HEIRS OF TAN ENG KEE vs. COURT OF APPEALS and BENGUET LUMBER COMPANY G.R. No.

126881 October 3, 2000 FACTS: Following the death of Tan Eng Kee, Matilde Abubo, the common-law spouse of the decedent, joined by their children, filed suit against the decedent's brother TAN ENG LAY for accounting, liquidation and winding up of the alleged partnership, known as "Benguet Lumber", formed after World War II between Tan Eng Kee and Tan Eng Lay. After trial, the trial court ruled in favor of petitioner and ordered the defendant to to render an accounting of all the assets of Benguet Lumber Company, Inc. so the plaintiffs know their proper share in the business. On appeal, the the Court of Appeals reversed the decision. ISSUE: Whether or not, Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. HELD: NO! A contract of partnership is defined by law as one where, 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. Two or more persons may also form a partnership for the exercise of a profession. Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves. The agreement need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real rights are contributed and (2) when the partnership has a capital of three thousand pesos or more. In both cases, a public instrument is required. An inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to the partnership. Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there is none. A review of the record persuades us that the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof required to establish a partnership. Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on the precise nature of the business relationship between them. There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition must fail. WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is hereby AFFIRMED in toto. No pronouncement as to costs.SO ORDERED. -------------------------------------------------------------------------------------------------------------------------------------------------LORENZO T. OA and HEIRS OF JULIA BUALES vs. THE COMMISSIONER OF INTERNAL REVENUE G.R. No. L-19342 May 25, 1972

FACTS: Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her five children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the settlement of her estate. Later, Lorenzo T. Oa the surviving spouse was appointed administrator of the estate of said deceased. On April 14, 1949, the administrator submitted the project of partition, which was approved by the Court on May 16, 1949. Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oa, were still minors when the project of partition was approved, Lorenzo T. Oa, their father and administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of Manila for appointment as guardian of said minors. On November 14, 1949, the Court appointed him guardian of the persons and property of the aforenamed minors. The project of partition shows that the heirs have undivided one-half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a total assessed value of P17,590.00 and an undetermined amount to be collected from the War Damage Commission. Later, they received from said Commission the amount of P50,000.00, more or less. This amount was not divided among them but was used in the rehabilitation of properties owned by them in common. Of the ten parcels of land aforementioned, two were acquired after the death of the decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00.

The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the administrator thereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with the approval of the Court. Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to divide the properties therein listed. Instead, the properties remained under the management of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. As a result, petitioners' properties and investments gradually increased from P105,450.00 in 1949 to P480,005.20 in 1956. From said investments and properties petitioners derived such incomes as profits from installment sales of subdivided lots, profits from sales of stocks, dividends, rentals and interests. The said incomes are recorded in the books of account kept by Lorenzo T. Oa where the corresponding shares of the petitioners in the net income for the year are also known. Every year, petitioners returned for income tax purposes their shares in the net income derived from said properties and securities and/or from transactions involving them. However, petitioners did not actually receive their shares in the yearly income. The income was always left in the hands of Lorenzo T. Oa who, as heretofore pointed out, invested them in real properties and securities. On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that petitioners formed an unregistered partnership and therefore, subject to the corporate income tax. He assessed against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956, respectively. Petitioners protested against the assessment and asked for reconsideration of the ruling of respondent that they have formed an unregistered partnership. Finding no merit in petitioners' request, respondent denied it. ISSUE: In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of Tax Appeals, should petitioners be considered as co-owners of the properties inherited by them from the deceased Julia Buales and the profits derived from transactions involving the same, or, must they be deemed to have formed an unregistered partnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code? (2) Assuming they have formed an unregistered partnership, should this not be only in the sense that they invested as a common fund the profits earned by the properties owned by them in common and the loans granted to them upon the security of the said properties, with the result that as far as their respective shares in the inheritance are concerned, the total income thereof should be considered as that of co-owners and not of the unregistered partnership? And (3) assuming again that they are taxable as an unregistered partnership, should not the various amounts already paid by them for the same years 1955 and 1956 as individual income taxes on their respective shares of the profits accruing from the properties they owned in common be deducted from the deficiency corporate taxes, herein involved, assessed against such unregistered partnership by the respondent Commissioner? HELD: Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in interest died way back on March 23, 1944 and the project of partition of her estate was judicially approved as early as May 16, 1949, and presumably petitioners have been holding their respective shares in their inheritance since those dates admittedly under the administration or management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in question refers to the later years 1955 and 1956. We believe this point to be important because, apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal Revenue did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he considered them as having formed an unregistered partnership. At least, there is nothing in the record indicating that an earlier assessment had already been made. Such being the case, and We see no reason how it could be otherwise, it is easily understandable why petitioners' position that they are co-owners and not unregistered co-partners, for the purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the fact that they were not similarly assessed earlier by the Bureau of Internal Revenue. The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to the project of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceed from the sales thereof in real properties and securities," as a result of which said properties and investments steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building account" in 1956. And all these became possible because, admittedly, petitioners never actually received any share of the income or profits from Lorenzo T. Oa and instead, they allowed him to continue using said shares as part of the common fund

for their ventures, even as they paid the corresponding income taxes on the basis of their respective shares of the profits of their common business as reported by the said Lorenzo T. Oa. It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the properties inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said properties were sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise admitted that all the profits from these ventures were divided among petitioners proportionately in accordance with their respective shares in the inheritance. In these circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of the above-mentioned provisions of the Tax Code. It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such status as co-owners continues until the inheritance is actually and physically distributed among the heirs, for it is easily conceivable that after knowing their respective shares in the partition, they might decide to continue holding said shares under the common management of the administrator or executor or of anyone chosen by them and engage in business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code. It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants therein to be unregistered co-partners for tax purposes, that their common fund "was not something they found already in existence" and that "it was not a property inherited by them pro indiviso," but it is certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in all instances where an inheritance is not actually divided, there can be no unregistered co-partnership. As already indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. The reason for this is simple. From the moment of such partition, the heirs are entitled already to their respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively his own without the intervention of the other heirs, and, accordingly he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed. This is exactly what happened to petitioners in this case. In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived," and, for that matter, on any other provision of said code on partnerships is unavailing. In Evangelista, supra, this Court clearly differentiated the concept of partnerships under the Civil Code from that of unregistered partnerships which are considered as "corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point thus: To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships," which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in confirmity with the usual requirements of

the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporation. Again, pursuant to said section 84(b),the term "corporation" includes, among others, "joint accounts,(cuentas en participacion)" and "associations", none of which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered general co-partnerships" which are possessed of the aforementioned personality have been expressly excluded by law (sections 24 and 84[b]) from the connotation of the term "corporation." .... xxx xxx xxx Similarly, the American Law ... provides its own concept of a partnership. Under the term "partnership" it includes not only a partnership as known in common law but, as well, a syndicate, group, pool, joint venture, or other unincorporated organization which carries on any business, financial operation, or venture, and which is not, within the meaning of the Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Income Taxation, p. 789; emphasis ours.) The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on. ... . (8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.) For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships with the exception only of duly registered general copartnerships within the purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to the income tax for corporations. We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R. Nos. L24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership pursued by appellants therein. As regards the second question raised by petitioners about the segregation, for the purposes of the corporate taxes in question, of their inherited properties from those acquired by them subsequently, We consider as justified the following ratiocination of the Tax Court in denying their motion for reconsideration: In connection with the second ground, it is alleged that, if there was an unregistered partnership, the holding should be limited to the business engaged in apart from the properties inherited by petitioners. In other words, the taxable income of the partnership should be limited to the income derived from the acquisition and sale of real properties and corporate securities and should not include the income derived from the inherited properties. It is admitted that the inherited properties and the income derived therefrom were used in the business of buying and selling other real properties and corporate securities. Accordingly, the partnership income must include not only the income derived from the purchase and sale of other properties but also the income of the inherited properties. Besides, as already observed earlier, the income derived from inherited properties may be considered as individual income of the respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but the moment their respective known shares are used as part of the common assets of the heirs to be used in making profits, it is but proper that the income of such shares should be considered as the part of the taxable income of an unregistered partnership. This, We hold, is the clear intent of the law.

Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the aforementioned resolution denying petitioners' motion for reconsideration of the decision of said court. Pertinently, the court ruled this wise: In support of the third ground, counsel for petitioners alleges: Even if we were to yield to the decision of this Honorable Court that the herein petitioners have formed an unregistered partnership and, therefore, have to be taxed as such, it might be recalled that the petitioners in their individual income tax returns reported their shares of the profits of the unregistered partnership. We think it only fair and equitable that the various amounts paid by the individual petitioners as income tax on their respective shares of the unregistered partnership should be deducted from the deficiency income tax found by this Honorable Court against the unregistered partnership. (page 7, Memorandum for the Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.) In other words, it is the position of petitioners that the taxable income of the partnership must be reduced by the amounts of income tax paid by each petitioner on his share of partnership profits. This is not correct; rather, it should be the other way around. The partnership profits distributable to the partners (petitioners herein) should be reduced by the amounts of income tax assessed against the partnership. Consequently, each of the petitioners in his individual capacity overpaid his income tax for the years in question, but the income tax due from the partnership has been correctly assessed. Since the individual income tax liabilities of petitioners are not in issue in this proceeding, it is not proper for the Court to pass upon the same. Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as individual income tax cannot be credited as part payment of the taxes herein in question. It is argued that to sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the same income, and, worse, considering the time that has lapsed since they paid their individual income taxes, they may already be barred by prescription from recovering their overpayments in a separate action. We do not agree. As We see it, the case of petitioners as regards the point under discussion is simply that of a taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate taxes in question was not deliberate. Of course, such taxpayer has the right to be reimbursed what he has erroneously paid, but the law is very clear that the claim and action for such reimbursement are subject to the bar of prescription. And since the period for the recovery of the excess income taxes in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard prescription merely upon the ground that the reason for the delay is precisely because the taxpayers failed to make the proper return and payment of the corporate taxes legally due from them. In principle, it is but proper not to allow any relaxation of the tax laws in favor of persons who are not exactly above suspicion in their conduct vis-a-vis their tax obligation to the State. IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm with costs against petitioners. -------------------------------------------------------------------------------------------------------------------------------------------------IRMA IDOS vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES G.R. No. 110782 September 25, 1998 FACTS: 1 Before this Court is the petition for review of the Decision of respondent Court of Appeals dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her conviction as well as the sentence imposed on her by the 2 Regional Trial Court of Malolos, Bulacan, in Criminal Case No. 1395-M-88 as follows: WHEREFORE . . . the (c)ourt finds the accused Irma Idos guilty beyond reasonable doubt and is hereby sentenced to suffer the penalty of imprisonment of six (6) months and to pay a fine of P135,000.00 and to pay private complainant Eddie Alarilla the amount of the check in question of P135,000.00 at 12% interest from the time of the filing of the (i)nformation (August 10, 1988) until said amount has been fully paid.

Elevated from the Third Division of this Court, the case was accepted for resolution en banc on the initial impression 4 that here, a constitutional question might be involved. It was opined that petitioner's sentence, particularly six months' imprisonment, might be in violation of the constitutional guarantee against imprisonment for non-payment of 5 a debt. A careful consideration of the issues presented in the petition as well as the comments thereon and the findings of fact by the courts below in the light of applicable laws and precedents convinces us, however, that the constitutional dimension need not be reached in order to resolve those issues adequately. For, as herein discussed, the merits of the petition could be determined without delving into aspects of the cited constitutional guarantee vis-a-vis provisions of the Bouncing Checks Law (Batas Pambansa Blg. 22). There being no necessity therefor, we lay aside discussions of the constitutional challenge to said law in deciding this petition. The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the complainant below, Eddie Alarilla. As narrated by the Court of Appeals, the background of this case is as follows: The complainant Eddie Alarilla supplied chemicals and rawhide to the accused-appellant Irma L. Idos for use in the latter's business of manufacturing leather. In 1985, he joined the accusedappellant's business and formed with her a partnership under the style "Tagumpay Manufacturing," with offices in Bulacan and Cebu City. However, the partnership was short lived. In January, 1986 the parties agreed to terminate their partnership. Upon liquidation of the business the partnership had as of May 1986 receivables and stocks worth P1,800,000.00. The complainant's share of the assets was P900,000.00 to pay for which the accused-appellant issued the following postdated checks, all drawn against Metrobank Branch in Mandaue, Cebu: CHECK NO. DATE AMOUNT 1) 103110295 8-15-86 P135,828.87 2) 103110294 P135,828.87 3) 103115490 9-30-86 P135,828.87 4) 103115491 10-30-86 P126,656.01 The complainant was able to encash the first, second, and fourth checks, but the third check (Exh. A) which is the subject of this case, was dishonored on October 14, 1986 for insufficiency of funds. The complainant demanded payment from the accused-appellant but the latter failed to pay. Accordingly, on December 18, 1986, through counsel, he made a formal demand for payment. (Exh. B) In a letter dated January 2, 1987, the accused-appellant denied liability. She claimed that the check had been given upon demand of complainant in May 1986 only as "assurance" of his share in the assets of the partnership and that it was not supposed to be deposited until the stocks had been sold. Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan which on August 22, 1988 filed an information for violation of BP Blg. 22 against accused-appellant. Complainant danied that the checks issued to him by accused-appellant were subject to the disposition of the stocks and the collection of receivables of the business. But the accusedappellant insisted that the complainant had known that the checks were to be funded from the proceeds of the sale of the stocks and the collection of receivables. She claimed that the complainant himself asked for the checks because he did not want to continue in the tannery business and had no use for a share of the stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20, Feb. 14, 1990; id, p. 14, June 4, 1990).

On February 15, 1992, the trial court rendered judgment finding the accused-appellant guilty of the crime charged. The accused-appellant's motion for annulment of the decision and for 6 reconsideration was denied by the trial court in its order dated April 12, 1991. Herein respondent court thereafter affirmed on appeal the decision of the trial court. Petitioner timely moved for a 7 reconsideration, but this was subsequently denied by respondent court in its Resolution dated June 11, 1993. Petitioner has now appealed to us by way of a petition for certiorari under Rule 45 of the Rules of Court. During the pendency of this petition, this Court by a resolutions dated August 30, 1993, took note of the compromise agreement executed between the parties, regarding the civil aspect of the case, as manifested by petitioner in a 9 Motion to Render Judgment based on Compromise Agreement filed on August 5, 1993. After submission of the 10 11 Comment by the Solicitor General, and the Reply by petitioner, this case was deemed submitted for decision. Contending that the Court of Appeals erred in its affirmance of the trial court's decision, petitioner cites the following reasons to justify the review of her case: 1. The Honorable Court of Appeals has decided against the innocence of the accused based on mere probabilities which, on the contrary, should have warranted her acquittal on reasonable doubt. Even then, the conclusion of the trial court is contrary to the evidence on record, including private complainant's judicial admission that there was no consideration for the check. 2 The Honorable Court of Appeals has confused and merged into one the legal concepts of dissolution, liquidation and termination of a partnership and on the basis of such misconception of the law, disregarded the fact of absence of consideration of the check and convicted the accused. 3 While this appeal was pending, the parties submitted for the approval of the Honorable Court a compromise agreement on the civil liability. The accused humbly submits that this supervening event, which by its terms puts to rest any doubt the Court of Appeals had entertained against the defense of lack of consideration, should have a legal effect favorable to the accused, considering that the dishonored check constitutes a private transaction between partners which does not involve the public interest, and considering further that the offense is not one involving moral turpitude. 4 The Honorable Court of Appeals failed to appreciate the fact that the accused had warned private complainant that the check was not sufficiently funded, which should have exonerated the accused pursuant to the ruling in the recent case of Magno vs. Court of Appeals, 210 SCRA 471, which calls for a more flexible and 12 less rigid application of the Bouncing Checks law. For a thorough consideration of the merits of petitioner's appeal, we find pertinent and decisive the following issues: 1. Whether respondent court erred in holding that the subject check was issued by petitioner to apply on account or for value, that is, as part of the consideration of a "buy-out" of said complainant's interest in the partnership, and not merely as a commitment on petitioner's part to return the investment share of complainant, along with any profit pertaining to said share, in the partnership. 2. Whether the respondent court erred in concluding that petitioner issued the subject check knowing at the time of issue that she did not have sufficient funds in or credit with the drawee bank and without communicating this fact of insufficiency of funds to the complainant. Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming the trial court's judgment that she violated Batas Pambansa Blg. 22? Considering that penal statutes are strictly construed against the state and liberally in favor of the accused, it bears stressing that for an act to be punishable under the B.P. 22, it "must come clearly within both the spirit and the letter
8

of the statue. Otherwise, the act has to be declared outside the law's ambit and a plea of innocence by the accused must be sustained. The relevant provisions of B.P. 22 state that: Sec. 1. Checks without sufficient funds. Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two hundred thousand pesos, or both such fine and imprisonment at the discretion of the court. The same penalty shall be imposed upon any person who having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit or to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank. Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof the amount due thereon or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. (Emphasis supplied) As decided by this Court, the elements of the offense penalized under B.P. 22, are as follows: "(1) the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop 14 payment. In the present case, with regard to the first issue, evidence on record would show that the subject check was to be funded from receivables to be collected and goods to be sold by the partnership, and only when such collection and 15 sale were realized. Thus, there is sufficient basis for the assertion that the petitioner issued the subject check (Metrobank Check No. 103115490 dated October 30, 1986, in the amount of P135,828.87) to evidence only complainant's share or interest in the partnership, or at best, to show her commitment that when receivables are collected and goods are sold, she would give to private complainant the net amount due him representing his interest in the partnership. It did not involve a debt of or any account due and payable by the petitioner. Two facts stand out. Firstly, three of four checks were properly encashed by complainant; only one (the third) was not. But eventually even this one was redeemed by petitioner. Secondly, even private complainant admitted that there was no consideration whatsoever for the issuance of the check, whose funding was dependent on future sales of goods and receipts of payment of account receivables. Now, it could not be denied that though the parties petitioner and complainant had agreed to dissolve the partnership, such ageement did not automatically put an end to the partnership, since they still had to sell the goods on hand and collect the receivables from debtors. In short, they were still in the process of "winding up" the affairs of the partnership, when the check in question was issued. Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up; and (3) termination. These stages are distinguished, to wit:

13

(1) Dissolution Defined Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business (Art. 1828). It is that point of time the time the partners cease to carry on the business tonether. (Citation omitted). (2) Winding Up Defined Winding up is the process of settling business affairs of dissolution. (NOTE: Examples of winding up: the paying of previous obligations; the collecting of assets previously demandable; even new business if needed to wind up, as the contracting with a demolition company for the demolition of the garage used in a "used car" partnership.) (3) Termination Defined Termination is the point in time after all the partnership affairs have been wound up. supplied).
16

[Citation omitted] (Emphasis

These final stages in the life of a partnership are recognized under the Civil Code that explicitly declares that upon dissolution, the partnership is not terminated, to wit: Art 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. (Emphasis supplied.) The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial court. Since the partnership has not been terminated, the petitioner and private complainant remained as co-partners. The check was thus issued by the petitioner to complainant, as would a partner to another, and not as payment from a debtor to a creditor. The more tenable view, one in favor of the accused, is that the check was issued merely to evidence the complainant's share in the partnership property, or to assure the latter that he would receive in time his due share therein. The alternative view that the check was in consideration of a "buy out" is but a theory, favorable to the complainant, but lacking support in the record; and must necessarily be discarded. For there is nothing on record which even slightly suggest that petitioner ever became interested in acquiring, much less keeping, the shares of the complainant. What is very clear therefrom is that the petitioner exerted her best efforts to sell the remaining goods and to collect the receivables of the partnership, in order to come up with the amount necessary to satisfy the value of complainant's interest in the partnership at the dissolution thereof. To go by accepted custom of the trade, we are more inclined to the view that the subject check was issued merely to evidence complainant's interest in the partnership. Thus, we are persuaded that the check was not intended to apply on account or for value; rather it should be deemed as having been drawn without consideration at the time of issue. Absent the first element of the offense penalized under B.P. 22, which is "the making, drawing and issuance of any check to apply on account or for value", petitioner's issuance of the subject check was not an act contemplated in nor made punishable by said statute.

