II.

OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES

A. CONCEPTION AND CONTINUATION – ARTS. 1784 & 1785

THIRD DIVISION

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.

BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA, respondents.

VITUG, J.

The instant petition seeks a review of the decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that
of the Securities and Exchange Commission ("SEC") in SEC AC 254.

The antecedents of the controversy, summarized by respondent Commission and

quoted at length by the appellate court in its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted with
the Securities and Exchange Commission on 4 August 1948. The SEC records
show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH
and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO,
MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO,
MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA;
on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L.
Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves
together, as senior partners with respondents-appellees Gregorio F. Ortega,
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a

letter stating:

I am withdrawing and retiring from the firm of Bito, Misa and

Lozada, effective at the end of this month.

"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."

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On the same day, petitioner-appellant wrote respondents-appellees another letter
stating:

"Further to my letter to you today, I would like to have a meeting

with all of you with regard to the mechanics of liquidation, and more
particularly, my interest in the two floors of this building. I would like
to have this resolved soon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another

letter stating:

"The partnership has ceased to be mutually satisfactory because of

the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level
of the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases
to the employees, even attorneys, are dressed down publicly in a
loud voice in a manner that deprived them of their self-respect. The
result of such policies is the formation of the union, including the
assistant attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation

and Clearing Department (SICD) a petition for dissolution and liquidation of
partnership, docketed as SEC Case No. 3384 praying that the Commission:

"1. Decree the formal dissolution and order the immediate

liquidation of (the partnership of) Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in

the partnership assets plus the profits, rent or interest attributable to
the use of his right in the assets of the dissolved partnership;

"3. Enjoin respondents from using the firm name of Bito, Misa &
Lozada in any of their correspondence, checks and pleadings and
to pay petitioners damages for the use thereof despite the
dissolution of the partnership in the amount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner

attorney's fees and expense of litigation in such amounts as maybe
proven during the trial and which the Commission may deem just
and equitable under the premises but in no case less than ten
(10%) per cent of the value of the shares of petitioner or
P100,000.00;

2
 "5. Order the respondents to pay petitioner moral damages with the
amount of P500,000.00 and exemplary damages in the amount of
P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."

On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did
not dissolve the said law partnership. Accordingly, the petitioner
and respondents are hereby enjoined to abide by the provisions of
the Agreement relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the partnership
interest."1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that
the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa
& Lozada." The Commission ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to continue in the partnership
against his will. In its decision, dated 17 January 1990, the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is

hereby REVERSED insofar as it concludes that the partnership of Bito, Misa &
Lozada has not been dissolved. The case is hereby REMANDED to the Hearing
Officer for determination of the respective rights and obligations of the parties. 2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition,
asked for an appointment of a receiver to take over the assets of the dissolved
partnership and to take charge of the winding up of its affairs. On 4 April 1991,
respondent SEC issued an order denying reconsideration, as well as rejecting the
petition for receivership, and reiterating the remand of the case to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for

3
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate
court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution
of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation
should be to the extent of Attorney Misa's interest or participation in the partnership
which could be computed and paid in the manner stipulated in the partnership
agreement; (d) that the case should be remanded to the SEC Hearing Officer for the
corresponding determination of the value of Attorney Misa's share in the partnership
assets; and (e) that the appointment of a receiver was unnecessary as no sufficient
proof had been shown to indicate that the partnership assets were in any such danger
of being lost, removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership
of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at
will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of
private respondent dissolved the partnership regardless of his good or bad faith;
and

3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito,
Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not

provide for a specified period or undertaking. The "DURATION" clause simply
states:

"5. DURATION. The partnership shall continue so long as mutually

satisfactory and upon the death or legal incapacity of one of the
partners, shall be continued by the surviving partners."

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 The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to

act as legal adviser and representative of any individual, firm and
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons
and entities with respect to their legal and other affairs; and to
appear for and represent their principals and client in all courts of
justice and government departments and offices in the Philippines,
and elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would
all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would
so exist. Apparently what the law contemplates, is a specific undertaking or
"project" which has a definite or definable period of completion. 3

The birth and life of a partnership at will is predicated on the mutual desire and consent
of the partners. The right to choose with whom a person wishes to associate himself is
the very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability
to give it, and the absence of a cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad
faith can prevent the dissolution of the partnership 4 but that it can result in a liability for
damages.5

In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner. 6 Among partners,7 mutual agency arises and
the doctrine of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by
any partner ceasing to be associated in the carrying on, as might be distinguished from
the winding up of, the business.8 Upon its dissolution, the partnership continues and its
legal personality is retained until the complete winding up of its business culminating in
its termination.9

The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; 10 however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent

5
applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners
for allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now
acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140
Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time
of such death or retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by the) retiring
partner or the heirs of a deceased partner, as the case may be. In the event of
any disagreement between the said appraisers a third appraiser will be appointed
by them whose decision shall be final. The share of the retiring or deceased
partner in the aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which shall be paid
monthly within the first ten (10) days of every month in installments of not less
than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2)
existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, inclusive of resignation or withdrawal, from
the partnership that thereby dissolves it.

On the third and final issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i.e., that Attorney Misa did not
act in bad faith. Public respondents viewed his withdrawal to have been spurred by
"interpersonal conflict" among the partners. It would not be right, we agree, to let any of
the partners remain in the partnership under such an atmosphere of animosity;
certainly, not against their will. 12 Indeed, for as long as the reason for withdrawal of a
partner is not contrary to the dictates of justice and fairness, nor for the purpose of
unduly visiting harm and damage upon the partnership, bad faith cannot be said to
characterize the act. Bad faith, in the context here used, is no different from its normal
concept of a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

Feliciano, Romero, Melo and Francisco, JJ., concur.

B. WARRANTIES – ART. 1786

EN BANC

6
 G.R. No. L-13680             April 27, 1960
MAURO LOZANA, plaintiff-appellee,
vs.
SERAFIN DEPAKAKIBO, defendant-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

7
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 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
 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.

9
Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Concepcion, Endencia, Barrera
and Gutierrez David, JJ., concur.
C. CONTRIBUTION – ARTS. 1787 TO 1791, 1795

SECOND DIVISION

G.R. No. L-19819 October 26, 1977

WILLIAM UY, plaintiff-appellee,

vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.

CONCEPCION JR., J.:têñ.£îhqwâ£

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

10
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

11
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

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

12
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)
26
In the receipt for the amount of P30,000.00 dated October 29, 1956, 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

13
The appellant claims, however, that the said assignment was made with the consent of
the appellee and that the assignment not prejudice the partnership as it was reimbursed
by the appellant.

But, the appellee categorically stated that the assignment to the Philippine National
Bank was made without his prior knowledge and consent and that when he learned of
said assignment, he cal the attention of the appellant who assured him that the
assignment was only temporary as he would transfer the loan to the Rehabilitation
Finance Corporation within three (3) months time. 29

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

14
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:

15
(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:

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:

Undisputed  

16
 balance as of
Dec. 1967
Add: Items P
omitted from 8,242.
the books but
recognized  
and charged
to
Miscellaneou
s
Expenses by 7,497.8
Mr. Ablaza 0

Add: P128,103.7  
Payrolls 7
paid by the
appellee
Less: 63,000.00 65,103.77
Payroll
remittance
s received
Add: Other    
expenses
incurred at
the
site (Exhs, 26,027.04  
ZZ, ZZ-1
to ZZ-4)
  TOTAL P106,871.0
0
At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00
which he also advanced for the construction projects but which were not included in the
Commissioner's Report. 44

Appellee's total investments in the partnership would, therefore, be:

Appellee's P106,871.0
total credits 0

17
 Add: 3,917,39
unrecorded
balances for
the month of
Dec. 1957
(Exhs. KKK,
KK-1 to
KKK_19,
KKK-22)
Add: 4,665.00
Payments to
Munoz, as
subcontracto
r of five,(5)
Bridges (p.
264 tsn;
Exhs. KKK-
20, KKK-21)
Total Pl
Investments 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.

This argument must be overruled in the light of the law and evidence on the matter.
Under Article 2200 of the Civil Code, indemnification for damages shall comprehend not
only the value of the loss suffered, but also that of the profits which the obligee failed to
obtain. In other words lucrum cessans is also a basis for indemnification.

Has the appellee failed to make profits because of appellant's breach of contract?

There is no doubt that the contracting business is a profitable one and that the U.P.
Construction Company derived some profits from' co io oa ects its sub ntracts in the
construction of the road and bridges projects its deficient working capital and the
juggling of its funds by the appellant.

Contrary to the appellant's claim, the partnership showed some profits during the period
from July 2, 1956 to December 31, 1957. If the Profit and Loss Statement 45 showed a

18
net loss of P134,019.43, this was primarily due to the confusing accounting method
employed by the 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 to an accidental plane crash, in the operating
expenses of the partnership, Corrected, the Profit and Loss Statement would indicate a
net profit of P41,611.28.

For the period from January 1, 1958 to September 30, 1959, the partnership admittedly
made a net profit of P52,943.89. 46

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

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.

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.

FIRST DIVISION

G.R. No. L-59956 October 31, 1984

19
 ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.:ñé+.£ªwph!1

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

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 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

20
 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:

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

21
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.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING

THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.

The first question raised in this petition refers to the award of P47,500.00 as the private
respondent's share in the unrealized profits of the partnership. The petitioner contends
that the award is highly speculative. The petitioner maintains that the respondent court
did not take into account the great risks involved in the business undertaking.

We agree with the petitioner that the award of speculative damages has no basis in fact
and law.

There is no dispute over the nature of the agreement between the petitioner and the
private respondent. It is a contract of partnership. The latter in his complaint alleged that
he was induced by the petitioner to enter into a partnership with him under the following
terms and conditions: têñ.£îhqwâ£

1. That the partnership will print colored posters of the delegates to the
Constitutional Convention;

2. That they will invest the amount of Fifteen Thousand Pesos

(P15,000.00) each;

3. That they will print Ninety Five Thousand (95,000) copies of the said
posters;

22
 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 and bridges
despite its deficient capital." Besides, there was evidence to show that the partnership
made some profits during the periods from July 2, 1956 to December 31, 1957 and from
January 1, 1958 up to September 30, 1959. The profits on two government contracts
worth P2,327,335.76 were not speculative. In the instant case, there is no evidence
whatsoever that the partnership between the petitioner and the private respondent
would have been a profitable venture. In fact, it was a failure doomed from the start.
There is therefore no basis for the award of speculative damages in favor of the private
respondent.

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

23
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.

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

24
 ... 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

25
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.

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

26
 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?

27
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

28
 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.

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.

29
 THIRD DIVISION

G.R. No. 114398 October 24, 1997

CARMEN LIWANAG, petitioner,

vs.
THE HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES,
represented by the Solicitor General, respondents.

ROMERO, J.:

Petitioner was charged with the crime of estafa before the Regional Trial Court (RTC),
Branch 93, Quezon City, in an information which reads as follows.

That on or between the month of May 19, 1988 and August, 1988 in
Quezon City, Philippines and within the jurisdiction of this Honorable
Court, the said accused, with intent of gain, with unfaithfulness, and abuse
of confidence, did then and there, willfully, unlawfully and feloniously
defraud one ISIDORA ROSALES, in the following manner, to wit: on the
date and in the place aforementioned, said accused received in trust from
the offended party cash money amounting to P536,650.00, Philippine
Currency, with the express obligation involving the duty to act as
complainant's agent in purchasing local cigarettes (Philip Morris and
Marlboro cigarettes), to resell them to several stores, to give her
commission corresponding to 40% of the profits; and to return the
aforesaid amount of offended party, but said accused, far from complying
her aforesaid obligation, and once in possession thereof, misapplied,
misappropriated and converted the same to her personal use and benefit,
despite repeated demands made upon her, accused failed and refused
and still fails and refuses to deliver and/or return the same to the damage
and prejudice of the said ISIDORA ROSALES, in the aforementioned
amount and in such other amount as may be awarded under the provision
of the Civil Code.

CONTRARY TO LAW.

The antecedent facts are as follows:

Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house
of complainant Isidora Rosales (Rosales) and asked her to join them in the business of
buying and selling cigarettes. Convinced of the feasibility of the venture, Rosales readily
agreed. Under their agreement, Rosales would give the money needed to buy the
cigarettes while Liwanag and Tabligan would act as her agents, with a corresponding
40% commission to her if the goods are sold; otherwise the money would be returned to
Rosales. Consequently, Rosales gave several cash advances to Liwanag and Tabligan
amounting to P633,650.00.

30
During the first two months, Liwanag and Tabligan made periodic visits to Rosales to
report on the progress of the transactions. The visits, however, suddenly stopped, and
all efforts by Rosales to obtain information regarding their business proved futile.

Alarmed by this development and believing that the amounts she advanced were being
misappropriated, Rosales filed a case of estafa against Liwanag.

After trial on the merits, the trial court rendered a decision dated January 9, 1991,
finding Liwanag guilty as charged. The dispositive portion of the decision reads thus:

WHEREFORE, the Court holds, that the prosecution has established the
guilt of the accused, beyond reasonable doubt, and therefore, imposes
upon the accused, Carmen Liwanag, an Indeterminate Penalty of SIX (6)
YEARS, EIGHT (8) MONTHS AND TWENTY ONE (21) DAYS OF
PRISION CORRECCIONAL TO FOURTEEN (14) YEARS AND EIGHT (8)
MONTHS OF PRISION MAYOR AS MAXIMUM, AND TO PAY THE
COSTS.

The accused is likewise ordered to reimburse the private complainant the

sum of P526,650.00, without subsidiary imprisonment, in case of
insolvency.

SO ORDERED.

Said decision was affirmed with modification by the Court of Appeals in a decision dated
November 29, 1993, the decretal portion of which reads:

WHEREFORE, in view of the foregoing, the judgment appealed from is

hereby affirmed with the correction of the nomenclature of the penalty
which should be: SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY
ONE (21) DAYS of prision mayor, as minimum, to FOURTEEN (14)
YEARS and EIGHT (8) MONTHS of reclusion temporal, as maximum. In
all other respects, the decision is AFFIRMED.

SO ORDERED.

Her motion for reconsideration having been denied in the resolution of March 16, 1994,
Liwanag filed the instant petition, submitting the following assignment of errors:

1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN THE

AFFIRMING THE CONVICTION OF THE ACCUSED-PETITIONER FOR
THE CRIME OF ESTAFA, WHEN CLEARLY THE CONTRACT THAT
EXIST (sic) BETWEEN THE ACCUSED-PETITIONER AND
COMPLAINANT IS EITHER THAT OF A SIMPLE LOAN OR THAT OF A
PARTNERSHIP OR JOINT VENTURE HENCE THE NON RETURN OF

31
 THE MONEY OF THE COMPLAINANT IS PURELY CIVIL IN NATURE
AND NOT CRIMINAL.

2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT

ACQUITTING THE ACCUSED-PETITIONER ON GROUNDS OF
REASONABLE DOUBT BY APPLYING THE "EQUIPOISE RULE".

Liwanag advances the theory that the intention of the parties was to enter into a
contract of partnership, wherein Rosales would contribute the funds while she would
buy and sell the cigarettes, and later divide the profits between
them. 1 She also argues that the transaction can also be interpreted as a simple loan,
with Rosales lending to her the amount stated on an installment basis. 2

The Court of Appeals correctly rejected these pretenses.

While factual findings of the Court of Appeals are conclusive on the parties and not
reviewable by the Supreme Court, and carry more weight when these affirm the factual
findings of the trial court, 3 we deem it more expedient to resolve the instant petition on
its merits.

Estafa is a crime committed by a person who defrauds another causing him to suffer
damages, by means of unfaithfulness or abuse of confidence, or of false pretenses of
fraudulent acts.4

From the foregoing, the elements of estafa are present, as follows: (1) that the accused
defrauded another by abuse of confidence or deceit; and (2) that damage or prejudice
capable of pecuniary estimation is caused to the offended party or third party, 5 and it is
essential that there be a fiduciary relation between them either in the form of a trust,
commission or administration.6

The receipt signed by Liwanag states thus:

May 19, 1988 Quezon City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED

TWENTY SIX THOUSAND AND SIX HUNDRED FIFTY PESOS
(P526,650.00) Philippine Currency, to purchase cigarrets (sic) (Philip &
Marlboro) to be sold to customers. In the event the said cigarrets (sic) are
not sold, the proceeds of the sale or the said products (shall) be returned
to said Mrs. Isidora P. Rosales the said amount of P526,650.00 or the said
items on or before August 30, 1988.

(SGD
&
Thum
bedm

32
 arked)
(sic)
CARM
EN
LIWA
NAG
26 H.
Kalira
ya St.
Quezo
n City

Signed in the presence of:

(Sgd) Illegible (Sgd) Doming Z. Baligad

The language of the receipt could not be any clearer. It indicates that the money
delivered to Liwanag was for a specific purpose, that is, for the purchase of cigarettes,
and in the event the cigarettes cannot be sold, the money must be returned to Rosales.

Thus, even assuming that a contract of partnership was indeed entered into by and
between the parties, we have ruled that when money or property have been received by
a partner for a specific purpose (such as that obtaining
in the instant case) and he later misappropriated it, such partner is guilty of estafa. 7

Neither can the transaction be considered a loan, since in a contract of loan once the
money is received by the debtor, ownership over the same is transferred. 8 Being the
owner, the borrower can dispose of it for whatever purpose he may deem proper.

In the instant petition, however, it is evident that Liwanag could not dispose of the
money as she pleased because it was only delivered to her for a single purpose,
namely, for the purchase of cigarettes, and if this was not possible then to return the
money to Rosales. Since in this case there was no transfer of ownership of the money
delivered, Liwanag is liable for conversion under Art. 315, par. l(b) of the Revised Penal
Code.

WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals
dated November 29, 1993, is AFFIRMED. Costs against petitioner.

SO ORDERED.

Melo, Francisco and Panganiban, JJ., concur.

Narvasa, C.J., is on leave.

D. CREDIT – ARTS. 1792 & 1793, 1827

33
E. DAMAGES SUFFERED – ART. 1794

EN BANC

G.R. No. L-18707 December 9, 1922

PO YENG CHEO, plaintiff-appellee,

vs.
LIM KA YAM, defendant-appellant.

STREET, J.:

By the amended complaint in this action, the present plaintiff, Po Yeng Cheo, alleged
sole owner of a business formerly conducted in the City of Manila under the style of
Kwong Cheong, as managing partner in said business and to recover from him its
properties and assets. The defendant having died during the pendency of the cause in
the court below and the death suggested of record, his administrator, one Lim Yock
Tock, was required to appear and make defense.

In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court
below, found that the plaintiff was entitled to an accounting from Lim Ka Yam, the
original defendant, as manager of the business already reffered to, and he accordingly
required Lim Yock Tock, as administrator, to present a liquidation of said business
within a stated time. This order bore no substantial fruit, for the reason that Lim Yock
Tock personally knew nothing about the aforesaid business (which had ceased
operation more than ten years previously) and was apparently unable to find any books
or documents that could shed any real light on its transaction. However, he did submit
to the court a paper written by Lim Ka Yam in life purporting to give, with vague and
uncertain details, a history of the formation of the Kwong Cheong Tay and some
account of its disruption and cessation from business in 1910. To this narrative was
appended a statement of assets and liabilities, purporting to show that after the
business was liquidate, it was actually debtor to Lim Ka Yam to the extent of several
thousand pesos. Appreciating the worthlessness of this so-called statement, and all
parties apparently realizing that nothing more was likely to be discovered by further
insisting on an accounting, the court proceeded, on December 27, 1921, to render final
judgment in favor of the plaintiff.

The decision made on this occasion takes as its basis the fact stated by the court in its
earlier decision of July 1, 1921, which may be briefly set fourth as follows:lawphil.net

The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as such
Po Yeng Cheo inherited the interest left by Po Gui Yao in a business conducted in
Manila under the style of Kwong Cheong Tay. This business had been in existence in
Manila for many years prior to 1903, as a mercantile partnership, with a capitalization of
P160,000, engaged in the import and export trade; and after the death of Po Gui Yao
the following seven persons were interested therein as partners in the amounts set

34
opposite their respective names, to wit: Po Yeng Cheo, P60,000; Chua Chi Yek,
P50,000; Lim Ka Yam, P10,000; Lee Kom Chuen, P10,000; Ley Wing Kwong, P10,000;
Chan Liong Chao, P10,000; Lee Ho Yuen, P10,000. The manager of Kwong Cheong
Tay, for many years prior of its complete cessation from business in 1910, was Lim Ka
Yam, the original defendant herein.

Among the properties pertaining to Kwong Cheong Tay and consisting part of its assets
were ten shares of a total par value of P10,000 in an enterprise conducted under the
name of Yut Siong Chyip Konski and certain shares to the among of P1,000 in the
Manila Electric Railroad and Light Company, of Manila.

In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business,
owing principally to the fact that the plaintiff ceased at that time to transmit merchandise
from Hongkong, where he then resided. Lim Ka Yam appears at no time to have
submitted to the partners any formal liquidation of the business, though repeated
demands to that effect have been made upon him by the plaintiff.

In view of the facts above stated, the trial judge rendered judgment in favor of the
plaintiff, Po Yeng Cheo, to recover of the defendant Lim Yock Tock, as administrator of
Lim Ka Yam, the sum of sixty thousand pesos (P60,000), constituting the interest of the
plaintiff in the capital of Kwong Cheong Tay, plus the plaintiff's proportional interest in
shares of the Yut Siong Chyip Konski and Manila Electric Railroad and Light Company,
estimated at P11,000, together with the costs. From this judgment the defendant
appealed.

In beginning our comment on the case, it is to be observed that this court finds itself
strictly circumscribed so far as our power of review is concerned, to the facts found by
the trial judge, for the plaintiff did not appeal from the decision of the court below in so
far as it was unfavorable to him, and the defendant, as appellant, has not caused a
great part of the oral testimony to be brought up. It results, as stated, that we must
accept the facts as found by the trial judge; and our review must be limited to the error,
or errors, if any, which may be apparent upon the face of the appealed decision, in
relation with the pleadings of record.

Proceeding then to consider the appealed decision in relation with the facts therein
stated and other facts appearing in the orders and proceedings in the cause, it is quite
apparent that the judgment cannot be sustained. In the first place, it was erroneous in
any event to give judgment in favor of the plaintiff to the extent of his share of the capital
of Kwong Cheong Tay. The managing partner of a mercantile enterprise is not a debtor
to the shareholders for the capital embarked by them in the business; and he can only
be made liable for the capital when, upon liquidation of the business, there are found to
be assets in his hands applicable to capital account. That the sum of one hundred and
sixty thousand pesos (P160,000) was embarked in this business many years ago
reveals nothing as to the condition of the capital account at the time the concern ceased
to do business; and even supposing--as the court possibly did--that the capital was
intact in 1908, this would not prove it was intact in 1910 when the business ceased to

35
be a going concern; for in that precise interval of time the capital may have been
diminished or dissipated from causes in no wise chargeable to the negligence or
misfeasance of the manager.

Again, so far as appears from the appealed decision, the only property pertaining to
Kwong Cheong Tay at the time this action was brought consisted of shares in the two
concerns already mentioned of the total par value of P11,000. Of course, if these shares
had been sold and converted into money, the proceeds, if not needed to pay debts,
would have been distributable among the various persons in interest, that is, among the
various shareholders, in their respective proportions. But under the circumstances
revealed in this case, it was erroneous to give judgment in favor of the plaintiff for his
aliquot part of the par value of said shares. It is elementary that one partner, suing
alone, cannot recover of the managing partner the value of such partner's individual
interest; and a liquidation of the business is an essential prerequisite. It is true that in
Lichauco vs. Lichauco (33 Phil., 350), this court permitted one partner to recover of the
manager the plaintiff's aliquot part of the proceeds of the business, then long since
closed; but in that case the affairs of the defunct concern had been actually liquidate by
the manager to the extent that he had apparently converted all its properties into money
and had pocketed the same--which was admitted;--and nothing remained to be done
except to compel him to pay over the money to the persons in interest. In the present
case, the shares referred to--constituting the only assets of Kwong Cheong Tay--have
not been converted into ready money and doubtless still remain in the name of Kwong
Cheong Tay as owner. Under these circumstances it is impossible to sustain a
judgment in favor of the plaintiff for his aliquot part of the par value of said shares, which
would be equivalent to allowing one of several coowners to recover from another,
without process of division, a part of an undivided property.

Another condition will be noted as present in this case which in our opinion is fatal to the
maintenance of the appealed judgment. This is that, after the death of the original
defendant, Lim Ka Yam, the trial court allowed the action to proceed against Lim Yock
Tock, as his administrator, and entered judgment for a sum of money against said
administrator as the accounting party,--notwithstanding the insistence of the attorneys
for the latter that the action should be discontinued in the form in which it was then
being prosecuted. The error of the trial court in so doing can be readily demonstrated
from more than one point of view.

In the first place, it is well settled that when a member of a mercantile partnership dies,
the duty of liquidating its affair devolves upon the surviving member, or members, of the
firm, not upon the legal representative of the deceased partner. (Wahl vs. Donaldson
Sim & Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744) And the same rule
must be equally applicable to a civil partnership clothed with the form of a commercial
association (art. 1670, Civil Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon the death
of Lim Ka Yam it therefore became the duty of his surviving associates to take the
proper steps to settle the affairs of the firm, and any claim against him, or his estate, for
a sum of money due to the partnership by reason of any misappropriation of its funds by
him, or for damages resulting from his wrongful acts as manager, should be prosecuted

36
against his estate in administration in the manner pointed out in sections 686 to 701,
inclusive, of the Code of Civil Procedure. Moreover, when it appears, as here, that the
property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong Chyip Konski
and the Manila Electric Railroad and Light Company, are in the possession of the
deceased partner, the proper step for the surviving associates to take would be to make
application to the court having charge to the administration to require the administrator
to surrender such property.

