had settled her common-law claim for recompense of her services as common law wife for less
than what she must have known would go to his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial court was confused as to the
participation of defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At one point, they
were deemed partners, at another point mere employees and then elsewhere as partners-
employees, a newly found concept, to be sure, in the law on partnership. And the confusion is
worse comfounded in the judgment which allows these "partners in name" and "partners-
employees" or employees who had no means of livelihood and who must not have contributed
any capital in the business, "as Po Chuan was practically the owner of the partnership having
the controlling interest", ¹/3 each of the huge assets and profits of the partnership. Incidentally,
it may be observed at this juncture that the decision has made Po Chuan play the inconsistent
role of being "practically the owner" but at the same time getting his capital from the P125,000
given to him by plaintiff and from which capital the business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by her exhibits to be in the names
of defendants Lim Tanhu and Ng Sua were bought by them with partnership funds, His Honor
confirmed the same by finding and holding that "it is likewise clear that real properties
together with the improvements in the names of defendants Lim Tanhu and Ng Sua were
acquired with partnership funds as these defendants were only partners-employees of
deceased Po Chuan in the Glory Commercial Co. until the time of his death on March 11, 1966."
(p. 30, id.) It Is Our considered view, however, that this conclusion of His Honor is based on
nothing but pure unwarranted conjecture. Nowhere is it shown in the decision how said
defendants could have extracted money from the partnership in the fraudulent and illegal
manner pretended by plaintiff. Neither in the testimony of Nuñez nor in that of plaintiff, as
these are summarized in the decision, can there be found any single act of extraction of
partnership funds committed by any of said defendants. That the partnership might have
grown into a multi-million enterprise and that the properties described in the exhibits
enumerated in the decision are not in the names of Po Chuan, who was Chinese, but of the
defendants who are Filipinos, do not necessarily prove that Po Chuan had not gotten his share
of the profits of the business or that the properties in the names of the defendants were
bought with money of the partnership. In this connection, it is decisively important to consider
that on the basis of the concordant and mutually cumulative testimonies of plaintiff and
Nuñez, respondent court found very explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership
Glory Commercial Co. he was the one who made the final decisions and approved the
appointments of new Personnel who were taken in by the partnership; that the late Po Chuan
and defendants Lim Tanhu and Ng Sua are brothers, the latter to (2) being the elder brothers
of the former; that defendants Lim Tanhu and Ng Sua are both naturalized Filipino citizens
whereas the late Po Chuan until the time of his death was a Chinese citizen; that the three (3)
brothers were partners in the Glory Commercial Co. but Po Chuan was practically the owner
of the partnership having the controlling interest; that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere employees of Po Chuan; .... (Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the running of the partnership, how could the
defendants have defrauded him of such huge amounts as plaintiff had made his Honor believe?
Upon the other hand, since Po Chuan was in control of the affairs of the partnership, the more
logical inference is that if defendants had obtained any portion of the funds of the partnership
for themselves, it must have been with the knowledge and consent of Po Chuan, for which
reason no accounting could be demanded from them therefor, considering that Article 1807
of the Civil Code refers only to what is taken by a partner without the consent of the other
partner or partners. Incidentally again, this theory about Po Chuan having been actively
managing the partnership up to his death is a substantial deviation from the allegation in the
amended complaint to the effect that "defendants Antonio Lim Tanhu, Alfonso Leonardo Ng
Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud and machination, took actual
and active management of the partnership and although Tee Hoon Lim Po Chuan was the
51 | P a g e
manager of Glory Commercial Co., defendants managed to use the funds of the partnership to
purchase lands and buildings etc. (Par. 4, p. 2 of amended complaint, Annex B of petition) and
should not have been permitted to be proven by the hearing officer, who naturally did not
know any better.
Moreover, it is very significant that according to the very tax declarations and land titles listed
in the decision, most if not all of the properties supposed to have been acquired by the
defendants Lim Tanhu and Ng Sua with funds of the partnership appear to have been
transferred to their names only in 1969 or later, that is, long after the partnership had been
automatically dissolved as a result of the death of Po Chuan. Accordingly, defendants have no
obligation to account to anyone for such acquisitions in the absence of clear proof that they
had violated the trust of Po Chuan during the existence of the partnership. (See Hanlon vs.
Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor to readily disbelieve plaintiffs'
pretensions. Nuñez testified that "for about 18 years he was in charge of the GI sheets and
sometimes attended to the imported items of the business of Glory Commercial Co." Counting
18 years back from 1965 or 1966 would take Us to 1947 or 1948. Since according to Exhibit LL,
the baptismal certificate produced by the same witness as his birth certificate, shows he was
born in March, 1942, how could he have started managing Glory Commercial Co. in 1949 when
he must have been barely six or seven years old? It should not have escaped His Honor's
attention that the photographs showing the premises of Philippine Metal Industries after its
organization "a year or two after the establishment of Cebu Can Factory in 1957 or 1958" must
have been taken after 1959. How could Nuñez have been only 13 years old then as claimed by
him to have been his age in those photographs when according to his "birth certificate", he
was born in 1942? His Honor should not have overlooked that according to the same witness,
defendant Ng Sua was living in Bantayan until he was directed to return to Cebu after the
fishing business thereat floundered, whereas all that the witness knew about defendant Lim
Teck Chuan's arrival from Hongkong and the expenditure of partnership money for him were
only told to him allegedly by Po Chuan, which testimonies are veritably exculpatory as to Ng
Sua and hearsay as to Lim Teck Chuan. Neither should His Honor have failed to note that
according to plaintiff herself, "Lim Tanhu was employed by her husband although he did not
go there always being a mere employee of Glory Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income except
their salaries. Actually, it is not stated, however, from what evidence such conclusion was
derived in so far as Ng Sua is concerned. On the other hand, with respect to Lim Tanhu, the
decision itself states that according to Exhibit NN-Pre trial, in the supposed income tax return
of Lim Tanhu for 1964, he had an income of P4,800 as salary from Philippine Metal Industries
alone and had a total assess sable net income of P23,920.77 that year for which he paid a tax
of P4,656.00. (p. 14. Annex L, id.) And per Exhibit GG-Pretrial in the year, he had a net income
of P32,000 for which be paid a tax of P3,512.40. (id.) As early as 1962, "his fishing business in
Madridejos Cebu was making money, and he reported "a net gain from operation (in) the
amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor gather the
conclusion that all the properties registered in his name have come from funds malversed from
the partnership?
It is rather unusual that His Honor delved into financial statements and books of Glory
Commercial Co. without the aid of any accountant or without the same being explained by any
witness who had prepared them or who has knowledge of the entries therein. This must be
the reason why there are apparent inconsistencies and inaccuracies in the conclusions His
Honor made out of them. In Exhibit SS-Pre-trial, the reported total assets of the company
amounted to P2,328,460.27 as of December, 1965, and yet, Exhibit TT-Pre-trial, according to
His Honor, showed that the total value of goods available as of the same date was
P11,166,327.62. On the other hand, per Exhibit XX-Pre-trial, the supposed balance sheet of the
company for 1966, "the value of inventoried merchandise, both local and imported", as found
by His Honor, was P584,034.38. Again, as of December 31, 1966, the value of the company's
goods available for sale was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then, per Exhibit II-
3-Pre-trial, the supposed Book of Account, whatever that is, of the company showed its "cash
analysis" was P12,223,182.55. We do not hesitate to make the observation that His Honor,
unless he is a certified public accountant, was hardly qualified to read such exhibits and draw
any definite conclusions therefrom, without risk of erring and committing an injustice. In any
event, there is no comprehensible explanation in the decision of the conclusion of His Honor
that there were P12,223,182.55 cash money defendants have to account for, particularly when
it can be very clearly seen in Exhibits 11-4, 11-4- A, 11-5 and 11-6-Pre-trial, Glory Commercial
Co. had accounts payable as of December 31, 1965 in the amount of P4,801,321.17. (p. 15, id.)
Under the circumstances, We are not prepared to permit anyone to predicate any claim or
right from respondent court's unaided exercise of accounting knowledge.