As to the second issue, the Solicitor General contends that under the Bouncing Checks Law, the elements of deceit and damage are not essential or required to constitute a violation thereof. In his view, the only essential element is the knowledge on the part of the maker or drawer of the check of the insufficiency of his/her funds at the time of the issuance of said check. The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a special offense punishable by law. "Malice or intent in issuing the worthless check is immaterial, the offense being malum 17 prohibitum," so goes the argument for the public respondents. But of course this could not be an absolute proposition without descending to absurdity. For if a check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd to hold the drawer liable under B.P. 22, if the check is dishonored and unpaid. That would go against public policy and common sense. Public respondents further contend that "since petitioner issued the check in favor of complainant. Alarilla and when notified that it was returned for insufficiency of funds, failed to make good the check, then petitioner is liable for 18 violation of B.P. 22. Again, this matter could not be all that simple. For while "the maker's knowledge of the 19 insufficiency of funds is legally presumed from the dishonor of his checks for insufficiency of funds, this presumption is rebuttable. In the instant case, there is only a prima facie presumption which did not preclude the presentation of contrary 20 evidence. In fact, such contrary evidence on two points could be gleaned from the record concerning (1) lack of actual knowledge of insufficiency of funds; and (2) lack of adequate notice of dishonor. Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee bank for the payment of a 21 check upon its presentment is an essential element of the offense. It must be proved, particularly where the prima facie presumption of the existence of this element has been rebutted. The prima facie presumption arising from the fact of drawing, issuing or making a check, the payment of which was subsequently refused for insufficiency of funds is, moreover, not sufficient proof of guilt by the issuer. In the case of Nieva v. Court of Appeals, it was held that the subsequent dishonor of the subject check issued by accused merely engendered the prima facie presumption that she knew of the insufficiency of funds, but did not 23 render the accused automatically guilty under B.P. 22. The prosecution has a duty to prove all the elements of the crime, including the acts that give rise to the prima facie presumption; petitioner, on the other hand, has a right to rebut the prima facie presumption. Therefore, if such knowledge of insufficiency of funds is proven to be actually absent or non-existent, the accused should not be held liable for the offense defined under the first paragraph of Section 1 of B.P. 22. Although the offense charged is a malum prohibitum, the prosecution is not thereby excused from its responsibility of proving beyond reasonable doubt all the elements of the offense, one of which is knowledge of the insufficiency of funds. Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the check, be shown that he knows at the time of issue, that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment. In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the proportionate share of complainant in the partnership assets upon its dissolution. Payment of that share in the partnership was conditioned on the subsequent realization of profits from the unsold goods and collection of the receivables of the firm. This condition must be satisfied or complied with before the complainant can actually "encash" the check. The reason for the condition is that petitioner has no independent means to satisfy or discharge the complainant's share, other than by the future sale and collection of the partnership assets. Thus, prior to the selling of the goods and collecting of the receivables, the complainant could not, as of yet, demand his proportionate share in the business. This situation would hold true until after the winding up, and subsequent termination of the partnership. For only then, when the goods were already sold and receivables paid that cash money could be availed of by the erstwhile partners. Complainant did not present any evidence that petitioner signed and issued four checks actually knowing that funds therefor would be insufficient at the time complainant would present them to the drawee bank. For it was uncertain at the time of issuance of the checks whether the unsold goods would have been sold, or whether the receivables would
22

have been collected by the time the checks would be encashed. As it turned out, three were fully funded when presented to the bank; the remaining one was settled only later on. Since petitioner issued these four checks without actual knowledge of the insufficiency of funds, she could not be held liable under B.P. 22 when one was not honored right away. For it is basic doctrine that penal statutes such as 24 B.P. 22 "must be construed with such strictness as to carefully safeguard the rights of the defendant . . ." The element of knowledge of insufficiency of funds has to be proved by the prosecution; absent said proof, petitioner could not be held criminally liable under that law. Moreover, the presumption of prima facie knowledge of such insufficiency in this case was actually rebutted by petitioner's evidence. Further, we find that the prosecution also failed to prove adequate notice of dishonor of the subject check on petitioner's part, thus precluding any finding of prima facie evidence of knowledge of insufficiency of funds. There is no proof that notice of dishonor was actually sent by the complainant or by the drawee bank to the petitioner. On this point, the record is bereft of evidence to the contrary. But in fact, while the subject check initially bounced, it was later made good by petitioner. In addition, the terms of the parties' compromise agreement, entered into during the pendency of this case, effectively invalidates the allegation of failure to pay or to make arrangement for the payment of the check in full. Verily, said compromise agreement constitutes an arrangement for the payment in full of the subject check. The absence of notice of dishonor is crucial in the present case. As held by this Court in prior cases: Because no notice of dishonor was actually sent to and received by the petitioner, the prima facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of drawing, making and issuing a bum check; there must also be a showing that, within five banking days from receipt of the notice of dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or 25 to make arrangement for its payment in full by the drawee of such check. [Emphasis supplied.] The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to demand and the basic postulates of fairness require that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert prosecution under 26 B.P. Further, what militates strongly against public respondents' stand is the fact that petitioner repeatedly notified the complainant of the insufficiency of funds. Instructive is the following pronouncement of this Court in Magno v. Court of Appeals: Furthermore, the element of "knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason . . ." is inversely applied in this case. From the very beginning. petitioner never hid the fact that he did not have the funds with which to put up the warranty deposit and as a matter of fact, he openly intimated this to the vital conduit of the transaction, Joey Gomez, to whom petitioner was introduced by Mrs. Teng. It would have been different if this predicament was not communicated to all the parties he dealt with regarding the 27 lease agreement the financing or which was covered by L.S. Finance Management. " In the instant case, petitioner intimated to private complainant the possibility that funds might be insufficient to cover the subject check, due to the fact that the partnership's goods were yet to be sold and receivables yet to be collected. As Magno had well observed: For all intents and purposes, the law was devised to safeguard the interest of the banking system and the legitimate public checking account user. It did not intend to shelter or favor nor encourage users of the system to enrich themselves through manipulations and circumvention of the noble

purpose and objective of the law. Least should it be used also as a means of jeopardizing honestto-goodness transactions with some color of "get-rich" scheme to the prejudice of well-meaning businessmen who are the pillars of society. xxx xxx xxx Thus, it behooves upon a court of law that in applying the punishment imposed upon the accused, the objective of retribution of a wronged society, should be directed against the "actual and potential wrongdoers". In the instant case, there is no doubt that petitioner's four (4) checks were used to collateralize an accommodation, and not to cover the receipt of an actual "account or credit for value" as this was absent, and therefore petitioner should not be punished for mere issuance of the checks in question. Following the aforecited theory, in petitioner's stead the "potential wrongdoer," whose operation could be a menace to society, should not be glorified by convicting 28 the petitioner. Under the circumstances obtaining in this case, we find the petitioner to have issued the check in good faith, with every intention of abiding by her commitment to return, as soon as able, the investments of complainant in the partnership. Evidently, petitioner issued the check with benign considerations in mind, and not for the purpose of committing fraud, deceit, or violating public policy. To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable for violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn and issued by petitioner in exchange for value received as to qualify it as a check on account or for value; (2) there is no sufficient basis to conclude that petitioner, at the time of issue of the check, had actual knowledge of the insufficiency of funds; and (3) there was no notice of dishonor of said check actually served on petitioner, thereby depriving her of the opportunity to pay or make arrangements for the payment of the check, to avoid criminal prosecution. Having resolved the foregoing principal issues, and finding the petition meritorious, we no longer need to pass upon the validity and legality or necessity of the purported compromise agreement on civil liability between the petitioner and the complainant. WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED. The Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby REVERSED and the Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is hereby SET ASIDE. NO COSTS. SO ORDERED. -------------------------------------------------------------------------------------------------------------------------------------------------G.R. No. 142293 February 27, 2003 (2D)
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VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING CORPORATION, and SBT TRUCKING CORPORATION, petitioners, vs. HON. COURT OF APPEALS and JAIME SAHOT, respondents. DECISION QUISUMBING, J.: This petition for review seeks the reversal of the decision of the Court of Appeals dated February 29, 2000, in CA3 G.R. SP No. 52671, affirming with modification the decision of the National Labor Relations Commission promulgated on June 20, 1996 in NLRC NCR CA No. 010526-96. Petitioners also pray for the reinstatement of the 4 decision of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-94. Culled from the records are the following facts of this case: Sometime in 1958, private respondent Jaime Sahot started working as a truck helper for petitioners family-owned trucking business named Vicente Sy Trucking. In 1965, he became a truck driver of the same family business, renamed T. Paulino Trucking Service, later 6Bs Trucking Corporation in 1985, and thereafter known as SBT Trucking
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Corporation since 1994. Throughout all these changes in names and for 36 years, private respondent continuously served the trucking business of petitioners. In April 1994, Sahot was already 59 years old. He had been incurring absences as he was suffering from various ailments. Particularly causing him pain was his left thigh, which greatly affected the performance of his task as a driver. He inquired about his medical and retirement benefits with the Social Security System (SSS) on April 25, 1994, but discovered that his premium payments had not been remitted by his employer. Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically examined and treated for 6 EOR, presleyopia, hypertensive retinopathy G II (Annexes "G-5" and "G-3", pp. 48, 104, respectively), HPM, UTI, 7 8 Osteoarthritis (Annex "G-4", p. 105), and heart enlargement (Annex G, p. 107). On said grounds, Belen Paulino of the SBT Trucking Service management told him to file a formal request for extension of his leave. At the end of his week-long absence, Sahot applied for extension of his leave for the whole month of June, 1994. It was at this time when petitioners allegedly threatened to terminate his employment should he refuse to go back to work. At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work, But he could not retire on pension because petitioners never paid his correct SSS premiums. The fact remained he could no longer work as his left thigh hurt abominably. Petitioners ended his dilemma. They carried out their threat and dismissed him from work, effective June 30, 1994. He ended up sick, jobless and penniless. On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the recovery of separation pay and attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6Bs Trucking and SBT Trucking, herein petitioners. For their part, petitioners admitted they had a trucking business in the 1950s but denied employing helpers and drivers. They contend that private respondent was not illegally dismissed as a driver because he was in fact petitioners industrial partner. They add that it was not until the year 1994, when SBT Trucking Corporation was established, and only then did respondent Sahot become an employee of the company, with a monthly salary that reached P4,160.00 at the time of his separation. Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and was not able to report for work for almost seven days. On June 1, 1994, Sahot asked permission to extend his leave of absence until June 30, 1994. It appeared that from the expiration of his leave, private respondent never reported back to work nor did he file an extension of his leave. Instead, he filed the complaint for illegal dismissal against the trucking company and its owners. Petitioners add that due to Sahots refusal to work after the expiration of his authorized leave of absence, he should be deemed to have voluntarily resigned from his work. They contended that Sahot had all the time to extend his leave or at least inform petitioners of his health condition. Lastly, they cited NLRC Case No. RE-4997-76, entitled "Manuelito Jimenez et al. vs. T. Paulino Trucking Service," as a defense in view of the alleged similarity in the factual milieu and issues of said case to that of Sahots, hence they are in pari material and Sahots complaint ought also to be dismissed. The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that there was no illegal dismissal in Sahots case. Private respondent had failed to report to work. Moreover, said the Labor Arbiter, petitioners and private respondent were industrial partners before January 1994. The Labor Arbiter concluded by ordering petitioners to pay "financial assistance" of P15,000 to Sahot for having served the company as a regular employee since January 1994 only. On appeal, the National Labor Relations Commission modified the judgment of the Labor Arbiter. It declared that private respondent was an employee, not an industrial partner, since the start. Private respondent Sahot did not 9 abandon his job but his employment was terminated on account of his illness, pursuant to Article 284 of the Labor Code. Accordingly, the NLRC ordered petitioners to pay private respondent separation pay in the amount of P60,320.00, at the rate of P2,080.00 per year for 29 years of service. Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision dated February 29, 2000, the appellate court affirmed with modification the judgment of the NLRC. It held that private respondent was indeed

an employee of petitioners since 1958. It also increased the amount of separation pay awarded to private respondent to P74,880, computed at the rate of P2,080 per year for 36 years of service from 1958 to 1994. It decreed: WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB Trucking Corporation is hereby directed to pay complainant Jaime Sahot the sum of SEVENTY-FOUR THOUSAND EIGHT HUNDRED EIGHTY 10 (P74,880.00) PESOS as and for his separation pay. Hence, the instant petition anchored on the following contentions: I RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED] DECISION AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL LABOR RELATIONS COMMISSION DECIDED NOT IN ACCORD 11 WITH LAW AND PUT AT NAUGHT ARTICLE 402 OF THE CIVIL CODE. II RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT THE NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL FINDINGS OF THE LABOR ARBITER AS THE LATTER WAS IN A BETTER POSITION TO OBSERVE THE DEMEANOR AND DEPORTMENT OF THE WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS NATIONAL CAPITAL 12 REGION (305 SCRA 233). III PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING CORPORATION.
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Three issues are to be resolved: (1) Whether or not an employer-employee relationship existed between petitioners and respondent Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or not respondent Sahot is entitled to separation pay. Crucial to the resolution of this case is the determination of the first issue. Before a case for illegal dismissal can 14 prosper, an employer-employee relationship must first be established. Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found that respondent Sahot was not 15 an employee but was in fact, petitioners industrial partner. It is contended that it was the Labor Arbiter who heard the case and had the opportunity to observe the demeanor and deportment of the parties. The same conclusion, aver 16 petitioners, is supported by substantial evidence. Moreover, it is argued that the findings of fact of the Labor Arbiter was wrongly overturned by the NLRC when the latter made the following pronouncement: We agree with complainant that there was error committed by the Labor Arbiter when he concluded that complainant was an industrial partner prior to 1994. A computation of the age of complainant shows that he was only twenty-three (23) years when he started working with respondent as truck helper. How can we entertain in our mind that a twentythree (23) year old man, working as a truck helper, be considered an industrial partner. Hence we rule that complainant was only an employee, not a partner of respondents from the time complainant started working for 17 respondent. Because the Court of Appeals also found that an employer-employee relationship existed, petitioners aver that the appellate courts decision gives an "imprimatur" to the "illegal" finding and conclusion of the NLRC. Private respondent, for his part, denies that he was ever an industrial partner of petitioners. There was no written agreement, no proof that he received a share in petitioners profits, nor was there anything to show he had any 18 participation with respect to the running of the business. The elements to determine the existence of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the