But, in the second place, as already indicated, the proceedings in this cause,
considered in the character of an action for an accounting, were futile; and the court,
abandoning entirely the effort to obtain an accounting, gave judgment against the
administrator upon the supposed liability of his intestate to respond for the plaintiff's
proportionate share of the capital and assets. But of course the action was not
maintainable in this aspect after the death of the defendant; and the motion to
discontinue the action as against the administrator should have been granted.

The judgment must be reversed, and the defendant will be absolved from the complaint;
but it will be understood that this order is without prejudice to any proceeding which may
be undertaken by the proper person or persons in interest to settle the affairs of Kwong
Cheong Tay and in connection therewith to recover from the administrator of Lim Ka
Yam the shares in the two concerns mentioned above. No special pronouncement will
be made as to costs of either. So ordered.

Araullo, C. J., Johnson, Malcolm, Avanceña, and Villamor, JJ., concur.

Ostrand, J., concurs in the result.
Johns, and Romualdez, JJ., took no part in the decision of this case.

F. RESPONSIBILITIES – ART. 1796

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.
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

37
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:
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.

38
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.
G. PROFITS AND LOSSES – ARTS. 1797 TO 1799
CHAVEZ V. LIÑAN – MISSING

FIRST DIVISION

G.R. No. 85494             May 7, 1991

CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V. RAMNANI and MOTI G.

RAMNANI, petitioners,
vs.
COURT OF APPEALS, SPOUSES ISHWAR JETHMAL RAMNANI, SONYA
JETHMAL RAMNANI and OVERSEAS HOLDING CO., LTD., respondents.

G.R. No. 85496             May 7, 1991

39
SPOUSES ISHWAR JETHMAL RAMNANI AND SONYA JET RAMNANI, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ORTIGAS & CO., LTD. PARTNERSHIP,
and OVERSEAS HOLDING CO., LTD., respondents.

GANCAYCO, J.:

This case involves the bitter quarrel of two brothers over two (2) parcels of land and its
improvements now worth a fortune. The bone of contention is the apparently conflicting
factual findings of the trial court and the appellate court, the resolution of which will
materially affect the result of the contest.

The following facts are not disputed.

Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the full
blood. Ishwar and his spouse Sonya had their main business based in New York.
Realizing the difficulty of managing their investments in the Philippines they executed a
general power of attorney on January 24, 1966 appointing Navalrai and Choithram as
attorneys-in-fact, empowering them to manage and conduct their business concern in
the Philippines.1

On February 1, 1966 and on May 16, 1966, Choithram, in his capacity as aforesaid
attorney-in-fact of Ishwar, entered into two agreements for the purchase of two parcels
of land located in Barrio Ugong, Pasig, Rizal, from Ortigas & Company, Ltd. Partnership
(Ortigas for short) with a total area of approximately 10,048 square meters. 2 Per
agreement, Choithram paid the down payment and installments on the lot with his
personal checks. A building was constructed thereon by Choithram in 1966 and this was
occupied and rented by Jethmal Industries and a wardrobe shop called Eppie's
Creation. Three other buildings were built thereon by Choithram through a loan of
P100,000.00 obtained from the Merchants Bank as well as the income derived from the
first building. The buildings were leased out by Choithram as attorney-in-fact of Ishwar.
Two of these buildings were later burned.

Sometime in 1970 Ishwar asked Choithram to account for the income and expenses
relative to these properties during the period 1967 to 1970. Choithram failed and
refused to render such accounting. As a consequence, on February 4, 1971, Ishwar
revoked the general power of attorney. Choithram and Ortigas were duly notified of
such revocation on April 1, 1971 and May 24, 1971, respectively. 3 Said notice was also
registered with the Securities and Exchange Commission on March 29, 1971 4 and was
published in the April 2, 1971 issue of The Manila Times for the information of the
general public.5

Nevertheless, Choithram as such attorney-in-fact of Ishwar, transferred all rights and

interests of Ishwar and Sonya in favor of his daughter-in-law, Nirmla Ramnani, on
February 19, 1973. Her husband is Moti, son of Choithram. Upon complete payment of
the lots, Ortigas executed the corresponding deeds of sale in favor of Nirmla. 6 Transfer

40
Certificates of Title Nos. 403150 and 403152 of the Register of Deeds of Rizal were
issued in her favor.

Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for short) filed a
complaint in the Court of First Instance of Rizal against Choithram and/or spouses
Nirmla and Moti (Choithram et al. for brevity) and Ortigas for reconveyance of said
properties or payment of its value and damages. An amended complaint for damages
was thereafter filed by said spouses.

After the issues were joined and the trial on the merits, a decision was rendered by the
trial court on December 3, 1985 dismissing the complaint and counterclaim. A motion
for reconsideration thereof filed by spouses Ishwar was denied on March 3, 1986.

An appeal therefrom was interposed by spouses Ishwar to the Court of Appeals wherein
in due course a decision was promulgated on March 14, 1988, the dispositive part of
which reads as follows:

WHEREFORE, judgment is hereby rendered reversing and setting aside the

appealed decision of the lower court dated December 3, 1985 and the Order
dated March 3, 1986 which denied plaintiffs-appellants' Motion for
Reconsideration from aforesaid decision. A new decision is hereby rendered
sentencing defendants- appellees Choithram Jethmal Ramnani, Nirmla V.
Ramnani, Moti C. Ramnani, and Ortigas and Company Limited Partnership to
pay, jointly and severally, plaintiffs-appellants the following:

1. Actual or compensatory damages to the extent of the fair market value of the
properties in question and all improvements thereon covered by Transfer
Certificate of Title No. 403150 and Transfer Certificate of Title No. 403152 of the
Registry of Deeds of Rizal, prevailing at the time of the satisfaction of the
judgment but in no case shall such damages be less than the value of said
properties as appraised by Asian Appraisal, Inc. in its Appraisal Report dated
August 1985 (Exhibits T to T-14, inclusive).

2. All rental incomes paid or ought to be paid for the use and occupancy of the
properties in question and all improvements thereon consisting of buildings, and
to be computed as follows:

a) On Building C occupied by Eppie's Creation and Jethmal Industries

from 1967 to 1973, inclusive, based on the 1967 to 1973 monthly rentals
paid by Eppie's Creation;

b) Also on Building C above, occupied by Jethmal Industries and Lavine

from 1974 to 1978, the rental incomes based on then rates prevailing as
shown under Exhibit "P"; and from 1979 to 1981, based on then prevailing
rates as indicated under Exhibit "Q";

41
 c) On Building A occupied by Transworld Knitting Mills from 1972 to 1978,
the rental incomes based upon then prevailing rates shown under Exhibit
"P", and from 1979 to 1981, based on prevailing rates per Exhibit "Q";

d) On the two Bays Buildings occupied by Sigma-Mariwasa from 1972 to

1978, the rentals based on the Lease Contract, Exhibit "P", and from 1979
to 1980, the rentals based on the Lease Contract, Exhibit "Q",

and thereafter commencing 1982, to account for and turn over the rental incomes
paid or ought to be paid for the use and occupancy of the properties and all
improvements totalling 10,048 sq. m based on the rate per square meter
prevailing in 1981 as indicated annually cumulative up to 1984. Then,
commencing 1985 and up to the satisfaction of the judgment, rentals shall be
computed at ten percent (10%) annually of the fair market values of the
properties as appraised by the Asian Appraisal, Inc. in August 1985 (Exhibits T to
T-14, inclusive.)

3. Moral damages in the sum of P200,000.00;

4. Exemplary damages in the sum of P100,000.00;

5. Attorney's fees equivalent to 10% of the award herein made;

6. Legal interest on the total amount awarded computed from first demand in
1967 and until the full amount is paid and satisfied; and

7. The cost of suit.7

Acting on a motion for reconsideration filed by Choithram, et al. and Ortigas, the
appellate court promulgated an amended decision on October 17, 1988 granting the
motion for reconsideration of Ortigas by affirming the dismissal of the case by the lower
court as against Ortigas but denying the motion for reconsideration of Choithram, et al. 8

Choithram, et al. thereafter filed a petition for review of said judgment of the appellate
court alleging the following grounds:

1. The Court of Appeals gravely abused its discretion in making a factual finding
not supported by and contrary, to the evidence presented at the Trial Court.

2. The Court of Appeals acted in excess of jurisdiction in awarding damages

based on the value of the real properties in question where the cause of action of
private respondents is recovery of a sum of money.

ARGUMENTS

42
 THE COURT OF APPEALS ACTED IN GRAVE ABUSE OF ITS DISCRETION IN
MAKING A FACTUAL FINDING THAT PRIVATE RESPONDENT ISHWAR
REMITTED THE AMOUNT OF US $150,000.00 TO PETITIONER CHOITHRAM
IN THE ABSENCE OF PROOF OF SUCH REMITTANCE.

II

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION

AND MANIFEST PARTIALITY IN DISREGARDING THE TRIAL COURTS
FINDINGS BASED ON THE DIRECT DOCUMENTARY AND TESTIMONIAL
EVIDENCE PRESENTED BY CHOITHRAM IN THE TRIAL COURT
ESTABLISHING THAT THE PROPERTIES WERE PURCHASED WITH
PERSONAL FUNDS OF PETITIONER CHOITHRAM AND NOT WITH MONEY
ALLEGEDLY REMITTED BY RESPONDENT ISHWAR.

III

THE COURT OF APPEALS ACTED IN EXCESS OF JURISDICTION IN

AWARDING DAMAGES BASED ON THE VALUE OF THE PROPERTIES AND
THE FRUITS OF THE IMPROVEMENTS THEREON.9

Similarly, spouses Ishwar filed a petition for review of said amended decision of the
appellate court exculpating Ortigas of liability based on the following assigned errors

THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED

GRAVE ERROR AND HAS DECIDED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND/OR WITH APPLICABLE DECISIONS OF THIS
HONORABLE COURT—

A) IN PROMULGATING THE QUESTIONED AMENDED DECISION

(ANNEX "A") RELIEVING RESPONDENT ORTIGAS FROM LIABILITY
AND DISMISSING PETITIONERS' AMENDED COMPLAINT IN CIVIL
CASE NO. 534-P, AS AGAINST SAID RESPONDENT ORTIGAS;

B) IN HOLDING IN SAID AMENDED DECISION THAT AT ANY RATE NO

ONE EVER TESTIFIED THAT ORTIGAS WAS A SUBSCRIBER TO THE
MANILA TIMES PUBLICATION OR THAT ANY OF ITS OFFICERS READ
THE NOTICE AS PUBLISHED IN THE MANILA TIMES, THEREBY
ERRONEOUSLY CONCLUDING THAT FOR RESPONDENT ORTIGAS
TO BE CONSTRUCTIVELY BOUND BY THE PUBLISHED NOTICE OF
REVOCATION, ORTIGAS AND/OR ANY OF ITS OFFICERS MUST BE A
SUBSCRIBER AND/OR THAT ANY OF ITS OFFICERS SHOULD READ
THE NOTICE AS ACTUALLY PUBLISHED;

43
 C) IN HOLDING IN SAID AMENDED DECISION THAT ORTIGAS COULD
NOT BE HELD LIABLE JOINTLY AND SEVERALLY WITH THE
DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA
RAMNANI, AS ORTIGAS RELIED ON THE WORD OF CHOITHRAM
THAT ALL ALONG HE WAS ACTING FOR AND IN BEHALF OF HIS
BROTHER ISHWAR WHEN IT TRANSFERRED THE RIGHTS OF THE
LATTER TO NIRMLA V. RAMNANI;

D) IN IGNORING THE EVIDENCE DULY PRESENTED AND ADMITTED

DURING THE TRIAL THAT ORTIGAS WAS PROPERLY NOTIFIED OF
THE NOTICE OF REVOCATION OF THE GENERAL POWER OF
ATTORNEY GIVEN TO CHOITHRAM, EVIDENCED BY THE
PUBLICATION IN THE MANILA TIMES ISSUE OF APRIL 2, 1971 (EXH.
F) WHICH CONSTITUTES NOTICE TO THE WHOLE WORLD; THE
RECEIPT OF THE NOTICE OF SUCH REVOCATION WHICH WAS
SENT TO ORTIGAS ON MAY 22, 1971 BY ATTY. MARIANO P.
MARCOS AND RECEIVED BY ORTIGAS ON MAY 24, 1971 (EXH. G)
AND THE FILING OF THE NOTICE WITH THE SECURITIES AND
EXCHANGE COMMISSION ON MARCH 29,1971 (EXH. H);

E) IN DISCARDING ITS FINDINGS CONTAINED IN ITS DECISION OF

14 MARCH 1988 (ANNEX B) THAT ORTIGAS WAS DULY NOTIFIED OF
THE REVOCATION OF THE POWER OF ATTORNEY OF CHOITHRAM,
HENCE ORTIGAS ACTED IN BAD FAITH IN EXECUTING THE DEED
OF SALE TO THE PROPERTIES IN QUESTION IN FAVOR OF NIRMLA
V. RAMNANI;

F) IN SUSTAINING RESPONDENT ORTIGAS VACUOUS REHASHED

ARGUMENTS IN ITS MOTION FOR RECONSIDERATION THAT IT
WOULD NOT GAIN ONE CENTAVO MORE FROM CHOITHRAM FOR
THE SALE OF SAID LOTS AND THE SUBSEQUENT TRANSFER OF
THE SAME TO THE MATTER'S DAUGHTER-IN-LAW, AND THAT IT
WAS IN GOOD FAITH WHEN IT TRANSFERRED ISHWAR'S RIGHTS
TO THE LOTS IN QUESTION.

II

THE RESPONDENT HONORABLE COURT OF APPEALS HAS SO FAR

DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE QUESTIONED AMENDED DECISION
OF 17 NOVEMBER 1988 (ANNEX A) THAT RESPONDENT ORTIGAS & CO.,
LTD., IS NOT JOINTLY AND SEVERALLY LIABLE WITH DEFENDANTS-
APPELLEES CHOITHRAM, MOTI AND NIRMLA RAMNANI IN SPITE OF ITS
ORIGINAL DECISION OF 14 MARCH 1988 THAT ORTIGAS WAS DULY
NOTIFIED OF THE REVOCATION OF THE POWER OF ATTORNEY OF
CHOITHRAM RAMNANI.10

44
The center of controversy is the testimony of Ishwar that during the latter part of 1965,
he sent the amount of US $150,000.00 to Choithram in two bank drafts of
US$65,000.00 and US$85,000.00 for the purpose of investing the same in real estate in
the Philippines. The trial court considered this lone testimony unworthy of faith and
credit. On the other hand, the appellate court found that the trial court misapprehended
the facts in complete disregard of the evidence, documentary and testimonial.

Another crucial issue is the claim of Choithram that because he was then a British
citizen, as a temporary arrangement, he arranged the purchase of the properties in the
name of Ishwar who was an American citizen and who was then qualified to purchase
property in the Philippines under the then Parity Amendment. The trial court believed
this account but it was debunked by the appellate court.

As to the issue of whether of not spouses Ishwar actually sent US$150,000.00 to

Choithram precisely to be used in the real estate business, the trial court made the
following disquisition —

After a careful, considered and conscientious examination of the evidence

adduced in the case at bar, plaintiff Ishwar Jethmal Ramanani's main evidence,
which centers on the alleged payment by sending through registered mail from
New York two (2) US$ drafts of $85,000.00 and $65,000.00 in the latter part of
1965 (TSN 28 Feb. 1984, p. 10-11). The sending of these moneys were before
the execution of that General Power of Attorney, which was dated in New York,
on January 24, 1966. Because of these alleged remittances of US $150,000.00
and the subsequent acquisition of the properties in question, plaintiffs averred
that they constituted a trust in favor of defendant Choithram Jethmal Ramnani.
This Court can be in full agreement if the plaintiffs were only able to prove
preponderantly these remittances. The entire record of this case is bereft of even
a shred of proof to that effect. It is completely barren. His uncorroborated
testimony that he remitted these amounts in the "later part of 1965" does not
engender enough faith and credence. Inadequacy of details of such remittance
on the two (2) US dollar drafts in such big amounts is completely not positive,
credible, probable and entirely not in accord with human experience. This is a
classic situation, plaintiffs not exhibiting any commercial document or any
document and/or paper as regard to these alleged remittances. Plaintiff Ishwar
Ramnani is not an ordinary businessman in the strict sense of the word.
Remember his main business is based in New York, and he should know better
how to send these alleged remittances. Worst, plaintiffs did not present even a
scum of proof, that defendant Choithram Ramnani received the alleged two US
dollar drafts. Significantly, he does not know even the bank where these two (2)
US dollar drafts were purchased. Indeed, plaintiff Ishwar Ramnani's lone
testimony is unworthy of faith and credit and, therefore, deserves scant
consideration, and since the plaintiffs' theory is built or based on such testimony,
their cause of action collapses or falls with it.

45
 Further, the rate of exchange that time in 1966 was P4.00 to $1.00. The alleged
two US dollar drafts amounted to $150,000.00 or about P600,000.00. Assuming
the cash price of the two (2) lots was only P530,000.00 (ALTHOUGH he said:
"Based on my knowledge I have no evidence," when asked if he even knows the
cash price of the two lots). If he were really the true and bonafide investor and
purchaser for profit as he asserted, he could have paid the price in full in cash
directly and obtained the title in his name and not thru "Contracts To Sell" in
installments paying interest and thru an attorney-in fact (TSN of May 2, 1984, pp.
10-11) and, again, plaintiff Ishwar Ramnani told this Court that he does not know
whether or not his late father-in-law borrowed the two US dollar drafts from the
Swiss Bank or whether or not his late father-in-law had any debit memo from the
Swiss Bank (TSN of May 2, 1984, pp. 9-10).11

On the other hand, the appellate court, in giving credence to the version of Ishwar, had
this to say —

While it is true, that generally the findings of fact of the trial court are binding
upon the appellate courts, said rule admits of exceptions such as when (1) the
conclusion is a finding grounded entirely on speculations, surmises and
conjectures; (2) when the inferences made is manifestly mistaken, absurd and
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts and when the court, in making its findings,
went beyond the issues of the case and the same are contrary to the admissions
of both appellant and appellee (Ramos vs. Court of Appeals, 63 SCRA 33;
Philippine American Life Assurance Co. vs. Santamaria, 31 SCRA 798; Aldaba
vs. Court of Appeals, 24 SCRA 189).

The evidence on record shows that the t court acted under a misapprehension of
facts and the inferences made on the evidence palpably a mistake.

The trial court's observation that "the entire records of the case is bereft of even
a shred of proof" that plaintiff-appellants have remitted to defendant-appellee
Choithram Ramnani the amount of US $ 150,000.00 for investment in real estate
in the Philippines, is not borne by the evidence on record and shows the trial
court's misapprehension of the facts if not a complete disregard of the evidence,
both documentary and testimonial.

Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his own behalf, declared

that during the latter part of 1965, he sent the amount of US $150,000.00 to his
brother Choithram in two bank drafts of US $65,000.00 and US $85,000.00 for
the purpose of investing the same in real estate in the Philippines. His testimony
is as follows:

ATTY. MARAPAO:

46
Mr. Witness, you said that your attorney-in-fact paid in your behalf. Can
you tell this Honorable Court where your attorney-in-fact got the money to
pay this property?

ATTY. CRUZ:

Wait. It is now clear it becomes incompetent or hearsay.

COURT:

Witness can answer.

A I paid through my attorney-in-fact. I am the one who gave him the

money.

ATTY. MARAPAO:

Q You gave him the money?

A That's right.

Q How much money did you give him?

A US $ 150,000.00.

Q How was it given then?

A Through Bank drafts. US $65,000.00 and US $85,000.00 bank drafts.

The total amount which is $ 150,000.00 (TSN, 28 February 1984, p. 10;
Emphasis supplied.)

x x x           x x x          x x x

ATTY. CRUZ:

Q The two bank drafts which you sent I assume you bought that from
some banks in New York?

A No, sir.

Q But there is no question those two bank drafts were for the purpose of
paying down payment and installment of the two parcels of land?

A Down payment, installment and to put up the building.

47
 Q I thought you said that the buildings were constructed . . . subject to our
continuing objection from rentals of first building?

ATTY. MARAPAO:

Your Honor, that is misleading.

COURT;

Witness (may) answer.

A Yes, the first building was immediately put up after the purchase of the
two parcels of land that was in 1966 and the finds were used for the
construction of the building from the US $150,000.00 (TSN, 7 March 1984,
page 14; Emphasis supplied.)

x x x           x x x          x x x

Q These two bank drafts which you mentioned and the use for it you sent
them by registered mail, did you send them from New Your?

A That is right.

Q And the two bank drafts which were put in the registered mail, the
registered mail was addressed to whom?

A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-15).

On cross-examination, the witness reiterated the remittance of the money to his

brother Choithram, which was sent to him by his father-in-law, Rochiram L.
Mulchandoni from Switzerland, a man of immense wealth, which even
defendants-appellees' witness Navalrai Ramnani admits to be so (tsn., p. 16, S.
Oct. 13, 1985). Thus, on cross-examination, Ishwar testified as follows:

Q How did you receive these two bank drafts from the bank the name of
which you cannot remember?

A I got it from my father-in-law.

Q From where did your father- in-law sent these two bank drafts?

A From Switzerland.

Q He was in Switzerland.

A Probably, they sent out these two drafts from Switzerland.

48
(TSN, 7 March 1984, pp. 16-17; Emphasis supplied.)

This positive and affirmative testimony of plaintiff-appellant that he sent the two
(2) bank drafts totalling US $ 150,000.00 to his brother, is proof of said
remittance. Such positive testimony has greater probative force than defendant-
appellee's denial of receipt of said bank drafts, for a witness who testifies
affirmatively that something did happen should be believed for it is unlikely that a
witness will remember what never happened (Underhill's Cr. Guidance, 5th Ed.,
Vol. 1, pp. 10-11).

That is not all. Shortly thereafter, plaintiff-appellant Ishwar Ramnani executed a

General Power of Attorney (Exhibit "A") dated January 24, 1966 appointing his
brothers, defendants-appellees Navalrai and Choithram as attorney-in-fact
empowering the latter to conduct and manage plaintiffs-appellants' business
affairs in the Philippines and specifically—

No. 14. To acquire, purchase for us, real estates and improvements for
the purpose of real estate business anywhere in the Philippines and to
develop, subdivide, improve and to resell to buying public (individual, firm
or corporation); to enter in any contract of sale in oar behalf and to enter
mortgages between the vendees and the herein grantors that may be
needed to finance the real estate business being undertaken.

Pursuant thereto, on February 1, 1966 and May 16, 1966, Choithram Jethmal
Ramnani entered into Agreements (Exhibits "B' and "C") with the other
defendant. Ortigas and Company, Ltd., for the purchase of two (2) parcels of
land situated at Barrio Ugong, Pasig, Rizal, with said defendant-appellee signing
the Agreements in his capacity as Attorney-in-fact of Ishwar Jethmal Ramnani.

Again, on January 5, 1972, almost seven (7) years after Ishwar sent the US $
150,000.00 in 1965, Choithram Ramnani, as attorney-in fact of Ishwar entered
into a Contract of Lease with Sigma-Mariwasa (Exhibit "P") thereby re-affirming
the ownership of Ishwar over the disputed property and the trust relationship
between the latter as principal and Choithram as attorney-in-fact of Ishwar.

All of these facts indicate that if plaintiff-appellant Ishwar had not earlier sent the
US $ 150,000.00 to his brother, Choithram, there would be no purpose for him to
execute a power of attorney appointing his brothers as s attorney-in-fact in
buying real estate in the Philippines.

As against Choithram's denial that he did not receive the US $150,000.00

remitted by Ishwar and that the Power of Attorney, as well as the Agreements
entered into with Ortigas & Co., were only temporary arrangements, Ishwar's
testimony that he did send the bank drafts to Choithram and was received by the
latter, is the more credible version since it is natural, reasonable and probable. It
is in accord with the common experience, knowledge and observation of ordinary

49
 men (Gardner vs. Wentors 18 Iowa 533). And in determining where the superior
weight of the evidence on the issues involved lies, the court may consider the
probability or improbability of the testimony of the witness (Sec. 1, Rule 133,
Rules of Court).

Contrary, therefore, to the trial court's sweeping observation that 'the entire
records of the case is bereft of even a shred of proof that Choithram received the
alleged bank drafts amounting to US $ 150,000.00, we have not only testimonial
evidence but also documentary and circumstantial evidence proving said
remittance of the money and the fiduciary relationship between the former and
Ishwar.12

The Court agrees. The environmental circumstances of this case buttress the claim of
Ishwar that he did entrust the amount of US $ 150,000.00 to his brother, Choithram,
which the latter invested in the real property business subject of this litigation in his
capacity as attorney-in-fact of Ishwar.

True it is that there is no receipt whatever in the possession of Ishwar to evidence the
same, but it is not unusual among brothers and close family members to entrust money
and valuables to each other without any formalities or receipt due to the special
relationship of trust between them.

And another proof thereof is the fact that Ishwar, out of frustration when Choithram
failed to account for the realty business despite his demands, revoked the general
power of attorney he extended to Choithram and Navalrai. Thereafter, Choithram wrote
a letter to Ishwar pleading that the power of attorney be renewed or another authority to
the same effect be extended, which reads as follows:

June 25,1971

MR. ISHWAR JETHMAL

NEW YORK

(1) Send power of Atty. immediately, because the case has been
postponed for two weeks. The same way as it has been send before in
favor of both names. Send it immediately otherwise everything will be lost
unnecessarily, and then it will take us in litigation. Now that we have gone
ahead with a case and would like to end it immediately otherwise
squatters will take the entire land. Therefore, send it immediately.

(2) Ortigas also has sued us because we are holding the installments,
because they have refused to give a rebate of P5.00 per meter which they
have to give us as per contract. They have filed the law suit that since we
have not paid the installment they should get back the land. The hearing
of this case is in the month of July. Therefore, please send the power

50
 immediately. In one case DADA (Elder Brother) will represent and in
another one, I shall.

(3) In case if you do not want to give power then make one letter in favor
of Dada and the other one in my favor showing that in any litigation we
can represent you and your wife, and whatever the court decide it will be
acceptable by me. You can ask any lawyer, he will be able to prepare
these letters. After that you can have these letters ratify before P.I.
Consulate. It should be dated April 15, 1971.