Additionally, We note that the decision has not made any finding regarding the allegation in
the amended complaint that a corporation denominated Glory Commercial Co., Inc. was
organized after the death of Po Chuan with capital from the funds of the partnership. We note
also that there is absolutely no finding made as to how the defendants Dy Ochay and Co Oyo
could in any way be accountable to plaintiff, just because they happen to be the wives of Lim
Tanhu and Ng Sua, respectively. We further note that while His Honor has ordered defendants
to deliver or pay jointly and severally to the plaintiff P4,074,394.18 or ¹/3 of the
P12,223,182.55, the supposed cash belonging to the partnership as of December 31, 1965, in
the same breath, they have also been sentenced to partition and give ¹/3 share of the
properties enumerated in the dispositive portion of the decision, which seemingly are the very
properties allegedly purchased from the funds of the partnership which would naturally
include the P12,223,182.55 defendants have to account for. Besides, assuming there has not
yet been any liquidation of the partnership, contrary to the allegation of the defendants, then
Glory Commercial Co. would have the status of a partnership in liquidation and the only right
plaintiff could have would be to what might result after such liquidation to belong to the
deceased partner, and before this is finished, it is impossible to determine, what rights or
interests, if any, the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In other words, no
specific amounts or properties may be adjudicated to the heir or legal representative of the
deceased partner without the liquidation being first terminated.
52 | P a g e
Indeed, only time and the fear that this decision would be much more extended than it is
already prevent us from further pointing out the inexplicable deficiencies and imperfections
of the decision in question. After all, what have been discussed should be more than sufficient
to support Our conclusion that not only must said decision be set aside but also that the action
of the plaintiff must be totally dismissed, and, were it not seemingly futile and productive of
other legal complications, that plaintiff is liable on defendants' counterclaims. Resolution of
the other issues raised by the parties albeit important and perhaps pivotal has likewise become
superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in respondent
court in its Civil Case No. 12328 subsequent to the order of dismissal of October 21, 1974 are
hereby annulled and set aside, particularly the ex-parte proceedings against petitioners and
the decision on December 20, 1974. Respondent court is hereby ordered to enter an order
extending the effects of its order of dismissal of the action dated October 21, 1974 to herein
petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And
respondent court is hereby permanently enjoined from taking any further action in said civil
case gave and except as herein indicated. Costs against private respondent.
Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ., concur.
THIRD DIVISION
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.
GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in
AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila,
Branch II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner of
petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering the petitioner to
pay to the private respondent his share in the annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the then Court of
First Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent (22%)
of the annual profits derived from the operation of Sun Wah Panciteria since October, 1955
from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila,
was established sometime in October, 1955. It was registered as a single proprietorship and
its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that
Sun Wah Panciteria was actually a partnership and that he was one of the partners having
contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private respondent
gave P4,000.00 as his contribution to the partnership. This is evidenced by a receipt identified
as Exhibit "A" wherein the petitioner acknowledged his acceptance of the P4,000.00 by affixing
his signature thereto. The receipt was written in Chinese characters so that the trial court
commissioned an interpreter in the person of Ms. Florence Yap to translate its contents into
English. Florence Yap issued a certification and testified that the translation to the best of her
knowledge and belief was correct. The private respondent identified the signature on the
receipt as that of the petitioner (Exhibit A-3) because it was affixed by the latter in his (private
respondents') presence. Witnesses So Sia and Antonio Ah Heng corroborated the private
respondents testimony to the effect that they were both present when the receipt (Exhibit
"A") was signed by the petitioner. So Sia further testified that he himself received from the
petitioner a similar receipt (Exhibit D) evidencing delivery of his own investment in another
amount of P4,000.00 An examination was conducted by the PC Crime Laboratory on orders of
the trial court granting the private respondents motion for examination of certain
documentary exhibits. The signatures in Exhibits "A" and 'D' when compared to the signature
of the petitioner appearing in the pay envelopes of employees of the restaurant, namely Ah
Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two receipts
were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount of P12,000.00
covered by the latter's Equitable Banking Corporation Check No. 13389470-B from the profits
of the operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings
Department of the China Banking Corporation testified that said check (Exhibit B) was
deposited by and duly credited to the private respondents savings account with the bank after
it was cleared by the drawee bank, the Equitable Banking Corporation. Another witness Elvira
Rana of the Equitable Banking Corporation testified that the check in question was in fact and
in truth drawn by the petitioner and debited against his own account in said bank. This fact
was clearly shown and indicated in the petitioner's statement of account after the check
(Exhibit B) was duly cleared. Rana further testified that upon clearance of the check and
pursuant to normal banking procedure, said check was returned to the petitioner as the maker
thereof.