employees conduct. The most important element is the employers control of the employees conduct, not only as to 19 the result of the work to be done, but also as to the means and methods to accomplish it. As found by the appellate court, petitioners owned and operated a trucking business since the 1950s and by their 20 own allegations, they determined private respondents wages and rest day. Records of the case show that private respondent actually engaged in work as an employee. During the entire course of his employment he did not have the freedom to determine where he would go, what he would do, and how he would do it. He merely followed instructions of petitioners and was content to do so, as long as he was paid his wages. Indeed, said the CA, private respondent had worked as a truck helper and driver of petitioners not for his own pleasure but under the latters control. Article 1767 of the Civil Code states that in a 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 22 themselves. Not one of these circumstances is present in this case. No written agreement exists to prove the partnership between the parties. Private respondent did not contribute money, property or industry for the purpose of engaging in the supposed business. There is no proof that he was receiving a share in the profits as a matter of course, during the period when the trucking business was under operation. Neither is there any proof that he had actively participated in the management, administration and adoption of policies of the business. Thus, the NLRC and the CA did not err in reversing the finding of the Labor Arbiter that private respondent was an industrial partner from 1958 to 1994. On this point, we affirm the findings of the appellate court and the NLRC. Private respondent Jaime Sahot was not an industrial partner but an employee of petitioners from 1958 to 1994. The existence of an employer-employee 23 relationship is ultimately a question of fact and the findings thereon by the NLRC, as affirmed by the Court of Appeals, deserve not only respect but finality when supported by substantial evidence. Substantial evidence is such 24 amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. Time and again this Court has said that "if doubt exists between the evidence presented by the employer and the 25 employee, the scales of justice must be tilted in favor of the latter." Here, we entertain no doubt. Private respondent since the beginning was an employee of, not an industrial partner in, the trucking business. Coming now to the second issue, was private respondent validly dismissed by petitioners? Petitioners contend that it was private respondent who refused to go back to work. The decision of the Labor Arbiter pointed out that during the conciliation proceedings, petitioners requested respondent Sahot to report back for work. However, in the same proceedings, Sahot stated that he was no longer fit to continue working, and instead he demanded separation pay. Petitioners then retorted that if Sahot did not like to work as a driver anymore, then he could be given a job that was less strenuous, such as working as a checker. However, Sahot declined that suggestion. Based on the foregoing recitals, petitioners assert that it is clear that Sahot was not dismissed but it was of his own volition that he did not report for work anymore. In his decision, the Labor Arbiter concluded that: While it may be true that respondents insisted that complainant continue working with respondents despite his alleged illness, there is no direct evidence that will prove that complainants illness prevents or incapacitates him from performing the function of a driver. The fact remains that complainant suddenly stopped working due to boredom or 26 otherwise when he refused to work as a checker which certainly is a much less strenuous job than a driver. But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the Court of Appeals, held that: While it was very obvious that complainant did not have any intention to report back to work due to his illness which incapacitated him to perform his job, such intention cannot be construed to be an abandonment. Instead, the same should have been considered as one of those falling under the just causes of terminating an employment. The insistence of respondent in making complainant work did not change the scenario. It is worthy to note that respondent is engaged in the trucking business where physical strength is of utmost requirement (sic). Complainant started working with respondent as truck helper at age twenty-three (23), then as
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truck driver since 1965. Complainant was already fifty-nine (59) when the complaint was filed and suffering from various illness triggered by his work and age. xxx
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In termination cases, the burden is upon the employer to show by substantial evidence that the termination was for 28 lawful cause and validly made. Article 277(b) of the Labor Code puts the burden of proving that the dismissal of an employee was for a valid or authorized cause on the employer, without distinction whether the employer admits or 29 does not admit the dismissal. For an employees dismissal to be valid, (a) the dismissal must be for a valid cause 30 and (b) the employee must be afforded due process. Article 284 of the Labor Code authorizes an employer to terminate an employee on the ground of disease, viz: Art. 284. Disease as a ground for termination- An employer may terminate the services of an employee who has been found to be suffering from any disease and whose continued employment is prohibited by law or prejudicial to his health as well as the health of his co-employees: xxx However, in order to validly terminate employment on this ground, Book VI, Rule I, Section 8 of the Omnibus Implementing Rules of the Labor Code requires: Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and his continued employment is prohibited by law or prejudicial to his health or to the health of his co-employees, the employer shall not terminate his employment unless there is a certification by competent public health authority that the disease is of such nature or at such a stage that it cannot be cured within a period of six (6) months even with proper medical treatment. If the disease or ailment can be cured within the period, the employer shall not terminate the employee but shall ask the employee to take a leave. The employer shall reinstate such employee to his former position immediately upon the restoration of his normal health. (Italics supplied). As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC, the requirement for a medical certificate under Article 284 of the Labor Code cannot be dispensed with; otherwise, it would sanction the unilateral and arbitrary determination by the employer of the gravity or extent of the employees illness and thus defeat the public policy in the protection of labor. In the case at bar, the employer clearly did not comply with the medical certificate requirement before Sahots dismissal was effected. In the same case of Sevillana vs. I.T. (International) Corp., we ruled: Since the burden of proving the validity of the dismissal of the employee rests on the employer, the latter should likewise bear the burden of showing that the requisites for a valid dismissal due to a disease have been complied with. In the absence of the required certification by a competent public health authority, this Court has ruled against the validity of the employees dismissal. It is therefore incumbent upon the private respondents to prove by the quantum of evidence required by law that petitioner was not dismissed, or if dismissed, that the dismissal was not illegal; otherwise, the dismissal would be unjustified. This Court will not sanction a dismissal premised on mere conjectures and suspicions, the evidence must be substantial and not arbitrary and must be founded on clearly 32 established facts sufficient to warrant his separation from work. In addition, we must likewise determine if the procedural aspect of due process had been complied with by the employer. From the records, it clearly appears that procedural due process was not observed in the separation of private respondent by the management of the trucking company. The employer is required to furnish an employee with two written notices before the latter is dismissed: (1) the notice to apprise the employee of the particular acts or omissions for which his dismissal is sought, which is the equivalent of a charge; and (2) the notice informing the employee of his dismissal, to be issued after the employee has been given reasonable opportunity to answer and to be heard on his 33 defense. These, the petitioners failed to do, even only for record purposes. What management did was to threaten the employee with dismissal, then actually implement the threat when the occasion presented itself because of private respondents painful left thigh.
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All told, both the substantive and procedural aspects of due process were violated. Clearly, therefore, Sahots dismissal is tainted with invalidity. On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled to separation pay. The law is clear on the matter. An employee who is terminated because of disease is entitled to "separation pay equivalent to at 34 least one month salary or to one-half month salary for every year of service, whichever is greater xxx." Following the formula set in Art. 284 of the Labor Code, his separation pay was computed by the appellate court at P2,080 times 36 years (1958 to 1994) or P74,880. We agree with the computation, after noting that his last monthly salary was P4,160.00 so that one-half thereof is P2,080.00. Finding no reversible error nor grave abuse of discretion on the part of appellate court, we are constrained to sustain its decision. To avoid further delay in the payment due the separated worker, whose claim was filed way back in 1994, this decision is immediately executory. Otherwise, six percent (6%) interest per annum should be charged thereon, for any delay, pursuant to provisions of the Civil Code. WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated February 29, 2000 is AFFIRMED. Petitioners must pay private respondent Jaime Sahot his separation pay for 36 years of service at the rate of one-half monthly pay for every year of service, amounting to P74,880.00, with interest of six per centum (6%) per annum from finality of this decision until fully paid. Costs against petitioners. SO ORDERED. -------------------------------------------------------------------------------------------------------------------------------------------------G.R. No. 172690 March 3, 2010 (3D)

HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners, vs. JULIET VILLA LIM, Respondent. NACHURA, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure, assailing the 2 3 Court of Appeals (CA) Decision dated June 29, 2005, which reversed and set aside the decision of the Regional Trial Court (RTC) of Lucena City, dated April 12, 2004. The facts of the case are as follows: Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito Lim 4 (Elenito). They filed a Complaint for Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia. Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to engage in the trucking business. Initially, with a contribution of P50,000.00 each, they purchased a truck to be used in the hauling and transport of lumber of the sawmill. Jose managed the operations of this trucking business until his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and partners agreed to continue the business under the management of Elfledo. The shares in the partnership profits and income that formed part of the estate of Jose were held in trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire properties using said funds. Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving as his fathers driver in the trucking business. He was never a partner or an investor in the business and merely supervised the purchase of additional trucks using the income from the trucking business of the partners. By the time the partnership ceased, it had nine trucks, which were all registered in Elfledo's name. Petitioners asseverated that it was also through Elfledos management of the partnership that he was able to purchase numerous real properties by using the profits derived therefrom, all of which were registered in his name and that of respondent. In addition to the nine trucks, Elfledo also acquired five other motor vehicles. On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that respondent took over the administration of the aforementioned properties, which belonged to the estate of Jose, without their consent and approval. Claiming that they are co-owners of the properties, petitioners required respondent to submit
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an accounting of all income, profits and rentals received from the estate of Elfledo, and to surrender the administration thereof. Respondent refused; thus, the filing of this case. Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto and Jimmy. Respondent also claimed that per testimony of Cresencia, sometime in 1980, Jose gave Elfledo P50,000.00 as the latter's capital in an informal partnership with Jimmy and Norberto. When Elfledo and respondent got married in 1981, the partnership only had one truck; but through the efforts of Elfledo, the business flourished. Other than this trucking business, Elfledo, together with respondent, engaged in other business ventures. Thus, they were able to buy real properties and to put up their own car assembly and repair business. When Norberto was ambushed and killed on July 16, 1993, the trucking business started to falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent talked to Jimmy and to the heirs of Norberto, as she could no longer run the business. Jimmy suggested that three out of the nine trucks be given to him as his share, while the other three trucks be given to the heirs of Norberto. However, Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the same to respondent, who paid for them in installments. Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left no properties that Elfledo could have held in trust. Respondent maintained that all the properties involved in this case were purchased and acquired through her and her husbands joint efforts and hard work, and without any participation or contribution from petitioners or from Jose. Respondent submitted that these are conjugal partnership properties; and thus, she had the right to refuse to render an accounting for the income or profits of their own business. Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of petitioners, thus: WHEREFORE, premises considered, judgment is hereby rendered: 1) Ordering the partition of the above-mentioned properties equally between the plaintiffs and heirs of Jose Lim and the defendant Juliet Villa-Lim; and 2) Ordering the defendant to submit an accounting of all incomes, profits and rentals received by her from said properties. SO ORDERED. Aggrieved, respondent appealed to the CA. On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners' complaint for lack of 5 6 merit. Undaunted, petitioners filed their Motion for Reconsideration, which the CA, however, denied in its Resolution dated May 8, 2006. Hence, this Petition, raising the sole question, viz.: IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A FORMER 7 PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE PARTNERSHIP? In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving partner, Elfledo was not a partner; and that he and Norberto entered into a partnership with Jose. Thus, the CA erred in not giving that testimony greater weight than that of Cresencia, who was merely the spouse of Jose and not a party to the 8 partnership. Respondent counters that the issue raised by petitioners is not proper in a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the review, evaluation, calibration, and re-weighing of the factual findings of the CA. Moreover, respondent invokes the rationale of the CA decision that, in light of the admissions of Cresencia and Edison and the testimony of respondent, the testimony of Jimmy was effectively refuted; accordingly, 9 the CA's reversal of the RTC's findings was fully justified.

We resolve first the procedural matter regarding the propriety of the instant Petition. Verily, the evaluation and calibration of the evidence necessarily involves consideration of factual issues an exercise that is not appropriate for a petition for review on certiorari under Rule 45. This rule provides that the parties may raise only questions of law, because the Supreme Court is not a trier of facts. Generally, we are not duty-bound 10 to analyze again and weigh the evidence introduced in and considered by the tribunals below. When supported by substantial evidence, the findings of fact of the CA are conclusive and binding on the parties and are not reviewable by this Court, unless the case falls under any of the following recognized exceptions: (1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) When the inference made is manifestly mistaken, absurd or impossible; (3) Where there is a grave abuse of discretion; (4) When the judgment is based on a misapprehension of facts; (5) When the findings of fact are conflicting; (6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) When the findings are contrary to those of the trial court; (8) When the findings of fact are conclusions without citation of specific evidence on which they are based; (9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the respondents; and (10) When the findings of fact of the Court of Appeals are premised on the supposed absence of evidence 11 and contradicted by the evidence on record. We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus, our review of such findings is warranted. On the merits of the case, we find that the instant Petition is bereft of merit. A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses among them. A contract of partnership is defined by the Civil Code as one where two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits 12 among themselves. Undoubtedly, the best evidence would have been the contract of partnership or the articles of partnership. Unfortunately, there is none in this case, because the alleged partnership was never formally organized. Nonetheless, we are asked to determine who between Jose and Elfledo was the "partner" in the trucking business. A careful review of the records persuades us to affirm the CA decision. The evidence presented by petitioners falls short of the quantum of proof required to establish that: (1) Jose was the partner and not Elfledo; and (2) all the properties acquired by Elfledo and respondent form part of the estate of Jose, having been derived from the alleged partnership. Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against respondent. It must be considered and weighed along with petitioners' other evidence vis--vis respondent's contrary evidence. In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. "Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually

considered synonymous with the term "greater weight of the evidence" or "greater weight of the credible evidence." "Preponderance of evidence" is a phrase that, in the last analysis, means probability of the truth. It is evidence that is 13 more convincing to the court as worthy of belief than that which is offered in opposition thereto. Rule 133, Section 1 of the Rules of Court provides the guidelines in determining preponderance of evidence, thus: SECTION I. Preponderance of evidence, how determined. In civil cases, the party having burden of proof must establish his case by a preponderance of evidence. In determining where the preponderance or superior weight of evidence on the issues involved lies, the court may consider all the facts and circumstances of the case, the witnesses' manner of testifying, their intelligence, their means and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they testify, the probability or improbability of their testimony, their interest or want of interest, and also their personal credibility so far as the same may legitimately appear upon the trial. The court may also consider the number of witnesses, though the preponderance is not necessarily with the greater number. At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals 1769 of the Civil Code, which provides:
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is enlightening. Therein, we cited Article

Art. 1769. In determining whether a partnership exists, these rules shall apply: (1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons; (2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or copossessors do or do not share any profits made by the use of the property; (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; (4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installments or otherwise; (b) As wages of an employee or rent to a landlord; (c) As an annuity to a widow or representative of a deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the business; (e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. Applying the legal provision to the facts of this case, the following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the 15 partnership, on a date that coincided with the payment of the initial capital in the partnership; (2) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any intervention or opposition 16 whatsoever from any of petitioners herein; (3) all of the properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries from the 17 partnership, indicating that what he actually received were shares of the profits of the business; and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. As 18 repeatedly stressed in Heirs of Tan Eng Kee, a demand for periodic accounting is evidence of a partnership. Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties acquired and registered in the names of Elfledo and respondent formed part of the estate of Jose, having been derived from Jose's alleged partnership with Jimmy and Norberto. They failed to refute respondent's claim that Elfledo and respondent 19 engaged in other businesses. Edison even admitted that Elfledo also sold Interwood lumber as a sideline.

Petitioners could not offer any credible evidence other than their bare assertions. Thus, we apply the basic rule of 20 evidence that between documentary and oral evidence, the former carries more weight. Finally, we agree with the judicious findings of the CA, to wit: The above testimonies prove that Elfledo was not just a hired help but one of the partners in the trucking business, active and visible in the running of its affairs from day one until this ceased operations upon his demise. The extent of his control, administration and management of the partnership and its business, the fact that its properties were placed in his name, and that he was not paid salary or other compensation by the partners, are indicative of the fact that Elfledo was a partner and a controlling one at that. It is apparent that the other partners only contributed in the initial capital but had no say thereafter on how the business was ran. Evidently it was through Elfredos efforts and hard work that the partnership was able to acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of the partnership by acting as the bookkeeper sans salary.1avvphi1 It is notable too that Jose Lim died when the partnership was barely a year old, and the partnership and its business not only continued but also flourished. If it were true that it was Jose Lim and not Elfledo who was the partner, then upon his death the partnership should have been dissolved and its assets liquidated. On the contrary, these were not done but instead its operation continued under the helm of Elfledo and without any participation from the heirs of Jose Lim. Whatever properties appellant and her husband had acquired, this was through their own concerted efforts and hard work. Elfledo did not limit himself to the business of their partnership but engaged in other lines of businesses as well. In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are amply supported by the law and by the evidence on record. WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against petitioners. SO ORDERED. -------------------------------------------------------------------------------------------------------------------------------------------------G.R. No. 115508 February 15, 2000 (1D)