(4) Try to send the power because it will be more useful. Make it in any
manner whatever way you have confident in it. But please send it
immediately.

You have cancelled the power. Therefore, you have lost your reputation everywhere.
What can I further write you about it. I have told everybody that due to certain reasons I
have written you to do this that is why you have done this. This way your reputation
have been kept intact. Otherwise if I want to do something about it, I can show you that
inspite of the power you have cancelled you can not do anything. You can keep this
letter because my conscience is clear. I do not have anything in my mind.

I should not be writing you this, but because my conscience is clear do you know that if
I had predated papers what could you have done? Or do you know that I have many
paper signed by you and if had done anything or do then what can you do about it? It is
not necessary to write further about this. It does not matter if you have cancelled the
power. At that time if I had predated and done something about it what could you have
done? You do not know me. I am not after money. I can earn money anytime. It has
been ten months since I have not received a single penny for expenses from Dada
(elder brother). Why there are no expenses? We can not draw a single penny from
knitting (factory). Well I am not going to write you further, nor there is any need for it.
This much I am writing you because of the way you have conducted yourself. But
remember, whenever I hale the money I will not keep it myself Right now I have not got
anything at all.

I am not going to write any further.

Keep your business clean with Naru. Otherwise he will discontinue because he likes to
keep his business very clean.13

The said letter was in Sindhi language. It was translated to English by the First
Secretary of the Embassy of Pakistan, which translation was verified correct by the
Chairman, Department of Sindhi, University of Karachi. 14

From the foregoing letter what could be gleaned is that—

51
 1. Choithram asked for the issuance of another power of attorney in their favor so
they can continue to represent Ishwar as Ortigas has sued them for unpaid
installments. It also appears therefrom that Ortigas learned of the revocation of
the power of attorney so the request to issue another.

2. Choithram reassured Ishwar to have confidence in him as he was not after

money, and that he was not interested in Ishwar's money.

3. To demonstrate that he can be relied upon, he said that he could have ante-
dated the sales agreement of the Ortigas lots before the issuance of the powers
of attorney and acquired the same in his name, if he wanted to, but he did not do
so.

4. He said he had not received a single penny for expenses from Dada (their
elder brother Navalrai). Thus, confirming that if he was not given money by
Ishwar to buy the Ortigas lots, he could not have consummated the sale.

5. It is important to note that in said letter Choithram never claimed ownership of

the property in question. He affirmed the fact that he bought the same as mere
agent and in behalf of Ishwar. Neither did he mention the alleged temporary
arrangement whereby Ishwar, being an American citizen, shall appear to be the
buyer of the said property, but that after Choithram acquires Philippine
citizenship, its ownership shall be transferred to Choithram.

This brings us to this temporary arrangement theory of Choithram.

The appellate court disposed of this matter in this wise

Choithram's claim that he purchased the two parcels of land for himself in 1966
but placed it in the name of his younger brother, Ishwar, who is an American
citizen, as a temporary arrangement,' because as a British subject he is
disqualified under the 1935 Constitution to acquire real property in the
Philippines, which is not so with respect to American citizens in view of the
Ordinance Appended to the Constitution granting them parity rights, there is
nothing in the records showing that Ishwar ever agreed to such a temporary
arrangement.

During the entire period from 1965, when the US $ 150,000. 00 was transmitted
to Choithram, and until Ishwar filed a complaint against him in 1982, or over 16
years, Choithram never mentioned of a temporary arrangement nor can he
present any memorandum or writing evidencing such temporary arrangement,
prompting plaintiff-appellant to observe:

The properties in question which are located in a prime industrial site in

Ugong, Pasig, Metro Manila have a present fair market value of no less
than P22,364,000.00 (Exhibits T to T-14, inclusive), and yet for such

52
 valuable pieces of property, Choithram who now belatedly that he
purchased the same for himself did not document in writing or in a
memorandum the alleged temporary arrangement with Ishwar' (pp. 4-41,
Appellant's Brief).

Such verbal allegation of a temporary arrangement is simply improbable and

inconsistent. It has repeatedly been held that important contracts made without
evidence are highly improbable.

The improbability of such temporary arrangement is brought to fore when we

consider that Choithram has a son (Haresh Jethmal Ramnani) who is an
American citizen under whose name the properties in question could be
registered, both during the time the contracts to sell were executed and at the
time absolute title over the same was to be delivered. At the time the Agreements
were entered into with defendant Ortigas & Co. in 1966, Haresh, was already 18
years old and consequently, Choithram could have executed the deeds in trust
for his minor son. But, he did not do this. Three (3) years, thereafter, or in 1968
after Haresh had attained the age of 21, Choithram should have terminated the
temporary arrangement with Ishwar, which according to him would be effective
only pending the acquisition of citizenship papers. Again, he did not do anything.

Evidence to be believed, said Vice Chancellor Van Fleet of New Jersey,

must not only proceed from the mouth of a credible witness, but it must be
credible in itself—such as the common experience and observation of
mankind can approve as probable under the circumstances. We have no
test of the truth of human testimony, except its conformity to our
knowledge, observation and experience. Whatever is repugnant to these
belongs to the miraculous and is outside of judicial cognizance. (Daggers
vs. Van Dyek 37 M.J. Eq. 130, 132).

Another factor that can be counted against the temporary arrangement excuse is
that upon the revocation on February 4, 1971 of the Power of attorney dated
January 24, 1966 in favor of Navalrai and Choithram by Ishwar, Choithram wrote
(tsn, p. 21, S. July 19, 1985) a letter dated June 25, 1971 (Exhibits R, R-1, R-2
and R-3) imploring Ishwar to execute a new power of attorney in their favor. That
if he did not want to give power, then Ishwar could make a letter in favor of Dada
and another in his favor so that in any litigation involving the properties in
question, both of them could represent Ishwar and his wife. Choithram tried to
convince Ishwar to issue the power of attorney in whatever manner he may want.
In said letter no mention was made at all of any temporary arrangement.

On the contrary, said letter recognize(s) the existence of principal and attorney-
in-fact relationship between Ishwar and himself. Choithram wrote: . . . do you
know that if I had predated papers what could you have done? Or do you know
that I have many papers signed by you and if I had done anything or do then
what can you do about it?' Choithram was saying that he could have repudiated

53
the trust and ran away with the properties of Ishwar by predating documents and
Ishwar would be entirely helpless. He was bitter as a result of Ishwar's revocation
of the power of attorney but no mention was made of any temporary arrangement
or a claim of ownership over the properties in question nor was he able to
present any memorandum or document to prove the existence of such temporary
arrangement.

Choithram is also estopped in pais or by deed from claiming an interest over the
properties in question adverse to that of Ishwar. Section 3(a) of Rule 131 of the
Rules of Court states that whenever a party has, by his own declaration, act, or
omission intentionally and deliberately led another to believe a particular thing
true and act upon such belief, he cannot in any litigation arising out of such
declaration, act or omission be permitted to falsify it.' While estoppel by deed is a
bar which precludes a party to a deed and his privies from asserting as against
the other and his privies any right of title in derogation of the deed, or from
denying the truth of any material fact asserted in it (31 C.J.S. 195; 19 Am. Jur.
603).

Thus, defendants-appellees are not permitted to repudiate their admissions and

representations or to assert any right or title in derogation of the deeds or from
denying the truth of any material fact asserted in the (1) power of attorney dated
January 24, 1966 (Exhibit A); (2) the Agreements of February 1, 1966 and May
16, 1966 (Exhibits B and C); and (3) the Contract of Lease dated January 5,
1972 (Exhibit P).

. . . The doctrine of estoppel is based upon the grounds of public policy,

fair dealing, good faith and justice, and its purpose is to forbid one to
speak against his own act, representations, or commitments to the injury
of one to whom they were directed and who reasonably relied thereon.
The doctrine of estoppel springs from equitable principles and the equities
in the case. It is designed to aid the law in the administration of justice
where without its aid injustice might result. It has been applied by court
wherever and whenever special circumstances of a case so demands'
(Philippine National Bank vs. Court of Appeals, 94 SCRA 357, 368
[1979]).

It was only after the services of counsel has been obtained that Choithram
alleged for the first time in his Answer that the General Power of attorney (Annex
A) with the Contracts to Sell (Annexes B and C) were made only for the sole
purpose of assuring defendants' acquisition and ownership of the lots described
thereon in due time under the law; that said instruments do not reflect the true
intention of the parties (par. 2, Answer dated May 30, 1983), seventeen (17) long
years from the time he received the money transmitted to him by his brother,
Ishwar.

54
Moreover, Choithram's 'temporary arrangement,' by which he claimed
purchasing the two (2) parcels in question in 1966 and placing them in the name
of Ishwar who is an American citizen, to circumvent the disqualification provision
of aliens acquiring real properties in the Philippines under the 1935 Philippine
Constitution, as Choithram was then a British subject, show a palpable disregard
of the law of the land and to sustain the supposed "temporary arrangement" with
Ishwar would be sanctioning the perpetration of an illegal act and culpable
violation of the Constitution.

Defendants-appellees likewise violated the Anti-Dummy Law (Commonwealth

Act 108, as amended), which provides in Section 1 thereof that:

In all cases in which any constitutional or legal provision requires

Philippine or any other specific citizenship as a requisite for the exercise
or enjoyment of a right, franchise or privilege, . . . any alien or foreigner
profiting thereby, shall be punished . . . by imprisonment . . . and of a fine
of not less than the value of the right, franchise or privileges, which is
enjoyed or acquired in violation of the provisions hereof . . .

Having come to court with unclean hands, Choithram must not be permitted foist
his 'temporary arrangement' scheme as a defense before this court. Being in
delicto, he does not have any right whatsoever being shielded from his own
wrong-doing, which is not so with respect to Ishwar, who was not a party to such
an arrangement.

The falsity of Choithram's defense is further aggravated by the material

inconsistencies and contradictions in his testimony. While on January 23, 1985
he testified that he purchased the land in question on his own behalf (tsn, p. 4, S.
Jan. 23, 1985), in the July 18, 1985 hearing, forgetting probably what he stated
before, Choithram testified that he was only an attorney-in-fact of Ishwar (tsn, p.
5, S. July 18, 1985). Also in the hearing of January 23, 1985, Choithram declared
that nobody rented the building that was constructed on the parcels of land in
question (tsn, pp. 5 and 6), only to admit in the hearing of October 30, 1985, that
he was in fact renting the building for P12,000. 00 per annum (tsn, p. 3). Again, in
the hearing of July 19, 1985, Choithram testified that he had no knowledge of the
revocation of the Power of Attorney (tsn, pp. 20- 21), only to backtrack when
confronted with the letter of June 25, 1971 (Exhibits R to R-3), which he admitted
to be in "his own writing," indicating knowledge of the revocation of the Power of
Attorney.

These inconsistencies are not minor but go into the entire credibility of the
testimony of Choithram and the rule is that contradictions on a very crucial point
by a witness, renders s testimony incredible People vs. Rafallo, 80 Phil. 22). Not
only this the doctrine of falsus in uno, falsus in omnibus is fully applicable as far
as the testimony of Choithram is concerned. The cardinal rule, which has served
in all ages, and has been applied to all conditions of men, is that a witness

55
 willfully falsifying the truth in one particular, when upon oath, ought never to be
believed upon the strength of his own testimony, whatever he may assert (U.S.
vs. Osgood 27 Feb. Case No. 15971-a, p. 364); Gonzales vs. Mauricio, 52 Phil,
728), for what ground of judicial relief can there be left when the party has shown
such gross insensibility to the difference between right and wrong, between truth
and falsehood? (The Santisima Trinidad, 7 Wheat, 283, 5 U.S. [L. ed.] 454).

True, that Choithram's testimony finds corroboration from the testimony of his
brother, Navalrai, but the same would not be of much help to Choithram. Not only
is Navalrai an interested and biased witness, having admitted his close
relationship with Choithram and that whenever he or Choithram had problems,
they ran to each other (tsn, pp. 17-18, S. Sept. 20, 1985), Navalrai has a
pecuniary interest in the success of Choithram in the case in question. Both he
and Choithram are business partners in Jethmal and Sons and/or Jethmal
Industries, wherein he owns 60% of the company and Choithram, 40% (p. 62,
Appellant's Brief). Since the acquisition of the properties in question in 1966,
Navalrai was occupying 1,200 square meters thereof as a factory site plus the
fact that his son (Navalrais) was occupying the apartment on top of the factory
with his family rent free except the amount of P l,000.00 a month to pay for taxes
on said properties (tsn, p. 17, S. Oct. 3, 1985).

Inherent contradictions also marked Navalrai testimony. "While the latter was
very meticulous in keeping a receipt for the P 10,000.00 that he paid Ishwar as
settlement in Jethmal Industries, yet in the alleged payment of P 100,000.00 to
Ishwar, no receipt or voucher was ever issued by him (tsn, p. 17, S. Oct. 3,
1983).15

We concur.
The foregoing findings of facts of the Court of Appeals which are supported by the
evidence is conclusive on this Court. The Court finds that Ishwar entrusted
US$150,000.00 to Choithram in 1965 for investment in the realty business. Soon
thereafter, a general power of attorney was executed by Ishwar in favor of both Navalrai
and Choithram. If it is true that the purpose only is to enable Choithram to purchase
realty temporarily in the name of Ishwar, why the inclusion of their elder brother Navalrai
as an attorney-in-fact?

Then, acting as attorney-in-fact of Ishwar, Choithram purchased two parcels of land

located in Barrio Ugong Pasig, Rizal, from Ortigas in 1966. With the balance of the
money of Ishwar, Choithram erected a building on said lot. Subsequently, with a loan
obtained from a bank and the income of the said property, Choithram constructed three
other buildings thereon. He managed the business and collected the rentals. Due to
their relationship of confidence it was only in 1970 when Ishwar demanded for an
accounting from Choithram. And even as Ishwar revoked the general power of attorney
on February 4, 1971, of which Choithram was duly notified, Choithram wrote to Ishwar
on June 25, 1971 requesting that he execute a new power of attorney in their favor. 16
When Ishwar did not respond thereto, Choithram nevertheless proceeded as such

56
attorney-in-fact to assign all the rights and interest of Ishwar to his daughter-in-law
Nirmla in 1973 without the knowledge and consent of Ishwar. Ortigas in turn executed
the corresponding deeds of sale in favor of Nirmla after full payment of the purchase
accomplice of the lots.

In the prefatory statement of their petition, Choithram pictured Ishwar to be so motivated

by greed and ungratefulness, who squandered the family business in New York, who
had to turn to his wife for support, accustomed to living in ostentation and who resorted
to blackmail in filing several criminal and civil suits against them. These statements find
no support and should be stricken from the records. Indeed, they are irrelevant to the
proceeding.

Moreover, assuming Ishwar is of such a low character as Choithram proposes to make

this Court to believe, why is it that of all persons, under his temporary arrangement
theory, Choithram opted to entrust the purchase of valuable real estate and built four
buildings thereon all in the name of Ishwar? Is it not an unconscious emergence of the
truth that this otherwise wayward brother of theirs was on the contrary able to raise
enough capital through the generosity of his father-in-law for the purchase of the very
properties in question? As the appellate court aptly observed if truly this temporary
arrangement story is the only motivation, why Ishwar of all people? Why not the own
son of Choithram, Haresh who is also an American citizen and who was already 18
years old at the time of purchase in 1966? The Court agrees with the observation that
this theory is an afterthought which surfaced only when Choithram, Nirmla and Moti filed
their answer.

When Ishwar asked for an accounting in 1970 and revoked the general power of
attorney in 1971, Choithram had a total change of heart. He decided to claim the
property as his. He caused the transfer of the rights and interest of Ishwar to Nirmla. On
his representation, Ortigas executed the deeds of sale of the properties in favor of
Nirmla. Choithram obviously surmised Ishwar cannot stake a valid claim over the
property by so doing.

Clearly, this transfer to Nirmla is fictitious and, as admitted by Choithram, was intended
only to place the property in her name until Choithram acquires Philippine citizenship. 17
What appears certain is that it appears to be a scheme of Choithram to place the
property beyond the reach of Ishwar should he successfully claim the same. Thus, it
must be struck down.

Worse still, on September 27, 1990 spouses Ishwar filed an urgent motion for the
issuance of a writ of preliminary attachment and to require Choithram, et al. to submit
certain documents, inviting the attention of this Court to the following:

a) Donation by Choithram of his 2,500 shares of stock in General Garments

Corporation in favor of his children on December 29, 1989; 18

57
 b) Sale on August 2, 1990 by Choithram of his 100 shares in Biflex (Phils.), Inc.,
in favor of his children;19 and

c) Mortgage on June 20, 1989 by Nirmla through her attorney-in-fact, Choithram,

of the properties subject of this litigation, for the amount of $3 Million in favor of
Overseas Holding, Co. Ltd., (Overseas for brevity), a corporation which appears
to be organized and existing under and by virtue of the laws of Cayman Islands,
with a capital of only $100.00 divided into 100 shares of $1.00 each, and with
address at P.O. Box 1790, Grand Cayman, Cayman Islands. 20

An opposition thereto was filed by Choithram, et al. but no documents were produced. A
manifestation and reply to the opposition was filed by spouses Ishwar.

All these acts of Choithram, et al. appear to be fraudulent attempts to remove these
properties to the detriment of spouses Ishwar should the latter prevail in this litigation.

On December 10, 1990 the court issued a resolution that substantially reads as follows:

Considering the allegations of petitioners Ishwar Jethmal Ramnani and Sonya

Ramnani that respondents Choithram Jethmal Ramnani, Nirmla Ramnani and
Moti G. Ramnani have fraudulently executed a simulated mortgage of the
properties subject of this litigation dated June 20, 1989, in favor of Overseas
Holding Co., Ltd. which appears to be a corporation organized in Cayman
Islands, for the amount of $ 3,000,000.00, which is much more than the value of
the properties in litigation; that said alleged mortgagee appears to be a "shell"
corporation with a capital of only $100.00; and that this alleged transaction
appears to be intended to defraud petitioners Ishwar and Sonya Jethmal
Ramnani of any favorable judgment that this Court may render in this case;

Wherefore the Court Resolved to issue a writ of preliminary injunction enjoining

and prohibiting said respondents Choithram Jethmal Ramnani, Nirmla V.
Ramnani, Moti G. Ramnani and the Overseas Holding Co., Ltd. from
encumbering, selling or otherwise disposing of the properties and improvements
subject of this litigation until further orders of the Court. Petitioners Ishwar and
Sonya Jethmal Ramnani are hereby required to post a bond of P 100,000.00 to
answer for any damages d respondents may suffer by way of this injunction if the
Court finally decides the said petitioners are not entitled thereto.

The Overseas Holding Co., Ltd. with address at P.O. Box 1790 Grand Cayman,
Cayman Islands, is hereby IMPLEADED as a respondent in these cases, and is
hereby required to SUBMIT its comment on the Urgent Motion for the Issuance of
a Writ of Preliminary Attachment and Motion for Production of Documents, the
Manifestation and the Reply to the Opposition filed by said petitioners, within
Sixty (60) days after service by publication on it in accordance with the provisions
of Section 17, Rule 14 of the Rules of Court, at the expense of petitioners Ishwar
and Sonya Jethmal Ramnani.

58
 Let copies of this resolution be served on the Register of Deeds of Pasig, Rizal,
and the Provincial Assessor of Pasig, Rizal, both in Metro Manila, for its
annotation on the transfer Certificates of Titles Nos. 403150 and 403152
registered in the name of respondent Nirmla V. Ramnani, and on the tax
declarations of the said properties and its improvements subject of this
litigation.21

The required injunction bond in the amount of P 100,000.00 was filed by the spouses
Ishwar which was approved by the Court. The above resolution of the Court was
published in the Manila Bulletin issue of December 17, 1990 at the expense of said
spouses.22 On December 19, 1990 the said resolution and petition for review with
annexes in G.R. Nos. 85494 and 85496 were transmitted to respondent Overseas,
Grand Cayman Islands at its address c/o Cayman Overseas Trust Co. Ltd., through the
United Parcel Services Bill of Lading 23 and it was actually delivered to said company on
January 23, 1991.24

On January 22, 1991, Choithram, et al., filed a motion to dissolve the writ of preliminary
injunction alleging that there is no basis therefor as in the amended complaint what is
sought is actual damages and not a reconveyance of the property, that there is no
reason for its issuance, and that acts already executed cannot be enjoined. They also
offered to file a counterbond to dissolve the writ.

A comment/opposition thereto was filed by spouses Ishwar that there is basis for the
injunction as the alleged mortgage of the property is simulated and the other donations
of the shares of Choithram to his children are fraudulent schemes to negate any
judgment the Court may render for petitioners.

No comment or answer was filed by Overseas despite due notice, thus it is and must be
considered to be in default and to have lost the right to contest the representations of
spouses Ishwar to declare the aforesaid alleged mortgage nun and void.

This purported mortgage of the subject properties in litigation appears to be fraudulent

and simulated. The stated amount of $3 Million for which it was mortgaged is much
more than the value of the mortgaged properties and its improvements. The alleged
mortgagee-company (Overseas) was organized only on June 26,1989 but the mortgage
was executed much earlier, on June 20, 1989, that is six (6) days before Overseas was
organized. Overseas is a "shelf" company worth only $100.00. 25 In the manifestation of
spouses Ishwar dated April 1, 1991, the Court was informed that this matter was
brought to the attention of the Central Bank (CB) for investigation, and that in a letter of
March 20, 1991, the CB informed counsel for spouses Ishwar that said alleged foreign
loan of Choithram, et al. from Overseas has not been previously approved/registered
with the CB.26

Obviously, this is another ploy of Choithram, et al. to place these properties beyond the
reach of spouses Ishwar should they obtain a favorable judgment in this case. The

59
Court finds and so declares that this alleged mortgage should be as it is hereby
declared null and void.

All these contemporaneous and subsequent acts of Choithram, et al., betray the
weakness of their cause so they had to take an steps, even as the case was already
pending in Court, to render ineffective any judgment that may be rendered against
them.

The problem is compounded in that respondent Ortigas is caught in the web of this
bitter fight. It had all the time been dealing with Choithram as attorney-in-fact of Ishwar.
However, evidence had been adduced that notice in writing had been served not only
on Choithram, but also on Ortigas, of the revocation of Choithram's power of attorney by
Ishwar's lawyer, on May 24, 1971.27 A publication of said notice was made in the April 2,
1971 issue of The Manila Times for the information of the general public. 28 Such notice
of revocation in a newspaper of general circulation is sufficient warning to third persons
including Ortigas.29 A notice of revocation was also registered with the Securities and
Exchange Commission on March 29, 1 971.30

Indeed in the letter of Choithram to Ishwar of June 25, 1971, Choithram was pleading
that Ishwar execute another power of attorney to be shown to Ortigas who apparently
learned of the revocation of Choithram's power of attorney. 31 Despite said notices,
Ortigas nevertheless acceded to the representation of Choithram, as alleged attorney-
in-fact of Ishwar, to assign the rights of petitioner Ishwar to Nirmla. While the primary
blame should be laid at the doorstep of Choithram, Ortigas is not entirely without fault. It
should have required Choithram to secure another power of attorney from Ishwar. For
recklessly believing the pretension of Choithram that his power of attorney was still
good, it must, therefore, share in the latter's liability to Ishwar.

In the original complaint, the spouses Ishwar asked for a reconveyance of the properties
and/or payment of its present value and damages. 32 In the amended complaint they
asked, among others, for actual damages of not less than the present value of the real
properties in litigation, moral and exemplary damages, attorneys fees, costs of the suit
and further prayed for "such other reliefs as may be deemed just and equitable in the
premises .33 The amended complaint contain the following positive allegations:

7. Defendant Choithram Ramnani, in evident bad faith and despite due notice of
the revocation of the General Power of Attorney, Annex 'D" hereof, caused the
transfer of the rights over the said parcels of land to his daughter-in-law,
defendant Nirmla Ramnani in connivance with defendant Ortigas & Co., the latter
having agreed to the said transfer despite receiving a letter from plaintiffs' lawyer
informing them of the said revocation; copy of the letter is hereto attached and
made an integral part hereof as Annex "H";

8. Defendant Nirmla Ramnani having acquired the aforesaid property by fraud is,
by force of law, considered a trustee of an implied trust for the benefit of plaintiff
and is obliged to return the same to the latter:

60
 9. Several efforts were made to settle the matter within the family but defendants
(Choithram Ramnani, Nirmla Ramnani and Moti Ramnani) refused and up to now
fail and still refuse to cooperate and respond to the same; thus, the present case;

10. In addition to having been deprived of their rights over the properties
(described in par. 3 hereof), plaintiffs, by reason of defendants' fraudulent act,
suffered actual damages by way of lost rental on the property which defendants
(Choithram Ramnani, Nirmla Ramnani and Moti Ramnani have collected for
themselves;34

In said amended complaint, spouses Ishwar, among others, pray for payment of actual
damages in an amount no less than the value of the properties in litigation instead of a
reconveyance as sought in the original complaint. Apparently they opted not to insist on
a reconveyance as they are American citizens as alleged in the amended complaint.

The allegations of the amended complaint above reproduced clearly spelled out that the
transfer of the property to Nirmla was fraudulent and that it should be considered to be
held in trust by Nirmla for spouses Ishwar. As above-discussed, this allegation is well-
taken and the transfer of the property to Nirmla should be considered to have created
an implied trust by Nirmla as trustee of the property for the benefit of spouses Ishwar. 35

The motion to dissolve the writ of preliminary injunction filed by Choithram, et al. should
be denied. Its issuance by this Court is proper and warranted under the circumstances
of the case. Under Section 3(c) Rule 58 of the Rules of Court, a writ of preliminary
injunction may be granted at any time after commencement of the action and before
judgment when it is established:

(c) that the defendant is doing, threatens, or is about to do, or is procuring or

suffering to be done, some act probably in violation of plaintiffs's rights respecting
the subject of the action, and tending to render the judgment ineffectual.