The petitioner denied having received from the private respondent the amount of P4,000.00.
He contested and impugned the genuineness of the receipt (Exhibit D). His evidence is
summarized as follows:
The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria.
He used his savings from his salaries as an employee at Camp Stotsenberg in Clark Field and
53 | P a g e
later as waiter at the Toho Restaurant amounting to a little more than P2,000.00 as capital in
establishing Sun Wah Panciteria. To bolster his contention that he was the sole owner of the
restaurant, the petitioner presented various government licenses and permits showing the Sun
Wah Panciteria was and still is a single proprietorship solely owned and operated by himself
alone. Fue Leung also flatly denied having issued to the private respondent the receipt (Exhibit
G) and the Equitable Banking Corporation's Check No. 13389470 B in the amount of P12,000.00
(Exhibit B).
As between the conflicting evidence of the parties, the trial court gave credence to that of the
plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive portion of
the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant,
ordering the latter to deliver and pay to the former, the sum equivalent to 22% of the annual
profit derived from the operation of Sun Wah Panciteria from October, 1955, until fully paid,
and attorney's fees in the amount of P5,000.00 and cost of suit. (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the nature of a motion
for new trial and, as supplement to the said motion, he requested that the decision rendered
should include the net profit of the Sun Wah Panciteria which was not specified in the decision,
and allow private respondent to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing the trial court
rendered an amended decision, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by the
plaintiff, which was granted earlier by the Court, is hereby reiterated and the decision
rendered by this Court on September 30, 1980, is hereby amended. The dispositive portion of
said decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the
defendant, ordering the latter to pay the former the sum equivalent to 22% of the net profit
of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of
P5,000.00 as and for attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then Intermediate Appellate
Court. The questioned decision was further modified by the appellate court. The dispositive
portion of the appellate court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive portion thereof reading
as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net
profit of P2,000.00 a day from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16, 1971
to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a
day.
Except as modified, the decision of the court a quo is affirmed in all other respects. (p. 102,
Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's
decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as
follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant, ordering
the latter to pay to the former the sum equivalent to 22% of the net profit of P8,000.00 per
day from the time of judicial demand, until fully paid, plus the sum of P5,000.00 as and for
attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the date of judicial
demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was denied.
Both the trial court and the appellate court found that the private respondent is a partner of
the petitioner in the setting up and operations of the panciteria. While the dispositive portions
merely ordered the payment of the respondents share, there is no question from the factual
findings that the respondent invested in the business as a partner. Hence, the two courts
declared that the private petitioner is entitled to a share of the annual profits of the restaurant.
The petitioner, however, claims that this factual finding is erroneous. Thus, the petitioner
argues: "The complaint avers that private respondent extended 'financial assistance' to herein
petitioner at the time of the establishment of the Sun Wah Panciteria, in return of which
private respondent allegedly will receive a share in the profits of the restaurant. The same
complaint did not claim that private respondent is a partner of the business. It was, therefore,
a serious error for the lower court and the Hon. Intermediate Appellate Court to grant a relief
not called for by the complaint. It was also error for the Hon. Intermediate Appellate Court to
interpret or construe 'financial assistance' to mean the contribution of capital by a partner to
a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
54 | P a g e
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought the financial
assistance of plaintiff in operating the defendant's eatery known as Sun Wah Panciteria,
located in the given address of defendant; as a return for such financial assistance. plaintiff
would be entitled to twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand pesos
(P4,000.00), Philippine Currency, of which copy for the receipt of such amount, duly
acknowledged by the defendant is attached hereto as Annex "A", and form an integral part
hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was established, he
gave P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-
two percent (22%) of the annual profit derived from the operation of the said panciteria. These
allegations, which were proved, make the private respondent and the petitioner partners in
the establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that
"By the contract of partnership two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits among
themselves".