ALEJANDRO AGASEN and FORTUNATA CALONGE-AGASEN, petitioners, vs. THE HON. COURT OF APPEALS and PETRA BILOG, assisted by her husband FELIPE BILOG, respondents. YNARES-SANTIAGO, J.: On April 7, 1980, private respondent Petra Bilog, assisted by her husband Felipe Bilog, filed a complaint for Recovery 1 of Possession and Ownership with the Regional Trial Court of Agoo, La Union, involving an Eight Thousand Four Hundred Seventy Four (8,474) square meter parcel of land registered in her name under Transfer Certificate of Title No. T-16109 of the Registry of Deeds of La Union. She alleged that sometime in 1964 or 1965, petitioners took possession and assumed ownership of the said property, appropriating the fruits therefrom. She alleged that despite demands on them to vacate the land, petitioners refused to do so and even filed a case for Annulment of TCT and/or Reconveyance with Damages before the same court, which case was, however, dismissed on February 12, 1980. Thus, in her complaint, private respondent prayed that she be declared the true and absolute owner of the subject land and petitioners be ordered to turn over possession thereof to her. Additionally, private respondent prayed for P300,000.00 as attorney's fees, P2,000.00 as expenses of litigation as well as P60,000.00 representing the value of the land's produce from 1965 to the time of the filing of the case and P4,000.00 annually until the case is terminated. In their Answer, petitioners Alejandro Agasen and Fortunata Calonge-Agasen asserted that the subject land used to form part of Lot No. 2192, a forty two thousand three hundred seventy two (42,372) square meter parcel of land owned in common by the five (5) Bilog siblings, private respondent Petra Bilog being one of them. Petitioners claimed that they became the owners of the portion of the subject land which belonged to private respondent as her share therein, by virtue of: (1) the sale in their favor of 1,785 square meters thereof by Leonora Calonge, sister of Fortunata Calonge-Agasen, and (2) the sale in their favor by private respondent of the remaining 6,717.50 square meters on June 24, 1968, by virtue of a notarized Partition with Sale. Petitioners also affirmed that they had been in possession
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of the subject land since the time of the above-mentioned sale transactions, with a house of strong materials built thereon. By way of counterclaim, petitioners charged private respondent with having fraudulently caused title to the subject land to be issued in her name, following the subdivision of the original land between her and her coheirs/owners, in violation of their (petitioners') rights over the subject land. Thus, petitioners prayed for the annulment of title in private respondent's name and for the dismissal of the complaint, as well as for the award of P10,000.00 as exemplary damages, P25,000.00 as moral damages, P5,000.00 as litigation expenses and P7,000.00 as attorney's fees and costs. On November 19, 1984, the Regional Trial Court of Agoo, La Union, Branch 3, rendered judgment in favor of petitioners, dismissing the complaint and declaring Transfer Certificate of Title No. 16109 in the name of private 3 respondent null and void. On appeal, the Court of Appeals reversed the decision of the lower court and private respondent was declared the 4 true and absolute owner of the subject land. Accordingly, petitioners were ordered to turn over the subject land to private respondent. With the denial of petitioners' Motion for Reconsideration on May 20, 1994, the instant Petition was filed, anchored upon the following grounds I. THE DECISION (ANNEX A) ERRED IN DECLARING THE DEED OF PARTITION WITH SALE (EXH. 1) AND THE DEED OF ABSOLUTE SALE (EXH. 2) NOT AUTHENTIC AND VALID; II. THE DECISION ERRED IN HOLDING THAT DEFENDANTS FAILED TO SUBSTANTIATE THEIR CLAIM OF OWNERSHIP AND IN GIVING MORE CREDENCE TO PLAINTIFF'S TESTIMONIAL EVIDENCE AND TAX DECLARATION NO. 21460 (EXH. B) AND CERTIFICATION OF TAX PAYMENTS (EXH. C); III. THE DECISION ERRED IN FINDING/HOLDING THAT THE NON-REGISTRATION OF THE DEED OF PARTITION WITH SALE AND THE DEED OF ABSOLUTE SALE WITH THE REGISTER OF DEEDS MADE THE PURCHASES THEREUNDER "DENTED" AND DID NOT AUTOMATICALLY VEST TITLE OR OWNERSHIP OVER THE SUBJECT PROPERTY TO THE BUYERS; IV. THE DECISION ERRED IN HOLDING THAT THE DAILY NOTEBOOK (EXH. 3) CONTAINING THE MEMORANDUM OF INSTALLMENT SALE BY LEONORA CALONGE TO DEFENDANT-APPELLEE FORTUNATA AGASEN (EXH. 3-a TO 3-c) OVER THE PARCEL OF LAND DESCRIBED IN EXH. 2 WAS NOT A VALID OR CREDIBLE DOCUMENT OF TRANSFER; V. THE DECISION GRAVELY ERRED IN HOLDING THAT TCT NO. 16109 (EXH. A) CANNOT BE COLLATERALLY ATTACKED ON THE GROUND THAT IT IS BARRED BY THE RULE ON INDEFEASIBILITY OF A TORRENS TITLE 6 AFTER THE LAPSE OF ONE YEAR FROM THE DECREE OF REGISTRATION. Although the instant case is a petition for review under Rule 45 which, as a general rule, is limited to reviewing errors of law, findings of fact being conclusive as a matter of general principle, however, considering the conflict between the factual findings of the trial court and the respondent Court of Appeals, there is a need to review the factual issues 7 as an exception to the general rule. As correctly stated by the lower court, the crucial question in the instant controversy is whether or not the two (2) documents, relied upon by petitioners as basis for their claim of ownership, are valid. Overthrowing the lower court's finding of validity, the Court of Appeals ruled that private respondent's testimonial and documentary evidence "junked'' petitioners' documents (Exhibits "1" and "2"). We disagree. To begin with, it is not denied that the two subject documents are notarized documents and, as such, are considered 8 public documents which enjoy the presumption of validity as to authenticity and due execution. One of the documents, the Deed of Absolute Sale, was identified by Assistant Provincial Fiscal Maximo Quero, the administering officer who had notarized it. The legal presumption of validity of petitioners' duly notarized public documents has not been overcome by preponderant evidence by private respondent, upon whom the burden of proof rests, having 9 alleged the contrary.
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The subject documents were also attached by petitioners to their Answer where they were alleged as part of the counterclaim. As such, private respondent should have specifically denied under oath their genuineness and due 10 execution. After all, a counterclaim is considered a complaint, only this time, it is the original defendant who becomes the plaintiff. It stands on the same footing and is to be tested by the same rules as if it were an independent 11 action. Having failed to specifically deny under oath the genuineness and due execution of the said documents, private respondent is deemed to have admitted the same. And while private respondent denied having signed any document selling the subject parcels of land, the trial court found her signature on the subject documents to be genuine, after a comparison thereof with her own documentary evidence on record (Exh. "B"). Indeed, it has been held that where a comparison is permissible, it may be made by 12 the court, with or without the aid of expert witnesses; and evidence respecting handwriting may be given by a comparison made by the court with writings admitted or treated as genuine by the party against whom the evidence is 13 offered. In the case at bar, the lower court compared private respondent's signatures on the subject documents with that appearing on her own evidence (Exh. "B") and found the same identical. The following circumstances all indicate the genuineness and due execution of the subject documents: (1) The subject documents were duly notarized public documents; (2) The documents enjoy the legal presumption of validity; (3) Their genuineness and due execution were not specifically denied under oath by private respondent; (4) Private respondent's signature thereon were found genuine by the lower court upon a comparison of her signature thereon with that in her own documentary evidence; (5) The actual identification and positive testimony of petitioner; and (6) The testimony of the lawyer who had notarized one of the subject documents. Private respondent's bare denial of the same cannot, by any measure, overcome the above-mentioned evidence and legal presumptions in petitioners' favor. As for the sale in petitioners' favor by the original vendee thereof, Leonora Calonge, the Court of Appeals accepted private respondent's charges that there was no valid document of transfer and that the notebook with memorandum of sale and record of installment payments, relied upon by petitioners, was worse than the two subject documents. Again, we disagree. The memorandum of sale appearing in Exhibit "3" is sufficient to prove the sale between petitioner Fortunata Calonge Agasen and her late sister, the previous vendee of the land subject of the Deed of Absolute Sale from private respondent. After all, contracts are obligatory in whatever form they may have been 14 entered into provided all essential requisites are present. The provision of Article 1358 on the necessity of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract 15 of sale of a parcel of land that this be embodied in a public instrument. It was likewise error for the Court of Appeals to rule that the transactions were "dented by the failure to register/annotate the same with the Register of Deeds" and that due to such failure, the documents "did not automatically bind the subject property." First, one of the subject documents, the Deed of Absolute Sale, was in fact 16 registered. Second, as elucidated in Fule vs. Court of Appeals The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience, and registration of the instrument only adversely affects third parties. Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder. In the light of the foregoing, we reverse the Court of Appeals's ruling that the failure of petitioners to register the Partition with Sale was fatal. The Court of Appeals also found petitioners' claim of ownership to be unsubstantiated, in contrast to that of private respondent who presented tax declarations and certification of tax payments in her favor. As pointed out by petitioners, however, the tax declarations in the name of private respondent for the year 1978 were issued only in 1977, and only after she had secured title to the property in her name. Such a belated declaration has been held to 17 be indicative of an absence of a real claim of ownership over the subject land prior to the declaration. On the other hand, the real estate tax payments certified as paid by the Municipal Treasurer refers to the entire mother Lot No.

2192 before it was subdivided or partitioned into five (5) equal lots. Private respondent cannot be said to have paid taxes on the subject property during the period when petitioners claimed that the property had already been sold to them. We also note that, far from being unsubstantiated, petitioners' claim of ownership is backed by their long years of possession of the subject parcels of land. There is no dispute that petitioners had occupied the subject land since the sale in their favor, i.e., since 1964 in the case of the Deed of Absolute Sale and since 1968 in the case of the Partition with Sale. They have also built a concrete house which has long been standing thereon. Then, too, petitioners have adequately explained why they have not pursued their action for annulment of title against private respondent, which the Court of Appeals viewed as having "further darkened the cloud of suspicion which hovered over the questioned documents." Private respondent herself admits that petitioners were the first to assert their right, by filing an action for annulment of title and/or for reconveyance with damages against private 18 19 respondent which complaint was, however, dismissed without prejudice. On the other hand, the complaint of private respondent was filed two months after the dismissal of their complaint, prompting them to merely interpose their cause of action as a compulsory counterclaim in the lower court. Finally, the Court of Appeals is likewise in error in holding that private respondent's title was "vested with the garment of indefeasibility." The rule on indefeasibility of torrens title i.e., that torrens title can be attacked only for fraud, within one year after the date of the issuance of the decree of registration applies only to original titles and not to subsequent registration. An action for annulment of title and/or reconveyance which was previously filed by petitioners and interposed in their counterclaim is an action open to them to attack private respondent's fraudulently acquired title. Neither may the compulsory counterclaim of petitioners challenging the title of private respondent be 20 brushed aside as merely a collateral attack which would bar a ruling on the validity of the said title. WHEREFORE, premises considered, the instant Petition for Review is GRANTED. The Decision of the Court of Appeals dated January 11, 1994 in CA-G.R. CV No. 10309 is SET ASIDE. The decision of the Regional Trial Court of Agoo, La Union, Branch 32, dismissing Civil Case No. A-713, annulling Transfer Certificate of Title No. 16109 in the name of private respondent and finding petitioners to be the lawful owners of the land covered by the same, is REINSTATED. No pronouncement as to costs.1wphi1.SO ORDERED. -------------------------------------------------------------------------------------------------------------------------------------------------G.R. No. 134559 December 9, 1999 (3D) ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES, respondents. PANGANIBAN, J.: Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory of real property will not ipso facto release the contracting partners from their respective obligations to each other arising from acts executed in accordance with their agreement. The Case The Petition for Review on Certiorari before us assails the March 5, 1998 Decision of the Court of Appeals (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows: WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant 3 are likewise ordered dismissed. No pronouncement as to costs. The Facts
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Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the 4 Joint Venture Agreement, was to be used for the development of the subdivision. All three of them also agreed to share the proceeds from the sale of the subdivided lots. The project did not push through, and the land was subsequently foreclosed by the bank. According to petitioners, the project failed because of "respondent's lack of funds or means and skills." They add that respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal Umbrella Company. On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000. Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him 5 to give up on the project. Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA. Hence, this Petition.
6

Ruling of the Court of Appeals In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing with the trial court's pronouncement that losses as well 7 as profits in a joint venture should be distributed equally, the CA invoked Article 1797 of the Civil Code which provides: Art. 1797 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. The CA elucidated further: In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. The Issue Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction . . . between the petitioners and respondent was that of a joint venture/partnership, ignoring outright 8 the provision of Article 1769, and other related provisions of the Civil Code of the Philippines. The Court's Ruling The Petition is bereft of merit. Main Issue: Existence of a Partnership Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partnership, were void. In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the 9 property. The pertinent portions of the Joint Venture Agreement read as follows: KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the SECOND PARTY: WITNESSETH: That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the FIRST PARTY; Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency upon the execution of this contract for the property entrusted by the SECOND PARTY, for sub-division projects and development purposes; NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties hereto do hereby stipulate and agree as follows: ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment. SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this particular amount will serve as an advance payment from the FIRST PARTY for the property mentioned to be sub-divided and to be deducted from the sales. THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division project is terminated and ready for sale to any interested parties,

and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly. FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the development of the sub-division project. FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the sales will be divided equally according to the . . . percentage [agreed upon] by both parties. SIXTH: That the intended sub-division project of the property involved will start the work and all improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be] decided by both parties. SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and-the FIRST PARTY will be given a grace period to turnover the property mentioned above. That this AGREEMENT shall be binding and obligatory to the parties who executed same freely 10 and voluntarily for the uses and purposes therein stated. A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides: Art. 1767. 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. Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to 11 the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership. It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property. Respondent's actions clearly belie petitioners' contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry. Petitioners Bound by Terms of Contract Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to all necessary consequences thereof, as follows: Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and insisted on the provisions they wanted. Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their obligations. They cannot now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms. Alleged Nullity of the Partnership Agreement Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides: Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property contributed, the partnership is void. We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino 12 states that under the aforecited provision which is a complement of Article 1771, "The execution of a public instrument would be useless if there is no inventory of the property contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by the law when no such inventory is made." The case at bar does not involve third parties who may be prejudiced. Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay 13 them 60 percent of the value of the property. They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice. In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced. Partnership Agreement Not the Result of an Earlier Illegal Contract Petitioners also contend that the Joint Venture Agreement is void under Article 1422 of the Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration. This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take 15 different forms, such as the prestation or promise of a thing or service by another. In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used. As explained by the trial court, "the land was in effect given to the partnership as [petitioner's] participation therein. . . . There was therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty percent of the net profits." Liability of the Parties
14

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners maintain that he should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the profits under the Joint Venture Agreement. We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the failure of the 16 17 project. But it also ruled that neither was respondent responsible therefor. In imputing the blame solely to him, petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners 18 have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this doctrine. Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages. WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners.SO ORDERED. -------------------------------------------------------------------------------------------------------------------------------------------------G.R. NOS. 166299-300 December 13, 2005 (3D) AURELIO K. LITONJUA, JR., Petitioner, vs. EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA THEATER, INC., E & L REALTY, (formerly E & L INTL SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC. (formerly General Theatrical & Film Exchange, INC.), AVENUE REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES), Respondents. DECISION GARCIA, J.: In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set 1 aside the Decision of the Court of Appeals (CA) dated March 31, 2004 in consolidated cases C.A. G.R. Sp. No. 2 76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07, 2004, denying petitioners motion for reconsideration. The recourse is cast against the following factual backdrop: Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them started when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several 3 corporations for specific performance and accounting. In his complaint, docketed as Civil Case No. 69235 and 4 eventually raffled to Branch 68 of the court, Aurelio alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other corporations. Yang is described in the complaint as petitioners and 5 Eduardos partner in their Odeon Theater investment. The same complaint also contained the following material averments: 3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the continuation of their family business and common family funds . 3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduardo to his siblings, parents and other relatives. Copy of this memorandum is attached hereto and made an integral part as Annex "A" and the portion referring to [Aurelio] submarked as Annex "A-1".

3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelios] retaining his share in the remaining family businesses (mostly, movie theaters, shipping and land development) and contributing his industry to the continued operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever is greater. . . . 4.01 from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had accumulated in their joint venture/partnership various assets including but not limited to the corporate defendants and [their] respective assets. 4.02 In addition . . . the joint venture/partnership had also acquired [various other assets], but Eduardo caused to be registered in the names of other parties. xxx xxx xxx 4.04 The substantial assets of most of the corporate defendants consist of real properties . A list of some of these real properties is attached hereto and made an integral part as Annex "B". xxx xxx xxx 5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio] requested for an accounting and liquidation of his share in the joint venture/partnership [but these demands for complete accounting and liquidation were not heeded]. xxx xxx xxx 5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants as well as Bobby [Yang], are transferring . . . various real properties of the corporations belonging to the joint venture/partnership to other parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles of these real properties a notice of lis pendens . (Emphasis in the original; underscoring and words in bracket added.) For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been meant for him by his brother Eduardo, pertinently reads: 10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]: You have now your own life to live after having been married. . I am trying my best to mold you the way I work so you can follow the pattern . You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office every time I am away. I want you to run it the way I am trying to run it because I will be all alone and I will depend entirely to you (sic). My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the whole thing of what I have and what you are entitled to. . It will be you and me alone on this. If ever I pass away, I want you to take care of all of this. You keep my share for my two sons are ready take over but give them the chance to run the company which I have built. xxx xxx xxx Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form of stocks which you can keep. This stock I assure you is good and saleable. I will also gladly give you the share of Wack-Wack and Valley Golf because you have been good. The rest will be in stocks from all the corporations which I repeat, ten 6 percent (10%) equity. On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER With Compulsory Counterclaim denying under oath the material allegations of the complaint, more particularly that portion

thereof depicting petitioner and Eduardo as having entered into a contract of partnership. As affirmative defenses, Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint states no cause of action, since no cause of action may be derived from the actionable document, i.e., Annex "A-1", being void under the terms of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking Eduardo 7 agreed to do, if any, under Annex "A-1", are unenforceable under the provisions of the Statute of Frauds. For his part, Yang - who was served with summons long after the other defendants submitted their answer moved to dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action and the complaint does not state 8 any. Petitioner opposed this motion to dismiss. On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses. To this motion, petitioner 10 interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial. Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated March 5, 11 2003, denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10, 2003. In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for reconsideration and Yangs motion to dismiss. The following then transpired insofar as Yang is concerned:
12 9

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of the April 2, 13 2003 Omnibus Order and to pursue his failed motion to dismiss to its full resolution. 2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion was denied 14 in an Order of July 4, 2003. 3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule 65 of the Rules 15 of Court, docketed as CA-G.R. SP No. 78774, to nullify the separate orders of the trial court, the first denying his motion to dismiss the basic complaint and, the second, denying his motion for reconsideration. Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and injudicious haste attended the issuance of the trial courts aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief from the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP No. 76987. Per its resolution dated October 2, 2003, with CA G.R. SP No. 76987.
16

the CAs 14th Division ordered the consolidation of CA G.R. SP No. 78774

Following the submission by the parties of their respective Memoranda of Authorities, the appellate court came out with the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein, disposing as follows: WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these consolidated cases annulling, reversing and setting aside the assailed orders of the court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private respondent [now petitioner Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the court a quo is hereby dismissed. SO ORDERED.
17

(Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as evidenced by the actionable documents, Annex "A" and "A-1" attached to the complaint, and upon which petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate defendants a quo is "void or legally inexistent". In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally assailed Resolution 18 of December 7, 2004. . Hence, petitioners present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the actionable document because this was not a public instrument and immovable properties were contributed to the partnership. B. When it ruled that the actionable document did not create a demandable right in favor of petitioner. C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done was to support his pleaded cause of action by another legal perspective/argument. The petition lacks merit. Petitioners demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or payment to him, as Eduardos and Yangs partner, of his partnership/joint venture share, after an accounting has been duly 19 conducted of what he deems to be partnership/joint venture property. A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses 20 between them. A contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits 21 among themselves. A joint venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements are similar, i.e., community of interests in the business and sharing of profits and 22 losses. Being a form of partnership, a joint venture is generally governed by the law on partnership. The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and respondent Eduardo are partners in the theatre, shipping and realty business, as one claims but which the other denies. And the issue bearing on the first assigned error relates to the question of what legal provision is applicable under the premises, petitioner seeking, as it were, to enforce the actionable document - Annex "A-1" - which he depicts in his complaint to be the contract of partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal provisions determinative of the existence, or defining the formal requisites, of a partnership is indicated. Foremost of these are the following provisions of the Civil Code: Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission. Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that Annex "A-1" does not meet the public instrumentation requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, Annex "A-1" cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to the partnership, the next logical point of inquiry turns on the nature of petitioners contribution, if any, to the supposed partnership. The CA, addressing the foregoing query, correctly stated that petitioners contribution consisted of immovables and real rights. Wrote that court:

A further examination of the allegations in the complaint would show that [petitioners] contribution to the so-called "partnership/joint venture" was his supposed share in the family business that is consisting of movie theaters, shipping and land development under paragraph 3.02 of the complaint. In other words, his contribution as a partner in 23 the alleged partnership/joint venture consisted of immovable properties and real rights. . Significantly enough, petitioner matter-of-factly concurred with the appellate courts observation that, prescinding from what he himself alleged in his basic complaint, his contribution to the partnership consisted of his share in the Litonjua family businesses which owned variable immovable properties. Petitioners assertion in his motion for 24 reconsideration of the CAs decision, that "what was to be contributed to the business [of the partnership] was [petitioners] industry and his share in the family [theatre and land development] business" leaves no room for speculation as to what petitioner contributed to the perceived partnership. Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code applies as long real property or real rights are initially brought into the partnership. In short, it is really of no moment which of the partners, or, in this case, who between petitioner and his brother Eduardo, contributed immovables. In context, the more important consideration is that real property was contributed, in which case an inventory of the contributed property duly signed by the parties should be attached to the public instrument, else there is legally no partnership to speak of. Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in question were not contributed, but were acquired after the formation of the supposed partnership. Needless to stress, the Court cannot accord cogency to this specious argument. For, as earlier stated, petitioner himself admitted contributing his share in the supposed shipping, movie theatres and realty development family businesses which already owned immovables even before Annex "A-1" was allegedly executed. Considering thus the value and nature of petitioners alleged contribution to the purported partnership, the Court, even if so disposed, cannot plausibly extend Annex "A-1" the legal effects that petitioner so desires and pleads to be given. Annex "A-1", in fine, cannot support the existence of the partnership sued upon and sought to be enforced. The legal and factual milieu of the case calls for this disposition. A partnership may be constituted in any form, save when immovable property or real rights are contributed thereto or when the partnership has a capital of at least 25 P3,000.00, in which case a public instrument shall be necessary. And if only to stress what has repeatedly been articulated, an inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to it. Given the foregoing perspective, what the appellate court wrote in its assailed Decision and legal effect of Annex "A-1" commends itself for concurrence:
26

about the probative value

Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties to the alleged partnership, the "Memorandum" (Annex "A" of the complaint) which purports to establish the said "partnership/joint venture" is NOT a public instrument and there was NO inventory of the immovable property duly signed by the parties. As such, the said "Memorandum" is null and void for purposes of establishing the existence of a valid contract of partnership. Indeed, because of the failure to comply with the essential formalities of a valid contract, the purported "partnership/joint venture" is legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract cannot be the source of any contractual or legal right. Accordingly, the allegations in the complaint, including the actionable document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or legal right which could be violated by the [individual respondents] herein. As a consequence, [petitioners] complaint does NOT state a valid cause of action because NOT all the essential elements of a cause of action are present. (Underscoring and words in bracket added.) Likewise well-taken are the following complementary excerpts from the CAs equally assailed Resolution of 27 December 7, 2004 denying petitioners motion for reconsideration: Further, We conclude that despite glaring defects in the allegations in the complaint as well as the actionable document attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the legal provisions which were brought to its attention by herein [respondents] in the their pleadings. In our evaluation of [petitioners] complaint, the latter alleged inter alia to have contributed immovable properties to the alleged partnership but the actionable document is not a public document and there was no inventory of immovable properties signed by the parties. Both the allegations in the complaint and the actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right which could be violated by [respondents]. (Words in bracket added.)

Under the second assigned error, it is petitioners posture that Annex "A-1", assuming its inefficacy or nullity as a partnership document, nevertheless created demandable rights in his favor. As petitioner succinctly puts it in this petition: 43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article 1307). 44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create rights and obligations of the parties and which rights and obligations may be enforceable and demandable. Just because the relationship created by the agreement cannot be specifically labeled or pigeonholed into a category of nominate contract does not mean it is void or unenforceable. Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA after he experienced a reversal of fortune thereat - as an afterthought. The appellate court, however, cannot really be faulted for not yielding to petitioners dubious stratagem of altering his theory of joint venture/partnership to an innominate contract. For, at bottom, the appellate courts certiorari jurisdiction was circumscribed by what was alleged to have 28 been the order/s issued by the trial court in grave abuse of discretion. As respondent Yang pointedly observed, since the parties basic position had been well-defined, that of petitioner being that the actionable document established a partnership/joint venture, it is on those positions that the appellate court exercised its certiorari jurisdiction. Petitioners act of changing his original theory is an impermissible practice and constitutes, as the CA aptly declared, an admission of the untenability of such theory in the first place. [Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now contended that the actionable instrument may be considered an innominate contract. xxx Verily, this now changes [petitioners] theory of the case which is not only prohibited by the Rules but also is an implied admission that the very theory he himself has adopted, filed and prosecuted before the respondent court is erroneous. Be that as it may . . We hold that this new theory contravenes [petitioners] theory of the actionable document being a partnership document. If anything, it is so obvious we do have to test the sufficiency of the cause of action on the 29 basis of partnership law xxx. (Emphasis in the original; Words in bracket added). But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected innominate contract, petitioners complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot be over-emphasized that petitioner points to Eduardo as the author of Annex "A-1". Withal, even on this consideration alone, petitioners claim against Yang is doomed from the very start. As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as vesting petitioner with a right to demand from respondent Eduardo the observance of a determinate conduct, reads: xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office everytime I am away. I want you to run it the way I am trying to run it because I will be alone and I will depend entirely to you, My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring added) It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he indeed wrote Annex "A-1", is a promise which is not to be performed within one year from "contract" execution on June 22, 1973. Accordingly, the agreement embodied in Annex "A-1" is covered by the Statute of Frauds and ergo 30 unenforceable for non-compliance therewith. By force of the statute of frauds, an agreement that by its terms is not to be performed within a year from the making thereof shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing and subscribed by the party charged. Corollarily, no action can be proved 31 unless the requirement exacted by the statute of frauds is complied with. Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family businesses supposedly promised by Eduardo to give in the near future. Any suggestion that the stated amount or the equity component of the promise was intended to go to a common fund would be to read something not written in Annex "A-1". Thus, even this angle alone argues against the very idea of a partnership, the creation of which requires two

or more contracting minds mutually agreeing to contribute money, property or industry to a common fund with the 32 intention of dividing the profits between or among themselves. In sum then, the Court rules, as did the CA, that petitioners complaint for specific performance anchored on an actionable document of partnership which is legally inexistent or void or, at best, unenforceable does not state a cause of action as against respondent Eduardo and the corporate defendants. And if no of action can successfully be maintained against respondent Eduardo because no valid partnership existed between him and petitioner, the Court cannot see its way clear on how the same action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, or could not have had any form of business relationship with, an inexistent partnership. As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as his partner. In fact, attendant circumstances would indicate the contrary. Consider: 1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was "for the continuation of their family business and common family funds which were theretofore being mainly managed by 33 Eduardo." But Yang denies kinship with the Litonjua family and petitioner has not disputed the disclaimer. 2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with Eduardo and what his share in the businesses will be. No allegation is made whatsoever about what Yang contributed, if any, let alone his proportional share in the profits. But such allegation cannot, however, be made because, as aptly observed by the CA, the actionable document did not contain such provision, let alone mention the name of Yang. How, indeed, could a person be considered a partner when the document purporting to establish the partnership contract did not even mention his name. 3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business partners in the [respondent] corporations," while "Bobby is his and Eduardos partner in their Odeon Theater investment (par. 2.03). This means that the partnership between petitioner and Eduardo came first; Yang became their partner in their Odeon Theater investment thereafter. Several paragraphs later, however, petitioner would contradict himself by alleging that his "investment and that of Eduardo and Yang in the Odeon theater business has expanded through a reinvestment of profit income and direct investments in several corporation including but not limited to [six] corporate respondents" This simply means that the "Odeon Theatre business" came before the corporate respondents. Significantly enough, 34 petitioner refers to the corporate respondents as "progeny" of the Odeon Theatre business. Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence he sourced his right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured and formulated the legal situation in the following wise: [Respondent] Yang, is impleaded because, as alleged in the complaint, he is a "partner" of [Eduardo] and the [petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits and direct investments in several corporations, thus: xxx xxx xxx Clearly, [petitioners] claim against Yang arose from his alleged partnership with petitioner and the respondent. However, there was NO allegation in the complaint which directly alleged how the supposed contractual relation was created between [petitioner] and Yang. More importantly, however, the foregoing ruling of this Court that the purported partnership between [Eduardo] is void and legally inexistent directly affects said claim against Yang. Since [petitioner] is trying to establish his claim against Yang by linking him to the legally inexistent partnership . . . such attempt had become futile because there was NOTHING that would contractually connect [petitioner] and Yang. To establish a valid cause of action, the complaint should have a statement of fact upon which to connect [respondent] Yang to the alleged partnership between [petitioner] and respondent [Eduardo], including their alleged investment in the Odeon Theater. A statement of facts on those matters is pivotal to the complaint as they would 35 constitute the ultimate facts necessary to establish the elements of a cause of action against Yang. Pressing its point, the CA later stated in its resolution denying petitioners motion for reconsideration the following: xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is controlling. Suffice it to state, We have not ignored the actionable document As a matter of fact, We emphasized in our decision

that insofar as [Yang] is concerned, he is not even mentioned in the said actionable document. We are therefore puzzled how a person not mentioned in a document purporting to establish a partnership could be considered a 36 partner. (Words in bracket ours). The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as peremptorily determined by the CA, has been discussed at length earlier and need not detain us long. Suffice it to say that after the CA has ruled that the alleged partnership is inexistent, petitioner took a different tack. Thus, from a joint venture/partnership theory which he adopted and consistently pursued in his complaint, petitioner embraced the innominate contract theory. Illustrative of this shift is petitioners statement in par. #8 of his motion for reconsideration of the CAs decision combined with what he said in par. # 43 of this petition, as follows: 8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal matter. What is determinative for purposes of sufficiency of the complainants allegations, is whether the actionable document bears out an actionable contract be it a partnership, a joint venture or whatever or some innominate contract It may be 37 noted that one kind of innominate contract is what is known as du ut facias (I give that you may do). 43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil 38 Code, Article 1307). Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due process; hence, the proscription against a party shifting from one theory at the trial court to a new and different theory in the 39 appellate court. On the same rationale, an issue which was neither averred in the complaint cannot be raised for the 40 first time on appeal. It is not difficult, therefore, to agree with the CA when it made short shrift of petitioners innominate contract theory on the basis of the foregoing basic reasons. Petitioners protestation that his act of introducing the concept of innominate contract was not a case of changing theories but of supporting his pleaded cause of action that of the existence of a partnership - by another legal perspective/argument, strikes the Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his motion for reconsideration of the CAs decision virtually relegates partnership as a fall-back theory. Two paragraphs later, in the same notion, petitioner faults the appellate court for reading, with myopic eyes, the actionable document solely as establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on whether or not to pursue the original cause of action or altogether abandoning the same, thus: 12. Incidentally, assuming that the actionable document created a partnership between [respondent] Eduardo, Sr. and [petitioner], no immovables were contributed to this partnership. xxx 14. All told, the Decision takes off from a false premise that the actionable document attached to the complaint does not establish a contractual relationship between [petitioner] and Eduardo, Sr. and Roberto T Yang simply because his document does not create a partnership or a joint venture. This is a myopic reading of the actionable document. Per the Courts own count, petitioner used in his complaint the mixed words "joint venture/partnership" nineteen (19) times and the term "partner" four (4) times. He made reference to the "law of joint venture/partnership [being applicable] to the business relationship between [him], Eduardo and Bobby [Yang]" and to his "rights in all specific properties of their joint venture/partnership". Given this consideration, petitioners right of action against respondents Eduardo and Yang doubtless pivots on the existence of the partnership between the three of them, as purportedly evidenced by the undated and unsigned Annex "A-1". A void Annex "A-1", as an actionable document of partnership, would strip petitioner of a cause of action under the premises. A complaint for delivery and accounting of partnership property based on such void or legally non-existent actionable document is dismissible for failure to state of action. So, in gist, said the Court of Appeals. The Court agrees. WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court of Appeals AFFIRMED. Cost against the petitioner. SO ORDERED. -------------------------------------------------------------------------------------------------------------------------------------------------G.R. No. 136448 November 3, 1999 (3D)

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent. PANGANIBAN, J.: A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract. The Case In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR CV 1 41477, which disposed as follows: WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby 2 affirmed. The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows: WHEREFORE, the Court rules: 1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990; 2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case; a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement; b. 12% interest per annum counted from date of plaintiff's invoices and computed on their respective amounts as follows: i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990; ii. Accrued interest for P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990; iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990; c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per appearance in court; d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale); e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants. From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court. SO ORDERED.
3

The Facts On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred 4 pieces of floats worth P68,000 were also sold to the Corporation. The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange 5 Commission. On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila. Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, 6 filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment. The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of P900,000.
7

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay 8 respondent.

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the 9 witnesses presented and (2) on a Compromise Agreement executed by the three in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an 10 injunction and (e) damages. The Compromise Agreement provided: a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim; b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao; c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to JL Holding Corporation 11 by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint 21 liability could be presumed from the equal distribution of the profit and loss. Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC. Ruling of the Court of Appeals In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled: The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is for commercial fishing . . . . Oviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is what a partnership essentially is . . . . By a 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 13 among themselves (Article 1767, New Civil Code). Hence, petitioner brought this recourse before this Court.
14

The Issues In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds: I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM. II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL. III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIM'S GOODS. In determining whether petitioner may be held liable for the fishing nets and floats from respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.

This Court's Ruling The Petition is devoid of merit. First and Second Issues: Existence of a Partnership and Petitioner's Liability In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two the main asset of the purported partnership the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat. We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides: Art. 1767 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. Specifically, both lower courts ruled that a partnership among the three existed based on the following factual 15 findings: (1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yao's partner; (2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million; (3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture. (4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim; (5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and other expenses for the boats would be shouldered by Chua and Yao; (6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim. (7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name. (8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial

documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages. (9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already enumerated above. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed formed a partnership. Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded. Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them. We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the 16 present action is embraced by one of the exceptions to the rule. In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45. Compromise Agreement Not the Sole Basis of Partnership Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to its execution. A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument that the existence of a partnership was based only on the Compromise Agreement. Petitioner Was a Partner, Not a Lessor We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found. His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim. We stress that it is unreasonable indeed, it is absurd for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners. Corporation by Estoppel Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Again, we disagree. Sec. 21 of the Corporation Code of the Philippines provides: Sec. 21. Corporation by estoppel. All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation. Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. "The reason behind this doctrine is obvious an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes 17 personally liable for contracts entered into or for other acts performed as such agent. The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits. On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of. There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. 18 The only question here is whether petitioner should be held jointly liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable. Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners. Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the 19 ruling of the Court in Alonso v. Villamor: A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities. Third Issue: Validity of Attachment Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED. -------------------------------------------------------------------------------------------------------------------------------------------------G.R. No. 157434 September 19, 2006 (1D)

SPOUSES CLARO and NIDA BAUTISTA, petitioners, vs. BERLINDA F. SILVA, Represented by HERMES J. DORADO, in his capacity as Attorney-In-Fact, respondent AUSTRIA-MARTINEZ, J.: To establish his status as a buyer for value in good faith, a person dealing with land registered in the name of and 1 occupied by the seller need only show that he relied on the face of the seller's certificate of title. But for a person dealing with land registered in the name of and occupied by the seller whose capacity to sell is restricted, such as by 2 3 4 Articles 166 and 173 of the Civil Code or Article 124 of the Family Code, he must show that he inquired into the 5 latter's capacity to sell in order to establish himself as a buyer for value in good faith. The extent of his inquiry depends on the proof of capacity of the seller. If the proof of capacity consists of a special power of attorney duly notarized, mere inspection of the face of such public document already constitutes sufficient inquiry. If no such special power of attorney is provided or there is one but there appear flaws in its notarial acknowledgment mere inspection of the document will not do; the buyer must show that his investigation went beyond the document and into the circumstances of its execution. Appealed by Petition for Review on Certiorari under Rule 45 of the Rules of Court are the November 21, 2001 6 7 Decision of the Court of Appeals (CA) in CA-G.R. CV No. 48767 which affirmed in toto the January 10, 1995 Decision of the Regional Trial Court (RTC) in Civil Case No. 3091-V-89, and the February 27, 2003 CA Resolution which denied the motion for reconsideration.

