1 | P a g e

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 167379 June 27, 2006
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.
LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T.
LAZATIN and JOSE MARCOS T. LAZATIN, Respondents.
D E C I S I O N
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure of the Decision
1
of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its
Resolution
2
denying petitioners motion for reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic
corporation engaged in real estate development. Rafaelito W. Lopez is its President and
Chief Executive Officer.
3

Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin
and Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining
parcels of land, with a combined area of 30,000 square meters, located in Tagaytay City
and covered by Transfer Certificate of Title (TCT) No. T-10848
4
of the Register of Deeds of
Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as
President, entered into a Joint Venture Agreement
5
(JVA) for the development of the
aforementioned property into a residential subdivision to be known as "Tagaytay Garden
Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute the two
parcels of land as their share in the joint venture. For its part, Primelink undertook to
contribute money, labor, personnel, machineries, equipment, contractors pool, marketing
activities, managerial expertise and other needed resources to develop the property and
construct therein the units for sale to the public. Specifically, Primelink bound itself to
accomplish the following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering designs, structural
and architectural plans, site development plans, and such other need plans in accordance
with existing laws and the rules and regulations of appropriate government institutions,
firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
c.) Furnish all materials, equipment, labor and services for the development of the land in
preparation for the construction and sale of the different types of units (single-detached,
duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by force majeure
or fortuitous event or by competent authority, or other unavoidable circumstances beyond
the DEVELOPERS control, not to exceed three years from the date of the signing of this
Joint Venture Agreement, except the installation of the electrical facilities which is solely
MERALCOS responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers,
support personnel and marketing staff, to handle all services related to land and housing
development (administrative and construction) and marketing (sales, advertising and
promotions).
6

The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can
draw allowances or make advances not exceeding a total of twenty percent (20%) of the
net revenue for that period, on the basis of sixty percent (60%) for the DEVELOPER and
forty percent (40%) for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net revenue
for the first two years, in order to have sufficient reserves or funds to protect and/or
guarantee the construction and completion of the different types of units mentioned above.
2 | P a g e

2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing
allowances and/or advances equivalent to sixty percent (60%) and forty percent (40%),
respectively, of the total net revenue or income of the sale of the units.
7

They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income
of the Joint Venture project, after deducting all expenses incurred in connection with the
land development (such as administrative management and construction expenses), and
marketing (such as sales, advertising and promotions), and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or
income of the Joint Venture project, after deducting all the above-mentioned expenses.
8

Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:
SALES-INCOME-COST PROJECTION
lawphil.net
SELLING PRICE COST PRICE DIFFERENCE INCOME
CLUSTER:
A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00
TWIN:

B1 2,500,000 - B2 960,000 = 1,540,000 x 24 = 36,960,000.00
SINGLE:

C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00
ROW-TYPE TOWNHOMES:

D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00


P138,720,000.00
(GROSS) Total Cash Price (A1+B1+C1+D1) = P231,200,000.00

Total Building Expense (A2+B2+C2+D2) = 92,480,000.00
COMPUTATION OF ADDL. INCOME ON INTEREST
TCP x 30% D/P = P 69,360,000

P 69,360,000.00
Balance = 70% = 161,840,000

x .03069 x 48 = P238,409,740

238,409,740.00
Total Amount (TCP + int. earn.) P307,769,740.00
EXPENSES:
less: A Building expenses P 92,480,000.00
B Commission (8% of TCP) 18,496,000.00
C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00
D Advertising & Promo exp. (2% of TCP) 4,624,000.00
E Building expenses for the open
spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00
3 | P a g e

TOTAL EXPENSES (A+B+C+D+E)

P132,224,000.00
RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.) P307,769,740.00

less: 132,224,000.00
Total Expenses P175,545,740.00
9

The parties agreed that any unsettled or unresolved misunderstanding or conflicting
opinions between the parties relative to the interpretation, scope and reach, and the
enforcement/implementation of any provision of the agreement shall be referred to
Voluntary Arbitration in accordance with the Arbitration Law.
10

The Lazatins agreed to subject the title over the subject property to an escrow agreement.
Conformably with the escrow agreement, the owners duplicate of the title was deposited
with the China Banking Corporation.
11
However, Primelink failed to immediately secure a
Development Permit from Tagaytay City, and applied the permit only on August 30, 1995.
On October 12, 1995, the City issued a Development Permit to Primelink.
12

In a Letter
13
dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink
comply with its obligations under the JVA, otherwise the appropriate action would be filed
against it to protect their rights and interests. This impelled the officers of Primelink to meet
with the Lazatins and enabled the latter to review its business records/papers. In another
Letter
14
dated October 22, 1997, the Lazatins informed Primelink that they had decided to
rescind the JVA effective upon its receipt of the said letter. The Lazatins demanded that
Primelink cease and desist from further developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC)
of Tagaytay City, Branch 18, a complaint for rescission accounting and damages, with
prayer for temporary restraining order and/or preliminary injunction against Primelink and
Lopez. The case was docketed as Civil Case No. TG-1776. Plaintiffs alleged, among
others, that, despite the lapse of almost four (4) years from the execution of the JVA and
the delivery of the title and possession of the land to defendants, the land development
aspect of the project had not yet been completed, and the construction of the housing units
had not yet made any headway, based on the following facts, namely: (a) of the 50 housing
units programmed for Phase I, only the following types of houses appear on the site in
these condition: (aa) single detached, one completed and two units uncompleted; (bb)
cluster houses, one unit nearing completion; (cc) duplex, two units completed and two units
unfinished; and (dd) row houses, two units, completed; (b) in Phase II thereof, all that was
done by the defendants was to grade the area; the units so far constructed had been the
object of numerous complaints by their owners/purchasers for poor workmanship and the
use of sub-standard materials in their construction, thus, undermining the projects
marketability. Plaintiffs also alleged that defendants had, without justifiable reason,
completely disregarded previously agreed accounting and auditing procedures, checks and
balances system installed for the mutual protection of both parties, and the scheduled
regular meetings were seldom held to the detriment and disadvantage of plaintiffs. They
averred that they sent a letter through counsel, demanding compliance of what was agreed
upon under the agreement but defendants refused to heed said demand. After a
succession of letters with still no action from defendants, plaintiffs sent a letter on October
22, 1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by
defendants, they (plaintiffs) stood to receive the amount of P70,218,296.00 as their net
share in the joint venture project; to date, however, after almost four (4) years and despite
the undertaking in the JVA that plaintiffs shall initially get 20% of the agreed net revenue
during the first two (2) years (on the basis of the 60%-40% sharing) and their full 40%
share thereafter, defendants had yet to deliver these shares to plaintiffs which by
conservative estimates would amount to no less than P40,000,000.00.
15

Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining
order be forthwith issued enjoining the defendants to immediately stop their land
development, construction and marketing of the housing units in the aforesaid project; after
due proceedings, to issue a writ of preliminary injunction enjoining and prohibiting said land
development, construction and marketing of housing units, pending the disposition of the
instant case.
4 | P a g e

After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the
defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well as
expenses incurred and disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty
Million Pesos (P40,000,000.00) in actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two
Million Pesos (P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent
to ten percent (10%) of the total amount due as and for attorneys fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for.
16

Defendants opposed plaintiffs plea for a writ of preliminary injunction on the ground that
plaintiffs complaint was premature, due to their failure to refer their complaint to a
Voluntary Arbitrator pursuant to the JVA in relation to Section 2 of Republic Act No. 876
before filing their complaint in the RTC. They prayed for the dismissal of the complaint
under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of
Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to
arbitrate, and then asking the parties to resolve their controversies, pursuant to the
Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the completion of the
arbitration, and
d) denying the plaintiffs prayer for the issuance of a temporary restraining order or writ of
preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for.
17

In the meantime, before the expiration of the reglementary period to answer the complaint,
defendants, invoking their counsels heavy workload, prayed for a 15-day
extension
18
within which to file their answer. The additional time prayed for was granted by
the RTC.
19
However, instead of filing their answer, defendants prayed for a series of 15-
day extensions in eight (8) successive motions for extensions on the same
justification.
20
The RTC again granted the additional time prayed for, but in granting the last
extension, it warned against further extension.
21
Despite the admonition, defendants again
moved for another 15-day extension,
22
which, this time, the RTC denied. No answer having
been filed, plaintiffs moved to declare the defendants in default,
23
which the RTC granted in
its Order
24
dated June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim
and Opposition to the Prayer for the Issuance of a Writ of Preliminary Injunction."
25
On July
8, 1998, defendants filed a Motion to Set Aside the Order of Default.
26
This was opposed
by plaintiffs.
27
In an Order
28
dated July 14, 1998, the RTC denied defendants motion to set
aside the order of default and ordered the reception of plaintiffs evidence ex parte.
Defendants filed a motion for reconsideration
29
of the July 14, 1998 Order, which the RTC
denied in its Order
30
dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in
default, as well as the Order denying their motion to set aside the order of default, alleging
that these were contrary to facts of the case, the law and jurisprudence.
31
On September
16, 1999, the appellate court issued a Resolution
32
dismissing the appeal on the ground
that the Orders appealed from were interlocutory in character and, therefore, not
appealable. No motion for reconsideration of the Order of the dismissal was filed by
defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence.
On April 17, 2000, the RTC rendered a Decision, the dispositive part of which reads:
5 | P a g e