As above extensively discussed, Choithram, et al. have committed and threaten to

commit further acts of disposition of the properties in litigation as well as the other
assets of Choithram, apparently designed to render ineffective any judgment the Court
may render favorable to spouses Ishwar.

The purpose of the provisional remedy of preliminary injunction is to preserve the status
quo of the things subject of the litigation and to protect the rights of the spouses Ishwar
respecting the subject of the action during the pendency of the Suit 36 and not to obstruct
the administration of justice or prejudice the adverse party. 37 In this case for damages,
should Choithram, et al. continue to commit acts of disposition of the properties subject
of the litigation, an award of damages to spouses Ishwar would thereby be rendered
ineffectual and meaningless.38

61
Consequently, if only to protect the interest of spouses Ishwar, the Court hereby finds
and holds that the motion for the issuance of a writ of preliminary attachment filed by
spouses Ishwar should be granted covering the properties subject of this litigation.

Section 1, Rule 57 of the Rules of Court provides that at the commencement of an

action or at any time thereafter, the plaintiff or any proper party may have the property
of the adverse party attached as security for the satisfaction of any judgment that may
be recovered, in, among others, the following cases:

(d) In an action against a party who has been guilty of a fraud in contracting the
debt or incurring the obligation upon which the action is brought, or in concealing
or disposing of the property for the taking, detention or conversion of which the
action is brought;

(e) In an action against a party who has removed or disposed of his property, or
is about to do so, with intent to defraud his creditors; . . .

Verily, the acts of Choithram, et al. of disposing the properties subject of the litigation
disclose a scheme to defraud spouses Ishwar so they may not be able to recover at all
given a judgment in their favor, the requiring the issuance of the writ of attachment in
this instance.

Nevertheless, under the peculiar circumstances of this case and despite the fact that
Choithram, et al., have committed acts which demonstrate their bad faith and scheme to
defraud spouses Ishwar and Sonya of their rightful share in the properties in litigation,
the Court cannot ignore the fact that Choithram must have been motivated by a strong
conviction that as the industrial partner in the acquisition of said assets he has as much
claim to said properties as Ishwar, the capitalist partner in the joint venture.

The scenario is clear. Spouses Ishwar supplied the capital of $150,000.00 for the
business.1âwphi1 They entrusted the money to Choithram to invest in a profitable
business venture in the Philippines. For this purpose they appointed Choithram as their
attorney-in-fact.

Choithram in turn decided to invest in the real estate business. He bought the two (2)
parcels of land in question from Ortigas as attorney-in-fact of Ishwar- Instead of paying
for the lots in cash, he paid in installments and used the balance of the capital entrusted
to him, plus a loan, to build two buildings. Although the buildings were burned later,
Choithram was able to build two other buildings on the property. He rented them out
and collected the rentals. Through the industry and genius of Choithram, Ishwar's
property was developed and improved into what it is now—a valuable asset worth
millions of pesos. As of the last estimate in 1985, while the case was pending before the
trial court, the market value of the properties is no less than P22,304,000.00. 39 It should
be worth much more today.

62
We have a situation where two brothers engaged in a business venture. One furnished
the capital, the other contributed his industry and talent. Justice and equity dictate that
the two share equally the fruit of their joint investment and efforts. Perhaps this
Solomonic solution may pave the way towards their reconciliation. Both would stand to
gain. No one would end up the loser. After all, blood is thicker than water.

However, the Court cannot just close its eyes to the devious machinations and schemes
that Choithram employed in attempting to dispose of, if not dissipate, the properties to
deprive spouses Ishwar of any possible means to recover any award the Court may
grant in their favor. Since Choithram, et al. acted with evident bad faith and malice, they
should pay moral and exemplary damages as well as attorney's fees to spouses Ishwar.

WHEREFORE, the petition in G.R. No. 85494 is DENIED, while the petition in G.R. No.
85496 is hereby given due course and GRANTED. The judgment of the Court of
Appeals dated October 18, 1988 is hereby modified as follows:

1. Dividing equally between respondents spouses Ishwar, on the one hand, and
petitioner Choithram Ramnani, on the other, (in G.R. No. 85494) the two parcels of land
subject of this litigation, including all the improvements thereon, presently covered by
transfer Certificates of Title Nos. 403150 and 403152 of the Registry of Deeds, as well
as the rental income of the property from 1967 to the present.

2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and

respondent Ortigas and Company, Limited Partnership (in G.R. No. 85496) are ordered
solidarily to pay in cash the value of said one-half (1/2) share in the said land and
improvements pertaining to respondents spouses Ishwar and Sonya at their fair market
value at the time of the satisfaction of this judgment but in no case less than their value
as appraised by the Asian Appraisal, Inc. in its Appraisal Report dated August 1985
(Exhibits T to T-14, inclusive).

3. Petitioners Choithram, Nirmla and Moti Ramnani and respondent Ortigas & Co., Ltd.
Partnership shall also be jointly and severally liable to pay to said respondents spouses
Ishwar and Sonya Ramnani one-half (1/2) of the total rental income of said properties
and improvements from 1967 up to the date of satisfaction of the judgment to be
computed as follows:

a. On Building C occupied by Eppie's Creation and Jethmal Industries

from 1967 to 1973, inclusive, based on the 1967 to 1973 monthly rentals
paid by Eppie's Creation;

b. Also on Building C above, occupied by Jethmal Industries and Lavine

from 1974 to 1978, the rental incomes based on then rates prevailing as
shown under Exhibit "P"; and from 1979 to 1981, based on then prevailing
rates as indicated under Exhibit "Q";

63
 c. On Building A occupied by Transworld Knitting Mills from 1972 to 1978,
the rental incomes based upon then prevailing rates shown under Exhibit
"P", and from 1979 to 1981, based on prevailing rates per Exhibit "Q";

d. On the two Bays Buildings occupied by Sigma-Mariwasa from 1972 to

1978, the rentals based on the Lease Contract, Exhibit "P", and from 1979
to 1980, the rentals based on the Lease Contract, Exhibit "Q".

and thereafter commencing 1982, to account for and turn over the rental incomes paid
or ought to be paid for the use and occupancy of the properties and all improvements
totalling 10,048 sq. m., based on the rate per square meter prevailing in 1981 as
indicated annually cumulative up to 1984. Then, commencing 1985 and up to the
satisfaction of the judgment, rentals shall be computed at ten percent (10%) annually of
the fair market values of the properties as appraised by the Asian Appraisals, Inc. in
August 1985. (Exhibits T to T-14, inclusive.)

4. To determine the market value of the properties at the time of the satisfaction of this
judgment and the total rental incomes thereof, the trial court is hereby directed to hold a
hearing with deliberate dispatch for this purpose only and to have the judgment
immediately executed after such determination.

5. Petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, are also jointly and
severally liable to pay respondents Ishwar and Sonya Ramnani the amount of
P500,000.00 as moral damages, P200,000.00 as exemplary damages and attorney's
fees equal to 10% of the total award. to said respondents spouses.

6. The motion to dissolve the writ of preliminary injunction dated December 10, 1990
filed by petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, is hereby
DENIED and the said injunction is hereby made permanent. Let a writ of attachment be
issued and levied against the properties and improvements subject of this litigation to
secure the payment of the above awards to spouses Ishwar and Sonya.

7. The mortgage constituted on the subject property dated June 20, 1989 by petitioners
Choithram and Nirmla, both surnamed Ramnani in favor of respondent Overseas
Holding, Co. Ltd. (in G.R. No. 85496) for the amount of $3-M is hereby declared null
and void. The Register of Deeds of Pasig, Rizal, is directed to cancel the annotation of d
mortgage on the titles of the properties in question.

8. Should respondent Ortigas Co., Ltd. Partnership pay the awards to Ishwar and Sonya
Ramnani under this judgment, it shall be entitled to reimbursement from petitioners
Choithram, Nirmla and Moti, all surnamed Ramnani.

9. The above awards shag bear legal rate of interest of six percent (6%) per annum
from the time this judgment becomes final until they are fully paid by petitioners
Choithram Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and Ortigas, Co., Ltd.

64
Partnership. Said petitioners Choithram, et al. and respondent Ortigas shall also pay the
costs.

SO ORDERED.

Narvasa, Cruz, Griño-Aquino and Medialdea, JJ., concur.

H. MANAGEMENT & ASSOCIATION – ARTS. 1800 TO 1804

FIRST DIVISION

G.R. No. L-55397 February 29, 1988

TAI TONG CHUACHE & CO., petitioner,

vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY
CORPORATION, respondents.

GANCAYCO, J.:

This petition for review on certiorari seeks the reversal of the decision of the Insurance
Commission in IC Case #367 1 dismissing the complaint 2 for recovery of the alleged
unpaid balance of the proceeds of the Fire Insurance Policies issued by herein
respondent insurance company in favor of petitioner-intervenor.

The facts of the case as found by respondent Insurance Commission are as follows:

Complainants acquired from a certain Rolando Gonzales a parcel of land

and a building located at San Rafael Village, Davao City. Complainants
assumed the mortgage of the building in favor of S.S.S., which building
was insured with respondent S.S.S. Accredited Group of Insurers for
P25,000.00.

On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong
Chuache Inc. in the amount of P100,000.00. To secure the payment of the
loan, a mortgage was executed over the land and the building in favor of
Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April 25, 1975,
Arsenio Chua, representative of Thai Tong Chuache & Co. insured the
latter's interest with Travellers Multi-Indemnity Corporation for
P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents
thereof) (Exhibit "A-a," contents thereof) (Exhibit "A-a").

On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F-
02500 (Exhibit "A"), covering the building for P50,000.00 with respondent
Zenith Insurance Corporation. On July 16, 1975, another Fire Insurance
Policy No. 8459 (Exhibit "B") was procured from respondent Philippine

65
British Assurance Company, covering the same building for P50,000.00
and the contents thereof for P70,000.00.

On July 31, 1975, the building and the contents were totally razed by fire.

Adjustment Standard Corporation submitted a report as follow

xxx xxx xxx

... Thus the apportioned share of each company is as follows:

We are showing hereunder another apportionment of the loss

which includes the Travellers Multi-Indemnity policy for reference
purposes.

Based on the computation of the loss, including the Travellers Multi-

Indemnity, respondents, Zenith Insurance, Phil. British Assurance and
S.S.S. Accredited Group of Insurers, paid their corresponding shares of
the loss. Complainants were paid the following: P41,546.79 by Philippine
British Assurance Co., P11,877.14 by Zenith Insurance Corporation, and
P5,936.57 by S.S.S. Group of Accredited Insurers (Par. 6. Amended
Complaint). Demand was made from respondent Travellers Multi-
Indemnity for its share in the loss but the same was refused. Hence,
complainants demanded from the other three (3) respondents the balance
of each share in the loss based on the computation of the Adjustment
Standards Report excluding Travellers Multi-Indemnity in the amount of
P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil. British: and
P2,866.90, SSS Accredited) but the same was refused, hence, this action.
In their answers, Philippine British Assurance and Zenith Insurance
Corporation admitted the material allegations in the complaint, but denied
liability on the ground that the claim of the complainants had already been
waived, extinguished or paid. Both companies set up counterclaim in the
total amount of P 91,546.79.
Instead of filing an answer, SSS Accredited Group of Insurers informed
the Commission in its letter of July 22, 1977 that the herein claim of
complainants for the balance had been paid in the amount of P 5,938.57
in full, based on the Adjustment Standards Corporation Report of
September 22, 1975.
Travellers Insurance, on its part, admitted the issuance of the Policy No.
599 DV and alleged as its special and affirmative defenses the following,
to wit: that Fire Policy No. 599 DV, covering the furniture and building of
complainants was secured by a certain Arsenio Chua, mortgage creditor,
for the purpose of protecting his mortgage credit against the complainants;
that the said policy was issued in the name of Azucena Palomo, only to
indicate that she owns the insured premises; that the policy contains an

66
 endorsement in favor of Arsenio Chua as his mortgage interest may
appear to indicate that insured was Arsenio Chua and the complainants;
that the premium due on said fire policy was paid by Arsenio Chua; that
respondent Travellers is not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in
intervention claiming the proceeds of the fire Insurance Policy No. F-559
DV, issued by respondent Travellers Multi-Indemnity.
Travellers Insurance, in answer to the complaint in intervention, alleged
that the Intervenor is not entitled to indemnity under its Fire Insurance
Policy for lack of insurable interest before the loss of the insured premises
and that the complainants, spouses Pedro and Azucena Palomo, had
already paid in full their mortgage indebtedness to the intervenor. 3
As adverted to above respondent Insurance Commission dismissed spouses Palomos'
complaint on the ground that the insurance policy subject of the complaint was taken
out by Tai Tong Chuache & Company, petitioner herein, for its own interest only as
mortgagee of the insured property and thus complainant as mortgagors of the insured
property have no right of action against herein respondent. It likewise dismissed
petitioner's complaint in intervention in the following words:
We move on the issue of liability of respondent Travellers Multi-Indemnity
to the Intervenor-mortgagee. The complainant testified that she was still
indebted to Intervenor in the amount of P100,000.00. Such allegation has
not however, been sufficiently proven by documentary evidence. The
certification (Exhibit 'E-e') issued by the Court of First Instance of Davao,
Branch 11, indicate that the complainant was Antonio Lopez Chua and not
Tai Tong Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a motion for
reconsideration but it was likewise denied hence, the present petition.
It is the contention of the petitioner that respondent Insurance Commission decided an
issue not raised in the pleadings of the parties in that it ruled that a certain Arsenio
Lopez Chua is the one entitled to the insurance proceeds and not Tai Tong Chuache &
Company.
This Court cannot fault petitioner for the above erroneous interpretation of the decision
appealed from considering the manner it was written. 5 As correctly pointed out by
respondent insurance commission in their comment, the decision did not pronounce that
it was Arsenio Lopez Chua who has insurable interest over the insured property.
Perusal of the decision reveals however that it readily absolved respondent insurance
company from liability on the basis of the commissioner's conclusion that at the time of
the occurrence of the peril insured against petitioner as mortgagee had no more
insurable interest over the insured property. It was based on the inference that the credit
secured by the mortgaged property was already paid by the Palomos before the said
property was gutted down by fire. The foregoing conclusion was arrived at on the basis
of the certification issued by the then Court of First Instance of Davao, Branch II that in
a certain civil action against the Palomos, Antonio Lopez Chua stands as the
complainant and not petitioner Tai Tong Chuache & Company.

67
We find the petition to be impressed with merit. It is a well known postulate that the case
of a party is constituted by his own affirmative allegations. Under Section 1, Rule 131 6
each party must prove his own affirmative allegations by the amount of evidence
required by law which in civil cases as in the present case is preponderance of
evidence. The party, whether plaintiff or defendant, who asserts the affirmative of the
issue has the burden of presenting at the trial such amount of evidence as required by
law to obtain favorable judgment.7 Thus, petitioner who is claiming a right over the
insurance must prove its case. Likewise, respondent insurance company to avoid
liability under the policy by setting up an affirmative defense of lack of insurable interest
on the part of the petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance company did not assail the validity of the
insurance policy taken out by petitioner over the mortgaged property. Neither did it deny
that the said property was totally razed by fire within the period covered by the
insurance. Respondent, as mentioned earlier advanced an affirmative defense of lack of
insurable interest on the part of the petitioner that before the occurrence of the peril
insured against the Palomos had already paid their credit due the petitioner.
Respondent having admitted the material allegations in the complaint, has the burden of
proof to show that petitioner has no insurable interest over the insured property at the
time the contingency took place. Upon that point, there is a failure of proof. Respondent,
it will be noted, exerted no effort to present any evidence to substantiate its claim, while
petitioner did. For said respondent's failure, the decision must be adverse to it.
However, as adverted to earlier, respondent Insurance Commission absolved
respondent insurance company from liability on the basis of the certification issued by
the then Court of First Instance of Davao, Branch II, that in a certain civil action against
the Palomos, Arsenio Lopez Chua stands as the complainant and not Tai Tong
Chuache. From said evidence respondent commission inferred that the credit extended
by herein petitioner to the Palomos secured by the insured property must have been
paid. Such is a glaring error which this Court cannot sanction. Respondent
Commission's findings are based upon a mere inference.
The record of the case shows that the petitioner to support its claim for the insurance
proceeds offered as evidence the contract of mortgage (Exh. 1) which has not been
cancelled nor released. It has been held in a long line of cases that when the creditor is
in possession of the document of credit, he need not prove non-payment for it is
presumed. 8 The validity of the insurance policy taken b petitioner was not assailed by
private respondent. Moreover, petitioner's claim that the loan extended to the Palomos
has not yet been paid was corroborated by Azucena Palomo who testified that they are
still indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really stemmed from the loan
granted to Azucena Palomo by petitioner the same should have been brought by Tai
Tong Chuache or by its representative in its own behalf. From the above premise
respondent concluded that the obligation secured by the insured property must have
been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10 respondent
pointed out that the action must be brought in the name of the real party in interest. We
agree. However, it should be borne in mind that petitioner being a partnership may sue

68
and be sued in its name or by its duly authorized representative. The fact that Arsenio
Lopez Chua is the representative of petitioner is not questioned. Petitioner's declaration
that Arsenio Lopez Chua acts as the managing partner of the partnership was
corroborated by respondent insurance company. 11 Thus Chua as the managing partner
of the partnership may execute all acts of administration 12 including the right to sue
debtors of the partnership in case of their failure to pay their obligations when it became
due and demandable. Or at the very least, Chua being a partner of petitioner Tai Tong
Chuache & Company is an agent of the partnership. Being an agent, it is understood
that he acted for and in behalf of the firm. 13 Public respondent's allegation that the civil
case flied by Arsenio Chua was in his capacity as personal creditor of spouses Palomo
has no basis.
The respondent insurance company having issued a policy in favor of herein petitioner
which policy was of legal force and effect at the time of the fire, it is bound by its terms
and conditions. Upon its failure to prove the allegation of lack of insurable interest on
the part of the petitioner, respondent insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and
ANOTHER judgment is rendered order private respondent Travellers Multi-Indemnity
Corporation to pay petitioner the face value of Insurance Policy No. 599-DV in the
amount of P100,000.00. Costs against said private respondent.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Griño-Aquino, JJ., concur.

EN BANC

G.R. No. 30286           September 12, 1929

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

STATEMENT

Plaintiff alleges that about December 23, 1926, he and the defendants formed a
partnership for the operation of a fish business and similar commercial transactions,
which by mutual contest was called "Malangpaya Fish Co," with a capital of P35,000, of
which plaintiff paid P25,000, the defendant Martin P5,000, P2,500, and Golucke P2,500.
That as such partnership, they agreed to share in the profits and losses of the business
in proportion to the amount of capital which each contributed. That the plaintiff was
named the general manager to take charge of the business, with full power to do and
perform all acts necessary to carry out of the purposes of the partnership. That there
was no agreement as to the duration of the partnership. That plaintiff wants to dissolve
it, but that the defendants refused to do so. A statement marked Exhibit A, which
purports to be a cash book, is made a part of the complaint. That the partnership
purchased and now owns a lighter called Lapu-Lapu, and a motorship called Barracuda,
and other properties. That the lighter and the motorship are in the possession of the

69
defendants who are making use of them, to the damage and prejudice of the plaintiff, for
any damage which plaintiff may sustain. That it is for the best interest of the parties to
have a receiver appointed pending this litigation, to take possession of the properties,
and he prays that the Philippine Trust Company be appointed receiver, and for
judgment dissolving the partnership, with costs.

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

It is then alleged that "the new owners agree to duties as follows:

Capt. Maddy will have charger of the Barracuda and the navigating of the same.
Salary P300 per month.

Mr. Martin will have charge of the southern station, cold stores, commissary and
procuring fish. Salary P300 per month.

Mr. Teague will have charge of selling fish in Manila and purchasing supplies. No
salary until business is on paying basis, then the same as Maddy or Martin.

The principal office shall be in Manila, each party doing any business shall keep
books showing plainly all transactions, the books shall be available at all time for
inspections of any member of the partnership.

If Mr. Martin or Mr. Maddy wishes at some future time to repurchase a larger
share in the business Teague agrees to sell part of his shares to each on the
basis double the amount originally invested by each or ten thousand to Martin
and five thousand to Maddy.

This offer will expire after two years.

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

That as shown by the foregoing quoted agreement the agreed capital of the
copartnership was P45,000 and not P35,000 as stated in the third paragraph of
plaintiff's amended complaint, and the plaintiff herein, M. Teague, bound himself

70
 and agreed to contribute to the said copartnership the sum of P35,000 and not
the sum of P25,000 as stated in the third paragraph of his said amended
complaint.

Defendant Martin specificaly denies the "plaintiff was named general manager of the
partnership," and alleged "that all the duties and powers of the said plaintiff were
specifically set forth in the above quoted written agreement and that no further or
additional powers were ever given the said plaintiff." But he admits the purchase of the
motorship Barracuda, by the partnership. He denies that Exhibit A is a true or correct
statement of the cash received and paid out by or on behalf of the partnership, or that
the partnership over purchased or that it now owns the lighter Lapu-Lapu, "And/ or any
other properties" as mentioned in said ninth paragraph, except such motorship and a
smoke in the house," or that the defendants are making use of any of the properties of
the partnership, to the damage and prejudice of the plaintiff, or that they do not have
any visible means to answer for any damages, and alleges that at the time of the filing
of the complaint, partnership in cold storage, of the value of P6,000, for which he has
never accounted on the books of the partnership or mentioned in the complaint, and
defendant prays that plaintiff's complaint be dismissed, and that he be ordered and
required to render an accounting , and to pay to partnership the balance of his unpaid
subscription amounting to P10,000.

In his answer the defendant Maddy claimed and asserted that there is due and owing
him from the plaintiff P1,385.53, with legal interest, and in his amended answer, the
defendant Martin prays for judgment for P615.49.

To all which the plaintiff made a general and specific denial.

Upon such issues the lower court on April 30, 1928, rendered the following judgment:

In view of the foregoing considerations, the court decrees:

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

That the plaintiff immediately render a true and proper account of all the money
due to and received by him for the partnership.

That the barge Lapu-Lapu as well as the Ford truck No. T-3019 and adding
machine belong exclusively to the plaintiff, M. Teague, but the said plaintiff must
return to and reimburse the partnership the sum of P14,032.26 taken from its

71
 funds for the purchase and equipment of the said barge Lapu-Lapu; and also to
return the sum of P1,230 and P228 used for buying the Ford truck and adding
machine, respectively:

That the sum of P,1512.03 be paid to the defendant, J. T. Maddy, and the sum of
P615.49 be paid to defendant, H. Martin, for their advances and their unpaid
salaries, with legal interest from October 27, 1927, until paid; that the plaintiff pay
the costs of this action.

So ordered.

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

June 7, 1928, plaintiff filed a petition praying, for the reasons therein stated, that the
decision of the court in the case be set aside, and that the parties be permitted to again
present their testimony and to have the case decided upon its merits. To which
objections were duly made, and on June 28, 1928, the court denied plaintiff's motion for
a new trial. To which exceptions were duly taken, and on July 10, 1928, the plaintiff filed
a motion in which he prayed that the period for the appeal interposed by the plaintiff be
suspended, and that the order of June 28, 1928, be set aside, "and that another be
entered ordering the re-taking of the evidence in this case." To which objections were
also filed and later overruled, from all of which the plaintiff appealed and assigns the
following errors:

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

II. The trial court erred in not resolving the primary and most important question
at issue in his case, namely, whether or not the appellant M. Teague was the
manager of the unregistered partnership Malangpaya Fish Company.

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

IV. The trial court erred in holding that the Lapu-Lapu, the Ford truck and the
adding machine purchased by appellant, as manager of the Malangpaya Fish

72
 Company, for and with funds of the partnership, do not form part of the assets of
the partnership.

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

VI. The trial court erred in disapproving appellant's claim for salary and expenses
incurred by him for and in connection with the partnership's business.

VII. The trial court erred in approving the claims of appellees J.T. Maddy and H.
Martin and in requiring the appellant to pay them the sum of P1,512.03 and
P615.49 respectively.

VIII. The trial court erred in not taking cognizance of appellant's claim for
reimbursement for advances made by him for the partnerships, as shown in the
statement attached to the complaint marked Exhibit A, in which there is a
balance in his favor and against the partnership amounting to over P16,000.

X. Lastly, considering the irregularities committed, the disappearance of the

stenographic notes for a considerable length of time, during which time changes
in the testimonies of the witnesses could have been made and the impossibility
of having an accurate and complete transcript of the stenographic notes, the trial
court erred in denying appellant's petition for the retaking of the evidence in this
case.

JOHNS, J.:

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

73
that the principal office of the partnership "shall keep books showing plainly all
transactions," which shall be available at all time for inspection of any of the members.

It will thus be noted that the powers and duties of Maddy Martin, and the plaintiff are
specifically defined, and that each of them was more or less the general manager in his
particular part of the business. That is to say, that Maddy's power and duties are
confined and limited to the charge of the Barracuda and its navigation, and Martin's to
the southern station, cold stores, commissary and procuring fish, and that plaintiff's
powers and duties are confined and limited to "selling fish in Manila and the purchase of
supplies." In the selling of fish, plaintiff received a substantial amount of money which
he deposited to the credit of the company signed by him as manager, but it appears that
was a requirement which the bank made in the ordinary course of business, as to who
was authorized to sign checks for the partnership; otherwise, it would not cash the
checks.