Civil Case No. 3091-V-89 is a Complaint for Annulment of Deed of Absolute Sale and Transfer Certificate of Title (TCT) No. V-2765, Reconveyance and Damages filed with the RTC, Branch 171, Valenzuela, Metro Manila by Berlina F. Silva (Berlina), through Hermes Dorado (Dorado) as Attorney-in-Fact, against Spouses Claro and Nida 8 Bautista (Spouses Bautista). Spouses Bautista filed their Answer and a Third-Party Complaint against Berlina's 9 husband, Pedro M. Silva (Pedro). In an Order dated August 6, 1991, the RTC declared third-party defendant Pedro 10 in default for failure to file an answer to the Third-Party Complaint. The undisputed facts of the case, as found by the RTC, are as follows: 1. That Transfer Certificate of Title No. B-37189 of the Registry of Deeds for xxx Metro Manila District III over a parcel of land (Lot 42, Block 10, of the subdivision plan (LRC) Psd-210217, Sheet 2, being a portion of Lot 903, Malinta Estate, LRC Record No. 5941) situated in xxx Barrio of Parada, Valenzuela, Metro Manila, containing an area of 216 square meters, more or less, was registered in the names of Spouses Berlina F. Silva and Pedro M. Silva on August 14, 1980; 2. That on March 3, 1988, Pedro M. Silva, for himself and as attorney-in-fact of his wife Berlina F. Silva, thru a Special Power of Attorney purportedly executed on November 18, 1987 by Berlina F. Silva in his favor, signed and executed a Deed of Absolute Sale over the said parcel of land covered by Transfer Certificate of Title No. B-37189 in favor of defendants-spouses Claro Bautista and Nida Bautista; and 3. That as a consequence, Transfer Certificate of Title No. 37189 was cancelled and in lieu thereof, Transfer Certificate of Title No. V-2765 of the Registry of Deeds for the Valenzuela Branch was issued in the names 11 of Spouses Claro Bautista and Nida Bautista on March 4, 1988. Based on the evidence presented, the RTC also found that the signature appearing on the Special Power of Attorney (SPA) as that of Berlina Silva is a forgery, and that consequently the Deed of Absolute Sale executed by Pedro in 12 favor of Spouses Bautista is not authorized by Berlina. The RTC rendered judgment on January 10, 1995, the decretal portion of which reads: WHEREFORE, Judgment is hereby rendered: 1. Declaring the Deed of Absolute Sale dated March 3, 1988 executed by Pedro M. Silva, for himself and as attorney-in-fact of Berlina F. Silva, in favor of defendants-spouses Claro Bautista and Nida Bautista over the parcel of land, described and covered by Transfer Certificate of Title No. B-37189 Metro Manila District III, null and void and the resulting Transfer Certificate of Title No. V-2765 of Valenzuela Registry in the name of Spouses Claro Bautista and Nida Bautista cancelled and that Transfer Certificate of Title No. B-37189 reinstated. 2. Ordering defendants to reconvey the property covered by the said Transfer Certificate of Title No. V-2765 together with the improvements thereon to the plaintiff. 3. Condemning the defendants to pay the plaintiff the sum of P5,000.00 in the concept of reasonable attorney's fees and the costs of suit. Defendants' counterclaim is dismissed. Judgment on default is hereby entered in favor of the third-party plaintiffs Spouses Claro Bautista and Nida Bautista against third-party defendants Pedro M. Silva, condemning the third-party defendant Pedro Silva to indemnify/pay third-party plaintiffs Spouses Claro Bautista and Nida Bautista the amount of Seventy Thousand Pesos (P70,000.00) the contract price of the sale of the property, with interest at the legal rate from the date of the execution of the said document on March 3, 1988 until the amount is fully paid and for whatever amount that the thirdparty plaintiffs were adjudged and paid to the plaintiff by reason of this decision and the costs of suit. SO ORDERED.
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Spouses Bautista filed an appeal with the CA which, in its November 21, 2001 Decision, affirmed in toto the RTC 14 decision; and, in a Resolution dated February 27, 2003, denied the Motion for Reconsideration.
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Hence, the herein petition filed by Spouses Bautista praying that the CA Decision and Resolution be annulled and set aside on the following grounds: I. Respondent as represented by Hermes Dorado in his capacity as attorney-in-fact has no legal authority to file action against spouses petitioners. II. The petitioners are considered as purchasers in good faith and for value having relied upon a Special Power of Attorney which appears legal, valid and genuine on its face. III. Gratia argumenti that the special power of attorney is a forgery and the deed of sale executed by the 16 husband is null and void, the nullity [thereof] does not include the one half share of the husband. The petition fails for lack of merit. As to the first ground, petitioners argue that for lack of authority of Dorado to represent respondent, the latter's 17 Complaint failed to state a cause of action and should have been dismissed. The argument holds no water. True, there was no written authority for Dorado to represent respondent in the filing of her Complaint. However, no written authorization of Dorado was needed because the Complaint was actually filed by respondent, and not merely through Dorado as her attorney-in-fact. As correctly observed by the CA, respondent herself signed the verification 18 attached to the Complaint. She stated therein that she is the plaintiff in Civil Case No. 3091-V-89 and that she 19 caused the preparation of the Complaint. Respondent also personally testified on the facts alleged in her 20 Complaint. In reality, respondent acted for and by herself, and not through any representative, when she filed the 21 Complaint. Therefore, respondent being the real party in interest, by virtue of the then prevailing Articles 166 and 22 173 of the Civil Code, the Complaint she filed sufficiently stated a cause of action. The sufficiency of the Complaint was not affected by the inclusion of Dorado as party representative for this was an obvious error which, under Section 23 11 of Rule 3, is not a ground for dismissal, as it may be corrected by the court, on its own initiative and at any stage 24 of the action, by dropping such party from the complaint. Anent the second ground, there is no merit to petitioners' claim that they are purchasers in good faith. That the SPA is a forgery is a finding of the RTC and the CA on a question of fact. The same is conclusive upon the 26 Court, especially as it is based on the expert opinion of the NBI which constitutes more than clear, positive and convincing evidence that respondent did not sign the SPA, and on the uncontroverted Certification of Dorado that respondent was in Germany working as a nurse when the SPA was purportedly executed in 1987. The SPA being a forgery, it did not vest in Pedro any authority to alienate the subject property without the consent of 27 respondent. Absent such marital consent, the deed of sale was a nullity. But then petitioners disclaim any participation in the forgery of the SPA or in the unauthorized sale of the subject property. They are adamant that even with their knowledge that respondent was in Germany at the time of the sale, they acted in good faith when they bought the subject property from Pedro alone because the latter was equipped 28 with a SPA which contains a notarial acknowledgment that the same is valid and authentic. They invoke the status of buyers in good faith whose registered title in the property is already indefeasible and against which the remedy of 29 reconveyance is no longer available. In the alternative, petitioners offer that should respondent be declared entitled 30 to reconveyance, let it affect her portion only but not that of Pedro. Whether or not petitioners are buyers for value in good faith is a question of fact not cognizable by us in a petition for 31 review. We resolve only questions of law; we do not try facts nor examine testimonial or documentary evidence on record. We leave these to the trial and appellate courts to whose findings and conclusions we accord great weight
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and respect, especially when their findings concur. We may have at times reversed their findings and conclusions but we resort to this only under exceptional circumstances as when it is shown that said courts failed to take into 33 account certain relevant facts which, if properly considered, would justify a different conclusion. No such exceptional circumstance obtains in the present case for we find the conclusions of the RTC and CA supported by the established facts and applicable law. However, we do not fully subscribe to some of their views on why petitioners cannot be considered in good faith, as we will discuss below. A holder of registered title may invoke the status of a buyer for value in good faith as a defense against any action 34 35 questioning his title. Such status, however, is never presumed but must be proven by the person invoking it. A buyer for value in good faith is one who buys property of another, without notice that some other person has a right to, or interest in, such property and pays full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other persons in the property. He buys the property with the wellfounded belief that the person from whom he receives the thing had title to the property and capacity to 36 convey it. To prove good faith, a buyer of registered and titled land need only show that he relied on the face of the title to the property. He need not prove that he made further inquiry for he is not obliged to explore beyond the four corners of 37 the title. Such degree of proof of good faith, however, is sufficient only when the following conditions concur: first, 38 39 the seller is the registered owner of the land; second, the latter is in possession thereof; and third, at the time of 40 the sale, the buyer was not aware of any claim or interest of some other person in the property, or of any defect or 41 restriction in the title of the seller or in his capacity to convey title to the property. Absent one or two of the foregoing conditions, then the law itself puts the buyer on notice and obliges the latter to exercise a higher degree of diligence by scrutinizing the certificate of title and examining all factual circumstances in 42 order to determine the seller's title and capacity to transfer any interest in the property. Under such circumstance, it is no longer sufficient for said buyer to merely show that he relied on the face of the title; he must now also show that 43 he exercised reasonable precaution by inquiring beyond the title. Failure to exercise such degree of precaution 44 makes him a buyer in bad faith. In the present case, petitioners were dealing with a seller (Pedro) who had title to and possession of the land but, as indicated on the face of his title, whose capacity to sell was restricted, in that the marital consent of respondent is required before he could convey the property. To prove good faith then, petitioners must show that they inquired not only into the title of Pedro but also into his capacity to sell. According to petitioners, to determine Pedro's capacity to sell, they conducted the following forms of inquiry: first, they 45 inspected the photocopy of the SPA presented to them by Pedro; second, they brought said copy to Atty. Lorenzo 46 Lucero (the notary public who prepared the deed of sale) and asked whether it was genuine; and third, they 47 inspected the original copy of the SPA after they advanced payment of Php55,000.00 to Pedro. Essentially, petitioners relied on the SPA, specifically on its notarial acknowledgment which states that respondent appeared before the notary public and acknowledged having executed the SPA in favor of Pedro. The RTC and CA, however, found such inquiry superficial. They expected of petitioners an investigation not only into 48 the whereabouts of respondent at the time of the execution of the SPA but also into the genuineness of the 49 signature appearing on it. We find such requirements of the RTC and CA too stringent that to adopt them would be to throw commerce into madness where buyers run around to probe the circumstances surrounding each piece of sales document while sellers scramble to produce evidence of its good order. Remember that it is not just any scrap of paper that is under scrutiny but a SPA, the execution and attestation of which a notary public has intervened. To what extent, therefore, should an inquiry into a notarized special power of attorney go in order for one to qualify as a buyer for value in good faith? We agree with one author who said: x x x To speak of "notice", as applied to the grantee, is to follow the language of the Statue of Elizabeth. Its proviso protects the man who purchases "upon good consideration and bona fide * * * not having at the

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time * * * any manner of notice or knowledge." The term "notice", however, is really but an approach to the test of good faith, and all modern legislation tends toward that point. Thus, some present day statutes (outside of the Uniform Law) may speak of notice, actual and constructive, and define both terms, but they should be "liberally construed, so as to protect bona fide purchaser for value." They may require the grantee to have "knowledge" of the debtor's intent, but save for technical purposes of pleading, the term is read in the light of the rules we are studying. It comes always to a question 50 of the grantee's good faith as distinct from mere negligence. There must, indeed, be more than negligence. There must be a conscious turning away from the subject x x x. As put by the Supreme Court, the grantee must take the consequences if he "chooses to remain ignorant of what the necessities of the case require him to know." The search, therefore, is described by the question, did the grantee make a choice between not knowing and finding out the truth; or were the circumstances such that he was not faced with that choice? (Emphasis ours) This means that no automatic correlation exists between the state of forgery of a document and the bad faith of the buyer who relies on it. A test has to be done whether the buyer had a choice between knowing the forgery and finding it out, or he had no such choice at all. When the document under scrutiny is a special power of attorney that is duly notarized, we know it to be a public 51 document where the notarial acknowledgment is prima facie evidence of the fact of its due execution. A buyer presented with such a document would have no choice between knowing and finding out whether a forger lurks beneath the signature on it. The notarial acknowledgment has removed that choice from him and replaced it with a presumption sanctioned by law that the affiant appeared before the notary public and acknowledged that he executed the document, understood its import and signed it. In reality, he is deprived of such choice not because he is incapable of knowing and finding out but because, under our notarial system, he has been given the luxury of merely relying on the presumption of regularity of a duly notarized SPA. And he cannot be faulted for that because it is precisely that fiction of regularity which holds together commercial transactions across borders and time. In sum, all things being equal, a person dealing with a seller who has possession and title to the property but whose capacity to sell is restricted, qualifies as a buyer in good faith if he proves that he inquired into the title of the seller as well as into the latter's capacity to sell; and that in his inquiry, he relied on the notarial acknowledgment found in the seller's duly notarized special power of attorney. He need not prove anything more for it is already the function of the notarial acknowledgment to establish the appearance of the parties to the document, its due execution and 52 authenticity. Note that we expressly made the foregoing rule applicable only under the operative words "duly notarized" and "all things being equal." Thus, said rule should not apply when there is an apparent flaw afflicting the notarial acknowledgment of the special power of attorney as would cast doubt on the due execution and authenticity of the document; or when the buyer has actual notice of circumstances outside the document that would render suspect its genuineness. In Domingo v. Reed, we found that the special power of attorney relied upon by the buyers contained a defective notarial acknowledgment in that it stated there that only the agent-wife signed the document before the notary public while the principal-husband did not. Such flaw rendered the notarial acknowledgment of no effect and reduced the special power of attorney into a private document. We declared the buyer who relied on the private special power of attorney a buyer in bad faith. In Lao v. Villones-Lao, and Estacio v. Jaranilla, we found that the buyers knew of circumstances extrinsic to the special power of attorney which put in question the actual execution of said document. In Domingo Lao, the buyer knew that the agent-wife was estranged from the principal-husband but was living within the same city. In the Estacio case, we found admissions by the buyers that they knew that at the time of the purported execution of the special power of attorney, the alleged principal was not in the Philippines. In both cases we held that the buyers were not in good faith, not because we found any outward defect in the notarial acknowledgment of the special powers of attorney, but because the latter had actual notice of facts that should have put them on deeper inquiry into the capacity to sell of the seller. In the present case, petitioners knew that Berlina was in Germany at the time they were buying the property and the 56 SPA relied upon by petitioners has a defective notarial acknowledgment. The SPA was a mere photocopy and we
54 55 53

are not convinced that there ever was an original copy of said SPA as it was only this photocopy that was testified to 57 by petitioner Nida Bautista and offered into evidence by her counsel. We emphasize this fact because it was actually this photocopy that was relied upon by petitioners before they entered into the deed of sale with Pedro. As admitted to by petitioner Nida Bautista, upon inspection of the photocopy of the SPA, they gave Pedro an advanced payment of Php55,000.00; this signifies that, without further investigation on the SPA, petitioners had agreed to buy the subject property from Pedro. But then said photocopy of the SPA contains no notarial seal. A notarial seal is a mark, image or impression on a 58 document which would indicate that the notary public has officially signed it. There being no notarial seal, the signature of the notary public on the notarial certificate was therefore incomplete. The notarial certificate being deficient, it was as if the notarial acknowledgment was unsigned. The photocopy of the SPA has no notarial acknowledgment to speak of. It was a mere private document which petitioners cannot foist as a banner of good faith. All told, it was not sufficient evidence of good faith that petitioners merely relied on the photocopy of the SPA as this turned out to be a mere private document. They should have adduced more evidence that they looked beyond it. They did not. Instead, they took no precautions at all. They verified with Atty. Lucero whether the SPA was authentic but then the latter was not the notary public who prepared the document. Worse, they purposely failed to inquire who was the notary public who prepared the SPA. Finally, petitioners conducted the transaction in haste. It took them all but three days or from March 2 to 4, 1988 to enter into the deed of sale, notwithstanding the restriction on the 59 capacity to sell of Pedro. In no way then may petitioners qualify as buyers for value in good faith. That said, we come to the third issue on whether petitioners may retain the portion of Pedro Silva in the subject property. Certainly not. It is well-settled that the nullity of the sale of conjugal property contracted by the husband 60 without the marital consent of the wife affects the entire property, not just the share of the wife. We see no reason to deviate from this rule. WHEREFORE, the petition is hereby DENIED. The Decision dated November 21, 2001 and Resolution dated February 27, 2003 of the Court of Appeal are AFFIRMED. Costs against petitioners. SO ORDERED. -------------------------------------------------------------------------------------------------------------------------------------------------G.R. No. L-39780 November 11, 1985 (1D) ELMO MUASQUE, petitioner, vs. COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and RAMON PONS, respondents.

GUTTIERREZ, JR., J.: In this petition for certiorari, the petitioner seeks to annul and set added the decision of the Court of Appeals affirming the existence of a partnership between petitioner and one of the respondents, Celestino Galan and holding both of them liable to the two intervenors which extended credit to their partnership. The petitioner wants to be excluded from the liabilities of the partnership. Petitioner Elmo Muasque filed a complaint for payment of sum of money and damages against respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager Pons for remodelling a portion of its building without exchanging or expecting any consideration from Galan although the latter was casually named as partner in the contract; that by virtue of his having introduced the petitioner to the employing company (Tropical). Galan would receive some kind of compensation in the form of some percentages or commission; that Tropical, under the terms of the contract, agreed to give petitioner the amount of P7,000.00 soon after the construction began and thereafter, the amount of P6,000.00 every fifteen (15) days during the construction to make a total sum of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a stranger to the contract, Galan, who succeeded in getting petitioner's indorsement on the same check persuading the latter that the same be deposited in a joint account; that on January 26, 1967 when the second check for P6,000.00 was due, petitioner refused to indorse said cheek presented to him by Galan but through later manipulations, respondent Pons succeeded in changing the payee's name from Elmo Muasque to Galan and Associates, thus enabling Galan to

cash the same at the Cebu Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the petitioner in great financial difficulty in his construction business and subjecting him to demands of creditors to pay' for construction materials, the payment of which should have been made from the P13,000.00 received by Galan; that petitioner undertook the construction at his own expense completing it prior to the March 16, 1967 deadline;that because of the unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00 to Galan petitioner demanded that said amount be paid to him by respondents under the terms of the written contract between the petitioner and respondent company. The respondents answered the complaint by denying some and admitting some of the material averments and setting up counterclaims. During the pre-trial conference, the petitioners and respondents agreed that the issues to be resolved are: (1) Whether or not there existed a partners between Celestino Galan and Elmo Muasque; and (2) Whether or not there existed a justifiable cause on the part of respondent Tropical to disburse money to respondent Galan. The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were allowed to intervene, both having legal interest in the matter in litigation. After trial, the court rendered judgment, the dispositive portion of which states: IN VIEW WHEREOF, Judgment is hereby rendered: (1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the intervenors Cebu and Southern Hardware Company and Blue Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively; (2) absolving the defendants Tropical Commercial Company and Ramon Pons from any liability, No damages awarded whatsoever. The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed motions for reconsideration. On January 15, 197 1, the trial court issued 'another order amending its judgment to make it read as follows: IN VIEW WHEREOF, Judgment is hereby rendered: (1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively, (2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware Company and Tan Siu jointly and severally interest at 12% per annum of the sum of P6,229.34 until the amount is fully paid; (3) ordering plaintiff and defendant Galan to pay P500.00 representing attorney's fees jointly and severally to Intervenor Cebu Southern Hardware Company: (4) absolving the defendants Tropical Commercial Company and Ramon Pons from any liability, No damages awarded whatsoever.