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this
complaint;
2. Ordering the defendants to return possession, including all improvements therein, of the
real estate property belonging to the plaintiffs which is described in, and covered by
Transfer Certificate of Title No. T-10848 of the Register of Deeds of Tagaytay City, and
located in Barangay Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that have been
executed, prepared and retained in connection with any contract to sell or deed of sale of
all lots/units sold during the effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their
share of the net income of the P2,603,810.64 as of September 30, 1995, as stipulated in
the joint venture agreement;
5. Ordering the defendants to pay the plaintiffs attorneys fees in the amount
of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.
33

The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the
stipulations particularly paragraph II covering Developers (defendant) undertakings, as
well as paragraph III and paragraph V of the JVA. These violations are not limited to those
made against the plaintiffs alone as it appears that some of the unit buyers themselves
have their own separate gripes against the defendants as typified by the letters (Exhibits
"G" and "H") of Mr. Emmanuel Enciso.
x x x x
Rummaging through the evidence presented in the course of the testimony of Mrs.
Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp.
60 to 62, TSN August 6, 1998) this court has observed, and is thus convinced, that a
pattern of what appears to be a scheme or plot to reduce and eventually blot out the net
income generated from sales of housing units by defendants, has been established. Exhibit
"P-2" is explicit in declaring that, as of September 30, 1995, the joint venture project earned
a net income of aboutP2,603,810.64. This amount, however, was drastically reduced in a
subsequent financial report submitted by the defendants to P1,954,216.39. Shortly
thereafter, and to the dismay of the plaintiffs, the defendants submitted an income
statement and a balance sheet (Exhibits "R" and "R-1") indicating a net loss
of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have
received the sum ofP1,041,524.26 representing their 40% share under paragraph II and V
of the JVA. But this was not to be so. Even before the plaintiffs could get hold of their share
as indicated above, the defendants closed the chance altogether by declaring a net loss.
The court perceives this to be one calculated coup-de-grace that would put to thin air
plaintiffs hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way the
defendants treated the JVA and the manner by which they handled the project itself vis--
vis their partners, the plaintiffs herein, there is bound to be certain conflict as the latter
repeatedly would received the losing end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other
recourse but to file the present action to enforce their rights. x x x
34

On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal
35
alleging
defendants dilatory tactics for its allowance. This was opposed by defendants.
36

On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of
plaintiffs.
37
Upon posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending
appeal was issued on June 20, 2000.
38

Defendants appealed the decision to the CA on the following assignment of errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING
THE COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE
MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE
AGREEMENT, AND THE DOCTRINE IN "MINDANAO PORTLAND CEMENT
6 | P a g e

CORPORATION V. MCDONOUGH CONSTRUCTION COMPANY OF FLORIDA" (19
SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL
EVEN IN THE ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID
ISSUANCE, AND DESPITE PRIMELINKS STRONG OPPOSITION THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO
QUASH THE WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR
RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION
TO RULE ON ALL QUESTIONS RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT
ALTHOUGH PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS
SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE APPELLEES
FAILURE TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT
TO TAKE OVER THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL
THE EXISTING IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH
SAID RIGHT WAS NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH
LESS PROVEN DURING THE EX PARTE HEARING, AND EVEN WITHOUT ORDERING
APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE
BETWEEN THE MARKET VALUE OF APPELLEES RAW, UNDEVELOPED AND
UNPRODUCTIVE LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE
OR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE
HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY
ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF
PRIMELINK.
39

The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with modification, the
appealed decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of
Tagaytay City, Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is
hereby AFFIRMED. Accordingly, Transfer Certificate of Title No. T-10848 held for
safekeeping by Chinabank pursuant to the Escrow Agreement is ordered released for
return to the plaintiffs-appellees and conformably with the affirmed decision, the
cancellation by the Register of Deeds of Tagaytay City of whatever annotation in TCT No.
10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.
40

Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation,
41
the appellate court ruled that, under Philippine law, a joint venture is a form
of partnership and is to be governed by the laws of partnership. The aggrieved parties filed
a motion for reconsideration,
42
which the CA denied in its Resolution
43
dated March 7,
2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE
LEGAL ERROR AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE
RETURN TO THE RESPONDENTS OF THE PROPERTY WITH ALL IMPROVEMENTS
THEREON, EVEN WITHOUT ORDERING/REQUIRING THE RESPONDENTS TO FIRST
PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN DEVELOPING
AND MARKETING THE PROJECT, LESS THE ORIGINAL VALUE OF THE PROPERTY,
AND THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINT
VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND
UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS
AND VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL NOTICE,
DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF CONTRACT WHICH
REQUIRES MUTUAL RESTITUTION, NOT UNILATERAL APPROPRIATION, OF
PROPERTY BELONGING TO ANOTHER?
44

Petitioners maintain that the aforesaid portion of the decision which unconditionally awards
to respondents "all improvements" on the project without requiring them to pay the value
7 | P a g e

thereof or to reimburse Primelink for all expenses incurred therefore is inherently and
essentially illegal and confiscatory, oppressive and unconscionable, contrary to the tenets
of good human relations, and will allow respondents to unjustly enrich themselves at
Primelinks expense. At the time respondents contributed the two parcels of land,
consisting of 30,000 square meters to the joint venture project when the JVA was signed
on March 10, 1994, the said properties were worth not more than P500.00 per square
meter, the "price tag" agreed upon the parties for the purpose of the JVA. Moreover, before
respondents rescinded the JVA sometime in October/November 1997, the property had
already been substantially developed as improvements had already been introduced
thereon; petitioners had likewise incurred administrative and marketing expenses, among
others, amounting to more or less P40,000,000.00.
45

Petitioners point out that respondents did not pray in their complaint that they be declared
the owners and entitled to the possession of the improvements made by petitioner
Primelink on the property; neither did they adduce evidence to prove their entitlement to
said improvements. It follows, petitioners argue, that respondents were not entitled to the
improvements although petitioner Primelink was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to
the extent necessary to cover the damages caused and that, under Article 1385 of the
same Code, rescission creates the obligation to return the things which were not object of
the contract, together with their fruits, and the price with its interest; consequently, it can be
effected only when respondents can return whatever they may be obliged to return.
Respondents who sought the rescission of the JVA must place petitioner Primelink in the
status quo. They insist that respondents cannot rescind and, at the same time, retain the
consideration, or part of the consideration received under the JVA. They cannot have the
benefits of rescission without assuming its burden. All parties must be restored to their
original positions as nearly as possible upon the rescission of a contract. In the event that
restoration to the status quo is impossible, rescission may be granted if the Court can
balance the equities and fashion an appropriate remedy that would be equitable to both
parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their claim
for reimbursement because "[w]hat matters is that the improvements exist and they cannot
be denied."
46
Moreover, they point out, the ruling of this Court in Aurbach v. Sanitary
Wares Manufacturing Corporation
47
cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not
specifically pray for their takeover of the property and for the possession of the
improvements on the parcels of land, nevertheless, respondents were entitled to said relief
as a necessary consequence of the ruling of the trial court ordering the rescission of the
JVA. The appellate court cited the ruling of this Court in the Aurbach case and Article 1838
of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general principles of
partnership may be resorted to.
48

Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal
with rescissible contracts. What applies is Article 1191 of the New Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as
found by the RTC and the CA, it was petitioner Primelink that enriched itself at the expense
of respondents. Respondents reiterate the ruling of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and
did not pray that they are and should be entitled to take over the development of the
project, and that the improvements and existing structures which were introduced by
PRIMELINK after spending more or less Forty Million Pesos be awarded to them. They
merely asked in the complaint that the joint venture agreement be rescinded, and that the
parcels of land they contributed to the project be returned to them.
8 | P a g e

PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to return
possession of the real estate property belonging to the LAZATINs including all
improvements thereon was not a judgment that was different in kind than what was prayed
for by the LAZATINs. The order to return the property with all the improvements thereon is
just a necessary consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general principles of
partnership may be resorted to. In Aurbach v. Sanitary Wares Manufacturing Corporation,
the Supreme Court discussed the following points regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly
distinguishable from the partnership, since elements are similar community of interest in
the business, sharing of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley v.
Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited by
most opinions in common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed for the execution
of a single transaction, and is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App.
170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74 [1947]; Gates v.
Megargel, 266 Fed. 811 [1920]) This observation is not entirely accurate in this jurisdiction,
since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would
seem therefore that, under Philippine law, a joint venture is a form of partnership and
should thus be governed by the laws of partnership. The Supreme Court has, however,
recognized a distinction between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may, however, engage in a joint
venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]; Campos and Lopez
Campos Comments, Notes and Selected Cases, Corporation Code 1981) (Emphasis
Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words
of the court a quo, was a pattern of what appears to be a scheme or plot to reduce and
eventually blot out the net incomes generated from sales of housing units by the
defendants. Under Article 1838 of the Civil Code, where the partnership contract is
rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the
party entitled to rescind is, without prejudice to any other right is entitled to a lien on, or
right of retention of, the surplus of the partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by him for the purchase of an interest
in the partnership and for any capital or advance contributed by him. In the instant case,
the joint venture still has outstanding liabilities to third parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by
Chinabank for safekeeping pursuant to the Escrow Agreement executed between
Primelink Properties and Development Corporation and Ma. Clara T. Lazatin-Magat should
also be returned to the LAZATINs as a necessary consequence of the order of rescission
of contract. The reason for the existence of the Escrow Agreement has ceased to exist
when the joint venture agreement was rescinded.
49