Therefore, the lower courts did not err in construing the complaint as one wherein the private
respondent asserted his rights as partner of the petitioner in the establishment of the Sun Wah
Panciteria, notwithstanding the use of the term financial assistance therein. We agree with the
appellate court's observation to the effect that "... given its ordinary meaning, financial
assistance is the giving out of money to another without the expectation of any returns
therefrom'. It connotes an ex gratia dole out in favor of someone driven into a state of
destitution. But this circumstance under which the P4,000.00 was given to the petitioner does
not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return for such
financial assistance, plaintiff (private respondent) would be entitled to twenty-two percentum
(22%) of the annual profit derived from the operation of the said panciteria.' (p. 107, Rollo)
The well-settled doctrine is that the '"... nature of the action filed in court is determined by the
facts alleged in the complaint as constituting the cause of action." (De Tavera v. Philippine
Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant case was whether
or not the private respondent is a partner of the petitioner in the establishment of Sun Wah
Panciteria.
The petitioner also contends that the respondent court gravely erred in giving probative value
to the PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged standards or
specimens used by the PC Crime Laboratory in arriving at the conclusion were never testified
to by any witness nor has any witness identified the handwriting in the standards or specimens
belonging to the petitioner. The supposed standards or specimens of handwriting were
marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the private respondent
over the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower court examined the
signatures in the two receipts issued separately by the petitioner to the private respondent
and So Sia (Exhibits "A" and "D") and compared the signatures on them with the signatures of
the petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng
and Maria Wong, employees of the restaurant. After the usual examination conducted on the
questioned documents, the PC Crime Laboratory submitted its findings (Exhibit J) attesting that
the signatures appearing in both receipts (Exhibits "A" and "D") were the signatures of the
petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were
presented by the private respondent for marking as exhibits, the petitioner did not interpose
any objection. Neither did the petitioner file an opposition to the motion of the private
respondent to have these exhibits together with the two receipts examined by the PC Crime
Laboratory despite due notice to him. Likewise, no explanation has been offered for his silence
nor was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored.
The records sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate
Appellate Court gravely erred in not resolving the issue of prescription in favor of petitioner.
The alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978
or after the lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From
October 1, 1955 to July 13, 1978, no written demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which provides:
Art. 1144. The following actions must be brought within ten years from the time the right of
action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
55 | P a g e
Art. 1155. The prescription of actions is interrupted when they are filed before the court, when
there is a written extra-judicial demand by the creditor, and when there is any written
acknowledgment of the debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of
a partnership which are — 1) two or more persons bind themselves to contribute money,
property, or industry to a common fund; and 2) intention on the part of the partners to divide
the profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.
110)-have been established. As stated by the respondent, a partner shares not only in profits
but also in the losses of the firm. If excellent relations exist among the partners at the start of
business and all the partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly plausible. It would be
incorrect to state that if a partner does not assert his rights anytime within ten years from the
start of operations, such rights are irretrievably lost. The private respondent's cause of action
is premised upon the failure of the petitioner to give him the agreed profits in the operation
of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his
interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is
applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or his legal representative
as against the winding up partners or the surviving partners or the person or partnership
continuing the business, at the date of dissolution, in the absence or any agreement to the
contrary.
Regarding the prescriptive period within which the private respondent may demand an
accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting exists
as long as the partnership exists. Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in favor of the private
respondent for being excessive and unconscionable and above the claim of private respondent
as embodied in his complaint and testimonial evidence presented by said private respondent
to support his claim in the complaint.
Apart from his own testimony and allegations, the private respondent presented the cashier
of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties was that you were in charge of the custody
of the cashier's box, of the money, being the cashier, is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you were the one who accepted
the money and you gave the change, if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you do with
the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less, will you please tell us, how much
is the gross income of the restaurant?
A For regular days, I received around P7,000.00 a day during my shift alone and during pay
days I receive more than P10,000.00. That is excluding the catering outside the place.
Q What about the catering service, will you please tell the Honorable Court how many times a
week were there catering services?
A Sometimes three times a month; sometimes two times a month or more.
xxx xxx xxx
Q Now more or less, do you know the cost of the catering service?