On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole modification that the liability imposed in the dispositive part of the decision on the credit of Cebu Southern Hardware and Blue Diamond Glass Palace was changed from "jointly and severally" to "jointly." Not satisfied, Mr. Muasque filed this petition. The present controversy began when petitioner Muasque in behalf of the partnership of "Galan and Muasque" as Contractor entered into a written contract with respondent Tropical for remodelling the respondent's Cebu branch building. A total amount of P25,000.00 was to be paid under the contract for the entire services of the Contractor. The terms of payment were as follows: thirty percent (30%) of the whole amount upon the signing of the contract and the balance thereof divided into three equal installments at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days. The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the name of the petitioner.Petitioner, however, indorsed the check in favor of respondent Galan to enable the latter to deposit it in the bank and pay for the materials and labor used in the project. Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so that when the second check in the amount of P6,000.00 came and Galan asked the petitioner to indorse it again, the petitioner refused. The check was withheld from the petitioner. Since Galan informed the Cebu branch of Tropical that there was a"misunderstanding" between him and petitioner, respondent Tropical changed the name of the payee in the second check from Muasque to "Galan and Associates" which was the duly registered name of the partnership between Galan and petitioner and under which name a permit to do construction business was issued by the mayor of Cebu City. This enabled Galan to encash the second check. Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts. He stated that he borrowed some P12,000.00 from his friend, Mr. Espina and although the expenses had reached the amount of P29,000.00 because of the failure of Galan to pay what was partly due the laborers and partly due for the materials, the construction work was finished ahead of schedule with the total expenditure reaching P34,000.00. The two remaining checks, each in the amount of P6,000.00,were subsequently given to the petitioner alone with the last check being given pursuant to a court order. As stated earlier, the petitioner filed a complaint for payment of sum of money and damages against the respondents,seeking to recover the following: the amounts covered by the first and second checks which fell into the hands of respondent Galan, the additional expenses that the petitioner incurred in the construction, moral and exemplary damages, and attorney's fees. Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager, Pons, from any liability but they also held the petitioner together with respondent Galan, hable to the intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit which the intervenors extended to the partnership of petitioner and Galan In this petition the legal questions raised by the petitioner are as follows: (1) Whether or not the appellate court erred in holding that a partnership existed between petitioner and respondent Galan. (2) Assuming that there was such a partnership, whether or not the court erred in not finding Galan guilty of malversing the P13,000.00 covered by the first and second checks and therefore, accountable to the petitioner for the said amount; and (3) Whether or not the court committed grave abuse of discretion in holding that the payment made by Tropical through its manager Pons to Galan was "good payment, " Petitioner contends that the appellate court erred in holding that he and respondent Galan were partners, the truth being that Galan was a sham and a perfidious partner who misappropriated the amount of P13,000.00 due to the petitioner.Petitioner also contends that the appellate court committed grave abuse of discretion in holding that the payment made by Tropical to Galan was "good" payment when the same gave occasion for the latter to misappropriate the proceeds of such payment. The contentions are without merit.

The records will show that the petitioner entered into a con-tract with Tropical for the renovation of the latter's building on behalf of the partnership of "Galan and Muasque." This is readily seen in the first paragraph of the contract where it states: This agreement made this 20th day of December in the year 1966 by Galan and Muasque hereinafter called the Contractor, and Tropical Commercial Co., Inc., hereinafter called the owner do hereby for and in consideration agree on the following: ... . There is nothing in the records to indicate that the partner-ship organized by the two men was not a genuine one. If there was a falling out or misunderstanding between the partners, such does not convert the partnership into a sham organization. Likewise, when Muasque received the first payment of Tropical in the amount of P7,000.00 with a check made out in his name, he indorsed the check in favor of Galan. Respondent Tropical therefore, had every right to presume that the petitioner and Galan were true partners. If they were not partners as petitioner claims, then he has only himself to blame for making the relationship appear otherwise, not only to Tropical but to their other creditors as well. The payments made to the partnership were, therefore, valid payments. In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled: Although it may be presumed that Margarita G. Saldajeno had acted in good faith, the appellees also acted in good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences. No error was committed by the appellate court in holding that the payment made by Tropical to Galan was a good payment which binds both Galan and the petitioner. Since the two were partners when the debts were incurred, they, are also both liable to third persons who extended credit to their partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled: There is a general presumption that each individual partner is an authorized agent for the firm and that he has authority to bind the firm in carrying on the partnership transactions. (Mills vs. Riggle,112 Pan, 617). The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by one of members of the firm acting apparently in its behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 391.) Petitioner also maintains that the appellate court committed grave abuse of discretion in not holding Galan liable for the amounts which he "malversed" to the prejudice of the petitioner. He adds that although this was not one of the issues agreed upon by the parties during the pretrial, he, nevertheless, alleged the same in his amended complaint which was, duly admitted by the court. When the petitioner amended his complaint, it was only for the purpose of impleading Ramon Pons in his personal capacity. Although the petitioner made allegations as to the alleged malversations of Galan, these were the same allegations in his original complaint. The malversation by one partner was not an issue actually raised in the amended complaint but the alleged connivance of Pons with Galan as a means to serve the latter's personal purposes. The petitioner, therefore, should be bound by the delimitation of the issues during the pre-trial because he himself agreed to the same. In Permanent Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled: xxx xxx xxx ... The appellant is bound by the delimitation of the issues contained in the trial court's order issued on the very day the pre-trial conference was held. Such an order controls the subsequent course of the action, unless modified before trial to prevent manifest injustice.In the case at bar, modification of the pre-trial order was never sought at the instance of any party.

Petitioner could have asked at least for a modification of the issues if he really wanted to include the determination of Galan's personal liability to their partnership but he chose not to do so, as he vehemently denied the existence of the partnership. At any rate, the issue raised in this petition is the contention of Muasque that the amounts payable to the intervenors should be shouldered exclusively by Galan. We note that the petitioner is not solely burdened by the obligations of their illstarred partnership. The records show that there is an existing judgment against respondent Galan, holding him liable for the total amount of P7,000.00 in favor of Eden Hardware which extended credit to the partnership aside from the P2, 000. 00 he already paid to Universal Lumber. We, however, take exception to the ruling of the appellate court that the trial court's ordering petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern Hardware"jointly and severally" is plain error since the liability of partners under the law to third persons for contracts executed inconnection with partnership business is only pro rata under Art. 1816, of the Civil Code. While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall be liable prorate with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into the name and fm the account cd the partnership, under its signature and by a person authorized to act for the partner-ship. ...". this provision should be construed together with Article 1824 which provides that: "All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823." In short, while the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 or 1823. Articles 1822 and 1823 of the Civil Code provide: Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partner-ship or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. Art. 1823. The partnership is bound to make good: (1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and (2) Where the partnership in the course of its business receives money or property of a third person and t he money or property so received is misapplied by any partner while it is in the custody of the partnership. The obligation is solidary, because the law protects him, who in good faith relied upon the authority of a partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil Code all partners, whether innocent or guilty, as well as the legal entity which is the partnership, are solidarily liable. In the case at bar the respondent Tropical had every reason to believe that a partnership existed between the petitioner and Galan and no fault or error can be imputed against it for making payments to "Galan and Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true partner with real authority to transact on behalf of the partnership with which it was dealing. This is even more true in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole However. as between the partners Muasque and Galan,justice also dictates that Muasque be reimbursed by Galan for the payments made by the former representing the liability of their partnership to herein intervenors, as it was satisfactorily established that Galan acted in bad faith in his dealings with Muasque as a partner. WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that the liability of petitioner and respondent Galan to intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to be joint and solidary. Petitioner may recover from respondent Galan any amount that he pays, in his capacity as a partner, to the above intervenors. SO ORDERED.

-------------------------------------------------------------------------------------------------------------------------------------------------G.R. No. L-31684 June 28, 1973 (E) EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners, vs. ESTRELLA ABAD SANTOS, respondent. MAKALINTAL, J.: On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of Co-partnership was amended as to include herein respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with a contribution of P17,500 each. The amended Articles provided, inter alia, that "the contribution of Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and losses "shall be divided and distributed among the partners ... in the proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos." On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First Instance of Manila, alleging that the partnership, which was also made a party-defendant, had been paying dividends to the partners except to her; and that notwithstanding her demands the defendants had refused and continued to refuse and let her examine the partnership books or to give her information regarding the partnership affairs to pay her any share in the dividends declared by the partnership. She therefore prayed that the defendants be ordered to render accounting to her of the partnership business and to pay her corresponding share in the partnership profits after such accounting, plus attorney's fees and costs. The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the partnership books; and byway of affirmative defense alleged that the amended Articles of Co-partnership did not express the true agreement of the parties, which was that the plaintiff was not an industrial partner; that she did not in fact contribute industry to the partnership; and that her share of 30% was to be based on the profits which might be realized by the partnership only until full payment of the loan which it had obtained in December, 1955 from the Rehabilitation Finance Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged her property as security. The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee (respondent here) is an industrial partner as claimed by her or merely a profit sharer entitled to 30% of the net profits that may be realized by the partnership from June 7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation shall be fully paid, as claimed by appellants (herein petitioners)." On that issue the Court of First Instance found for the plaintiff and rendered judgement "declaring her an industrial partner of Evangelista & Co.; ordering the defendants to render an accounting of the business operations of the (said) partnership ... from June 7, 1955; to pay the plaintiff such amounts as may be due as her share in the partnership profits and/or dividends after such an accounting has been properly made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the costs of this suit." The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a quo. In the petition before Us the petitioners have assigned the following errors: I. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista & Co., notwithstanding the admitted fact that since 1954 and until after promulgation of the decision of the appellate court the said respondent was one of the judges of the City Court of Manila, and despite its findings that respondent had been paid for services allegedly contributed by her to the partnership. In this connection the Court of Appeals erred: (A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive evidence that respondent was in fact made an industrial partner of Evangelista & Co.

(B) In not finding that a portion of respondent's testimony quoted in the decision proves that said respondent did not bind herself to contribute her industry, and she could not, and in fact did not, because she was one of the judges of the City Court of Manila since 1954. (C) In finding that respondent did not in fact contribute her industry, despite the appellate court's own finding that she has been paid for the services allegedly rendered by her, as well as for the loans of money made by her to the partnership. II. The lower court erred in not finding that in any event the respondent was lawfully excluded from, and deprived of, her alleged share, interests and participation, as an alleged industrial partner, in the partnership Evangelista & Co., and its profits or net income. III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent was declared an industrial partner of the petitioner, and petitioners were ordered to render an accounting of the business operation of the partnership from June 7, 1955, and to pay the respondent her alleged share in the net profits of the partnership plus the sum of P2,000.00 as attorney's fees and the costs of the suit, instead of dismissing respondent's complaint, with costs, against the respondent. It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the Court of Appeals. The evidence presented by the parties as the trial in support of their respective positions on the issue of whether or not the respondent was an industrial partner was thoroughly analyzed by the Court of Appeals on its decision, to the extent of reproducing verbatim therein the lengthy testimony of the witnesses. It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been commited by the lower court. It should be observed, in this regard, that the Court of Appeals did not hold that the Articles of Co-partnership, identified in the record as Exhibit "A", was conclusive evidence that the respondent was an industrial partner of the said company, but considered it together with other factors, consisting of both testimonial and documentary evidences, in arriving at the factual conclusion expressed in the decision. The findings of the Court of Appeals on the various points raised in the first assignment of error are hereunder reproduced if only to demonstrate that the same were made after a through analysis of then evidence, and hence are beyond this Court's power of review. The aforequoted findings of the lower Court are assailed under Appellants' first assigned error, wherein it is pointed out that "Appellee's documentary evidence does not conclusively prove that appellee was in fact admitted by appellants as industrial partner of Evangelista & Co." and that "The grounds relied upon by the lower Court are untenable" (Pages 21 and 26, Appellant's Brief). The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In finding that the appellee is an industrial partner of appellant Evangelista & Co., herein referred to as the partnership the lower court relied mainly on the appellee's documentary evidence, entirely disregarding facts and circumstances established by appellants" evidence which contradict the said finding' (Page 21, Appellants' Brief). The lower court could not have done otherwise but rely on the exhibits just mentioned, first, because appellants have admitted their genuineness and due execution, hence they were admitted without objection by the lower court when appellee rested her case and, secondly the said exhibits indubitably show the appellee is an industrial partner of appellant company. Appellants are virtually estopped from attempting to detract from the probative force of the said exhibits because they all bear the imprint of their knowledge and consent, and there is no credible showing that they ever protested against or opposed their contents prior of the filing of their answer to appellee's complaint. As a matter of fact, all the appellant Evangelista, Jr., would have us believe as against the cumulative force of appellee's aforesaid documentary evidence is the appellee's Exhibit "A", as confirmed and corroborated by the other exhibits already mentioned, does not express the true intent and agreement of the parties thereto, the real understanding between them being the appellee would be merely a profit sharer entitled to 30% of the net profits that may be realized between the partners from June 7, 1955, until the mortgage

loan of P30,000.00 to be obtained from the RFC shall have been fully paid. This version, however, is discredited not only by the aforesaid documentary evidence brought forward by the appellee, but also by the fact that from June 7, 1955 up to the filing of their answer to the complaint on February 8, 1964 or a period of over eight (8) years appellants did nothing to correct the alleged false agreement of the parties contained in Exhibit "A". It is thus reasonable to suppose that, had appellee not filed the present action, appellants would not have advanced this obvious afterthought that Exhibit "A" does not express the true intent and agreement of the parties thereto. At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding fact which proves that the parties to the Amended Articles of Partnership, Exhibit "A", did not contemplate to make the appellee Estrella Abad Santos, an industrial partner of Evangelista & Co. It is an admitted fact that since before the execution of the amended articles of partnership, Exhibit "A", the appellee Estrella Abad Santos has been, and up to the present time still is, one of the judges of the City Court of Manila, devoting all her time to the performance of the duties of her public office. This fact proves beyond peradventure that it was never contemplated between the parties, for she could not lawfully contribute her full time and industry which is the obligation of an industrial partner pursuant to Art. 1789 of the Civil Code. The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the decision, and then concluded as follows: One cannot read appellee's testimony just quoted without gaining the very definite impression that, even as she was and still is a Judge of the City Court of Manila, she has rendered services for appellants without which they would not have had the wherewithal to operate the business for which appellant company was organized. Article 1767 of the New Civil Code which provides that "By contract of partnership two or more persons bind themselves, to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves, 'does not specify the kind of industry that a partner may thus contribute, hence the said services may legitimately be considered as appellee's contribution to the common fund. Another article of the same Code relied upon appellants reads: 'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case.' It is not disputed that the provision against the industrial partner engaging in business for himself seeks to prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful compliance by said partner with this prestation. There is no pretense, however, even on the part of the appellee is engaged in any business antagonistic to that of appellant company, since being a Judge of one of the branches of the City Court of Manila can hardly be characterized as a business. That appellee has faithfully complied with her prestation with respect to appellants is clearly shown by the fact that it was only after filing of the complaint in this case and the answer thereto appellants exercised their right of exclusion under the codal art just mentioned by alleging in their Supplemental Answer dated June 29, 1964 or after around nine (9) years from June 7, 1955 subsequent to the filing of defendants' answer to the complaint, defendants reached an agreement whereby the herein plaintiff been excluded from, and deprived of, her alleged share, interests or participation, as an alleged industrial partner, in the defendant partnership and/or in its net profits or income, on the ground plaintiff has never contributed her industry to the partnership, instead she has been and still is a judge of the City Court (formerly Municipal Court) of the City of Manila, devoting her time to performance of her duties as such judge and enjoying the privilege and emoluments appertaining to the said office, aside from teaching in law school in Manila, without the express consent of the herein defendants' (Record On Appeal, pp. 24-25). Having always knows as a appellee as a City judge even before she joined appellant company on June 7, 1955 as an industrial partner, why did it take appellants many yearn before excluding her from said company as aforequoted allegations? And how can they reconcile such exclusive with their main theory that appellee has never been such a partner because "The real agreement evidenced by Exhibit "A" was to grant the appellee a share of 30% of the net profits which the appellant partnership may

realize from June 7, 1955, until the mortgage of P30,000.00 obtained from the Rehabilitation Finance Corporal shall have been fully paid." (Appellants Brief, p. 38). What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of appellant company, with the right to demand for a formal accounting and to receive her share in the net profit that may result from such an accounting, which right appellants take exception under their second assigned error. Our said holding is based on the following article of the New Civil Code: 'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs: (1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners; (2) If the right exists under the terms of any agreement; (3) As provided by article 1807; (4) Whenever other circumstance render it just and reasonable. We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to reviewing only errors of law, accepting as conclusive the factual findings of the lower court upon its own assessment of the evidence. The judgment appealed from is affirmed, with costs. -------------------------------------------------------------------------------------------------------------------------------------------------G.R. No. L-27343 February 28, 1979 (1D) MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees, vs. ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO, defendants-appellants.