Respondents stress that petitioners must bear any damages or losses they may have
suffered. They likewise stress that they did not enrich themselves at the expense of
petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the
improvements even if their share in the P1,041,524.26 of the net income of the property
and the sale of the land were to be deducted from the value of the improvements, plus
administrative and marketing expenses in the total amount of P40,000,000.00. Petitioners
will still be entitled to an accounting from respondents. Respondents cannot deny the
existence and nature of said improvements as they are visible to the naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the
possession of the parcels of land covered by the JVA and the improvements thereon
introduced by petitioners as their contribution to the JVA; (2) whether petitioners are
entitled to reimbursement for the value of the improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in
their complaint below that possession of the improvements on the parcels of land which
they contributed to the JVA be transferred to them. Respondents made a specific prayer in
their complaint that, upon the rescission of the JVA, they be placed in possession of the
parcels of land subject of the agreement, and for other "reliefs and such other remedies as
are just and equitable in the premises." However, the trial court was not precluded from
9 | P a g e

awarding possession of the improvements on the parcels of land to respondents in its
decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall specify
the relief sought but it may add as general prayer for such further or other relief as may be
deemed just and equitable. Even without the prayer for a specific remedy, proper relief
may be granted by the court if the facts alleged in the complaint and the evidence
introduced so warrant.
50
The court shall grant relief warranted by the allegations and the
proof even if no such relief is prayed for.
51
The prayer in the complaint for other reliefs
equitable and just in the premises justifies the grant of a relief not otherwise specifically
prayed for.
52

The trial court was not proscribed from placing respondents in possession of the parcels of
land and the improvements on the said parcels of land. It bears stressing that the parcels
of land, as well as the improvements made thereon, were contributed by the parties to the
joint venture under the JVA, hence, formed part of the assets of the joint venture.
53
The
trial court declared that respondents were entitled to the possession not only of the parcels
of land but also of the improvements thereon as a consequence of its finding that
petitioners breached their agreement and defrauded respondents of the net income under
the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and
respondents entered into a joint venture as evidenced by their JVA which, under the
Courts ruling in Aurbach, is a form of partnership, and as such is to be governed by the
laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on
record that petitioners willfully and persistently committed a breach of the JVA, the court
thereby dissolved/cancelled the partnership.
54
With the rescission of the JVA on account of
petitioners fraudulent acts, all authority of any partner to act for the partnership is
terminated except so far as may be necessary to wind up the partnership affairs or to
complete transactions begun but not yet finished.
55
On dissolution, the partnership is not
terminated but continues until the winding up of partnership affairs is completed.
56
Winding
up means the administration of the assets of the partnership for the purpose of terminating
the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon to
respondents was only for a specific purpose: the winding up of partnership affairs, and the
partition and distribution of the net partnership assets as provided by law.
57
After all, Article
1836 of the New Civil Code provides that unless otherwise agreed by the parties in their
JVA, respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not insolvent, has the
right to wind up the partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of the lands and
the improvements thereon, the said lands and improvements remained partnership
property, subject to the rights and obligations of the parties, inter se, of the creditors and of
third parties under Articles 1837 and 1838 of the New Civil Code, and subject to the
outcome of the settlement of the accounts between the parties as provided in Article 1839
of the New Civil Code, absent any agreement of the parties in their JVA to the
contrary.
58
Until the partnership accounts are determined, it cannot be ascertained how
much any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified for the
value of the improvements on the parcels of land owned by the joint venture/partnership.
Notably, the JVA of the parties does not contain any provision designating any party to
wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is
caused in contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or jointly with others, may do
so, during the agreed term for the partnership and for that purpose may possess the
partnership property, provided they secure the payment by bond approved by the court, or
pay to any partner who has caused the dissolution wrongfully, the value of his interest in
the partnership at the dissolution, less any damages recoverable under the second
10 | P a g e

paragraph, No. 1(b) of this article, and in like manner indemnify him against all present or
future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No. 2, all
the rights of a partner under the first paragraph, subject to liability for damages in the
second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right
as against his co-partners and all claiming through them in respect of their interests in the
partnership, to have the value of his interest in the partnership, less any damage caused to
his co-partners by the dissolution, ascertained and paid to him in cash, or the payment
secured by a bond approved by the court, and to be released from all existing liabilities of
the partnership; but in ascertaining the value of the partners interest the value of the good-
will of the business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after
satisfying the partnership liabilities to third persons for any sum of money paid by him for
the purchase of an interest in the partnership and for any capital or advances contributed
by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the
creditors of the partnership for any payments made by him in respect of the partnership
liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation against
all debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in Article
1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following rules
shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified
in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the
satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to
satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have
the right to enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions
specified in No. 4, to the extent of the amount which he has paid in excess of his share of
the liability.
(7) The individual property of a deceased partner shall be liable for the contributions
specified in No. 4.
(8) When partnership property and the individual properties of the partners are in
possession of a court for distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual property, saving the rights of lien
or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his
separate property shall rank in the following order:
(a) Those owing to separate creditors;
11 | P a g e

(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as
they conform to this Decision of the Court.
Costs against petitioners.
SO ORDERED.






































12 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA,respondents.

VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated
26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the
Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted
at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in
the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and
Exchange Commission on 4 August 1948. The SEC records show that there were several
subsequent amendments to the articles of partnership on 18 September 1958, to change
the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS,
SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on
7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa]
appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior
partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and
Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter
stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of
this month.
"I trust that the accountants will be instructed to make the proper liquidation of my
participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of you with regard
to the mechanics of liquidation, and more particularly, my interest in the two floors of this
building. I would like to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter
stating:
"The partnership has ceased to be mutually satisfactory because of the working conditions
of our employees including the assistant attorneys. All my efforts to ameliorate the below
subsistence level of the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases to the employees, even
attorneys, are dressed down publicly in a loud voice in a manner that deprived them of
their self-respect. The result of such policies is the formation of the union, including the
assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and
Clearing Department (SICD) a petition for dissolution and liquidation of partnership,
docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of)
Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets
plus the profits, rent or interest attributable to the use of his right in the assets of the
dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their
correspondence, checks and pleadings and to pay petitioners damages for the use thereof
despite the dissolution of the partnership in the amount of at least P50,000.00;
13 | P a g e

"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of
litigation in such amounts as maybe proven during the trial and which the Commission may
deem just and equitable under the premises but in no case less than ten (10%) per cent of
the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of
P500,000.00 and exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission may
deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said
law partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide
by the provisions of the Agreement relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the partnership interest."
1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa &
Lozada." The Commission ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to continue in the partnership
against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby
REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has not
been dissolved. The case is hereby REMANDED to the Hearing Officer for determination of
the respective rights and obligations of the parties.
2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition,
asked for an appointment of a receiver to take over the assets of the dissolved partnership
and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued
an order denying reconsideration, as well as rejecting the petition for receivership, and
reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new partners,
in the law firm prompted Attorney Misa to renew his application for receivership (in CA G.R.
SP No. 24648). He expressed concern over the need to preserve and care for the
partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court
held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution of
the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should
be to the extent of Attorney Misa's interest or participation in the partnership which could
be computed and paid in the manner stipulated in the partnership agreement; (d) that the
case should be remanded to the SEC Hearing Officer for the corresponding determination
of the value of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such danger of being lost, removed or
materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito,
Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private
respondent dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's
demand for the dissolution of the partnership so that he can get a physical partition of
partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
14 | P a g e

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa
& Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need
not be unduly belabored. We quote, with approval, like did the appellate court, the findings
and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a
specified period or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon
the death or legal incapacity of one of the partners, shall be continued by the surviving
partners."
The hearing officer however opined that the partnership is one for a specific undertaking
and hence not a partnership at will, citing paragraph 2 of the Amended Articles of
Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or
other lawful businesses and occupations; to counsel and advise such persons and entities
with respect to their legal and other affairs; and to appear for and represent their principals
and client in all courts of justice and government departments and offices in the
Philippines, and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law.
Otherwise, all partnerships, which necessarily must have a purpose, would all be
considered as partnerships for a definite undertaking. There would therefore be no need to
provide for articles on partnership at will as none would so exist. Apparently what the law
contemplates, is a specific undertaking or "project" which has a definite or definable period
of completion.
3

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

In passing, neither would the presence of a period for its specific duration or the statement
of a particular purpose for its creation prevent the dissolution of any partnership by an act
or will of a partner.
6
Among partners,
7
mutual agency arises and the doctrine of delectus
personae allows them to have the power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action
for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business.
8
Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination.
9