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

Without making a detailed analysis of the evidence, we agree with the trial court that the
Lapu-Lapu, the Ford truck, and the adding machine were purchased by the plaintiff and
paid for out of the funds of the partnership, and that by his own actions and conduct,
and the taking of the title in his own name, he is now estopped to claim or assert that
they are not his property or that they are the property of the company. Again, under his
powers and duties as specified in the tentative, unsigned written agreement, his
authority was confined and limited to the "selling of fish in Manila and the purchase of
supplies." It must be conceded that, standing alone, the power to sell fish and purchase
supplies does not carry with it or imply the authority to purchase the Lapu-Lapu, or the
Ford truck, or the adding machine. From which it must follow that he had no authority to
purchase the lighter Lapu-Lapu, the Ford truck, or the adding machine, as neither of
them can be construed as supplies for the partnership business. While it is true that the
tentative agreement was never personally signed by any member of the firm, the trial
court found as a fact, and that finding is sustained by the evidence, that this unsigned
agreement was acted upon and accepted by all parties as the basis of the partnership.
It was upon that theory that the lower court allowed the defendant s Maddy and Martin a
salary of P300 per month and the money which each of them paid out and advanced in
the discharged of their respective duties, and denied any salary to the plaintiff, for the
simple reason that the business was never on a paying basis.

74
Much could be said about this division of powers, and that Maddy and Martin's duties
were confined and limited to the catching and procuring of fish, which were then
shipped to the plaintiff who sold them on the Manila market and received the proceeds
of the sales. In other words, Maddy and Martin were supplying the fish to plaintiff who
sold them under an agreement that he would account for the money.

Upon the question of accounting, his testimony as to the entries which he made and
how he kept the books of the partnership is very interesting:

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

A.            Well, I put the salary in there.

Q.            I am asking you if that is true? —

A.            I do not think I will decide that, I think it will be decided by the
court.

Q.            I will ask you to answer the question? —

A.            You asked me my opinion and I said that I am entitled to it.

xxx           xxx           xxx

I am not on trial as a bookkeeper; if my lawyers won't object to the question I will

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

xxx           xxx           xxx

Q.            You have your own bookkeeping? —

A.            Well, I run my business to suit myself, I put in the books what I
want to, and I leave out what I want to, and I have a quarter of a million
pesos to show for it, —

xxx           xxx           xxx

Q.            Did you not say that you paid yourself a salary in August
because you made a profit? —

A.            Yes. This profit was made counting the stock on hand and
equipment on hand, but as far as cash to pay this balance, I did not have
it. when I wanted a salary I just took it. I ran things to suit myself.

75
 xxx           xxx           xxx

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

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

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

A.            Yes.

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

A.            Yes, that is the way I do my business.

To say the least, this kind of evidence does not appeal to the court. This case has been
bitterly contested, and there is much feeling between the parties and even their
respective attorneys. Be that as it may, we are clearly of the opinion that the findings of
the lower court upon questions of fact are well sustained by the evidence. Plaintiff's
case was tried on the theory that the partnership was the owner of the property in
question, and no claim was made for the use of the Lapu-Lapu, and it appears that
P14,032.26 of the partnership money was used in its purchase, overhauling, expenses
and repairs. That in truth and in fact the partnership had the use and benefit of the
Lapu-Lapu in its business from sometime in May until the receiver was appointed on
November 11, 1927, or a period of about six months, and that the partnership has never
paid anything for its use. it is true that there is no testimony as to the value of such use,
but the cost of the Lapu-Lapu and the time of its use and the purpose for which it was
used, all appear in the record. For such reason, in the interest of justice, plaintiff should
be compensated for the reasonable value of the time which the partnership made use of
the Lapu-Lapu.

All things considered, we are of the opinion that P2,000 is a reasonable, amount which
the plaintiff should receive for its use.

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

76
Avanceña, C.J., Street, Villamor, Romualdez and Villa-Real, JJ. concur.
Johnson, J., reserves his vote.

EN BANC
G.R. No. L-2484            April 11, 1906
JOHN FORTIS, plaintiff-appellee,
vs.
GUTIERREZ HERMANOS, defendants-appellants.
WILLARD, J.:
Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought
this action to recover a balance due him as salary for the year 1902. He alleged that he
was entitled, as salary, to 5 per cent of the net profits of the business of the defendants
for said year. The complaint also contained a cause of action for the sum of 600 pesos,
money expended by plaintiff for the defendants during the year 1903. The court below,
in its judgment, found that the contract had been made as claimed by the plaintiff; that 5
per cent of the net profits of the business for the year 1902 amounted to 26,378.68
pesos, Mexican currency; that the plaintiff had received on account of such salary
12,811.75 pesos, Mexican currency, and ordered judgment against the defendants for
the sum 13,566.93 pesos, Mexican currency, with interest thereon from December 31,
1904. The court also ordered judgment against the defendants for the 600 pesos
mentioned in the complaint, and intereat thereon. The total judgment rendered against
the defendants in favor of the plaintiff, reduced to Philippine currency, amounted to
P13,025.40. The defendants moved for a new trial, which was denied, and they have
brought the case here by bill of exceptions.
(1) The evidence is sufifcient to support the finding of the court below to the effect that
the plaintiff worked for the defendants during the year 1902 under a contract by which
he was to receive as compensation 5 per cent of the net profits of the business. The
contract was made on the part of the defendants by Miguel Alonzo Gutierrez. By the
provisions of the articles of partnership he was made one of the managers of the
company, with full power to transact all of the business thereof. As such manager he
had authority to make a contract of employment with the plaintiff.
(2) Before answering in the court below, the defendants presented a motion that the
complaint be made more definite and certain. This motion was denied. To the order
denying it the defendants excepted, and they have assigned as error such ruling of the
court below. There is nothing in the record to show that the defendants were in any way
prejudiced by this ruling of the court below. If it were error it was error without prejudice,
and not ground for reversal. (Sec. 503, Code of Civil Procedure.)
(3) It is claimed by the appellants that the contract alleged in the complaint made the
plaintiff a copartner of the defendants in the business which they were carrying on. This
contention can not bo sustained. It was a mere contract of employnent. The plaintiff had
no voice nor vote in the management of the affairs of the company. The fact that the
compensation received by him was to be determined with reference to the profits made
by the defendants in their business did not in any sense make by a partner therein. The
articles of partnership between the defendants provided that the profits should be

77
divided among the partners named in a certain proportion. The contract made between
the plaintiff and the then manager of the defendant partnership did not in any way vary
or modify this provision of the articles of partnership. The profits of the business could
not be determined until all of the expenses had been paid. A part of the expenses to be
paid for the year 1902 was the salary of the plaintiff. That salary had to be deducted
before the net profits of the business, which were to be divided among the partners,
could be ascertained. It was undoubtedly necessary in order to determine what the
salary of the plaintiff was, to determine what the profits of the business were, after
paying all of the expenses except his, but that determination was not the final
determination of the net profits of the business. It was made for the purpose of fixing the
basis upon which his compensation should be determined.
(4) It was no necessary that the contract between the plaintiff and the defendants
should be made in writing. (Thunga Chui vs. Que Bentec, 1 1 Off. Gaz., 818, October 8,
1903.)
(5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had made the
contract, had died prior to the trial of the action, and the defendants claim that by
reasons of the provisions of section 383, paragraph 7, of the Code of Civil Procedure,
plaintiff could not be a witness at the trial. That paragraph provides that parties to an
action against an executor or aministrator upon a claim or demand against the estate of
a deceased person can not testify as to any matter of fact occurring before the death of
such deceased person. This action was not brought against the administrator of Miguel
Alonzo, nor was it brought upon a claim against his estate. It was brought against a
partnership which was in existence at the time of the trial of the action, and which was
juridical person. The fact that Miguel Alonzo had been a partner in this company, and
that his interest therein might be affected by the result of this suit, is not sufficient to
bring the case within the provisions of the section above cited.
(6) The plaintiff was allowed to testify against the objection and exception of the
defendants, that he had been paid as salary for the year 1900 a part of the profits of the
business. This evidence was competent for the purpose of corroborating the testimony
of the plaintiff as to the existence of the contract set out in the complaint.
(7) The plaintiff was allowed to testify as to the contents of a certain letter written by
Miguel Glutierrez, one of the partners in the defendant company, to Miguel Alonzo
Gutierrez, another partner, which letter was read to plaintiff by Miguel Alonzo. It is not
necessary to inquire whether the court committed an error in admitting this evidence.
The case already made by the plaintiff was in itself sufficient to prove the contract
without reference to this letter. The error, if any there were, was not prejudicial, and is
not ground for revesal. (Sec. 503, Code of Civil Procedure.)
(8) For the purpose of proving what the profits of the defendants were for the year 1902,
the plaintiff presented in evidence the ledger of defendants, which contained an entry
made on the 31st of December, 1902, as follows:
Perdidas y Ganancias ...................................... a Varios Ps. 527,573.66
Utilidades liquidas obtenidas durante el ano y que abonamos conforme a la
proporcion que hemos establecido segun el convenio de sociedad.

78
The defendant presented as a witness on, the subject of profits Miguel Gutierrez, one of
the defendants, who testiffied, among other things, that there were no profits during the
year 1902, but, on the contrary, that the company suffered considerable loss during that
year. We do not think the evidence of this witnees sufficiently definite and certain to
overcome the positive evidence furnished by the books of the defendants themselves.
(9) In reference to the cause of action relating to the 600 pesos, it appears that the
plaintiff left the employ of the defendants on the 19th of Macrh, 1903; that at their
request he went to Hongkong, and was there for about two months looking after the
business of the defendants in the matter of the repair of a certain steamship. The
appellants in their brief say that the plaintiff is entitled to no compensation for his
services thus rendered, because by the provisions of article 1711 of the Civil Code, in
the absence of an agreement to the contrary, the contract of agency is supposed to be
gratuitous. That article i not applicable to this case, because the amount of 600 pesos
not claimed as compensation for services but as a reimbursment for money expended
by the plaintiff in the business of the defendants. The article of the code that is
applicable is article 1728.
The judgment of the court below is affirmed, with the costs, of this instance against the
appellants. After the expiration of twenty days from the date of this decision let final
judgment be entered herein, and ten days thereafter let the case be remanded to the
lower court for execution. So ordered.
Arellano, C.J., Torres, Mapa, Johnson and Carson, JJ., concur.
EN BANC
G.R. No. 1011            May 13, 1903
JOSE MACHUCA, plaintiff-appellee,
vs.
CHUIDIAN, BUENAVENTURA & CO., defendants-appellants.
LADD, J.:
Most of the allegations of the complaint were admitted by the defendant at the hearing,
and the judgment of the court below is based on the state of facts appearing from such
admissions, no evidence having been taken.
The defendants are a regular general partnership, organized in Manila, December 29,
1882, as a continuation of a prior partnership of the same name. The original partners
constituting the partnership of 1882 were D. Telesforo Chuidian, Doña Raymunda
Chuidian, Doña Candelaria Chuidian, and D. Mariano Buenaventura. The capital was
fixed in the partnership agreement at 16,000 pesos, of which the first three partners
named contributed 50,000 pesos each, and the last named 10,000 pesos, and it was
stipulated that the liability of the partners should be "limited to the amounts brought in by
them to form the partnership stock."
In addition to the amounts contributed by the partners to the capital, it appears from the
partnership agreement that each one of them had advanced money to the preexisting
partnership, which advances were assumed or accounts-current aggregated something
over 665,000 pesos, of which sum about 569,000 pesos represented the advances from
the Chuidians and the balance that balance that from D. Mariano Buenaventura.

79
Doña Raymunda Chuidian retired from the partnership November 4, 1885. On January
1, 1888, the partnership went into liquidation, and it does not appear that the liquidation
had been terminated when this action was brought.
Down to the time the partnership went into liquidation the accounts-current of D.
Telesforo Chuidian and Doña Candelaria Chuidian had been diminished in an amount
aggregating about 288,000 pesos, while that of D. Mariano Buenaventura had been
increased about 51,000 pesos. During the period from the commencement of the
liquidation down to January 1, 1896, the account-current of each of the Chuidians had
been still further decreased, while that of D. Mariano Buenaventura had been still further
increased.
On January 1, 1894, D. Mariano Buenaventura died, his estate passing by will to his
children, among whom was D. Vicente Buenaventura. Upon the partition of the estate
the amount of the interest of D. Vicente Buenaventura in his father's account-current
and in the capital was ascertained and recorded in the books of the firm.
On December 15, 1898, D. Vicente Buenaventura executed a public instrument in which
for a valuable consideration he "assigns to D. Jose Gervasio Garcia . . . a 25 per cent
share in all that may be obtained by whatever right in whatever form from the liquidation
of the partnership of Chuidian, Buenaventura & Co., in the part pertaining to him in said
partnership, . . . the assignee, being expressly empowered to do in his own name, and
as a part owner, by virtue of this assignment in the assets of the partnership, whatever
things may be necessary for the purpose of accelerating the liquidation, and of obtaining
on judicially or extrajudicially the payment of the deposits account-current pertaining to
the assignor, it being understood that D. Jose Gervasio Garcia is to receive the 25 per
cent assigned to him, in the same form in which it may be obtained from said
partnership, whether in cash, credits, goods, movables or immovables, and on the date
when Messrs. Chuidian, Buenaventura & Co., in liquidation, shall have effected the
operations necessary in order to satisfy the credits and the share in the partnership
capital hereinbefore mentioned."
The plaintiff claims under Garcia by virtue of a subsequent assignment, which has been
notified to the liquidator of the partnership.
The liquidator of the partnership having declined to record in the books of the
partnership the plaintiff's claim under the assignment as a credit due from the concern
to him this action is brought to compel such record to be made, and the plaintiff further
asks that he be adjudicated to be a creditor of the partnership in an amount equal to 25
per cent of D. Vicente Buenaventura's share in his father's account-current, as
ascertained when the record was made in the books of the partnership upon the
partition of the latters estate, with interest, less the liability to which the plaintiff is
subject by reason of his share in the capital; that the necessary liquidation being first
had, the partnership pay to the plaintiff the balance which may be found to be due him;
and that if the partnership has no funds with which to discharge this obligation an
adjudication of bankruptcy be made. He also asks to recover the damages caused by
reason of the failure of the liquidator to record his credit in the books of partnership.
The judgment of the court below goes beyond the relief asked by the plaintiff in the
complaint, the plaintiff being held entitled not only to have the credit assigned him

80
recorded in the books of the partnership but also to receive forthwith 25 per cent of an
amount representing the share of D. Vicente Buenaventura in the account-current at the
time of the partition of his father's estate, with interest, the payment of the 25 percent of
Buenaventura's share in the capital to be postponed till the termination of the liquidation.
This point has not, however, been taken by counsel, and we have therefore considered
the case upon its merits.
The underlying question in the case relates to the construction of clause 19 of the
partnership agreement, by which it was stipulated that "upon the dissolution of the
company, the pending obligations in favor of outside parties should be satisfied, the
funds of the minors Jose and Francisco Chuidian [it does not appear what their interest
in the partnership was or when or how it was acquired] should be taken out, and
afterwards the resulting balance of the account-current of each one of those who had
put in money (imponentes) should be paid."
Our construction of this clause is that it establishes a a basis for the final adjustment of
the affairs of the partnership; that that basis is that the liabilities to noncompartners are
to be first discharged; that the claims of the Chuidian minors are to be next satisfied;
and that what is due to the respective partners on account of their advances to the firm
is to be paid last of all, leaving the ultimate residue, of course, if there be any, to be
distributed, among the partners in the proportions in which they may be entitled thereto.
Although in a sense the partners, being at the same time creditors, were "outside
parties," it is clear that a distinction is made in this clause between creditors who were
partners and creditors who were not partners, and that the expression "outside parties"
refers to the latter class. And the words "pending obligations," we think, clearly
comprehend outstanding obligations of every kind in favor of such outside parties, and
do not refer merely, as claimed by counsel for the plaintiff, to the completion of
mercantile operations unfinished at the time of the dissolution of the partnership, such
as consignments of goods and the like. As respects the claims of the Chuidian minors,
the suggestion of counsel is that the clause in question means that their accounts are to
be adjusted before those of the partners but not paid first. Such a provision would have
been of no practical utility, and the language used — that the funds should be "taken
out" — (se dedujeran) does not admit of such a construction.
Such being the basis upon which by agreement of the partners the assets of the
partnership are to be applied to the discharge of the various classes of the firm's
liabilities, it follows that D. Vicente Buenaventura, whose rights are those of his father, is
in no case entitled to receive any part of the assets until the creditors who are
nonpartners and the Chuidian minors are paid. Whatever rights he had either as creditor
or partner, he could only transfer subject to this condition. And it is clear, from the
language of the instrument under which the plaintiff claims, that this conditional interest
was all that D. Vicente Buenaventura ever intended to transfer. By that instrument he
undertakes to assign to Garcia not a present interest in the assets of the partnership but
an interest in whatever "may be obtained from the liquidation of the partnership," which
Garcia is to receive "in the same form in which it may be obtained from said
partnership," and "on the date when Messrs. Chuidian, Buenaventura & Co., in
liquidation, shall have effected the operations necessary in order to satisfy" the claims of
D. Vicente Buenaventura.

81
Upon this interpretation of the assignment, it becomes unnecessary to inquire whether
article 143 of the Code of Commerce, prohibiting a partner from transferring his interest
in the partnership without the consent of the other partners, applies to partnerships in
liquidation, as contended by the defendant. The assignment by its terms is not to take
effect until all the liabilities of the partnership have been discharged and nothing
remains to be done except to distribute the assets, if there should be any, among the
partners. Meanwhile the assignor, Buenaventura, is to continue in the enjoyment of the
rights and is to remain subject to the liabilities of a partner as though no assignment had
been made. In other words, the assignment does not purport to transfer an interest in
the partnership, but only a future contingent right to 25 per cent of such portion of the
ultimate residue of the partnership property as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital.
There is nothing in the case to show either that the nonpartner creditors of the
partnership have been paid or that the claims of the Chuidian minors have been
satisfied. Such rights as the plaintiff has acquired against the partnership under the
assignment still remain, therefore, subject to the condition which attached to them in
their origin, a condition wholly uncertain of realization, since it may be that the entire
assets of the partnership will be exhausted in the payment of the creditors entitled to
preference under the partnership agreement, thus extinguishing the plaintiff's right to
receive anything from the liquidation.
It is contended by the plaintiff that, as the partnership was without authority to enter
upon new mercantile operations after the liquidation commenced, the increase in D.
Mariano Buenaventura's account-current during that period was the result of a void
transaction, and that therefore the plaintiff is entitled to withdraw at once the proportion
of such increase to which he is entitled under the assignment. With reference to this
contention, it is sufficient to say that it nowhere appears in the case that the increase in
D. Mariano Buenaventura's account-current during the period of liquidation was the
result of new advances to the firm, and the figures would appear to indicate that it
resulted from the accumulation of interest.
Counsel for the plaintiff have discussed at length in their brief the meaning of the clause
in the partnership agreement limiting the liability of the partners to the amounts
respectively brought into the partnership by them, and the effect of this stipulation upon
their rights as creditors of the firm. These are questions which relate to the final
adjustment of the affairs of the firm, the distribution of the assets remaining after all
liabilities have been discharged, or, on the other hand, the apportionment of the losses
if the assets should not be sufficient to meet the liabilities. They are in no way involved
in the determination of the present case.
The plaintiff having acquired no rights under the assignment which are now enforceable
against the defendant, this action can not be maintained. The liquidator of the defendant
having been notified of the assignment, the plaintiff will be entitled to receive from the
assets of the partnership, if any remain, at the termination of the liquidation, 25 per cent
of D. Vicente's resulting interest, both as partner and creditor. The judgment in this case
should not affect the plaintiff's right to bring another action against the partnership when
the affairs of the same are finally wound up. The proper judgment will be that the action

82
be dismissed. The judgment of the court below is reversed and the case is remanded to
that court with directions to enter a judgment of dismissal. So ordered.
Arellano, C.J., Torres, Cooper, Willard and Mapa, JJ., concur.
McDonough, J., did not sit in this case.
I. BOOKS AND RECORDS – ARTS. 1805 & 1806
EN BANC
G.R. No. L-22442             August 1, 1924
ANTONIO PARDO, petitioner,
vs.
THE HERCULES LUMBER CO., INC., and IGNACIO FERRER, respondents.
STREET, J.:
The petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company, Inc.,
one of the respondents herein, seeks by this original proceeding in the Supreme Court
to obtain a writ of mandamus to compel the respondents to permit the plaintiff and his
duly authorized agent and representative to examine the records and business
transactions of said company. To this petition the respondents interposed an answer, in
which, after admitting certain allegations of the petition, the respondents set forth the
facts upon which they mainly rely as a defense to the petition. To this answer the
petitioner in turn interposed a demurrer, and the cause is now before us for
determination of the issue thus presented.
It is inferentially, if not directly admitted that the petitioner is in fact a stockholder in the
Hercules Lumber Company, Inc., and that the respondent, Ignacio Ferrer, as acting
secretary of the said company, has refused to permit the petitioner or his agent to
inspect the records and business transactions of the said Hercules Lumber Company,
Inc., at times desired by the petitioner. No serious question is of course made as to the
right of the petitioner, by himself or proper representative, to exercise the right of
inspection conferred by section 51 of Act No. 1459. Said provision was under the
consideration of this court in the case of Philpotts vs. Philippine Manufacturing Co., and
Berry (40 Phil., 471), where we held that the right of examination there conceded to the
stockholder may be exercised either by a stockholder in person or by any duly
authorized agent or representative.
The main ground upon which the defense appears to be rested has reference to the
time, or times, within which the right of inspection may be exercised. In this connection
the answer asserts that in article 10 of the By-laws of the respondent corporation it is
declared that "Every shareholder may examine the books of the company and other
documents pertaining to the same upon the days which the board of directors shall
annually fix." It is further averred that at the directors' meeting of the respondent
corporation held on February 16, 1924, the board passed a resolution to the following
effect:
The board also resolved to call the usual general (meeting of shareholders) for March
30 of the present year, with notice to the shareholders that the books of the company
are at their disposition from the 15th to 25th of the same month for examination, in
appropriate hours.
83
 The contention for the respondent is that this resolution of the board constitutes a
lawful restriction on the right conferred by statute; and it is insisted that as the
petitioner has not availed himself of the permission to inspect the books and
transactions of the company within the ten days thus defined, his right to
inspection and examination is lost, at least for this year.
We are entirely unable to concur in this contention. The general right given by the
statute may not be lawfully abridged to the extent attempted in this resolution. It may be
admitted that the officials in charge of a corporation may deny inspection when sought
at unusual hours or under other improper conditions; but neither the executive officers
nor the board of directors have the power to deprive a stockholder of the right
altogether. A by-law unduly restricting the right of inspection is undoubtedly invalid.
Authorities to this effect are too numerous and direct to require extended comment. (14
C.J., 859; 7 R.C.L., 325; 4 Thompson on Corporations, 2nd ed., sec. 4517; Harkness
vs. Guthrie, 27 Utah, 248; 107 Am., St. Rep., 664. 681.) Under a statute similar to our
own it has been held that the statutory right of inspection is not affected by the adoption
by the board of directors of a resolution providing for the closing of transfer books thirty
days before an election. (State vs. St. Louis Railroad Co., 29 Mo., Ap., 301.)
It will be noted that our statute declares that the right of inspection can be exercised "at
reasonable hours." This means at reasonable hours on business days throughout the
year, and not merely during some arbitrary period of a few days chosen by the directors.
In addition to relying upon the by-law, to which reference is above made, the answer of
the respondents calls in question the motive which is supposed to prompt the petitioner
to make inspection; and in this connection it is alleged that the information which the
petitioner seeks is desired for ulterior purposes in connection with a competitive firm
with which the petitioner is alleged to be connected. It is also insisted that one of the
purposes of the petitioner is to obtain evidence preparatory to the institution of an action
which he means to bring against the corporation by reason of a contract of employment
which once existed between the corporation and himself. These suggestions are
entirely apart from the issue, as, generally speaking, the motive of the shareholder
exercising the right is immaterial. (7 R.C.L., 327.)
We are of the opinion that, upon the allegations of the petition and the admissions of the
answer, the petitioner is entitled to relief. The demurrer is, therefore, sustained; and the
writ of mandamus will issue as prayed, with the costs against the respondent. So
ordered.
Johnson, Malcolm, Villamor, Ostrand, and Romualdez, JJ., concur.
J. FIDUCIARY RELATION – ARTS. 1807 TO 1809

THIRD DIVISION

G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

84
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

85
Diaz, Chief of the Savings Department of the China Banking Corporation testified that
said check (Exhibit B) was deposited by and duly credited to the private respondents
savings account with the bank after it was cleared by the drawee bank, the Equitable
Banking Corporation. Another witness Elvira Rana of the Equitable Banking Corporation
testified that the check in question was in fact and in truth drawn by the petitioner and
debited against his own account in said bank. This fact was clearly shown and indicated
in the petitioner's statement of account after the check (Exhibit B) was duly cleared.
Rana further testified that upon clearance of the check and pursuant to normal banking
procedure, said check was returned to the petitioner as the maker thereof.

The petitioner denied having received from the private respondent the amount of
P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit D). His
evidence is summarized as follows:

The petitioner did not receive any contribution at the time he started the Sun Wah
Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg
in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that
he was the sole owner of the restaurant, the petitioner presented various government
licenses and permits showing the Sun Wah Panciteria was and still is a single
proprietorship solely owned and operated by himself alone. Fue Leung also flatly denied
having issued to the private respondent the receipt (Exhibit G) and the Equitable
Banking Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).

As between the conflicting evidence of the parties, the trial court gave credence to that
of the plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive
portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and

against the defendant, ordering the latter to deliver and pay to the former,
the sum equivalent to 22% of the annual profit derived from the operation
of Sun Wah Panciteria from October, 1955, until fully paid, and attorney's
fees in the amount of P5,000.00 and cost of suit. (p. 125, Rollo)

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

The motion was granted over the objections of the petitioner. After hearing the trial court
rendered an amended decision, the dispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the motion for

reconsideration filed by the plaintiff, which was granted earlier by the
Court, is hereby reiterated and the decision rendered by this Court on

86
 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.