FERNANDEZ, J.: This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros Occidental in Civil Cage No. 5343, entitled "Manuel G. Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of which reads: IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that the contract, Appendix "F", of the Partial Stipulation of Facts, Exh. "A", has not created a chattel mortgage lien on the machineries and other chattels mentioned therein, all of which are property of the defendant partnership "Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant partnership, have a preferred right over the assets of the said partnership and over the proceeds of their sale at public auction, superior to the right of the defendant Margarita G. Saldajeno, as creditor of the partners Leon Garibay and Timoteo Tubungbanua; (3) that the defendant Isabela Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89, with legal interest thereon from the filing of the complaint on June 5, 1959; (4) that the same defendant is indebted to the plaintiff Manuel G. Singsong in the total amount of P5,723.50, with interest thereon at the rate of 1 % per month from May 6, 1959, (the date of the statements of account, Exhs. "L" and "M"), and 25% of the total indebtedness at the time of payment, for attorneys' fees, both interest and

attorneys fees being stipulated in Exhs. "I" to "17", inclusive; (5) that the same defendant is indebted to the plaintiff Agustin E. Tonsay in the amount of P933.73, with legal interest thereon from the filing of the complaint on June 5, 1959; (6) that the same defendant is indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44, with legal interest thereon from the filing of the complaint on June 5, 1959; (7) that the same defendant is indebted to the plaintiff Bacolod Southern Lumber Yard in the amount of Pl,048.78, with legal interest thereon from the filing of the complaint on June 5, 1959; (8) that the same defendant is indebted to the plaintiff Jose Belzunce in the amount of P2,052.10, with legal interest thereon from the filing of the complaint on June 5. 1959; (9) that the defendant Margarita G. Saldajeno, having purchased at public auction the assets of the defendant partnership over which the plaintiffs have a preferred right, and having sold said assets for P 45,000.00, is bound to pay to each of the plaintiffs the respective amounts for which the defendant partnership is held indebted to, them, as above indicated and she is hereby ordered to pay the said amounts, plus attorneys fees equivalent to 25% of the judgment in favor of the plaintiff Manuel G. Singson, as stipulated in Exhs. "I" "to I-17", inclusive, and 20% of the respective judgments in favor of the other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of the Civil Code of the Philippines; (10) The defendants Leon Garibay and Timoteo Tibungbanua are hereby ordered to pay to the plaintiffs the respective amounts adjudged in their favor in the event that said plaintiffs cannot recover them from the defendant Margarita G. Saldajeno and the surety on the bond that she has filed for the lifting of the injunction ordered by this court upon the commencement of this case. The cross-claim cf the defendant Margarita G. Saldajeno against the defendants Leon Garibay arid Timoteo Tubungbanua is hereby discussed Margarita G. Saldajeno shall pay the costs. SO ORDERED.
1

In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to the Supreme Court "considering that the resolution of this appeal involves purely questions or question of law over which 2 this Court has no jurisdiction ... On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance of Negros Occidental, Branch I, against "Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the Provincial Sheriff of Negros Occidental a complaint the prayer of which reads: WHEREFORE, the plaintiffs respectfully pray: (1) That a writ of preliminary injunction be issued restraining the defendant Provincial Sheriff of Negros Occidental from proceeding with the sales at public auction that he advertised in two notices issued by him on May 18, 1959 in connection with Civil Case No. 5223 of this Honorable Court, until further orders of this Court; and to make said injunction permanent after hearing on the merits: (2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G. Singson the sum of P3,723.50 plus 1% monthly interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and 25% for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's fees, and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and costs: (3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G. Saldajeno on May 26, 1958 be declared null and void being in fraud of creditors of the defendant partnership and without valuable consideration insofar as the said defendant is concerned: (4) That the Honorable Court order the sale of public auction of the assets of the defendnat partnership in case the latter fails to pay the judgment that the plaintiffs may recover in the action,

with instructions that the proceeds of the sale b e applied in payment of said judgment before any part of saod proceeds is paid to the defendant Margarita G. Saldajeno; (5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be declared jointly liable to the plaintifs for whatever deficiency may remain unpaid after the proceeds of the sale of the assets of the defendnt partnership are supplied in payment of the judgment that said plaintiffs may recover in this action; (6) The plaintiffs further pray for all other remedies to which the Honorable Court will find them entitled to, with costs to the defendants. Bacolod City, June 4, 1959.
3

The action was docketed as Civil Case No. 5343 of said court. In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio Saldajeno, alleged the following special and affirmative defenses: xxx xxx xxx 2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled "In the matter of: Dissolution of Isabela Sawmill as partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al., Civil Case No. 4787, Court of First Instance of Negros Occidental; 3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros Occidental in the aforesaid case, the other defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua became the successors-in-interest to the said defunct partnership and have bound themselves to answere for any and all obligations of the defunct partnership to its creditors and third persons; 4. That to secure the performance of the obligations of the other defendants Leon Garibay and Timoteo Tubungbanua to the answering defendant herein, the former have constituted a chattel mortgage over the properties mentioned in the annexes to that instrument entitled "Assignment of Rights with Chattel Mortgage" entered into on May 26, 1968 and duly registered in the Register of Deeds of Negros Occidental on the same date: 5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as such they have no cause of action against answering defendant herein and the defendant Isabela Sawmill; 6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc. granted cash advances, gasoline, crude oil, motor oil, grease, rice and nipa to the defendants Leon Garibay and Timoteo Tubungbanua with the knowledge and notice that the Isabela Sawmill as a former partnership of defendants Margarita G. Isabela Sawmill as a former partnership of defendants Margarita G. Saldajeno, Leon Garibay and Timoteo Tubungbanua, has already been dissolved; 7. That this Honorable Court has no jurisdictionover the claims of the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it appearing that the amounts sought to be recovered by them in this action is less than P2,000.00 each, exclusive of interests; 8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a misjoinder of parties because this is not a class suit, and therefore this Honorable Court cannot take jurisdictionof the claims for payment;

9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned inthe statute of frauds, Art. 1403 of the Civil Code, and are therefor unenforceable, even assuming that there were such credits and claims; 10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in jurisprudence that a court of first instance has no power or jurisdiction to annul judgments or decrees of a coordinate court because other function devolves upon the proper appellate court; (Lacuna, et al. vs. Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124), as it appears from the complaint in this case to annul the decision of this same court, but of another branch (Branch II, Judge Querubin 4 presiding). Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo Tubungbanua praying "that in the event that judgment be rendered ordering defendant cross claimant to pay to the plaintiffs the amount claimed in the latter's complaint, that the cross claimant whatever amount is paid by the latter to the plaintiff in 5 accordance to the said judgment. ... After trial, judgment was rendered in favor of the plaintiffs and against the defendants. The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of Appeals assigning the following errors: I THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE. II THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID PARTNERSHIP. III THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANTAPPELLANT MARGARITA G. SALDAJENO AS A PARTNER THEREIN DISSOLVED THE PARTNERSHIP "ISABELA SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND SAID MARGARITA G. SALDAJENO). IV THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION. V THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED MAY 26, 1958, WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS NULL AND VOID. VI THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY DEFENDANTAPPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN CIVIL CASE NO. 5223 CONSTITUTED 'ALL THE ASSETS OF THE DEFENDNAT PARTNERSHIP.

VII THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT MARGARITA G. SALDAJENO BECAME PRIMARILY LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING ACQUIRED THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN CONNECTION WITH CIVIL CASE NO. 5223. VIII THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS. LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO WAS A PARTNER. IX THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES. X THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFSAPPELLEES. XI THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANTAPPELLANT MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON GARIBAY 6 AND TIMOTEO TUBUNGBANUA. The facts, as found by the trial court, are: At the commencement of the hearing of the case on the merits the plaintiffs and the defendant Cecilio and Margarita g. Saldajeno submittee a Partial Stipulation of Facts that was marked as Exh. "A". Said stipulation reads as folows: 1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and Timoteo Tubungbanua entered into a Contract of Partnership under the firm name "Isabela Sawmill", a copy of which is hereto attached Appendix "A". 2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two Tractors to the partnership Isabela Sawmill for the sum of P20,500.00. In order to pay the said purcahse price, the said partnership agreed to make arrangements with the International Harvester Company at Bacolod City so that the latter would sell farm machinery to Oppen, Esteban, Inc. with the understanding that the price was to be paid by the partnership. A copy of the corresponding contract of sle is attached hereto as Appendix "B". 3. That through the method of payment stipulated in the contract marked as Appendix "B" herein, the International Harvester Company has been paid a total of P19,211.11, leaving an unpaid balance of P1,288.89 as shown in the statements hereto attached as Appendices "C", "C-1", and "C-2". 4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill, Leon

Garibay, and Timoteo Tubungbanua, a copy of which Complaint is attached as Appendix 'D'. 5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua and Margarita G. Saldajeno entered into a "Memorandum Agreement", a copy of which is hereto attached as Appendix 'E' in Civil Case 4797 of the Court of First Instance of Negros Occidental. 6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita G. Saldajeno executed a document entitled "Assignment of Rights with Chattel Mortgage", a copy of which documents and its Annexes "A" to "A-5" forming a part of the record of the above mentioned Civil Case No. 4797, which deed was referred to in the Decision of the Court ofFirst Instance of Negros Occidental in Civil Case No. 4797 dated May 29, 1958, a copy of which is hereto attached as Appendix "F" and "F-1" respectively. 7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide the assets and properties of the "Isabela Sawmill" between them, but they continued the business of said partnership under the same firm name "Isabela Sawmill". 8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2) notices that he would sell at public auction on June 5, 1959 at Isabela, Negros Occidental certain trucks, tractors, machinery, officeequipment and other things that were involved in Civil Case No. 5223 of the Court of First Instance of Negros Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." See Appendices "G" and "G-1". 9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed a Certificate ofSale in favor of the defendant Margarita G. Saldajeno, as a result of the sale conducted by him on October 14 and 15, 1959 for the enforcement of the judgment rendered in Civil Case No. 5223 of the Court of First Instance of Negros Occidental, a certified copy of which certificte of sale is hereto attached as Appendix "H". 10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of sale in favor of the Pan Oriental Lumber Company transfering to the latter for the sum of P45,000.00 the trucks, tractors, machinery, and other things that she had purchashed at a public auction referred to in the foregoing paragraph, a certified true copy of which Deed of Sale is hereto attached as Appendix "I". 11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno reserve the right to present additional evidence at the hearing of this case. Forming parts of the above copied stipulation are documents that were marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1", "H", and "I". The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence, mostly documentary, while the cross-defendants did not present any evidence. The case hardly involves quetions of fact at all, but only questions of law. The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on February 3, 10956 is expressly admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices "B", "C", "C-1", and "C-2".

The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G" that from October 6, 1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the said advances said defendant delivered to Tonsay P3,266.27 worth of lumber, leavng an unpaid balance of P933.73, which balance was confirmed on May 15, 1959 by the defendant Leon Garibay, as Manager of the defendant partnership. The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold on credit to the defendnat "Isabela Sawmill" rice and bran, on account of which business transaction there remains an unpaid balance of P3,580.50. The same plaintiff also proved that the partnership ownes him the sum of P143.00 for nipa shingles bought from him on credit and unpaid for. The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and his Exhs. "N" to "O-3" that he owns the "Guia Lumber Yard", that on October 11, 1958 said lumber yard advanced the sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash advance, the defendant partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an outstanding balance of P1,579.44. The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on October 11, 1958 said plaintiff advanced the sum of P1,500.00 to the defendsant 'Isabela Sawmill', that against the said cash advance, the defendant partnership delivered to the said plaintiff on November 19, 1958 P377.72 worth of lumber, and P73.54 worth of lumber on January 27, 1959, leaving an outstanding balance of P1,048.78. The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his witness, and through the Exhs. "R" to "E" that from September 14, 1958 to November 27, 1958 he sold to the defedant "Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of said transactions, the defendant partnersip ownes him an unpaid balance of P2,052.10. Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959 the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for P38,040.00 the assets of the defendsant "Isabela Sawmill" which the defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to her, and said purchase price was applied to the judgment that she has obtained against he said mortgagors in Civil Case No. 5223 of this Court. Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the said properties that she had bought at public aucton one week before. xxx xxx xxx
7

It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction over Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought to collect sums of moeny, the biggest amount of which was less than P2,000.00 and, therefore, within the jurisdiction of the municipal court. This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right with chattel mortgage entered into by and between Margarita G. Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation and falls under the jurisdiction of the Court of First Instnace. Where the basic issue is something more than the right to recover a sum of money and where the money claim is purely incidental to or a consequence of the principal relief sought, the action is as a case where the subject of the litigation is not capable of pecuniary estimation and is cognizable exclusively by the Court of First Instance. The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature of litigation, is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have exclusive original jurisdiction over any case the subject matter of which is not capable of pecuniary estimation. An action for the 8 annulment of a judgment and an order of a court of justice belongs to th category.

In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the cliam is considered capable of pecuniary estimation, and whether jurisdiciton is in the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where the basic issue is something other than the right to recover a sum of money, where the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has considered such actions as cases where the subject ogf the litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first instance. In Andres Lapitan vs. SCANDIA, Inc., et al., this Court held: Actions for specific performance of contracts have been expressly prounounced to be exclusively cognizable by courts of first instance: De Jesus vs. Judge Garcia, L-26816, February 28, 1967; Manufacturers' Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent reason appears, and none is here advanced by the parties, why an actin for rescission (or resolution) should be differently treated, a "rescission" being a counterpart, so to speak, of "specific performance'. In both cases, the court would certainly have to undertake an investigation into facts that would justify one act of the other. No award for damages may be had in an action for resicssion without first conducting an inquiry into matters which would justify the setting aside of a contract, in the same manner that courts of first instance would have to make findings of fact and law in actions not capable of pecuniary estimnation espressly held to be so by this Court, arising from issues like those arised in Arroz v. Alojado, et al., L-22153, March 31, 1967 (the legality or illegality of the conveyance sought for and the determination of the validity of the money deposit made); De Ursua v. Pelayo, L-13285, April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L12707, December 23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the relations of the parties, the right to support created by the relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159, September 30, 1963 (the validity or nullity of documents upon which claims are predicated). Issues of the same nature may be raised by a party against whom an action for rescission has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a prayer for damages in an action for rescission should be taken as the basis for concluding such action for resiccison should be taken as the basis for concluding such action as one cpable of pecuniary estimation - a prayer which must be included in the main action if plaintiff is to be compensated for what he may have suffered as a result of the breach committed by defendant, and not later on precluded from recovering damages by the rule against splitting a cause of action and discouraging multiplicitly of suits. The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan,
10 9

where this Court held:

On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in point. It was ruled therein that although the purposes of an action is to recover an amount plus interest which comes within the original jurisidction of the Justice of the Peace Court, yet when said action involves the foreclosure of a chattel mortgage covering personal properties valued at more than P2,000, (now P10,000.00) the action should be instituted before the Court of First Instance. In the instanct, case, the action is to recover the amount of P1,520.00 plus interest and costs, and involves the foreclosure of a chattel mortgage of personal properties valued at P15,340.00, so that it is clearly within the competence of the respondent court to try and resolve. In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in exercising jurisidction over Civil Case No. 5343. The appellants also contend that the chattel mortgage may no longer be annulled because it had been judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said chattel mortgage had been ordered foreclosed in Civil Case No. 5223 of the same court. On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent and coordinate jusridiction, this Court originally ruled that:

A court has no power to interfere with the judgments or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief sought by the injunction. The various branches of the Court of First Instance of Manila are in a sense coordinate courts and 11 cannot be allowed to interfere with each others' judgments or decrees. The foregoing doctrine was reiterated in a 1953 case
12

where this Court said:

The rule which prohibits a Judge from intertering with the actuations of the Judge of another branch of the same court is not infringed when the Judge who modifies or annuls the order isued by the other Judge acts in the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But the rule is infringed when the Judge of a branch of the court issues a writ of preliminary injunction in a case to enjoint the sheriff from carrying out an order by execution issued in another case by the Judge of another branch of the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182). This ruling was maintained in 1967. In Mas vs. Dumaraog, the judgment sought to be annulled was rendered by the Court of First Instance of Iloilo and the action for annullment was filed with the Court of First Instance of Antique, both courts belonging to the same Judicial District. This Court held that: The power to open, modify or vacant a judgment is not only possessed by but restricted to the court in which the judgment was rendered. The reason of this Court was: Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may not be interfered with by any court concurrrent jurisdiction. Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the court of First Instance 14 belongs solely to the very same branch which rendered the judgement. Two years later, the same doctrine was laid down in the Sterling Investment case.
15 13

In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter. In Dupla v. Court 16 of Appeals, this Tribunal, speaking through Mr. Justice Villamor declared: ... the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the end that the judgment of a court of competent jurisdiction may not be interfered with by any court of concurrent jurisdiction may not be interfered with by any court of concurrent jurisdiciton, this Court feels that this is as good an occasion as any to re-examine the doctrine laid down ... In an action to annul the judgment of a court, the plaintiff's cause of action springs from the alleged nullity of the judgment based on one ground or another, particularly fraud, which fact affords the plaintiff a right to judicial interference in his behalf. In such a suit the cause of action is entirely different from that in the actgion which grave rise to the judgment sought to be annulled, for a direct attack against a final and executory judgment is not a incidental to, but is the main object of the proceeding. The cause of action in the two cases being distinct and separate from each other, there is no plausible reason why the venue of the action to annul the judgment should necessarily follow the venue of the previous action ... The present doctrine which postulate that one court or one branch of a court may not annul the judgment of another court or branch, not only opens the door to a violation of Section 2 of Rule 4, (of the Rules of Court) but also limit the opportunity for the application of said rule. Our conclusion must therefore be that a court of first instance or a branch thereof has the authority and jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or order rendered by another court of first instance or by another branch of the same court...

In February 1974 this Court reiterated the ruling in the Dulap case.

17

In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First Instance of Negros Occidental can take cognizance of an action to nullify a final judgment of the other two branches of the same court. It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of 18 the business. However, on dissolution, the partnershop is not terminated but continuous until the winding up to the 19 business. The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of winding up the business of the partnership, they continued the business still in the name of said partnership. It is expressly stipulated in the memorandum-agreement that the remaining partners had constituted themselves as the partnership entity, the 20 "Isabela Sawmill". There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo Tubungbanua, continued doing the business of the partnership in the name of "Isabela Sawmill". They used the properties of said partnership. The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was correctly held liable by the trial court because she purchased at public auction the properties of the partnership which were mortgaged to her. It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the newspapers. The appellees and the public in general had a right to expect that whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership "Isabela Sawmill" could be enforced against the proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the partnership. The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the liquidaiton of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua continue doing the business of the partnership "Isabela Sawmill" by entering into the memorandum-agreement with them. Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees aslo acted in good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences. Had Margarita G. Saldajeno not entered into the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business of the aprtnership, the applees would not have been misled into thinking that they were still dealing with the partnership "Isabela Sawmill". Under the facts, it is of no moment that technically speaking the partnership "Isabela Sawmill" was dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued doping business through the two remaining partners. The contention of the appellant that the appleees cannot bring an action to annul the chattel mortgage of the propertiesof the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no merit. As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract prejudices the rights of a third person, he may file an action to annul the contract. This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract, may exercised an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show detriment which would positively result to him from the contract in which he has no 21 intervention. The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the properties of the partnership "Isabela Sawmill" in favopr of Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right to file the action to nullify the chattel mortgage in question.

The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffs-appellees cannot be sustained. There is no showing that the appellants displayed a wanton disregard of the rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are not liable to pay the claims. The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees by their codefendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay and Timoteo 22 Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third persons. WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering appellants to pay attorney's fees and with the modification that the defendsants, Leon Garibay and Timoteo Tubungbanua, should reimburse the defendants-appellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees, without pronouncement as to costs. SO ORDERED.