The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code;
10
however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership
shall be liquidated and paid in accordance with the existing agreements and his
partnership participation shall revert to the Senior Partners for allocation as the Senior
Partners may determine; provided, however, that with respect to the two (2) floors of office
condominium which the partnership is now acquiring, consisting of the 5th and the 6th
floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their
true value at the time of such death or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the partnership and the other by the)
retiring partner or the heirs of a deceased partner, as the case may be. In the event of any
disagreement between the said appraisers a third appraiser will be appointed by them
whose decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the basis of the
valuation above mentioned which shall be paid monthly within the first ten (10) days of
every month in installments of not less than P20,000.00 for the Senior Partners,
P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the
new Junior Partner.
11

15 | P a g e

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

































16 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 126334 November 23, 2001
EMILIO EMNACE, petitioner,
vs.
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO,
VICENTE WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY
TABANAO VARELA, ROSELA TABANAO and VINCENT TABANAO, respondents.
YNARES-SANTIAGO, J.:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a
business concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986,
they decided to dissolve their partnership and executed an agreement of partition and
distribution of the partnership properties among them, consequent to Jacinto Divinagracia's
withdrawal from the partnership.
1
Among the assets to be distributed were five (5) fishing
boats, six (6) vehicles, two (2) parcels of land located at Sto. Nio and Talisay, Negros
Occidental, and cash deposits in the local branches of the Bank of the Philippine Islands
and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente Tabanao's untimely
demise in 1994, petitioner failed to submit to Tabanao's heirs any statement of assets and
liabilities of the partnership, and to render an accounting of the partnership's finances.
Petitioner also reneged on his promise to turn over to Tabanao's heirs the deceased's 1/3
share in the total assets of the partnership, amounting to P30,000,000.00, or the sum of
P10,000,000.00, despite formal demand for payment thereof.
2

Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action for
accounting, payment of shares, division of assets and damages.
3
In their complaint,
respondents prayed as follows:
1. Defendant be ordered to render the proper accounting of all the assets and liabilities of
the partnership at bar; and
2. After due notice and hearing defendant be ordered to pay/remit/deliver/surrender/yield to
the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s), fishing
vessels, trucks, motor vehicles, and other forms and substance of treasures which belong
and/or should belong, had accrued and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;
C. Attorney's fees equivalent to Thirty Percent (30%) of the entire share/amount/award
which the Honorable Court may resolve the plaintiffs as entitled to plus P1,000.00 for every
appearance in court.
4

Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of
jurisdiction over the nature of the action or suit, and lack of capacity of the estate of
Tabanao to sue.
5
On August 30, 1994, the trial court denied the motion to dismiss. It held
that venue was properly laid because, while realties were involved, the action was directed
against a particular person on the basis of his personal liability; hence, the action is not
only a personal action but also an action in personam. As regards petitioner's argument of
lack of jurisdiction over the action because the prescribed docket fee was not paid
considering the huge amount involved in the claim, the trial court noted that a request for
accounting was made in order that the exact value of the partnership may be ascertained
and, thus, the correct docket fee may be paid. Finally, the trial court held that the heirs of
Tabanao had aright to sue in their own names, in view of the provision of Article 777 of the
Civil Code, which states that the rights to the succession are transmitted from the moment
of the death of the decedent.
6

The following day, respondents filed an amended complaint,
7
incorporating the additional
prayer that petitioner be ordered to "sell all (the partnership's) assets and thereafter
pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding share in the proceeds
thereof. In due time, petitioner filed a manifestation and motion to dismiss,
8
arguing that the
trial court did not acquire jurisdiction over the case due to the plaintiffs' failure to pay the
proper docket fees. Further, in a supplement to his motion to dismiss,
9
petitioner also
raised prescription as an additional ground warranting the outright dismissal of the
complaint.
On June 15, 1995, the trial court issued an Order,
10
denying the motion to dismiss
inasmuch as the grounds raised therein were basically the same as the earlier motion to
17 | P a g e

dismiss which has been denied. Anent the issue of prescription, the trial court ruled that
prescription begins to run only upon the dissolution of the partnership when the final
accounting is done. Hence, prescription has not set in the absence of a final accounting.
Moreover, an action based on a written contract prescribes in ten years from the time the
right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals,
11
raising the following
issues:
I. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in taking cognizance of a case despite the failure to pay the required docket fee;
II. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in insisting to try the case which involve (sic) a parcel of land situated outside of
its territorial jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in allowing the estate of the deceased to appear as party plaintiff, when there is
no intestate case and filed by one who was never appointed by the court as administratrix
of the estates; and
IV. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in not dismissing the case on the ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed decision,
12
dismissing the
petition for certiorari, upon a finding that no grave abuse of discretion amounting to lack or
excess of jurisdiction was committed by the trial court in issuing the questioned orders
denying petitioner's motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the same issues
resolved by the Court of Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial court is outside the said
court's territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and
IV. Prescription of the plaintiff heirs' cause of action.
It can be readily seen that respondents' primary and ultimate objective in instituting the
action below was to recover the decedent's 1/3 share in the partnership' s assets. While
they ask for an accounting of the partnership' s assets and finances, what they are actually
asking is for the trial court to compel petitioner to pay and turn over their share, or the
equivalent value thereof, from the proceeds of the sale of the partnership assets. They also
assert that until and unless a proper accounting is done, the exact value of the partnership'
s assets, as well as their corresponding share therein, cannot be ascertained.
Consequently, they feel justified in not having paid the commensurate docket fee as
required by the Rules of Court.1wphi1.nt
We do not agree. The trial court does not have to employ guesswork in ascertaining the
estimated value of the partnership's assets, for respondents themselves voluntarily pegged
the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is one which is
really not beyond pecuniary estimation, but rather partakes of the nature of a simple
collection case where the value of the subject assets or amount demanded is pecuniarily
determinable.
13
While it is true that the exact value of the partnership's total assets cannot
be shown with certainty at the time of filing, respondents can and must ascertain, through
informed and practical estimation, the amount they expect to collect from the partnership,
particularly from petitioner, in order to determine the proper amount of docket and other
fees.
14
It is thus imperative for respondents to pay the corresponding docket fees in order
that the trial court may acquire jurisdiction over the action.
15

Nevertheless, unlike in the case of Manchester Development Corp. v. Court of
Appeals,
16
where there was clearly an effort to defraud the government in avoiding to pay
the correct docket fees, we see no attempt to cheat the courts on the part of respondents.
In fact, the lower courts have noted their expressed desire to remit to the court "any
payable balance or lien on whatever award which the Honorable Court may grant them in
this case should there be any deficiency in the payment of the docket fees to be computed
by the Clerk of Court."
17
There is evident willingness to pay, and the fact that the docket fee
paid so far is inadequate is not an indication that they are trying to avoid paying the
required amount, but may simply be due to an inability to pay at the time of filing. This
consideration may have moved the trial court and the Court of Appeals to declare that the
unpaid docket fees shall be considered a lien on the judgment award.
Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning
the non-payment of the proper legal fees and in allowing the same to become a lien on the
monetary or property judgment that may be rendered in favor of respondents. There is
18 | P a g e

merit in petitioner's assertion. The third paragraph of Section 16, Rule 141 of the Rules of
Court states that:
The legal fees shall be a lien on the monetary or property judgment in favor of the pauper-
litigant.
Respondents cannot invoke the above provision in their favor because it specifically
applies to pauper-litigants. Nowhere in the records does it appear that respondents are
litigating as paupers, and as such are exempted from the payment of court fees.
18

The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court,
which defines the two kinds of claims as: (1) those which are immediately ascertainable;
and (2) those which cannot be immediately ascertained as to the exact amount. This
second class of claims, where the exact amount still has to be finally determined by the
courts based on evidence presented, falls squarely under the third paragraph of said
Section 5(a), which provides:
In case the value of the property or estate or the sum claimed is less or more in
accordance with the appraisal of the court, the difference of fee shall be refunded or paid
as the case may be. (Underscoring ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals,
19
this Court pronounced that
the above-quoted provision "clearly contemplates an Initial payment of the filing fees
corresponding to the estimated amount of the claim subject to adjustment as to what later
may be proved."
20
Moreover, we reiterated therein the principle that the payment of filing
fees cannot be made contingent or dependent on the result of the case. Thus, an initial
payment of the docket fees based on an estimated amount must be paid simultaneous with
the filing of the complaint. Otherwise, the court would stand to lose the filing fees should
the judgment later turn out to be adverse to any claim of the respondent heirs.
The matter of payment of docket fees is not a mere triviality. These fees are necessary to
defray court expenses in the handling of cases. Consequently, in order to avoid
tremendous losses to the judiciary, and to the government as well, the payment of docket
fees cannot be made dependent on the outcome of the case, except when the claimant is
a pauper-litigant.
Applied to the instant case, respondents have a specific claim - 1/3 of the value of all the
partnership assets - but they did not allege a specific amount. They did, however, estimate
the partnership's total assets to be worth Thirty Million Pesos (P30,000,000.00), in a
letter
21
addressed to petitioner. Respondents cannot now say that they are unable to make
an estimate, for the said letter and the admissions therein form part of the records of this
case. They cannot avoid paying the initial docket fees by conveniently omitting the said
amount in their amended complaint. This estimate can be made the basis for the initial
docket fees that respondents should pay. Even if it were later established that the amount
proved was less or more than the amount alleged or estimated, Rule 141, Section 5(a) of
the Rules of Court specifically provides that the court may refund the 'excess or exact
additional fees should the initial payment be insufficient. It is clear that it is only the
difference between the amount finally awarded and the fees paid upon filing of this
complaint that is subject to adjustment and which may be subjected to alien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,
22
this
Court held that when the specific claim "has been left for the determination by the court,
the additional filing fee therefor shall constitute a lien on the judgment and it shall be the
responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and
assess and collect the additional fee." Clearly, the rules and jurisprudence contemplate the
initial payment of filing and docket fees based on the estimated claims of the plaintiff, and it
is only when there is a deficiency that a lien may be constituted on the judgment award
until such additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing the complaint outright despite
their failure to pay the proper docket fees. Nevertheless, as in other procedural rules, it
may be liberally construed in certain cases if only to secure a just and speedy disposition
of an action. While the rule is that the payment of the docket fee in the proper amount
should be adhered to, there are certain exceptions which must be strictly construed.
23