87
Both the trial court and the appellate court found that the private respondent is a partner
of the petitioner in the setting up and operations of the panciteria. While the dispositive
portions merely ordered the payment of the respondents share, there is no question
from the factual findings that the respondent invested in the business as a partner.
Hence, the two courts declared that the private petitioner is entitled to a share of the
annual profits of the restaurant. The petitioner, however, claims that this factual finding
is erroneous. Thus, the petitioner argues: "The complaint avers that private respondent
extended 'financial assistance' to herein petitioner at the time of the establishment of the
Sun Wah Panciteria, in return of which private respondent allegedly will receive a share
in the profits of the restaurant. The same complaint did not claim that private respondent
is a partner of the business. It was, therefore, a serious error for the lower court and the
Hon. Intermediate Appellate Court to grant a relief not called for by the complaint. It was
also error for the Hon. Intermediate Appellate Court to interpret or construe 'financial
assistance' to mean the contribution of capital by a partner to a partnership;" (p. 75,
Rollo)

The pertinent portions of the complaint state:

xxx xxx xxx

2. That on or about the latter (sic) of September, 1955, defendant sought

the financial assistance of plaintiff in operating the defendant's eatery
known as Sun Wah Panciteria, located in the given address of defendant;
as a return for such financial assistance. plaintiff would be entitled to
twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria;

3. That on October 1, 1955, plaintiff delivered to the defendant the sum of

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

In essence, the private respondent alleged that when Sun Wah Panciteria was
established, he gave P4,000.00 to the petitioner with the understanding that he would
be entitled to twenty-two percent (22%) of the annual profit derived from the operation of
the said panciteria. These allegations, which were proved, make the private respondent
and the petitioner partners in the establishment of Sun Wah Panciteria because Article
1767 of the Civil Code provides that "By the contract of partnership two or more persons
bind themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves".

Therefore, the lower courts did not err in construing the complaint as one wherein the
private respondent asserted his rights as partner of the petitioner in the establishment of
the Sun Wah Panciteria, notwithstanding the use of the term financial assistance
therein. We agree with the appellate court's observation to the effect that "... given its

88
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

89
favor of petitioner. The alleged receipt is dated October 1, 1955 and the complaint was
filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months
and twelve (12) days. From October 1, 1955 to July 13, 1978, no written demands were
ever made by private respondent.

The petitioner's argument is based on Article 1144 of the Civil Code which provides:

Art. 1144. The following actions must be brought within ten years from the
time the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

in relation to Article 1155 thereof which provides:

Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extra-judicial demand by the
creditor, and when there is any written acknowledgment of the debt by the
debtor.'

The argument is not well-taken.

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

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is
applicable. Article 1842 states:

The right to an account of his interest shall accrue to any partner, or his
legal representative as against the winding up partners or the surviving

90
 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.

91
 Q Now, Mrs. Witness, in an average day, more or less, will
you please tell us, how much is the gross income of the
restaurant?

A For regular days, I received around P7,000.00 a day

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

Q What about the catering service, will you please tell the
Honorable Court how many times a week were there
catering services?

A Sometimes three times a month; sometimes two times a

month or more.

xxx xxx xxx

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

service?

A Yes, because I am the one who receives the payment also

of the catering.

Q How much is that?

A That ranges from two thousand to six thousand pesos, sir.

Q Per service?

A Per service, Per catering.

Q So in other words, Mrs. witness, for your shift alone in a

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

A Yes.

Q And ten thousand pesos during pay day.?

A Yes.

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

xxx xxx xxx

92
 COURT:

Any cross?

ATTY. UY (counsel for defendant):

No cross-examination, Your Honor. (T.S.N. p. 65, November

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

The statements of the cashier were not rebutted. Not only did the petitioner's counsel
waive the cross-examination on the matter of income but he failed to comply with his
promise to produce pertinent records. When a subpoena duces tecum was issued to the
petitioner for the production of their records of sale, his counsel voluntarily offered to
bring them to court. He asked for sufficient time prompting the court to cancel all
hearings for January, 1981 and reset them to the later part of the following month. The
petitioner's counsel never produced any books, prompting the trial court to state:

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

The records show that the trial court went out of its way to accord due process to the
petitioner.

The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness. Notably
there were several postponement asked by counsel for the defendant and
the last one was on October 1, 1981 when he asked that this case be
postponed for 45 days because said defendant was then in Hongkong and
he (defendant) will be back after said period. The Court acting with great
concern and understanding reset the hearing to November 17, 1981. On

93
 said date, the counsel for the defendant who again failed to present the
defendant asked for another postponement, this time to November 24,
1981 in order to give said defendant another judicial magnanimity and
substantial due process. It was however a condition in the order granting
the postponement to said date that if the defendant cannot be presented,
counsel is deemed to have waived the presentation of said witness and
will submit his case for decision.

On November 24, 1981, there being a typhoon prevailing in Manila said

date was declared a partial non-working holiday, so much so, the hearing
was reset to December 7 and 22, 1981. On December 7, 1981, on motion
of defendant's counsel, the same was again reset to December 22, 1981
as previously scheduled which hearing was understood as intransferable
in character. Again on December 22, 1981, the defendant's counsel asked
for postponement on the ground that the defendant was sick. the Court,
after much tolerance and judicial magnanimity, denied said motion and
ordered that the case be submitted for resolution based on the evidence
on record and gave the parties 30 days from December 23, 1981, within
which to file their simultaneous memoranda. (Rollo, pp. 148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the
Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the
trial court, it is in the heart of Chinatown where people who buy and sell jewelries,
businessmen, brokers, manager, bank employees, and people from all walks of life
converge and patronize Sun Wah.

There is more than substantial evidence to support the factual findings of the trial court
and the appellate court. If the respondent court awarded damages only from judicial
demand in 1978 and not from the opening of the restaurant in 1955, it is because of the
petitioner's contentions that all profits were being plowed back into the expansion of the
business. There is no basis in the records to sustain the petitioners contention that the
damages awarded are excessive. Even if the Court is minded to modify the factual
findings of both the trial court and the appellate court, it cannot refer to any portion of
the records for such modification. There is no basis in the records for this Court to
change or set aside the factual findings of the trial court and the appellate court. The
petitioner was given every opportunity to refute or rebut the respondent's submissions
but, after promising to do so, it deliberately failed to present its books and other
evidence.

The resolution of the Intermediate Appellate Court ordering the payment of the
petitioner's obligation shows that the same continues until fully paid. The question now
arises as to whether or not the payment of a share of profits shall continue into the
future with no fixed ending date.

Considering the facts of this case, the Court may decree a dissolution of the partnership
under Article 1831 of the Civil Code which, in part, provides:

94
 Art. 1831. On application by or for a partner the court shall decree a
dissolution whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect

prejudicially the carrying on of the business;

(4) A partner willfully or persistently commits a breach of the partnership

agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.

There shall be a liquidation and winding up of partnership affairs, return of capital, and
other incidents of dissolution because the continuation of the partnership has become
inequitable.

WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The
decision of the respondent court is AFFIRMED with a MODIFICATION that as indicated
above, the partnership of the parties is ordered dissolved.

SO ORDERED.

Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

EN BANC
G.R. No. L-47823             July 26, 1943
JOSE ORNUM and EMERENCIANA ORNUM, petitioners,
vs.
MARIANO, LASALA, et al., respondent.
PARAS, J.:
The following facts are practically admitted in the pleadings and briefs of the parties:
The respondents (plaintiffs below) are natives of Taal, Batangas, and resided therein or
in Manila. The petitioners (defendants below) are also natives of Taal, but resided in the
barrio of Tan-agan, municipality of Tablas, Province of Romblon. In 1908 Pedro Lasala,
father of the respondents, and Emerenciano Ornum formed a partnership, whereby the
former, as capitalist, delivered the sum of P1,000 to the latter who, as industrial partner,
was to conduct a business at his place of residence in Romblon. In 1912, when the
assets of the partnership consisted of outstanding accounts and old stock of
merchandise, Emerenciano Ornum, following the wishes of his wife, asked for the
dissolution of the Lasala, Emerenciano Ornum looked for some one who could take his

95
place and he suggested the names of the petitioners who accordingly became the new
partners. Upon joining the business, the petitioners, contributed P505.54 as their
capital, with the result that in the new partnership Pedro Lasala had a capital of P1,000,
appraised value of the assets of the former partnership, plus the said P505.54 invested
by the petitioners who, as industrial partners, were to run the business in Romblon.
After the death of Pedro Lasala, his children (the respondents) succeeded to all his
rights and interest in the partnership. The partners never knew each other personally.
No formal partnership agreement was ever executed. The petitioners, as managing
partners, were received one-half of the net gains, and the other half was to be divided
between them and the Lasala group in proportion to the capital put in by each group.
During the course divided, but the partners were given the election, as evidenced by the
statements of accounts referred to in the decision of the Court of Appeals, to invest their
respective shares in such profits as additional capital. The petitioners accordingly let a
greater part of their profits as additional investment in the partnership. After twenty
years the business had grown to such an extent that is total value, including profits,
amounted to P44,618.67. Statements of accounts were periodically prepared by the
petitioners and sent to the respondents who invariably did not make any objection
thereto. Before the last statement of accounts was made, the respondents had received
P5,387.29 by way of profits. The last and final statement of accounts, dated May 27,
1932, and prepared by the petitioners after the respondents had announced their desire
to dissolve the partnership, read as follows:
Ganancia total desde el ultimo balance hasta la P575.
fecha 45
Participacion del capital de los hermanos P55.3
Lasala en la ganancia 9
Participacion del capital de Jose Ornum en el 125.79
ganancia
Participacion de Jose Ornum como socio 143.96
industrial
Participacion del capital de Emerenciana 106.54
Ornum en la ganancia
Participacion de Emerenciana Ornum como 143.86
socia industrial
Siendo este el balance final lo siguiente es la cantidad que debe corresponder a
cada socio:

Capital de los hermanos P4,393.

Lasala segun el ultimo balance 08
P4,448.4
Ganancia de este capital 55.39 7

96
 Pero se debe deducir la
cantidad tomada por los
hermanos Lasala 1,730.00
Cantidad nota que debe
corresponder a los hermanos P2,718.
Lasala 47
Capital de Jose Ornum segun P9,975.
el ultimo balance 13
Ganancia de este capital 125.79
Participacion de Jose Ornum P10,244.
como socio industrial 143.86 65
Pero se debe deducir la
cantidad tomada por Jose
Ornum 1,650.00
Cantidad neta que debe P8,594.
corresponder a Jose Ornum 65
Capital de Emerenciana P8,448.
Ornum segun el ultimo balance 00
Ganancia de este capital 106.54
Participacion de Emerenciana P8,698.4
Ornum como socia industrial 143.86 0
Pero se debe deducir la
cantidad tomada por
Emerenciana Ornum 1,850.00
Cantidad neta que debe
corresponder a Emerenciana P6,848.
Ornum 40
After the receipt of the foregoing statement of accounts, Father Mariano Lasala,
spokesman for the respondents, wrote the following letter to the petitioners on July 19,
1932:

Ya te manifestamos francamente aqui, como consocio, y te autorizamos tambien

para que lo repitas a tu hermana Mering, viuda, que el motivo porque recogemos
el capital y utilidades de nuestra sociedad en todo nuestro negocio que esta al
cuidado vosotros dos, es que tenemos un grande compromiso que casi no
podemos evitarlo. Por esto volvemos a rogarles que por cualquier medio antes

97
 de terminar este mes de julio, 1932, nosotros esperamos vuestra consideracion.
Gracias.
En cuanto hayamos recibido esto, entonces firmaremos el balance que habeis
hecho alli, cuya copia has dejado aqui.
Recuerdos a todos alli y mandar.
Pursuant to the request contained in this letter, the petitioners remitted and paid to the
respondents the total amount corresponding to them under the above-quoted statement
of accounts which, however, was not signed by the latter. Thereafter the complaint in
this case was filed by the respondents, praying for an accounting and final liquidation of
the assets of the partnership. The Court of First Instance of Manila held that the last and
final statement of accounts prepared by the petitioners was tacitly approved and
accepted by the respondents who, by virtue of the above-quoted letter of Father
Mariano Lasala, lost their right to a further accounting from the moment they received
and accepted their shares as itemized in said statement. This judgment was reversed
by the Court of Appeals principally on the ground that as the final statement of accounts
remains unsigned by the respondents, the same stands disapproved. The decision
appealed by the petitioners thus said:
To support a plea of a stated account so as to conclude the parties in relation to
all dealings between them, the accounting must be shown to have been final. (1
Cyc. 366.) All the first nine statements which the defendants sent the plaintiffs
were partial settlements, while the last, although intended to be final, has not
been signed.
We hold that the last and final statement of accounts hereinabove quoted, had been
approved by the respondents. This approval resulted, by virtue of the letter of Father
Mariano Lasala of July 19, 1932, quoted in part in the appealed decision from the failure
of the respondents to object to the statement and from their promise to sign the same
as soon as they received their shares as shown in said statement. After such shares
had been paid by the petitioners and accepted by the respondents without any
reservation, the approval of the statement of accounts was virtually confirmed and its
signing thereby became a mere formality to be complied with by the respondents
exclusively. Their refusal to sign, after receiving their shares, amounted to a waiver to
that formality in favor of the petitioners who has already performed their obligation.
This approval precludes any right on the part of the respondents to a further liquidation,
unless the latter can show that there was fraud, deceit, error or mistake in said
approval. (Pastor, vs. Nicasio, 6 Phil., 152; Aldecoa & Co., vs. Warner, Barnes & Co.,
16 Phil., 423; Gonsalez vs. Harty, 32 Phil. 328.) The Court of Appeals did not make any
findings that there was fraud, and on the matter of error or mistake it merely said:
The question, then is, have mistakes, been committed in the statements sent
appellants? Not only do plaintiffs so allege, and not only does not evidence so
tend to prove, but the charge is seconded by the defendants themselves when in
their counterclaims they said:
"(a) Que recientemente se ha hecho una acabada revision de las cuentas y
libros del negocio, y, se ha descubierto que los demandados cometieron un error
al hacer las entregas de las varias cantidades en efectivo a los demandantes,
98
 entregando en total mayor cantidades a la que tenian derecho estos por su
participacion y ganancias en dicho negocio;
"(b) Que el exceso entregado a los demandantes, asciende a la suma de
quinientos setenta y cinco pesos con doce centimos (P575.12), y que los
demandados reclaman ahora de aquellos su devolucion o pago en la presente
contrademanda;"
In our opinion, the pronouncement that the evidence tends to prove that there were
mistakes in the petitioners' statements of accounts, without specifying the mistakes,
merely intimates as suspicion and is not such a positive and unmistakable finding of fact
(Cf. Concepcion vs. People, G.R. No. 48169, promulgated December 28, 1942) as to
justify a revision, especially because the Court of Appeals has relied on the bare
allegations of the parties, Even admitting that, as alleged by the petitioners in their
counterclaim, they overpaid the respondents in the sum of P575.12, this error is
essentially fatal to the latter's theory what the statement of accounts shows, and is
therefore not the kind of error that calls for another accounting which will serve the
purpose of the respondent's suit. Moreover, as the petitioners did not appeal from the
decision of the Court abandoned such allegation in the Court of Appeals.
If the liquidation is ordered in the absence of any particular error, found as a fact, simply
because no damage will be suffered by the petitioners in case the latter's final statement
of the accounts proves to be correct, we shall be assuming a fundamentally inconsistent
position. If there is not mistake, the only reason for a new accounting disappears. The
petitioners may not be prejudiced in the sense that they will be required to pay anything
to the respondents, but they will have to go to the trouble of itemizing accounts covering
a period of twenty years mostly from memory, its appearing that no regular books of
accounts were kept. Stated more emphatically, they will be told to do what seems to be
hardly possible. When it is borne in mind that this case has been pending for nearly nine
years and that, if another accounting is ordered, a costly action or proceeding may arise
which may not be disposed of within a similar period, it is not improbable that the
intended relief may in fact be the respondents' funeral.
We are reversing the appealed decision on the legal ground that the petitioners' final
statement of accounts had been approved by the respondents and no justifiable reason
(fraud, deceit, error or mistake) has been positively and unmistakably found by the
Court of Appeals so as to warrant the liquidations sought by the respondents. In justice
to the petitioners, however, we may add that, considering that they ran the business of
the partnership for about twenty years at a place far from the residence of the
respondents and without the latter's intervention; that the partners did not even know
each other personally; that no formal partnership agreement was entered into which
bound the petitioners under specific conditions; that the petitioners could have easily
and freely alleged that the business became partial, or even a total, loss for any
plausible reason which they could have concocted, it appearing that the partnership
engaged in such uncertain ventures as agriculture, cattle raising and operation of rice
mill, and the petitioners did not keep any regular books of accounts; that the petitioners
were still frank enough to disclose that the original capital of P1,505.54 amounted, as of
the date of the dissolution of the partnership, to P44,618.67; and that the respondents
had received a total of P8,105.76 out of their capital of P1,000, without any effort on

99
their part, we are reluctant even to make the conjecture that the petitioners had ever
intended to, or actually did, take undue advantage of the absence and confidence of the
respondents. Indeed, we feel justified in stating that the petitioners have here given a
remarkable demonstration of the legendary honesty, good faith and industry with which
the natives of Taal pursue business arrangements similar to the partnership in question,
and we would hate, in the absence of any sufficient reason, to let such a beautiful
legend have a distateful ending.
The appealed decision is hereby reversed and the petitioners (defendants below)
absolved from the complaints of the respondents (plaintiffs below), with costs against
the latter.
Yulo, C.J., and Hontiveros, J., concur.

EN BANC

G.R. No. L-16318             October 21, 1921

PANG LIM and BENITO GALVEZ, plaintiffs-appellees,

vs.
LO SENG, defendant-appellant.

STREET, J.:

For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo
Seng and Pang Lim, Chinese residents of the City of Manila, were partners, under the
firm name of Lo Seng and Co., in the business of running a distillery, known as "El
Progreso," in the Municipality of Paombong, in the Province of Bulacan. The land on
which said distillery is located as well as the buildings and improvements originally used
in the business were, at the time to which reference is now made, the property of
another Chinaman, who resides in Hongkong, named Lo Yao, who, in September,
1911, leased the same to the firm of Lo Seng and Co. for the term of three years.

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

Among the provisions contained in said lease we note the following:

Know all men by these presents:

xxx     xxx     xxx

100
 1. That I, Lo Shui, as attorney in fact in charge of the properties of
Mr. Lo Yao of Hongkong, cede by way of lease for fifteen years
more said distillery "El Progreso" to Messrs. Pang Lim and Lo Seng
(doing business under the firm name of Lo Seng and Co.), after the
termination of the previous contract, because of the fact that they
are required, by the Bureau of Internal Revenue, to rearrange, alter
and clean up the distillery.

2. That all the improvements and betterments which they may

introduce, such as machinery, apparatus, tanks, pumps, boilers and
buildings which the business may require, shall be, after the
termination of the fifteen years of lease, for the benefit of Mr. Lo
Yao, my principal, the buildings being considered as improvements.

3. That the monthly rent of said distillery is P200, as agreed upon in

the previous contract of September 11, 1911, acknowledged before
the notary public D. Vicente Santos; and all modifications and
repairs which may be needed shall be paid for by Messrs. Pang
Lim and Lo Seng.

We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso,"
which we are at present conducting, hereby accept this contract in each
and all its parts, said contract to be effective upon the termination of the
contract of September 11, 1911.

Neither the original contract of lease nor the agreement extending the same was
inscribed in the property registry, for the reason that the estate which is the subject of
the lease has never at any time been so inscribed.

On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng,
thus placing the latter in the position of sole owner; and on June 28, 1918, Lo Shui,
again acting as attorney in fact of Lo Yao, executed and acknowledged before a notary
public a deed purporting to convey to Pang Lim and another Chinaman named Benito
Galvez, the entire distillery plant including the land used in connection therewith. As in
case of the lease this document also was never recorded in the registry of property.
Thereafter Pang Lim and Benito Galvez demanded possession from Lo Seng, but the
latter refused to yield; and the present action of unlawful detainer was thereupon
initiated by Pang Lim and Benito Galvez in the court of the justice of the peace of
Paombong to recover possession of the premises. From the decision of the justice of
the peace the case was appealed to the Court of First Instance, where judgment was
rendered for the plaintiffs; and the defendant thereupon appealed to the Supreme Court.

The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the
Civil Code, which reads in part as follows:

101
 ART. 1571. The purchaser of a leased estate shall be entitled to terminate any
lease in force at the time of making the sale, unless the contrary is stipulated,
and subject to the provisions of the Mortgage Law.

In considering this provision it may be premised that a contract of lease is personally

binding on all who participate in it regardless of whether it is recorded or not, though of
course the unrecorded lease creates no real charge upon the land to which it relates.
The Mortgage Law was devised for the protection of third parties, or those who have not
participated in the contracts which are by that law required to be registered; and none of
its provisions with reference to leases interpose any obstacle whatever to the giving of
full effect to the personal obligations incident to such contracts, so far as concerns the
immediate parties thereto. This is rudimentary, and the law appears to be so understood
by all commentators, there being, so far as we are aware, no authority suggesting the
contrary. Thus, in the commentaries of the authors Galindo and Escosura, on the
Mortgage Law, we find the following pertinent observation: "The Mortgage Law is
enacted in aid of and in respect to third persons only; it does not affect the relations
between the contracting parties, nor their capacity to contract. Any question affecting
the former will be determined by the dispositions of the special law [i.e., the Mortgage
Law], while any question affecting the latter will be determined by the general law."
(Galindo y Escosura, Comentarios a la Legislacion Hipotecaria, vol. I, p. 461.)

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

Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of
article 1571 of the Civil Code; and the position of the defendant derives no assistance
from the mere circumstance that the lease was admittedly binding as between the
parties thereto. 1awph!l.net

The words "subject to the provisions of the Mortgage Law," contained in article 1571,
express a qualification which evidently has reference to the familiar proposition that
recorded instruments are effective against third persons from the date of registration
(Co-Tiongco vs. Co-Guia, 1 Phil., 210); from whence it follows that a recorded lease
must be respected by any purchaser of the estate whomsoever. But there is nothing in
the Mortgage Law which, so far as we now see, would prevent a purchaser from
exercising the precise power conferred in article 1571 of the Civil Code, namely, of
terminating any lease which is unrecorded; nothing in that law that can be considered
as arresting the force of article 1571 as applied to the lease now before us.

Article 1549 of the Civil Code has also been cited by the attorneys for the appellant as
supplying authority for the proposition that the lease in question cannot be terminated

102
by one who, like Pang Lim, has taken part in the contract. That provision is practically
identical in terms with the first paragraph of article 23 of the Mortgage Law, being to the
effect that unrecorded leases shall be of no effect as against third persons; and the
same observation will suffice to dispose of it that was made by us above in discussing
the Mortgage Law, namely, that while it recognizes the fact that an unrecorded lease is
binding on all persons who participate therein, this does not determine the question
whether, admitting the lease to be so binding, it can be terminated by the plaintiffs under
article 1571.

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

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

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

Above all other persons in business relations, partners are required to exhibit towards
each other the highest degree of good faith. In fact the relation between partners is
essentially fiduciary, each being considered in law, as he is in fact, the confidential

103
agent of the other. It is therefore accepted as fundamental in equity jurisprudence that
one partner cannot, to the detriment of another, apply exclusively to his own benefit the
results of the knowledge and information gained in the character of partner. Thus, it has
been held that if one partner obtains in his own name and for his own benefit the
renewal of a lease on property used by the firm, to commence at a date subsequent to
the expiration of the firm's lease, the partner obtaining the renewal is held to be a
constructive trustee of the firm as to such lease. (20 R. C. L., 878-882.) And this rule
has even been applied to a renewal taken in the name of one partner after the
dissolution of the firm and pending its liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88
Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep., 252.)

An additional consideration showing that the position of the plaintiff Pang Lim in this
case is untenable is deducible from articles 1461 and 1474 of the Civil Code, which
declare that every person who sells anything is bound to deliver and warrant the
subject-matter of the sale and is responsible to the vendee for the legal and lawful
possession of the thing sold. The pertinence of these provisions to the case now under
consideration is undeniable, for among the assets of the partnership which Pang Lim
transferred to Lo Seng, upon selling out his interest in the firm to the latter, was this very
lease; and while it cannot be supposed that the obligation to warrant recognized in the
articles cited would nullify article 1571, if the latter article had actually conferred on the
plaintiffs the right to terminate this lease, nevertheless said articles (1461, 1474), in
relation with other considerations, reveal the basis of an estoppel which in our opinion
precludes Pang Lim from setting up his interest as purchaser of the estate to the
detriment of Lo Seng.

It will not escape observation that the doctrine thus applied is analogous to the doctrine
recognized in courts of common law under the head of estoppel by deed, in accordance
with which it is held that if a person, having no title to land, conveys the same to another
by some one or another of the recognized modes of conveyance at common law, any
title afterwards acquired by the vendor will pass to the purchaser; and the vendor is
estopped as against such purchaser from asserting such after-acquired title. The
indenture of lease, it may be further noted, was recognized as one of the modes of
conveyance at common law which created this estoppel. (8 R. C. L., 1058, 1059.)

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

104
the proportion of their respective contribution to the purchase price. But it is well
recognized that one tenant in common cannot maintain a possessory action against his
cotenant, since one is as much entitled to have possession as the other. The remedy is
ordinarily by an action for partition. (Cornista vs. Ticson, 27 Phil., 80.) It follows that as
Lo Seng is vested with the possessory right as against Pang Lim, he cannot be ousted
either by Pang Lim or Benito Galvez. Having lawful possession as against one cotenant,
he is entitled to retain it against both. Furthermore, it is obvious that partition
proceedings could not be maintained at the instance of Benito Galvez as against Lo
Seng, since partition can only be effected where the partitioners are cotenants, that is,
have an interest of an identical character as among themselves. (30 Cyc., 178-180.)
The practical result is that both Pang Lim and Benito Galvez are bound to respect Lo
Seng's lease, at least in so far as the present action is concerned.

We have assumed in the course of the preceding discussion that the deed of sale under
which the plaintiffs acquired the right of Lo Yao, the owner of the fee, is competent proof
in behalf of the plaintiffs. It is, however, earnestly insisted by the attorney for Lo Seng
that this document, having never been recorded in the property registry, cannot under
article 389 of the Mortgage Law, be used in court against him because as to said
instrument he is a third party. The important question thus raised is not absolutely
necessary to the decision of this case, and we are inclined to pass it without decision,
not only because the question does not seem to have been ventilated in the Court of
First Instance but for the further reason that we have not had the benefit of any written
brief in this case in behalf of the appellees.