A Yes, because I am the one who receives the payment also of the catering.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
56 | P a g e
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M.
to 11:30 P.M. in the evening the restaurant grosses an income of P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive
the cross-examination on the matter of income but he failed to comply with his promise to
produce pertinent records. When a subpoena duces tecum was issued to the petitioner for the
production of their records of sale, his counsel voluntarily offered to bring them to court. He
asked for sufficient time prompting the court to cancel all hearings for January, 1981 and reset
them to the later part of the following month. The petitioner's counsel never produced any
books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded in
the daily sales book. ledgers, journals and for this purpose, employed a bookkeeper. This
inspired the Court to ask counsel for the defendant to bring said records and counsel for the
defendant promised to bring those that were available. Seemingly, that was the reason why
this case dragged for quite sometime. To bemuddle the issue, defendant instead of presenting
the books where the same, etc. were recorded, presented witnesses who claimed to have
supplied chicken, meat, shrimps, egg and other poultry products which, however, did not show
the gross sales nor does it prove that the same is the best evidence. This Court gave warning
to the defendant's counsel that if he failed to produce the books, the same will be considered
a waiver on the part of the defendant to produce the said books inimitably showing decisive
records on the income of the eatery pursuant to the Rules of Court (Sec. 5(e) Rule 131). the respondent's submissions but, after promising to do so, it deliberately failed to present its
"Evidence willfully suppressed would be adverse if produced." (Rollo, p. 145) books and other evidence.

The records show that the trial court went out of its way to accord due process to the
petitioner.
The defendant was given all the chance to present all conceivable witnesses, after the plaintiff
has rested his case on February 25, 1981, however, after presenting several witnesses, counsel
for defendant promised that he will present the defendant as his last witness. Notably there
were several postponement asked by counsel for the defendant and the last one was on
October 1, 1981 when he asked that this case be postponed for 45 days because said
defendant was then in Hongkong and he (defendant) will be back after said period. The Court
acting with great concern and understanding reset the hearing to November 17, 1981. On said
date, the counsel for the defendant who again failed to present the defendant asked for
another postponement, this time to November 24, 1981 in order to give said defendant
another judicial magnanimity and substantial due process. It was however a condition in the
order granting the postponement to said date that if the defendant cannot be presented,
counsel is deemed to have waived the presentation of said witness and will submit his case for
decision.
On November 24, 1981, there being a typhoon prevailing in Manila said date was declared a
partial non-working holiday, so much so, the hearing was reset to December 7 and 22, 1981.
On December 7, 1981, on motion of defendant's counsel, the same was again reset to
December 22, 1981 as previously scheduled which hearing was understood as intransferable
in character. Again on December 22, 1981, the defendant's counsel asked for postponement
on the ground that the defendant was sick. the Court, after much tolerance and judicial
magnanimity, denied said motion and ordered that the case be submitted for resolution based
on the evidence on record and gave the parties 30 days from December 23, 1981, within which
to file their simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic
Supermarket. It is near the corner of Claro M. Recto Street. According to the trial court, it is in
the heart of Chinatown where people who buy and sell jewelries, businessmen, brokers,
manager, bank employees, and people from all walks of life converge and patronize Sun Wah.
The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's
obligation shows that the same continues until fully paid. The question now arises as to
whether or not the payment of a share of profits shall continue into the future with no fixed
ending date.
Considering the facts of this case, the Court may decree a dissolution of the partnership under
Article 1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of
the business;
(4) A partner willfully or persistently commits a breach of the partnership agreement, or
otherwise so conducts himself in matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of capital, and other
incidents of dissolution because the continuation of the partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the
respondent court is AFFIRMED with a MODIFICATION that as indicated above, the partnership
of the parties is ordered dissolved.
SO ORDERED.

There is more than substantial evidence to support the factual findings of the trial court and Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
the appellate court. If the respondent court awarded damages only from judicial demand in
1978 and not from the opening of the restaurant in 1955, it is because of the petitioner's
contentions that all profits were being plowed back into the expansion of the business. There
is no basis in the records to sustain the petitioners contention that the damages awarded are
excessive. Even if the Court is minded to modify the factual findings of both the trial court and
the appellate court, it cannot refer to any portion of the records for such modification. There
is no basis in the records for this Court to change or set aside the factual findings of the trial
court and the appellate court. The petitioner was given every opportunity to refute or rebut

57 | P a g e