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

In the recent case of National Steel Corp. v. Court of Appeals,
25
this Court held that:
The court acquires jurisdiction over the action if the filing of the initiatory pleading is
accompanied by the payment of the requisite fees, or, if the fees are not paid at the time of
the filing of the pleading, as of the time of full payment of the fees within such reasonable
time as the court may grant, unless, of course, prescription has set in the meantime.
19 | P a g e

It does not follow, however, that the trial court should have dismissed the complaint for
failure of private respondent to pay the correct amount of docket fees. Although the
payment of the proper docket fees is a jurisdictional requirement, the trial court may allow
the plaintiff in an action to pay the same within a reasonable time before the expiration of
the applicable prescriptive or reglementary period. If the plaintiff fails to comply within this
requirement, the defendant should timely raise the issue of jurisdiction or else he would be
considered in estoppel. In the latter case, the balance between the appropriate docket fees
and the amount actually paid by the plaintiff will be considered a lien or any award he may
obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should determine the proper docket fee based
on the estimated amount that respondents seek to collect from petitioner, and direct them
to pay the same within a reasonable time, provided the applicable prescriptive or
reglementary period has not yet expired, Failure to comply therewith, and upon motion by
petitioner, the immediate dismissal of the complaint shall issue on jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the trial court and the
Court of Appeals in holding that the case below is a personal action which, under the
Rules, may be commenced and tried where the defendant resides or may be found, or
where the plaintiffs reside, at the election of the latter.
26

Petitioner, however, insists that venue was improperly laid since the action is a real action
involving a parcel of land that is located outside the territorial jurisdiction of the court a
quo. This contention is not well-taken. The records indubitably show that respondents are
asking that the assets of the partnership be accounted for, sold and distributed according
to the agreement of the partners. The fact that two of the assets of the partnership are
parcels of land does not materially change the nature of the action. It is an action in
personam because it is an action against a person, namely, petitioner, on the basis of his
personal liability. It is not an action in rem where the action is against the thing itself
instead of against the person.
27
Furthermore, there is no showing that the parcels of land
involved in this case are being disputed. In fact, it is only incidental that part of the assets
of the partnership under liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al.,
28
settled this issue thus:
The fact that plaintiff prays for the sale of the assets of the partnership, including the
fishpond in question, did not change the nature or character of the action, such sale being
merely a necessary incident of the liquidation of the partnership, which should precede
and/or is part of its process of dissolution.
The action filed by respondents not only seeks redress against petitioner. It also seeks the
enforcement of, and petitioner's compliance with, the contract that the partners executed to
formalize the partnership's dissolution, as well as to implement the liquidation and partition
of the partnership's assets. Clearly, it is a personal action that, in effect, claims a debt from
petitioner and seeks the performance of a personal duty on his part.
29
In fine, respondents'
complaint seeking the liquidation and partition of the assets of the partnership with
damages is a personal action which may be filed in the proper court where any of the
parties reside.
30
Besides, venue has nothing to do with jurisdiction for venue touches more
upon the substance or merits of the case.
31
As it is, venue in this case was properly laid
and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no
legal capacity to sue since she was never appointed as administratrix or executrix of his
estate. Petitioner's objection in this regard is misplaced. The surviving spouse does not
need to be appointed as executrix or administratrix of the estate before she can file the
action. She and her children are complainants in their own right as successors of Vicente
Tabanao. From the very moment of Vicente Tabanao' s death, his rights insofar as the
partnership was concerned were transmitted to his heirs, for rights to the succession are
transmitted from the moment of death of the decedent.32
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner
were transmitted to respondents by operation of law, more particularly by succession,
which is a mode of acquisition by virtue of which the property, rights and obligations to the
extent of the value of the inheritance of a person are transmitted.
33
Moreover, respondents
became owners of their respective hereditary shares from the moment Vicente Tabanao
died.
34

A prior settlement of the estate, or even the appointment of Salvacion Tabanao as
executrix or administratrix, is not necessary for any of the heirs to acquire legal capacity to
sue. As successors who stepped into the shoes of their decedent upon his death, they can
commence any action originally pertaining to the decedent.
35
From the moment of his
death, his rights as a partner and to demand fulfillment of petitioner's obligations as
outlined in their dissolution agreement were transmitted to respondents. They, therefore,
20 | P a g e

had the capacity to sue and seek the court's intervention to compel petitioner to fulfill his
obligations.
Finally, petitioner contends that the trial court should have dismissed the complaint on the
ground of prescription, arguing that respondents' action prescribed four (4) years after it
accrued in 1986. The trial court and the Court of Appeals gave scant consideration to
petitioner's hollow arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3)
termination.
36
The partnership, although dissolved, continues to exist and its legal
personality is retained, at which time it completes the winding up of its affairs, including the
partitioning and distribution of the net partnership assets to the partners.
37
For as long as
the partnership exists, any of the partners may demand an accounting of the partnership's
business. Prescription of the said right starts to run only upon the dissolution of the
partnership when the final accounting is done.
38

Contrary to petitioner's protestations that respondents' right to inquire into the business
affairs of the partnership accrued in 1986, prescribing four (4) years thereafter, prescription
had not even begun to run in the absence of a final accounting. Article 1842 of the Civil
Code provides:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the person or
partnership continuing the business, at the date of dissolution, in the absence of any
agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the
above-cited provision states that the right to demand an accounting accrues at the date of
dissolution in the absence of any agreement to the contrary. When a final accounting is
made, it is only then that prescription begins to run. In the case at bar, no final accounting
has been made, and that is precisely what respondents are seeking in their action before
the trial court, since petitioner has failed or refused to render an accounting of the
partnership's business and assets. Hence, the said action is not barred by prescription.
In fine, the trial court neither erred nor abused its discretion when it denied petitioner's
motions to dismiss. Likewise, the Court of Appeals did not commit reversible error in
upholding the trial court's orders. Precious time has been lost just to settle this preliminary
issue, with petitioner resurrecting the very same arguments from the trial court all the way
up to the Supreme Court. The litigation of the merits and substantial issues of this
controversy is now long overdue and must proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit,
and the case isREMANDED to the Regional Trial Court of Cadiz City, Branch 60, which
is ORDERED to determine the proper docket fee based on the estimated amount that
plaintiffs therein seek to collect, and direct said plaintiffs to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary period has not yet
expired. Thereafter, the trial court is ORDERED to conduct the appropriate proceedings in
Civil Case No. 416-C.
Costs against petitioner.1wphi1.nt
SO ORDERED.














21 | P a g e


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court
in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of
Manila, Branch II in Civil Case No. 116725 declaring private respondent Leung Yiu a
partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering
the petitioner to pay to the private respondent his share in the annual profits of the said
restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the then Court of
First Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent
(22%) of the annual profits derived from the operation of Sun Wah Panciteria since
October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz,
Manila, was established sometime in October, 1955. It was registered as a single
proprietorship and its licenses and permits were issued to and in favor of petitioner Dan
Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial
of the case to show that Sun Wah Panciteria was actually a partnership and that he was
one of the partners having contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private
respondent gave P4,000.00 as his contribution to the partnership. This is evidenced by a
receipt identified as Exhibit "A" wherein the petitioner acknowledged his acceptance of the
P4,000.00 by affixing his signature thereto. The receipt was written in Chinese characters
so that the trial court commissioned an interpreter in the person of Ms. Florence Yap to
translate its contents into English. Florence Yap issued a certification and testified that the
translation to the best of her knowledge and belief was correct. The private respondent
identified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was
affixed by the latter in his (private respondents') presence. Witnesses So Sia and Antonio
Ah Heng corroborated the private respondents testimony to the effect that they were both
present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further testified
that he himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery
of his own investment in another amount of P4,000.00 An examination was conducted by
the PC Crime Laboratory on orders of the trial court granting the private respondents
motion for examination of certain documentary exhibits. The signatures in Exhibits "A" and
'D' when compared to the signature of the petitioner appearing in the pay envelopes of
employees of the restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24)
showed that the signatures in the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount of P12,000.00
covered by the latter's Equitable Banking Corporation Check No. 13389470-B from the
profits of the operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of
the Savings Department of the China Banking Corporation testified that said check (Exhibit
B) was deposited by and duly credited to the private respondents savings account with the
bank after it was cleared by the drawee bank, the Equitable Banking Corporation. Another
witness Elvira Rana of the Equitable Banking Corporation testified that the check in
question was in fact and in truth drawn by the petitioner and debited against his own
account in said bank. This fact was clearly shown and indicated in the petitioner's
statement of account after the check (Exhibit B) was duly cleared. Rana further testified
that upon clearance of the check and pursuant to normal banking procedure, said check
was returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the amount of
P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit D). His
evidence is summarized as follows:
22 | P a g e