The judgment appealed from will be reversed, and the defendant will be absolved from
the complaint. It is so ordered, without express adjudication as to costs.

Johnson, Araullo, Avanceña and Villamor, JJ., concur.

CATALAN V. GATCHALIAN – MISSING

FIRST DIVISION

G.R. No. 126334      November 23, 2001

EMILIO EMNACE, petitioner,

vs.
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO,
VICENTE WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY
TABANAO VARELA, ROSELA TABANAO and VINCENT TABANAO, respondents.

YNARES-SANTIAGO, J.:

Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a
business concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986,
they decided to dissolve their partnership and executed an agreement of partition and

105
distribution of the partnership properties among them, consequent to Jacinto
Divinagracia's withdrawal from the partnership. 1 Among the assets to be distributed
were five (5) fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Niño
and Talisay, Negros Occidental, and cash deposits in the local branches of the Bank of
the Philippine Islands and Prudential Bank.

Throughout the existence of the partnership, and even after Vicente Tabanao's untimely
demise in 1994, petitioner failed to submit to Tabanao's heirs any statement of assets
and liabilities of the partnership, and to render an accounting of the partnership's
finances. Petitioner also reneged on his promise to turn over to Tabanao's heirs the
deceased's 1/3 share in the total assets of the partnership, amounting to
P30,000,000.00, or the sum of P10,000,000.00, despite formal demand for payment
thereof.2

Consequently, Tabanao' s heirs, resp8ondents herein, filed against petitioner an action

for accounting, payment of shares, division of assets and damages. 3 In their complaint,
respondents prayed as follows:

1. Defendant be ordered to render the proper accounting of all the assets and
liabilities of the partnership at bar; and

2. After due notice and hearing defendant be ordered to

pay/remit/deliver/surrender/yield to the plaintiffs the following:

A. No less than One Third (1/3) of the assets, properties, dividends, cash,
land(s), fishing vessels, trucks, motor vehicles, and other forms and
substance of treasures which belong and/or should belong, had accrued
and/or must accrue to the partnership;

B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral

damages;

C. Attorney's fees equivalent to Thirty Percent (30%) of the entire

share/amount/award which the Honorable Court may resolve the plaintiffs
as entitled to plus P1,000.00 for every appearance in court. 4

Petitioner filed a motion to dismiss the complaint on the grounds of improper venue,
lack of jurisdiction over the nature of the action or suit, and lack of capacity of the estate
of Tabanao to sue.5 On August 30, 1994, the trial court denied the motion to dismiss. It
held that venue was properly laid because, while realties were involved, the action was
directed against a particular person on the basis of his personal liability; hence, the
action is not only a personal action but also an action in personam. As regards
petitioner's argument of lack of jurisdiction over the action because the prescribed
docket fee was not paid considering the huge amount involved in the claim, the trial
court noted that a request for accounting was made in order that the exact value of the
partnership may be ascertained and, thus, the correct docket fee may be paid. Finally,

106
the trial court held that the heirs of Tabanao had aright to sue in their own names, in
view of the provision of Article 777 of the Civil Code, which states that the rights to the
succession are transmitted from the moment of the death of the decedent. 6

The following day, respondents filed an amended complaint, 7 incorporating the

additional prayer that petitioner be ordered to "sell all (the partnership's) assets and
thereafter pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding share in
the proceeds thereof. In due time, petitioner filed a manifestation and motion to
dismiss,8 arguing that the trial court did not acquire jurisdiction over the case due to the
plaintiffs' failure to pay the proper docket fees. Further, in a supplement to his motion to
dismiss,9 petitioner also raised prescription as an additional ground warranting the
outright dismissal of the complaint.

On June 15, 1995, the trial court issued an Order, 10 denying the motion to dismiss
inasmuch as the grounds raised therein were basically the same as the earlier motion to
dismiss which has been denied. Anent the issue of prescription, the trial court ruled that
prescription begins to run only upon the dissolution of the partnership when the final
accounting is done. Hence, prescription has not set in the absence of a final accounting.
Moreover, an action based on a written contract prescribes in ten years from the time
the right of action accrues.

Petitioner filed a petition for certiorari before the Court of Appeals, 11 raising the following
issues:

I.       Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in taking cognizance of a case despite the failure to pay the
required docket fee;

II.      Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in insisting to try the case which involve (sic) a parcel of land
situated outside of its territorial jurisdiction;

III.     Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in allowing the estate of the deceased to appear as party
plaintiff, when there is no intestate case and filed by one who was never
appointed by the court as administratrix of the estates; and

IV.     Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in not dismissing the case on the ground of prescription.

On August 8, 1996, the Court of Appeals rendered the assailed decision, 12 dismissing
the petition for certiorari, upon a finding that no grave abuse of discretion amounting to
lack or excess of jurisdiction was committed by the trial court in issuing the questioned
orders denying petitioner's motions to dismiss.

107
Not satisfied, petitioner filed the instant petition for review, raising the same issues
resolved by the Court of Appeals, namely:

I.       Failure to pay the proper docket fee;

II.      Parcel of land subject of the case pending before the trial court is outside
the said court's territorial jurisdiction;

III.     Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and

IV.     Prescription of the plaintiff heirs' cause of action.

It can be readily seen that respondents' primary and ultimate objective in instituting the
action below was to recover the decedent's 1/3 share in the partnership' s assets. While
they ask for an accounting of the partnership' s assets and finances, what they are
actually asking is for the trial court to compel petitioner to pay and turn over their share,
or the equivalent value thereof, from the proceeds of the sale of the partnership assets.
They also assert that until and unless a proper accounting is done, the exact value of
the partnership' s assets, as well as their corresponding share therein, cannot be
ascertained. Consequently, they feel justified in not having paid the commensurate
docket fee as required by the Rules of Court.1âwphi1.nêt

We do not agree. The trial court does not have to employ guesswork in ascertaining the
estimated value of the partnership's assets, for respondents themselves voluntarily
pegged the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is
one which is really not beyond pecuniary estimation, but rather partakes of the nature of
a simple collection case where the value of the subject assets or amount demanded is
pecuniarily determinable.13 While it is true that the exact value of the partnership's total
assets cannot be shown with certainty at the time of filing, respondents can and must
ascertain, through informed and practical estimation, the amount they expect to collect
from the partnership, particularly from petitioner, in order to determine the proper
amount of docket and other fees. 14 It is thus imperative for respondents to pay the
corresponding docket fees in order that the trial court may acquire jurisdiction over the
action.15

Nevertheless, unlike in the case of Manchester Development Corp. v. Court of

Appeals,16 where there was clearly an effort to defraud the government in avoiding to
pay the correct docket fees, we see no attempt to cheat the courts on the part of
respondents. In fact, the lower courts have noted their expressed desire to remit to the
court "any payable balance or lien on whatever award which the Honorable Court may
grant them in this case should there be any deficiency in the payment of the docket fees
to be computed by the Clerk of Court." 17 There is evident willingness to pay, and the fact
that the docket fee paid so far is inadequate is not an indication that they are trying to
avoid paying the required amount, but may simply be due to an inability to pay at the
time of filing. This consideration may have moved the trial court and the Court of

108
Appeals to declare that the unpaid docket fees shall be considered a lien on the
judgment award.

Petitioner, however, argues that the trial court and the Court of Appeals erred in
condoning the non-payment of the proper legal fees and in allowing the same to
become a lien on the monetary or property judgment that may be rendered in favor of
respondents. There is merit in petitioner's assertion. The third paragraph of Section 16,
Rule 141 of the Rules of Court states that:

The legal fees shall be a lien on the monetary or property judgment in favor of
the pauper-litigant.

Respondents cannot invoke the above provision in their favor because it specifically
applies to pauper-litigants. Nowhere in the records does it appear that respondents are
litigating as paupers, and as such are exempted from the payment of court fees. 18

The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court,
which defines the two kinds of claims as: (1) those which are immediately ascertainable;
and (2) those which cannot be immediately ascertained as to the exact amount. This
second class of claims, where the exact amount still has to be finally determined by the
courts based on evidence presented, falls squarely under the third paragraph of said
Section 5(a), which provides:

In case the value of the property or estate or the sum claimed is less or more in
accordance with the appraisal of the court, the difference of fee shall be refunded
or paid as the case may be. (Underscoring ours)

In Pilipinas Shell Petroleum Corporation v. Court of Appeals, 19 this Court pronounced

that the above-quoted provision "clearly contemplates an Initial payment of the filing
fees corresponding to the estimated amount of the claim subject to adjustment as to
what later may be proved." 20 Moreover, we reiterated therein the principle that the
payment of filing fees cannot be made contingent or dependent on the result of the
case. Thus, an initial payment of the docket fees based on an estimated amount must
be paid simultaneous with the filing of the complaint. Otherwise, the court would stand
to lose the filing fees should the judgment later turn out to be adverse to any claim of
the respondent heirs.

The matter of payment of docket fees is not a mere triviality. These fees are necessary
to defray court expenses in the handling of cases. Consequently, in order to avoid
tremendous losses to the judiciary, and to the government as well, the payment of
docket fees cannot be made dependent on the outcome of the case, except when the
claimant is a pauper-litigant.

Applied to the instant case, respondents have a specific claim - 1/3 of the value of all
the partnership assets - but they did not allege a specific amount. They did, however,
estimate the partnership's total assets to be worth Thirty Million Pesos

109
(P30,000,000.00), in a letter 21 addressed to petitioner. Respondents cannot now say
that they are unable to make an estimate, for the said letter and the admissions therein
form part of the records of this case. They cannot avoid paying the initial docket fees by
conveniently omitting the said amount in their amended complaint. This estimate can be
made the basis for the initial docket fees that respondents should pay. Even if it were
later established that the amount proved was less or more than the amount alleged or
estimated, Rule 141, Section 5(a) of the Rules of Court specifically provides that the
court may refund the 'excess or exact additional fees should the initial payment be
insufficient. It is clear that it is only the difference between the amount finally awarded
and the fees paid upon filing of this complaint that is subject to adjustment and which
may be subjected to alien.

In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion, 22 this
Court held that when the specific claim "has been left for the determination by the court,
the additional filing fee therefor shall constitute a lien on the judgment and it shall be the
responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and
assess and collect the additional fee." Clearly, the rules and jurisprudence contemplate
the initial payment of filing and docket fees based on the estimated claims of the
plaintiff, and it is only when there is a deficiency that a lien may be constituted on the
judgment award until such additional fee is collected.

Based on the foregoing, the trial court erred in not dismissing the complaint outright
despite their failure to pay the proper docket fees. Nevertheless, as in other procedural
rules, it may be liberally construed in certain cases if only to secure a just and speedy
disposition of an action. While the rule is that the payment of the docket fee in the
proper amount should be adhered to, there are certain exceptions which must be strictly
construed.23

In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine,
allowing the plaintiff to pay the proper docket fees within a reasonable time before the
expiration of the applicable prescriptive or reglementary period. 24

In the recent case of National Steel Corp. v. Court of Appeals, 25 this Court held that:

The court acquires jurisdiction over the action if the filing of the initiatory pleading
is accompanied by the payment of the requisite fees, or, if the fees are not paid
at the time of the filing of the pleading, as of the time of full payment of the fees
within such reasonable time as the court may grant, unless, of course,
prescription has set in the meantime.

It does not follow, however, that the trial court should have dismissed the
complaint for failure of private respondent to pay the correct amount of docket
fees. Although the payment of the proper docket fees is a jurisdictional
requirement, the trial court may allow the plaintiff in an action to pay the same
within a reasonable time before the expiration of the applicable prescriptive or
reglementary period. If the plaintiff fails to comply within this requirement, the

110
 defendant should timely raise the issue of jurisdiction or else he would be
considered in estoppel. In the latter case, the balance between the appropriate
docket fees and the amount actually paid by the plaintiff will be considered a lien
or any award he may obtain in his favor. (Underscoring ours)

Accordingly, the trial court in the case at bar should determine the proper docket fee
based on the estimated amount that respondents seek to collect from petitioner, and
direct them to pay the same within a reasonable time, provided the applicable
prescriptive or reglementary period has not yet expired, Failure to comply therewith, and
upon motion by petitioner, the immediate dismissal of the complaint shall issue on
jurisdictional grounds.

On the matter of improper venue, we find no error on the part of the trial court and the
Court of Appeals in holding that the case below is a personal action which, under the
Rules, may be commenced and tried where the defendant resides or may be found, or
where the plaintiffs reside, at the election of the latter. 26

Petitioner, however, insists that venue was improperly laid since the action is a real
action involving a parcel of land that is located outside the territorial jurisdiction of the
court a quo. This contention is not well-taken. The records indubitably show that
respondents are asking that the assets of the partnership be accounted for, sold and
distributed according to the agreement of the partners. The fact that two of the assets of
the partnership are parcels of land does not materially change the nature of the action.
It is an action in personam because it is an action against a person, namely, petitioner,
on the basis of his personal liability. It is not an action in rem where the action is against
the thing itself instead of against the person. 27 Furthermore, there is no showing that the
parcels of land involved in this case are being disputed. In fact, it is only incidental that
part of the assets of the partnership under liquidation happen to be parcels of land.

The time-tested case of Claridades v. Mercader, et al.,28 settled this issue thus:

The fact that plaintiff prays for the sale of the assets of the partnership, including
the fishpond in question, did not change the nature or character of the action,
such sale being merely a necessary incident of the liquidation of the partnership,
which should precede and/or is part of its process of dissolution.

The action filed by respondents not only seeks redress against petitioner. It also seeks
the enforcement of, and petitioner's compliance with, the contract that the partners
executed to formalize the partnership's dissolution, as well as to implement the
liquidation and partition of the partnership's assets. Clearly, it is a personal action that,
in effect, claims a debt from petitioner and seeks the performance of a personal duty on
his part.29 In fine, respondents' complaint seeking the liquidation and partition of the
assets of the partnership with damages is a personal action which may be filed in the
proper court where any of the parties reside. 30 Besides, venue has nothing to do with
jurisdiction for venue touches more upon the substance or merits of the case. 31 As it is,
venue in this case was properly laid and the trial court correctly ruled so.

111
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has
no legal capacity to sue since she was never appointed as administratrix or executrix of
his estate. Petitioner's objection in this regard is misplaced. The surviving spouse does
not need to be appointed as executrix or administratrix of the estate before she can file
the action. She and her children are complainants in their own right as successors of
Vicente Tabanao. From the very moment of Vicente Tabanao' s death, his rights insofar
as the partnership was concerned were transmitted to his heirs, for rights to the
succession are transmitted from the moment of death of the decedent.32

Whatever claims and rights Vicente Tabanao had against the partnership and petitioner
were transmitted to respondents by operation of law, more particularly by succession,
which is a mode of acquisition by virtue of which the property, rights and obligations to
the extent of the value of the inheritance of a person are transmitted. 33 Moreover,
respondents became owners of their respective hereditary shares from the moment
Vicente Tabanao died.34

A prior settlement of the estate, or even the appointment of Salvacion Tabanao as

executrix or administratrix, is not necessary for any of the heirs to acquire legal capacity
to sue. As successors who stepped into the shoes of their decedent upon his death,
they can commence any action originally pertaining to the decedent. 35 From the moment
of his death, his rights as a partner and to demand fulfillment of petitioner's obligations
as outlined in their dissolution agreement were transmitted to respondents. They,
therefore, had the capacity to sue and seek the court's intervention to compel petitioner
to fulfill his obligations.

Finally, petitioner contends that the trial court should have dismissed the complaint on
the ground of prescription, arguing that respondents' action prescribed four (4) years
after it accrued in 1986. The trial court and the Court of Appeals gave scant
consideration to petitioner's hollow arguments, and rightly so.

The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3)
termination.36 The partnership, although dissolved, continues to exist and its legal
personality is retained, at which time it completes the winding up of its affairs, including
the partitioning and distribution of the net partnership assets to the partners. 37 For as
long as the partnership exists, any of the partners may demand an accounting of the
partnership's business. Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is done. 38

Contrary to petitioner's protestations that respondents' right to inquire into the business
affairs of the partnership accrued in 1986, prescribing four (4) years thereafter,
prescription had not even begun to run in the absence of a final accounting. Article 1842
of the Civil Code provides:

The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the

112
 person or partnership continuing the business, at the date of dissolution, in the
absence of any agreement to the contrary.

Applied in relation to Articles 1807 and 1809, which also deal with the duty to account,
the above-cited provision states that the right to demand an accounting accrues at the
date of dissolution in the absence of any agreement to the contrary. When a final
accounting is made, it is only then that prescription begins to run. In the case at bar, no
final accounting has been made, and that is precisely what respondents are seeking in
their action before the trial court, since petitioner has failed or refused to render an
accounting of the partnership's business and assets. Hence, the said action is not
barred by prescription.

In fine, the trial court neither erred nor abused its discretion when it denied petitioner's
motions to dismiss. Likewise, the Court of Appeals did not commit reversible error in
upholding the trial court's orders. Precious time has been lost just to settle this
preliminary issue, with petitioner resurrecting the very same arguments from the trial
court all the way up to the Supreme Court. The litigation of the merits and substantial
issues of this controversy is now long overdue and must proceed without further delay.

WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of
merit, and the case is REMANDED to the Regional Trial Court of Cadiz City, Branch 60,
which is ORDERED to determine the proper docket fee based on the estimated amount
that plaintiffs therein seek to collect, and direct said plaintiffs to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary period has not yet
expired. Thereafter, the trial court is ORDERED to conduct the appropriate proceedings
in Civil Case No. 416-C.

Costs against petitioner.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan, Pardo, JJ., concur.

EN BANC

G.R. No. 413            February 2, 1903

JOSE FERNANDEZ, plaintiff-appellant,

vs.
FRANCISCO DE LA ROSA, defendant-appellee.

LADD, J.:

The object of this action is to obtain from the court a declaration that a partnership
exists between the parties, that the plaintiff has a consequent interested in certain
cascoes which are alleged to be partnership property, and that the defendant is bound

113
to render an account of his administration of the cascoes and the business carried on
with them.

Judgment was rendered for the defendant in the court below and the plaintiff appealed.

The respective claims of the parties as to the facts, so far as it is necessary to state
them in order to indicate the point in dispute, may be briefly summarized. The plaintiff
alleges that in January, 1900, he entered into a verbal agreement with the defendant to
form a partnership for the purchase of cascoes and the carrying on of the business of
letting the same for hire in Manila, the defendant to buy the cascoes and each partner to
furnish for that purpose such amount of money as he could, the profits to be divided
proportionately; that in the same January the plaintiff furnished the defendant 300 pesos
to purchase a casco designated as No. 1515, which the defendant did purchase for 500
pesos of Doña Isabel Vales, taking the title in his own name; that the plaintiff furnished
further sums aggregating about 300 pesos for repairs on this casco; that on the fifth of
the following March he furnished the defendant 825 pesos to purchase another casco
designated as No. 2089, which the defendant did purchase for 1,000 pesos of Luis R.
Yangco, taking the title to this casco also in his own name; that in April the parties
undertook to draw up articles of partnership for the purpose of embodying the same in
an authentic document, but that the defendant having proposed a draft of such articles
which differed materially from the terms of the earlier verbal agreement, and being
unwillingly to include casco No. 2089 in the partnership, they were unable to come to
any understanding and no written agreement was executed; that the defendant having
in the meantime had the control and management of the two cascoes, the plaintiff made
a demand for an accounting upon him, which the defendant refused to render, denying
the existence of the partnership altogether.

The defendant admits that the project of forming a partnership in the casco business in
which he was already engaged to some extent individually was discussed between
himself and the plaintiff in January, 1900, and earlier, one Marcos Angulo, who was a
partner of the plaintiff in a bakery business, being also a party to the negotiations, but
he denies that any agreement was ever consummated. He denies that the plaintiff
furnished any money in January, 1900, for the purchase of casco No. 1515, or for
repairs on the same, but claims that he borrowed 300 pesos on his individual account in
January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio
Angulo. The 825 pesos, which he admits he received from the plaintiff March 5, he
claims was for the purchase of casco No. 1515, which he alleged was bought March 12,
and he alleges that he never received anything from the defendant toward the purchase
of casco No. 2089. He claims to have paid, exclusive of repairs, 1,200 pesos for the first
casco and 2,000 pesos for the second one.

The case comes to this court under the old procedure, and it is therefore necessary for
us the review the evidence and pass upon the facts. Our general conclusions may be
stated as follows:

114
(1) Doña Isabel Vales, from whom the defendant bought casco No. 1515, testifies that
the sale was made and the casco delivered in January, although the public document of
sale was not executed till some time afterwards. This witness is apparently
disinterested, and we think it is safe to rely upon the truth of her testimony, especially as
the defendant, while asserting that the sale was in March, admits that he had the casco
taken to the ways for repairs in January.

It is true that the public document of sale was executed March 10, and that the vendor
declares therein that she is the owner of the casco, but such declaration does not
exclude proof as to the actual date of the sale, at least as against the plaintiff, who was
not a party to the instrument. (Civil Code, sec. 1218.) It often happens, of course, in
such cases, that the actual sale precedes by a considerable time the execution of the
formal instrument of transfer, and this is what we think occurred here.

(2) The plaintiff presented in evidence the following receipt: "I have this day received
from D. Jose Fernandez eight hundred and twenty-five pesos for the cost of a casco
which we are to purchase in company. Manila, March 5, 1900. Francisco de la Rosa."
The authenticity of this receipt is admitted by the defendant. If casco No. 1515 was
bought, as we think it was, in January, the casco referred to in the receipt which the
parties "are to purchase in company" must be casco No. 2089, which was bought March
22. We find this to be the fact, and that the plaintiff furnished and the defendant
received 825 pesos toward the purchase of this casco, with the understanding that it
was to be purchased on joint account.

(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio
Angulo give the defendant, in the name of the plaintiff, a sum of money, the amount of
which he is unable to state, for the purchase of a casco to be used in the plaintiff's and
defendant's business. Antonio Angulo also testifies, but the defendant claims that the
fact that Angulo was a partner of the plaintiff rendered him incompetent as a witness
under the provisions of article 643 of the then Code of Civil Procedure, and without
deciding whether this point is well taken, we have discarded his testimony altogether in
considering the case. The defendant admits the receipt of 300 pesos from Antonio
Angulo in January, claiming, as has been stated, that it was a loan from the firm. Yet he
sets up the claim that the 825 pesos which he received from the plaintiff in March were
furnished toward the purchase of casco No. 1515, thereby virtually admitting that casco
was purchased in company with the plaintiff. We discover nothing in the evidence to
support the claim that the 300 pesos received in January was a loan, unless it may be
the fact that the defendant had on previous occasions borrowed money from the bakery
firm. We think all the probabilities of the case point to the truth of the evidence of
Antonio Fernandez as to this transaction, and we find the fact to be that the sum in
question was furnished by the plaintiff toward the purchase for joint ownership of casco
No. 1515, and that the defendant received it with the understanding that it was to be
used for this purposed. We also find that the plaintiff furnished some further sums of
money for the repair of casco.

115
(4) The balance of the purchase price of each of the two cascoes over and above the
amount contributed by the plaintiff was furnished by the defendant.

(5) We are unable to find upon the evidence before us that there was any specific verbal
agreement of partnership, except such as may be implied from the fact as to the
purchase of the casco.

(6) Although the evidence is somewhat unsatisfactory upon this point, we think it more
probable than otherwise that no attempt was made to agree upon articles of partnership
till about the middle of the April following the purchase of the cascoes.

(7) At some time subsequently to the failure of the attempt to agree upon partnership
articles and after the defendant had been operating the cascoes for some time, the
defendant returned to the plaintiff 1,125 pesos, in two different sums, one of 300 and
one of 825 pesos. The only evidence in the record as to the circumstances under which
the plaintiff received these sums is contained in his answer to the interrogatories
proposed to him by the defendant, and the whole of his statement on this point may
properly be considered in determining the fact as being in the nature of an indivisible
admission. He states that both sums were received with an express reservation on his
part of all his rights as a partner. We find this to be the fact.

Two questions of law are raised by the foregoing facts: (1) Did a partnership exist
between the parties? (2) If such partnership existed, was it terminated as a result of the
act of the defendant in receiving back the 1,125 pesos?

(1) "Partnership is a contract by which two or more persons bind themselves to

contribute money, property, or industry to a common fund, with the intention of dividing
the profits among themselves." (Civil Code, art. 1665.)

The essential points upon which the minds of the parties must meet in a contract of
partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint
interest in the profits. If the contract contains these two elements the partnership
relation results, and the law itself fixes the incidents of this relation if the parties fail to
do so. (Civil Code, secs. 1689, 1695.)

We have found as a fact that money was furnished by the plaintiff and received by the
defendant with the understanding that it was to be used for the purchase of the cascoes
in question. This establishes the first element of the contract, namely, mutual
contribution to a common stock. The second element, namely, the intention to share
profits, appears to be an unavoidable deduction from the fact of the purchase of the
cascoes in common, in the absence of any other explanation of the object of the parties
in making the purchase in that form, and, it may be added, in view of the admitted fact
that prior to the purchase of the first casco the formation of a partnership had been a
subject of negotiation between them.

116
Under other circumstances the relation of joint ownership, a relation distinct though
perhaps not essentially different in its practical consequence from that of partnership,
might have been the result of the joint purchase. If, for instance, it were shown that the
object of the parties in purchasing in company had been to make a more favorable
bargain for the two cascoes that they could have done by purchasing them separately,
and that they had no ulterior object except to effect a division of the common property
when once they had acquired it, the affectio societatis would be lacking and the parties
would have become joint tenants only; but, as nothing of this sort appears in the case,
we must assume that the object of the purchase was active use and profit and not mere
passive ownership in common.