The petitioner did not receive any contribution at the time he started the Sun Wah
Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg in
Clark Field and later as waiter at the Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster his contention that he
was the sole owner of the restaurant, the petitioner presented various government licenses
and permits showing the Sun Wah Panciteria was and still is a single proprietorship solely
owned and operated by himself alone. Fue Leung also flatly denied having issued to the
private respondent the receipt (Exhibit G) and the Equitable Banking Corporation's Check
No. 13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave credence to that of
the plaintiffs. Hence, the court ruled in favor of the private respondent. The dispositive
portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, ordering the latter to deliver and pay to the former, the sum equivalent to 22%
of the annual profit derived from the operation of Sun Wah Panciteria from October, 1955,
until fully paid, and attorney's fees in the amount of P5,000.00 and cost of suit. (p. 125,
Rollo)
The private respondent filed a verified motion for reconsideration in the nature of a motion
for new trial and, as supplement to the said motion, he requested that the decision
rendered should include the net profit of the Sun Wah Panciteria which was not specified in
the decision, and allow private respondent to adduce evidence so that the said decision will
be comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing the trial court
rendered an amended decision, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by
the plaintiff, which was granted earlier by the Court, is hereby reiterated and the decision
rendered by this Court on September 30, 1980, is hereby amended. The dispositive portion
of said decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the
defendant, ordering the latter to pay the former the sum equivalent to 22% of the net profit
of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of
P5,000.00 as and for attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then Intermediate
Appellate Court. The questioned decision was further modified by the appellate court. The
dispositive portion of the appellate court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive portion thereof
reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net
profit of P2,000.00 a day from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16,
1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a
day.
Except as modified, the decision of the court a quo is affirmed in all other respects. (p. 102,
Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the lower
court's decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading
as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant,
ordering the latter to pay to the former the sum equivalent to 22% of the net profit of
P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of
P5,000.00 as and for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the date of judicial
demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was denied.
Both the trial court and the appellate court found that the private respondent is a partner of
the petitioner in the setting up and operations of the panciteria. While the dispositive
portions merely ordered the payment of the respondents share, there is no question from
the factual findings that the respondent invested in the business as a partner. Hence, the
two courts declared that the private petitioner is entitled to a share of the annual profits of
23 | P a g e

the restaurant. The petitioner, however, claims that this factual finding is erroneous. Thus,
the petitioner argues: "The complaint avers that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria,
in return of which private respondent allegedly will receive a share in the profits of the
restaurant. The same complaint did not claim that private respondent is a partner of the
business. It was, therefore, a serious error for the lower court and the Hon. Intermediate
Appellate Court to grant a relief not called for by the complaint. It was also error for the
Hon. Intermediate Appellate Court to interpret or construe 'financial assistance' to mean the
contribution of capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought the financial
assistance of plaintiff in operating the defendant's eatery known as Sun Wah Panciteria,
located in the given address of defendant; as a return for such financial assistance. plaintiff
would be entitled to twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand
pesos (P4,000.00), Philippine Currency, of which copy for the receipt of such amount, duly
acknowledged by the defendant is attached hereto as Annex "A", and form an integral part
hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was established,
he gave P4,000.00 to the petitioner with the understanding that he would be entitled to
twenty-two percent (22%) of the annual profit derived from the operation of the said
panciteria. These allegations, which were proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of the
Civil Code provides that "By the contract of partnership two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention
of dividing the profits among themselves".
Therefore, the lower courts did not err in construing the complaint as one wherein the
private respondent asserted his rights as partner of the petitioner in the establishment of
the Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein.
We agree with the appellate court's observation to the effect that "... given its ordinary
meaning, financial assistance is the giving out of money to another without the expectation
of any returns therefrom'. It connotes an ex gratia dole out in favor of someone driven into
a state of destitution. But this circumstance under which the P4,000.00 was given to the
petitioner does not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as
a return for such financial assistance, plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit derived from the operation of the said
panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature of the action filed
in court is determined by the facts alleged in the complaint as constituting the cause of
action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric,
Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant case was
whether or not the private respondent is a partner of the petitioner in the establishment of
Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in giving probative
value to the PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged
standards or specimens used by the PC Crime Laboratory in arriving at the conclusion
were never testified to by any witness nor has any witness identified the handwriting in the
standards or specimens belonging to the petitioner. The supposed standards or specimens
of handwriting were marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for
the private respondent over the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower court examined
the signatures in the two receipts issued separately by the petitioner to the private
respondent and So Sia (Exhibits "A" and "D") and compared the signatures on them with
the signatures of the petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24")
of Antonio Ah Heng and Maria Wong, employees of the restaurant. After the usual
examination conducted on the questioned documents, the PC Crime Laboratory submitted
its findings (Exhibit J) attesting that the signatures appearing in both receipts (Exhibits "A"
and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were
presented by the private respondent for marking as exhibits, the petitioner did not interpose
any objection. Neither did the petitioner file an opposition to the motion of the private
respondent to have these exhibits together with the two receipts examined by the PC
24 | P a g e

Crime Laboratory despite due notice to him. Likewise, no explanation has been offered for
his silence nor was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be rejected or
ignored. The records sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent
Intermediate Appellate Court gravely erred in not resolving the issue of prescription in favor
of petitioner. The alleged receipt is dated October 1, 1955 and the complaint was filed only
on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months and twelve
(12) days. From October 1, 1955 to July 13, 1978, no written demands were ever made by
private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which provides:
Art. 1144. The following actions must be brought within ten years from the time the right of
action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are filed before the court,
when there is a written extra-judicial demand by the creditor, and when there is any written
acknowledgment of the debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites
of a partnership which are 1) two or more persons bind themselves to contribute money,
property, or industry to a common fund; and 2) intention on the part of the partners to
divide the profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng,
106 Phil. 110)-have been established. As stated by the respondent, a partner shares not
only in profits but also in the losses of the firm. If excellent relations exist among the
partners at the start of business and all the partners are more interested in seeing the firm
grow rather than get immediate returns, a deferment of sharing in the profits is perfectly
plausible. It would be incorrect to state that if a partner does not assert his rights anytime
within ten years from the start of operations, such rights are irretrievably lost. The private
respondent's cause of action is premised upon the failure of the petitioner to give him the
agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was
asking for an accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is
applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the person or
partnership continuing the business, at the date of dissolution, in the absence or any
agreement to the contrary.
Regarding the prescriptive period within which the private respondent may demand an
accounting, Articles 1806, 1807, and 1809 show that the right to demand an accounting
exists as long as the partnership exists. Prescription begins to run only upon the
dissolution of the partnership when the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in favor of the private
respondent for being excessive and unconscionable and above the claim of private
respondent as embodied in his complaint and testimonial evidence presented by said
private respondent to support his claim in the complaint.
Apart from his own testimony and allegations, the private respondent presented the cashier
of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the
restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties was that you were in charge of the
custody of the cashier's box, of the money, being the cashier, is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you were the one who accepted the
money and you gave the change, if any, is that correct?
25 | P a g e

A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you do with the
money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less, will you please tell us, how much is
the gross income of the restaurant?
A For regular days, I received around P7,000.00 a day during my shift alone and during
pay days I receive more than P10,000.00. That is excluding the catering outside the place.
Q What about the catering service, will you please tell the Honorable Court how many
times a week were there catering services?
A Sometimes three times a month; sometimes two times a month or more.
xxx xxx xxx
Q Now more or less, do you know the cost of the catering service?
A Yes, because I am the one who receives the payment also of the catering.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M. to
11:30 P.M. in the evening the restaurant grosses an income of P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127-
128)
The statements of the cashier were not rebutted. Not only did the petitioner's counsel
waive the cross-examination on the matter of income but he failed to comply with his
promise to produce pertinent records. When a subpoenaduces tecum was issued to the
petitioner for the production of their records of sale, his counsel voluntarily offered to bring
them to court. He asked for sufficient time prompting the court to cancel all hearings for
January, 1981 and reset them to the later part of the following month. The petitioner's
counsel never produced any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded
in the daily sales book. ledgers, journals and for this purpose, employed a bookkeeper.
This inspired the Court to ask counsel for the defendant to bring said records and counsel
for the defendant promised to bring those that were available. Seemingly, that was the
reason why this case dragged for quite sometime. To bemuddle the issue, defendant
instead of presenting the books where the same, etc. were recorded, presented witnesses
who claimed to have supplied chicken, meat, shrimps, egg and other poultry products
which, however, did not show the gross sales nor does it prove that the same is the best
evidence. This Court gave warning to the defendant's counsel that if he failed to produce
the books, the same will be considered a waiver on the part of the defendant to produce
the said books inimitably showing decisive records on the income of the eatery pursuant to
the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse if
produced." (Rollo, p. 145)
26 | P a g e

The records show that the trial court went out of its way to accord due process to the
petitioner.
The defendant was given all the chance to present all conceivable witnesses, after the
plaintiff has rested his case on February 25, 1981, however, after presenting several
witnesses, counsel for defendant promised that he will present the defendant as his last
witness. Notably there were several postponement asked by counsel for the defendant and
the last one was on October 1, 1981 when he asked that this case be postponed for 45
days because said defendant was then in Hongkong and he (defendant) will be back after
said period. The Court acting with great concern and understanding reset the hearing to
November 17, 1981. On said date, the counsel for the defendant who again failed to
present the defendant asked for another postponement, this time to November 24, 1981 in
order to give said defendant another judicial magnanimity and substantial due process. It
was however a condition in the order granting the postponement to said date that if the
defendant cannot be presented, counsel is deemed to have waived the presentation of
said witness and will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila said date was declared
a partial non-working holiday, so much so, the hearing was reset to December 7 and 22,
1981. On December 7, 1981, on motion of defendant's counsel, the same was again reset
to December 22, 1981 as previously scheduled which hearing was understood as
intransferable in character. Again on December 22, 1981, the defendant's counsel asked
for postponement on the ground that the defendant was sick. the Court, after much
tolerance and judicial magnanimity, denied said motion and ordered that the case be
submitted for resolution based on the evidence on record and gave the parties 30 days
from December 23, 1981, within which to file their simultaneous memoranda. (Rollo, pp.
148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the
Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the trial
court, it is in the heart of Chinatown where people who buy and sell jewelries,
businessmen, brokers, manager, bank employees, and people from all walks of life
converge and patronize Sun Wah.
There is more than substantial evidence to support the factual findings of the trial court and
the appellate court. If the respondent court awarded damages only from judicial demand in
1978 and not from the opening of the restaurant in 1955, it is because of the petitioner's
contentions that all profits were being plowed back into the expansion of the business.
There is no basis in the records to sustain the petitioners contention that the damages
awarded are excessive. Even if the Court is minded to modify the factual findings of both
the trial court and the appellate court, it cannot refer to any portion of the records for such
modification. There is no basis in the records for this Court to change or set aside the
factual findings of the trial court and the appellate court. The petitioner was given every
opportunity to refute or rebut the respondent's submissions but, after promising to do so, it
deliberately failed to present its books and other evidence.
The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's
obligation shows that the same continues until fully paid. The question now arises as to
whether or not the payment of a share of profits shall continue into the future with no fixed
ending date.
Considering the facts of this case, the Court may decree a dissolution of the partnership
under Article 1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on
of the business;
(4) A partner willfully or persistently commits a breach of the partnership agreement, or
otherwise so conducts himself in matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of capital, and
other incidents of dissolution because the continuation of the partnership has become
inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision
of the respondent court is AFFIRMED with a MODIFICATION that as indicated above, the
partnership of the parties is ordered dissolved.SO ORDERED.
27 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24243 January 15, 1926
ILDEFONSO DE LA ROSA, administrator of the intestate estate of the deceased Go-
Lio, plaintiff-appellant,
vs.
ENRIQUE ORTEGA GO-COTAY, defendant-appellant.
Crispin Oben for palintiff-appellant.
Paredes, Buencamino and Yulo for defendant-appellant.
VILLA-REAL, J.:
During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a society
for the purchase and sale of articles of commerce, and for this purpose they opened a
store in the town of San Isidro, Nueva Ecija. Later Go-Lio went to China. Vicenyte Go-
Sengco died and his son Enrique Ortega Go-Cotay took charge of the businesses. Go-Lio
died in China in October, 1916, leaving a widow and three children, one of whom came to
the Philippines and filed a petition for the appointment of Ildefonso de la Rosa as
administrator of the intestate estate of his deceased father, which petition was granted by
the Court of First Instance of Nueva Ecija. Ildefonso de la Rosa, in his capacity as
administrator of the intestate estate of the deceased Go-Lio, requested Enrique Go-Cotay
to wind up the business and to deliver to him the portion corresponding to the deceased
Go-Lio. Enrique Ortega Go-Cotay denied the petition, alleging that the business was his
exclusively. In view of this denial, Ildefonso de la Rosa, as administratorm, on July 2, 1918,
filed with the Court of First Instance of Nueva Ecija a complaint against Enrique Ortega Co-
Cotay in which he prayed that the defendant be sentenced to deliver to the plaintiff one-half
of all the property of the partnership formed by Go-lIo and Vicente Go-Sengco, with costs
against the defendant, and that the said plaintiff be appointed receiver for the property of
the said partnership.
Defendant, in answering the complaint, denied each and every allegation thereof, and as a
special defense alleged that more than ten years had elapsed before the filing of the
complaint, and prayed that he be absolved therefrom, with costs against the plaintiff.
On August 3, 1918, the Court of First Instance of Nueva Ecija appointed Justo Cabo-Chan,
Francisco T. Tantengco and Go-Tiao, as commissioners to make an inventory, liquidate
and determine the one-half belonging to the plaintiff of all the property of the store in
question.
On August 9, 1918, in order to prevent Justo Cabo-Chan from assuming the office of
receiver, pursuant to the order of the court dated August 3, 1918, the defendant filed a
bond in the sum of P10,000.
Under the date of November 15, 1920, the said commissioners submitted to the court their
report, showing the net profits of the business between the period from 1913 to 1917,
which amounted to the total sum of P25,038.70 and consisted of the following items:
Profits for the year 1913........................ P2,979.00
Profits for the year 1914........................ 3,046.94
Profits for the year 1915........................ 4,103.07
Profits for the year 1916........................ 4,735.00
Profits for the year 1917........................ 10,174.69
Total........................................................... 25.038.70
In view of the appeal taken by defendant the parties on December 7, 1921, entered into an
agreement whereby they agreed to suspend the liquidation ordered by the court until the
appeal to the Supreme Court was decided, and whereby the defenadnt was authorized to
continue in the possession of the property in litigation, upon the giving of a bond in the
amount of P25,000, and cancelling the former bond for P10,000.
28 | P a g e

This court in deciding case R. G. No. 18919, on October 5, 1922,
1
held that the appeal was
premature and ordered that the record be remanded to the court of origin with instruction to
enter a final order in accordance with the liquidation made by the commissioners.
The record having been remanded and two of the commissioners having filed their
resignations, the copurt below appointed again Justo Cabo-Chan suggested by the
defendant and Cua POco suggested by the plaintiff, as commissioners, who submitted two
reports, one prepared by commissioners Tantengco and Cua Poco, and the other by
commissioners Justo Cabo-Chan. The former stated in their report that they had examined
the books for the years 1919 to 1922, for the reason, they said, that they appeared "to
have been prepared by some person in a careful way at a certain time." The later
commissioner examined all books and stated in his report that the business had suffered a
net loss amounting to the sum of P89,099.22.
After trial and the parties having introduced all their evidence, the lower court, by order of
December 13, 1924, disapproved the report of the commissioners Tantengco and Cua
Poco, but approved, with slight modifications, the report of commissioner Cabo-Chan,
holding that the result of the liquidation showed liabilities to the amiount of P89,690.45 in
view of which plaintiff had nothing to recover from defendant, as there was no profit to
divide.
From this decision the plaintiff has appealed in due time and form making the following
assignment of errors: (1) The lower court erred in holding that the books were authentic,
and in not holding that they were false books exhibited by the defendant about alleged
operations in the years 1918 et seq. which show enormous debts and imaginary losses of
the business; (2) the lower court erred in giving full credit to the testimony of commissioner
Justo Cabo-Chan; (3) the lower court erred in holding that the partnership had incurred
debts and suffered losses, as shown in the report of Justo Cabo-Cahn from 1918 on; (4)
the lower court erred in not holding that the share of the plaintiff, as his capital and profits
until the end of 1917, is equivalent to the sum of twenty-seven thousand seven hundred
fifty-five pesos and forty-seven centavos (P27,755.47). Philippine currency, plus an annual
quota of at least two thousand five hundred three pesos and eighty-seven centavos
(P2,503.87), Philippime currency, as his portion of the profits since the beginning of 1918
until the delivery to the palintiff of his share in the partnership; (5) the court below erred in
not ordering the prosecuting attorney to commence an investigation as to the falsified
books of accounts that the defendant had exhibited for proper criminal proceeding.
From the evidence it appears that the partnership capital was P4,779.39, and the net
profits until the year 1915 amounted to P5,551.40. Because some books of account had
been destroyed by white ants (anay), the liquidation of the business of the partnership for
the period from 1906 to 1912 could not be made. But knowing the net profit for the period
between 1904 and 1905, which is P5,551.40, and findng the average of the profits for each
of these years, which is P2,775.70; and knowing the net profit for the year 1913, which is
P2,979, we can find the average between the net profit for 1905, namely, P2,979. Said
average is the sum of P2,877.35, which may be considered as the average of the net
annual profits for the period between 1906 an 1912, which in seven years make a total of
P20,141.45. The assets of the partnership, as well as the value of its property, could not be
determined when making the liquidation because there was no inventory and for this
reason it was not possible to determine the capital of the partnership. The plaintiff,
however, seems to be agreeable to considering the initial partnership capital as the capital
at the time of the winding up of the business.
August 3, 1918, defendant assumed complete responsibility for the business by objecting
to the appointment of a receiver as prayed for by plaintiff, and giving a bond therefor. Until
that date his acts were those of a managing partner, binding against the partnership; but
thereafter his acts were those of a receiver whose authority is contained in section 175 of
the Code of Civil Procedure.
A receiver has no right to carry on and conduct a business unless he is authorized or
directed by the court to do some, and such authority is not derived from an order of
appointment to take and preserve the property (34 Cyc., 283; 23 R. C. L., 73). It does not
appear that the defendant as a receiver was authorized by the court to continue the
business of the partnership in liquidation. This being so, he is personally liable for the
losses that the business amy have sustained. (34 Cyc., 296.) The partnership must not,
therefore, be liable for the acts of the defendant in connection with the management of the
business until August 3, 1918, the date when he ceased to be a member and manager in
order to become receiver.
As to the first semester of 1918, during which time the defendant had seen managing the
business of the partnership as a member and manager, taking into account that the profits
had been on the increase, said profits having reached the amount of P10,174.69 in the
year 1917, it would not be an exaggeration to estimate that the profits for 1918 would have
been at least the same as the profits of 1917; so that for the first half of 1918, the profit
would be P5,087.34.
29 | P a g e