It is thus apparent that a complete and perfect contract of partnership was entered into
by the parties. This contract, it is true, might have been subject to a suspensive
condition, postponing its operation until an agreement was reached as to the respective
participation of the partners in the profits, the character of the partnership as collective
or en comandita, and other details, but although it is asserted by counsel for the
defendant that such was the case, there is little or nothing in the record to support this
claim, and that fact that the defendant did actually go on and purchase the boat, as it
would seem, before any attempt had been made to formulate partnership articles,
strongly discountenances the theory.

The execution of a written agreement was not necessary in order to give efficacy to the
verbal contract of partnership as a civil contract, the contributions of the partners not
having been in the form of immovables or rights in immovables. (Civil Code, art. 1667.)
The special provision cited, requiring the execution of a public writing in the single case
mentioned and dispensing with all formal requirements in other cases, renders
inapplicable to this species of contract the general provisions of article 1280 of the Civil
Code.

(2) The remaining question is as to the legal effect of the acceptance by the plaintiff of
the money returned to him by the defendant after the definitive failure of the attempt to
agree upon partnership articles. The amount returned fell short, in our view of the facts,
of that which the plaintiff had contributed to the capital of the partnership, since it did not
include the sum which he had furnished for the repairs of casco No. 1515. Moreover, it
is quite possible, as claimed by the plaintiff, that a profit may have been realized from
the business during the period in which the defendant have been administering it prior
to the return of the money, and if so he still retained that sum in his hands. For these
reasons the acceptance of the money by the plaintiff did not have the effect of
terminating the legal existence of the partnership by converting it into a societas
leonina, as claimed by counsel for the defendant.

Did the defendant waive his right to such interest as remained to him in the partnership
property by receiving the money? Did he by so doing waive his right to an accounting of
the profits already realized, if any, and a participation in them in proportion to the
amount he had originally contributed to the common fund? Was the partnership

117
dissolved by the "will or withdrawal of one of the partners" under article 1705 of the Civil
Code? We think these questions must be answered in the negative.

There was no intention on the part of the plaintiff in accepting the money to relinquish
his rights as a partner, nor is there any evidence that by anything that he said or by
anything that he omitted to say he gave the defendant any ground whatever to believe
that he intended to relinquish them. On the contrary he notified the defendant that he
waived none of his rights in the partnership. Nor was the acceptance of the money an
act which was in itself inconsistent with the continuance of the partnership relation, as
would have been the case had the plaintiff withdrawn his entire interest in the
partnership. There is, therefore, nothing upon which a waiver, either express or implied,
can be predicated. The defendant might have himself terminated the partnership
relation at any time, if he had chosen to do so, by recognizing the plaintiff's right in the
partnership property and in the profits. Having failed to do this he can not be permitted
to force a dissolution upon his co-partner upon terms which the latter is unwilling to
accept. We see nothing in the case which can give the transaction in question any other
aspect than that of the withdrawal by one partner with the consent of the other of a
portion of the common capital.

The result is that we hold and declare that a partnership was formed between the
parties in January, 1900, the existence of which the defendant is bound to recognize;
that cascoes No. 1515 and 2089 constitute partnership property, and that the plaintiff is
entitled to an accounting of the defendant's administration of such property, and of the
profits derived therefrom. This declaration does not involve an adjudication as to any
disputed items of the partnership account.

The judgment of the court below will be reversed without costs, and the record returned
for the execution of the judgment now rendered. So ordered.

Arellano, C.J., Torres, Cooper, and Mapa, JJ., concur.

Willard, J., dissenting.

ON MOTION FOR A REHEARING.

MAPA, J.:

This case has been decided on appeal in favor of the plaintiff, and the defendant has
moved for a rehearing upon the following grounds:

1. Because that part of the decision which refers to the existence of the partnership
which is the object of the complaint is not based upon clear and decisive legal grounds;
and

2. Because, upon the supposition of the existence of the partnership, the decision does
not clearly determine whether the juridical relation between the partners suffered any
modification in consequence of the withdrawal by the plaintiff of the sum of 1,125 pesos

118
from the funds of the partnership, or if it continued as before, the parties being thereby
deprived, he alleges, of one of the principal bases for determining with exactness the
amount due to each.

With respect to the first point, the appellant cites the fifth conclusion of the decision,
which is as follows: "We are unable to find from the evidence before us that there was
any specific verbal agreement of partnership, except such as may be implied from the
facts as to the purchase of the cascoes."

Discussing this part of the decision, the defendant says that, in the judgment of the
court, if on the one hand there is no direct evidence of a contract, on the other its
existence can only be inferred from certain facts, and the defendant adds that the
possibility of an inference is not sufficient ground upon which to consider as existing
what may be inferred to exist, and still less as sufficient ground for declaring its efficacy
to produce legal effects.

This reasoning rests upon a false basis. We have not taken into consideration the mere
possibility of an inference, as the appellant gratuitously stated, for the purpose of
arriving at a conclusion that a contract of partnership was entered into between him and
the plaintiff, but have considered the proof which is derived from the facts connected
with the purchase of the cascoes. It is stated in the decision that with the exception of
this evidence we find no other which shows the making of the contract. But this does not
mean (for it says exactly the contrary) that this fact is not absolutely proven, as the
defendant erroneously appears to think. From this data we infer a fact which to our mind
is certain and positive, and not a mere possibility; we infer not that it is possible that the
contract may have existed, but that it actually did exist. The proofs constituted by the
facts referred to, although it is the only evidence, and in spite of the fact that it is not
direct, we consider, however, sufficient to produce such a conviction, which may
certainly be founded upon any of the various classes of evidence which the law admits.
There is all the more reason for its being so in this case, because a civil partnership
may be constituted in any form, according to article 1667 of the Civil Code, unless real
property or real rights are contributed to it — the only case of exception in which it is
necessary that the agreement be recorded in a public instrument.

It is of no importance that the parties have failed to reach an agreement with respect to
the minor details of contract. These details pertain to the accidental and not to the
essential part of the contract. We have already stated in the opinion what are the
essential requisites of a contract of partnership, according to the definition of article
1665. Considering as a whole the probatory facts which appears from the record, we
have reached the conclusion that the plaintiff and the defendant agreed to the essential
parts of that contract, and did in fact constitute a partnership, with the funds of which
were purchased the cascoes with which this litigation deals, although it is true that they
did not take the precaution to precisely establish and determine from the beginning the
conditions with respect to the participation of each partner in the profits or losses of the
partnership. The disagreements subsequently arising between them, when endeavoring
to fix these conditions, should not and can not produce the effect of destroying that

119
which has been done, to the prejudice of one of the partners, nor could it divest his
rights under the partnership which had accrued by the actual contribution of capital
which followed the agreement to enter into a partnership, together with the transactions
effected with partnership funds. The law has foreseen the possibility of the constitution
of a partnership without an express stipulation by the partners upon those conditions,
and has established rules which may serve as a basis for the distribution of profits and
losses among the partners. (Art. 1689 of the Civil Code. ) We consider that the
partnership entered into by the plaintiff and the defendant falls within the provisions of
this article.

With respect to the second point, it is obvious that upon declaring the existence of a
partnership and the right of the plaintiff to demand from the defendant an itemized
accounting of his management thereof, it was impossible at the same time to determine
the effects which might have been produced with respect to the interest of the
partnership by the withdrawal by the plaintiff of the sum of 1,125 pesos. This could only
be determined after a liquidation of the partnership. Then, and only then, can it be
known if this sum is to be charged to the capital contributed by the plaintiff, or to his
share of the profits, or to both. It might well be that the partnership has earned profits,
and that the plaintiff's participation therein is equivalent to or exceeds the sum
mentioned. In this case it is evident that, notwithstanding that payment, his interest in
the partnership would still continue. This is one case. It would be easy to imagine many
others, as the possible results of a liquidation are innumerable. The liquidation will
finally determine the condition of the legal relations of the partners inter se at the time of
the withdrawal of the sum mentioned. It was not, nor is it possible to determine this
status a priori without prejudging the result, as yet unknown, of the litigation. Therefore it
is that in the decision no direct statement has been made upon this point. It is for the
same reason that it was expressly stated in the decision that it "does not involve an
adjudication as to any disputed item of the partnership account."

The contentions advanced by the moving party are so evidently unfounded that we can
not see the necessity or convenience of granting the rehearing prayed for, and the
motion is therefore denied.

Arellano, C.J., Torres, Cooper, and Ladd, JJ., concur.

Willard and McDonough, JJ., did not sit in this case.

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.

120
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."

121
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.

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

122
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

123
 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

124
 benefits which he may have obtained in violation of this
provision, with a right to damages in either case.'

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:

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 (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.

K. PROPERTY RIGHTS – ARTS. 1810 TO 1814

EN BANC
G.R. No. L-45662             April 26, 1939
ENRIQUE CLEMENTE, plaintiff-appellee,
vs.
DIONISIO GALVAN, defendant-appellee.
JOSE ECHEVARRIA, intervenor-appellant.
DIAZ, J.:
The intervenor Jose Echevarria having lost in the Court of First Instance of manila which
rendered judgment against him, the pertinent portion of which reads: "and with respect
to the complaint of the intervenor, the mortgage executed in his favor by plaintiff is
declared null and void, and said complaint in intervention, as well as the counterclaim
filed by the defendant against the intervenor, is dismissed, without pronouncement as to
costs," he appealed to this court on the ground that, according to him, the lower court
committed the errors assigned in his brief as follows:
I. The court a quo erred in finding in the appealed decision that plaintiff was
unable to take possession of the machines subject of the deed of mortgage
Exhibit B either before or after the execution thereof.
II. The court a quo likewise erred in deciding the present case against the
intervenor-appellant, on the ground, among others, that "plaintiff has not adduced
any evidence nor has he testified to show that the machines mortgaged by him to
the intervenor have ever belonged to him, notwithstanding that said intervenor is
his close relative.".

126
 III. The lower court also erred in declaring null and void the mortgage executed
by plaintiff in favor of the intervenor and, thereby, dismissing the complaint in
intervention.
IV. The lower court lastly erred in ordering the receiver J. D. Mencarini to deliver
to the defendant the aforesaid machines upon petition of the plaintiff.
In order to have a clear idea of the question, it is proper to state the facts bearing on the
case as they appear in the decision and judgment of the lower court and in the
documents which constitute all the evidence adduced by the parties during the trial.
On June 6, 1931, plaintiff and defendant organized a civil partnership which they named
"Galvan y Compañia" to engage in the manufacture and sale of paper and other
stationery. they agreed to invest therein a capital of P100,000, but as a matter of fact
they did not cover more than one-fifth thereof, each contributing P10,000. Hardly a year
after such organization, the plaintiff commenced the present case in the above-
mentioned court to ask for the dissolution of the partnership and to compel defendant to
whom the management thereof was entrusted to submit an accounting of his
administration and to deliver to him his share as such partner. In his answer defendant
expressed his conformity to the dissolution of the partnership and the liquidation of its
affairs; but by way of counterclaim he asked that, having covered a deficit incurred by
the partnership amounting to P4,000 with his own money, plaintiff reimburse him of one-
half of said sum. On petition of the plaintiff a receiver and liquidator to take charge of the
properties and business for the partnership while the same was not yet definitely
dissolved, was appointed, the person chosen being Juan D. Mencarini. The latter was
already discharging the duties of his office when the court, by virtue of a petition ex
parte of the plaintiff, issued the order of May 24, 1933, requiring said receiver to deliver
to him (plaintiff) certain machines which were then at Nos. 705-707 Ylaya Street, Manila
but authorizing him to charge their value of P4,500 against the portion which may
eventually be due to said plaintiff. To comply with said order, the receiver delivered to
plaintiff the keys to the place where the machines were found, which was the same
place where defendant had his home; but before he could take actual possession of
said machines, upon the strong opposition of defendant, the court, on motion of the
latter, suspended the effects of its order of May 24, 1933. In the meantime the
judgments rendered in cases Nos. 42794 and 43070 entitled "Philippine Education Co.,
Inc. vs. Enrique Clemente" for the recovery of a sum of money, and "Jose Echevarria
vs. Enrique Clemente", also for the recovery of a sum of money, respectively, were
made executory; and in order to avoid the attachment and subsequent sale of the
machines by the sheriff for the satisfaction from the proceeds thereof of the judgments
rendered in the two cases aforecited, plaintiff agreed with the intervenor, who is his
nephew, to execute, as he in fact executed in favor of the latter, a deed of mortgage
Exhibit B encumbering the machines described in said deed in which it is stated that
"they are situated on Singalong Street No. 1163", which is a place entirely different from
the house Nos. 705 and 707 on Ylaya Street hereinbefore mentioned. The one year
agreed upon in the deed of mortgage for the fulfillment by the plaintiff of the obligation
he had contracted with the intervenor, having expired, the latter commenced case No.
49629 to collect his mortgage credit. The intervenor, as plaintiff in the said case,
obtained judgment in his favor because the defendant did not interpose any defense or

127
objection, and, moreover, admitted being really indebted to the intervenor in the amount
set forth in the deed of mortgage Exhibit B. The machines which the intervenor said
were mortgaged to him were then in fact in custodia legis, as they were under the
control of the receiver and liquidator Juan D. Mencarini. It was, therefore, useless for
the intervenor to attach the same in view of the receiver's opposition; and the question
having been brought to court, it decided that nothing could be done because the
receiver was not a party to the case which the intervenor instituted to collect his
aforesaid credit. (Civil case No. 49629.) The question ended thus because the
intervenor did not take any other step until he thought of joining in this case as
intervenor.
1. From the foregoing facts, it is clear that plaintiff could not obtain possession of
the machines in question. The constructive possession deducible from the fact
that he had the keys to the place where the machines were found (Ylaya Street
Nos. 705-707), as they had been delivered to him by the receiver, does not help
him any because the lower court suspended the effects of the other whereby the
keys were delivered to him a few days after its issuance; and thereafter revoked
it entirely in the appealed decision. Furthermore, when he attempted to take
actual possession of the machines, the defendant did not allow him to do so.
Consequently, if he did not have actual possession of the machines, he could not
in any manner mortgage them, for while it is true that the oft-mentioned deed of
mortgage Exhibit B was annotated in the registry of property, it is no less true the
machines to which it refers are not the same as those in question because the
latter are on Ylaya Street Nos. 705-707 and the former are on Singalong Street
No. 1163. It can not be said that Exhibit B-1, allegedly a supplementary contract
between the plaintiff and the intervenor, shows that the machines referred to in
the deed of mortgage are the same as those in dispute and which are found on
Ylaya Street because said exhibit being merely a private document, the same
cannot vary or alter the terms of a public document which is Exhibit B or the deed
of mortgage.
2. The second error attributed to the lower court is baseless. The evidence of
record shows that the machines in contention originally belonged to the
defendant and from him were transferred to the partnership Galvan y Compania.
This being the case, said machines belong to the partnership and not to him, and
shall belong to it until partition is effected according to the result thereof after the
liquidation.
3. The last two errors attributed by the appellant to the lower court have already
been disposed of by the considerations above set forth. they are as baseless as
the previous ones.
In view of all the foregoing, the judgment appealed from is affirmed, with costs against
the appellant. So ordered.
Avanceña, C. J., Villa-Real, Imperial, Laurel, Concepcion, and Moran, JJ., concur.
EN BANC
G.R. No. L-5963             May 20, 1953

128
 THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI, petitioners,
vs.
SULPICIO V. CEA, in his capacity as Judge of the Court of First Instance of Leyte
and OLEGARIO LASTRILLA, respondents.
BENGZON, J.:
Labaled "Certiorari and Prohibition with preliminary Injunction" this petition prays for the
additional writ of mandamus to compel the respondent judge to give due course to
petitioners' appeal from his order taxing costs. However, inasmuch as according to the
answer, petitioners through their attorney withdrew their cash appeal bond of P60 after
the record on appeal bond of P60 after the record on appeal had been rejected, the
matter of mandamus may be summarily be dropped without further comment.
From the pleadings it appears that,
In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for damages
by the Leyte-Samar Sales Co. (hereinafter called LESSCO) and Raymond Tomassi
against the Far Eastern Lumber & Commercial Co. (unregistered commercial
partnership hereinafter called FELCO), Arnold Hall, Fred Brown and Jean Roxas,
judgment against defendants jointly and severally for the amount of P31,589.14 plus
costs was rendered on October 29, 1948. The Court of Appeals confirmed the award in
November 1950, minus P2,000 representing attorney's fees mistakenly included. The
decision having become final, the sheriff sold at auction on June 9, 1951 to Robert
Dorfe and Pepito Asturias "all the rights, interests, titles and participation" of the
defendants in certain buildings and properties described in the certificate, for a total
price of eight thousand and one hundred pesos. But on June 4, 1951 Olegario Lastrilla
filed in the case a motion, wherein he claimed to be the owner by purchase on
September 29, 1949, of all the "shares and interests" of defendant Fred Brown in the
FELCO, and requested "under the law of preference of credits" that the sheriff be
required to retain in his possession so much of the deeds of the auction sale as may be
necessary "to pay his right". Over the plaintiffs' objection the judge in his order of June
13, 1951, granted Lastrilla's motion by requiring the sheriff to retain 17 per cent of the
money "for delivery to the assignee, administrator or receiver" of the FELCO. And on
motion of Lastrilla, the court on August 14, 1951, modified its order of delivery and
merely declared that Lastrilla was entitled to 17 per cent of the properties sold, saying in
part:
. . . el Juzgado ha encontrado que no se han respetado los derechos del Sr.
Lastrilla en lo que se refiere a su adquiscicion de las acciones de C. Arnold Hall
(Fred Brown) en la Far Eastern Lumber & Lumber Commercial C. porque la
mismas han sido incluidas en la subasta.
Es vedad que las acciones adquiridas por el Sr. Lastilla representan el 17 por
ciento del capital de la sociedad "Far Eastern Lumber & Commercial Co., Inc., et
al." pero esto no quiere decir que su vlor no esta sujeto a las fluctuaciones del
negocio donde las invirtio.
Se vendieron propiedades de la corporacion "Far Eastern Lumber & Co. Inc.," y
de la venta solamente se obtuvo la cantidad de P8,100.

129
 "En su virtud, se declara que el 17 por ciento de las propiedades vendidas en
publica subasta pretenece al Sr. O Lastrilla y este tiene derecho a dicha porcion
pero con la obligacion de pagar el 17 por ciento de los gastos for la conservacion
de dichas propriedades por parte del Sheriff; . . . . (Annex K)
It is from this declaration and the subsequent orders to enforce it 1 that the petitioners
seek relief by certiorari, their position being the such orders were null and void for lack
of jurisdiction. At their request a writ of preliminary injunction was issued here.
The record is not very clear, but there are indications, and we shall assume for the
moment, that Fred Brown (like Arnold Hall and Jean Roxas) was a partner of the
FELCO, was defendant in Civil Case No. 193 as such partner, and that the properties
sold at auction actually belonged to the FELCO partnership and the partners. We shall
also assume that the sale made to Lastrilla on September 29, 1949, of all the shares of
Fred Brown in the FELCO was valid. (Remember that judgment in this case was
entered in the court of first instance a year before.)
The result then, is that on June 9, 1951 when the sale was effected of the properties of
FELCO to Roberto Dorfe and Pepito Asturias, Lastilla was already a partner of FELCO.
Now, does Lastrilla have any proper claim to the proceeds of the sale? If he was a
creditor of the FELCO, perhaps or maybe. But he was no. The partner of a partnership
is not a creditor of such partnership for the amount of his shares. That is too elementary
to need elaboration.
Lastrilla's theory, and the lower court's seems to be: inasmuch as Lastrilla had acquired
the shares of Brown is September, 1949, i.e., before the auction sale and he was not a
party to the litigation, such shares could not have been transferred to Dorfe and
Austrilla.
Granting arguendo that the auction sale and not included the interest or portion of the
FELCO properties corresponding to the shares of Lastrilla in the same partnership
(17%), the resulting situation would be — at most — that the purchasers Dorfe and
Austrias will have to recognized dominion of Lastrillas over 17 per cent of the properties
awarded to them.2 So Lastrilla acquired no right to demand any part of the money paid
by Dorfe and Austrias to he sheriff any part of the money paid by Dorfe and Austrias to
the sheriff for the benefit of FELCO and Tomassi, the plaintiffs in that case, for the
reason that, as he says, his shares (acquired from Brown) could not have been and
were not auctioned off to Dorfe and Austrias.
Supposing however that Lastrillas shares have been actually (but unlawfully) sold by the
sheriff (at the instance of plaintiffs) to Dorfe and Austrias, what is his remedy? Section
15, Rule 39 furnishes the answer.
Precisely, respondents argue, Lastrilla vindicated his claim by proper action, i.e., motion
in the case. We ruled once that "action" in this section means action as defined in
section 1, Rule 2.3 Anyway his remedy is to claim "the property", not the proceeds of the
sale, which the sheriff is directed by section 14, Rule 39 to deliver unto the judgment
creditors.
In other words, the owner of property wrongfully sold may not voluntarily come to court,
and insist, "I approve the sale, therefore give me the proceeds because I am the

130
owner". The reason is that the sale was made for the judgment creditor (who paid for
the fees and notices), and not for anybody else.
On this score the respondent judge's action on Lastrilla's motion should be declared as
in excess of jurisdiction, which even amounted to want of jurisdiction, which even
amounted to want of jurisdiction, considering specially that Dorfe and Austrias, and the
defendants themselves, had undoubtedly the right to be heard—but they were not
notified.4
Why was it necessary to hear them on the merits of Lastrilla's motion?
Because Dorfe and Austrillas might be unwilling to recognized the validity of Lastrilla's
purchase, or, if valid, they may want him not to forsake the partnership that might have
some obligations in connection with the partnership properties. And what is more
important, if the motion is granted, when the time for redemptioner seventeen per cent
(178%) less than amount they had paid for the same properties.
The defendants Arnold Hall and Jean Roxas, eyeing Lastrilla's financial assets, might
also oppose the substitution by Lastrilla of Fred Brown, the judgment against them
being joint and several. They might entertain misgivings about Brown's slipping out of
their common predicament through the disposal of his shares.
Lastly, all the defendants would have reasonable motives to object to the delivery of 17
per cent of the proceeds to Lustrial, because it is so much money deducted, and for
which the plaintiffs might as another levy on their other holdings or resources.
Supposing of course, there was no fraudulent collusion among them.
Now, these varied interest of necessity make Dorfe, Asturias and the defendants
indispensable parties to the motion of Lastrilla — granting it was step allowable under
our regulations on execution. Yet these parties were not notified, and obviously took no
part in the proceedings on the motion.
A valid judgment cannot be rendered where there is a want of necessary parties,
and a court cannot properly adjudicate matters involved in a suit when necessary
and indispensable parties to the proceedings are not before it. (49 C.J.S., 67.)
Indispensable parties are those without whom the action cannot be finally
determined. In a case for recovery of real property, the defendant alleged in his
answer that he was occupying the property as a tenant of a third person. This
third person is an indispensable party, for, without him, any judgment which the
plaintiff might obtain against the tenant would have no effectiveness, for it would
not be binding upon, and cannot be executed against, the defendant's landlord,
against whom the plaintiff has to file another action if he desires to recover the
property effectively. In an action for partition of property, each co-owner is an
indispensable party. (Moran, Comments, 1952 ed. Vol. I, p. 56.) (Emphasis
supplied.)
Wherefore, the orders of the court recognizing Lastrilla's right and ordering payment to
him of a part of the proceeds were patently erroneous, because promulgated in excess
or outside of its jurisdiction. For this reason the respondents' argument resting on
plaintiffs' failure to appeal from the orders on time, although ordinarily decisive, carries
no persuasive force in this instance.

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For as the former Chief Justice Dr. Moran has summarized in his Comments, 1952 ed.
Vol. II, p. 168 —
. . . And in those instances wherein the lower court has acted without jurisdiction
over the subject-matter, or where the order or judgment complained of is a patent
nullity, courts have gone even as far as to disregard completely the questions of
petitioner's fault, the reason being, undoubtedly, that acts performed with
absolute want of jurisdiction over the subject-matter are void ab initio and cannot
be validated by consent, express or implied, of the parties. Thus, the Supreme
Court granted a petition for certiorari and set aside an order reopening a
cadastral case five years after the judgment rendered therein had become final.
In another case, the Court set aside an order amending a judgment acquired a
definitive character. And still in another case, an order granting a review of a
decree of registration issued more than a year ago had been declared null void.
In all these case the existence of the right to appeal has been recitals was
rendered without any trial or hearing, and the Supreme Court, in granting
certiorari, said that the judgment was by its own recitals a patent nullity, which
should be set aside though an appeal was available but was not availed of. . . .
Invoking our ruling in Melocotones vs. Court of First Instance, (57 Phil., 144), wherein
we applied the theory of laches to petitioners' 3-years delay in requesting certiorari,
respondents point out that whereas the orders complained of herein were issued in
June 13, 1951 and August 14, 1951 this special civil action was not filed until August
1952. It should be observed that the order of June 13 was superseded by that of August
14, 1951. The last order merely declared "que el 17 por ciento de la propiedades
vendidas en publica subasta pertenece at Sr. Lastrilla y este tiene derecho a dicha
porcion." This does not necessarily mean that 17 per cent of the money had to be
delivered to him. It could mean, as hereinbefore indicated, that the purchasers of the
property (Dorfe and Asturias) had to recognize Lastrilla's ownership. It was only on April
16, 1952 (Annex N) that the court issued an order directing the sheriff "to tun over" to
Lastrilla "17 per cent of the total proceeds of the auction sale". There is the order that
actually prejudiced the petitioners herein, and they fought it until the last order of July
10,. 1952 (Annex Q). Surely a month's delay may not be regarded as laches.
In view of the foregoing, it is our opinion, and we so hold, that all orders of the
respondents judge requiring delivery of 17 per cent of the proceeds of the auction sale
to respondent Olegario Lastrilla are null and void; and the costs of this suit shall be
taxed against the latter. The preliminary injunction heretofore issued is made
permanent. So ordered.
Paras, C.J., Feria, Pablo, Tuason, Montemayor, Reyes, Jugo, Bautista Angelo and
Labrador, JJ., concur.

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