In conclusion we have the following profits of the business of this partnership now in
liquidation, to wit:
Capital of partnership........................... P4,779.39
Profits until 1905.................................. 5,551.40
Profits 1906-1912................................ 20,141.45
Profits 1913-1917................................ 25,038.70
Profits first semester 1918............... 5,087.34
Total....................................................... 60,598.28
One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of the
intestate estate of Go-Lio.
In view of the foregoing, we are of the opinion that the case must be, as is hereby, decided
by the reversing the judgment appealed from, and sentencing the defendant to pay the
plaintiff the sum of P30,299.14 with legal interest at the rate of 6 per cent per annum from
July 1, 1918, until fully paid, with costs. So ordered.
Avancea, C. J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns, and Romualdez, JJ.,
concur.




























30 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 114398 October 24, 1997
CARMEN LIWANAG, petitioner,
vs.
THE HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES,
represented by the Solicitor General, respondents.

ROMERO, J.:
Petitioner was charged with the crime of estafa before the Regional Trial Court (RTC),
Branch 93, Quezon City, in an information which reads as follows.
That on or between the month of May 19, 1988 and August, 1988 in Quezon City,
Philippines and within the jurisdiction of this Honorable Court, the said accused, with intent
of gain, with unfaithfulness, and abuse of confidence, did then and there, willfully,
unlawfully and feloniously defraud one ISIDORA ROSALES, in the following manner, to wit:
on the date and in the place aforementioned, said accused received in trust from the
offended party cash money amounting toP536,650.00, Philippine Currency, with the
express obligation involving the duty to act as complainant's agent in purchasing local
cigarettes (Philip Morris and Marlboro cigarettes), to resell them to several stores, to give
her commission corresponding to 40% of the profits; and to return the aforesaid amount of
offended party, but said accused, far from complying her aforesaid obligation, and once in
possession thereof, misapplied, misappropriated and converted the same to her personal
use and benefit, despite repeated demands made upon her, accused failed and refused
and still fails and refuses to deliver and/or return the same to the damage and prejudice of
the said ISIDORA ROSALES, in the aforementioned amount and in such other amount as
may be awarded under the provision of the Civil Code.
CONTRARY TO LAW.
The antecedent facts are as follows:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house of
complainant Isidora Rosales (Rosales) and asked her to join them in the business of
buying and selling cigarettes. Convinced of the feasibility of the venture, Rosales readily
agreed. Under their agreement, Rosales would give the money needed to buy the
cigarettes while Liwanag and Tabligan would act as her agents, with a corresponding 40%
commission to her if the goods are sold; otherwise the money would be returned to
Rosales. Consequently, Rosales gave several cash advances to Liwanag and Tabligan
amounting to P633,650.00.
During the first two months, Liwanag and Tabligan made periodic visits to Rosales to report
on the progress of the transactions. The visits, however, suddenly stopped, and all efforts
by Rosales to obtain information regarding their business proved futile.
Alarmed by this development and believing that the amounts she advanced were being
misappropriated, Rosales filed a case of estafa against Liwanag.
After trial on the merits, the trial court rendered a decision dated January 9, 1991, finding
Liwanag guilty as charged. The dispositive portion of the decision reads thus:
WHEREFORE, the Court holds, that the prosecution has established the guilt of the
accused, beyond reasonable doubt, and therefore, imposes upon the accused, Carmen
Liwanag, an Indeterminate Penalty of SIX (6) YEARS, EIGHT (8) MONTHS AND TWENTY
ONE (21) DAYS OF PRISION CORRECCIONAL TO FOURTEEN (14) YEARS AND
EIGHT (8) MONTHS OF PRISION MAYOR AS MAXIMUM, AND TO PAY THE COSTS.
The accused is likewise ordered to reimburse the private complainant the sum of
P526,650.00, without subsidiary imprisonment, in case of insolvency.
SO ORDERED.
Said decision was affirmed with modification by the Court of Appeals in a decision dated
November 29, 1993, the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the judgment appealed from is hereby affirmed
with the correction of the nomenclature of the penalty which should be: SIX (6) YEARS,
EIGHT (8) MONTHS and TWENTY ONE (21) DAYS of prision mayor, as minimum, to
31 | P a g e

FOURTEEN (14) YEARS and EIGHT (8) MONTHS of reclusion temporal, as maximum. In
all other respects, the decision is AFFIRMED.
SO ORDERED.
Her motion for reconsideration having been denied in the resolution of March 16, 1994,
Liwanag filed the instant petition, submitting the following assignment of errors:
1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN THE AFFIRMING THE
CONVICTION OF THE ACCUSED-PETITIONER FOR THE CRIME OF ESTAFA, WHEN
CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN THE ACCUSED-PETITIONER
AND COMPLAINANT IS EITHER THAT OF A SIMPLE LOAN OR THAT OF A
PARTNERSHIP OR JOINT VENTURE HENCE THE NON RETURN OF THE MONEY OF
THE COMPLAINANT IS PURELY CIVIL IN NATURE AND NOT CRIMINAL.
2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT ACQUITTING THE
ACCUSED-PETITIONER ON GROUNDS OF REASONABLE DOUBT BY APPLYING THE
"EQUIPOISE RULE".
Liwanag advances the theory that the intention of the parties was to enter into a contract of
partnership, wherein Rosales would contribute the funds while she would buy and sell the
cigarettes, and later divide the profits between
them.
1
She also argues that the transaction can also be interpreted as a simple loan, with
Rosales lending to her the amount stated on an installment basis.
2

The Court of Appeals correctly rejected these pretenses.
While factual findings of the Court of Appeals are conclusive on the parties and not
reviewable by the Supreme Court, and carry more weight when these affirm the factual
findings of the trial court,
3
we deem it more expedient to resolve the instant petition on its
merits.
Estafa is a crime committed by a person who defrauds another causing him to suffer
damages, by means of unfaithfulness or abuse of confidence, or of false pretenses of
fraudulent acts.
4

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

The receipt signed by Liwanag states thus:
May 19, 1988 Quezon City
Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED TWENTY SIX
THOUSAND AND SIX HUNDRED FIFTY PESOS (P526,650.00) Philippine Currency, to
purchase cigarrets (sic) (Philip & Marlboro) to be sold to customers. In the event the said
cigarrets (sic) are not sold, the proceeds of the sale or the said products (shall) be returned
to said Mrs. Isidora P. Rosales the said amount of P526,650.00 or the said items on or
before August 30, 1988.
(SGD & Thumbedmarked) (sic)
CARMEN LIWANAG
26 H. Kaliraya St.
Quezon City
Signed in the presence of:
(Sgd) Illegible (Sgd) Doming Z. Baligad
The language of the receipt could not be any clearer. It indicates that the money delivered
to Liwanag was for a specific purpose, that is, for the purchase of cigarettes, and in the
event the cigarettes cannot be sold, the money must be returned to Rosales.
Thus, even assuming that a contract of partnership was indeed entered into by and
between the parties, we have ruled that when money or property have been received by a
partner for a specific purpose (such as that obtaining
in the instant case) and he later misappropriated it, such partner is guilty of estafa.
7

Neither can the transaction be considered a loan, since in a contract of loan once the
money is received by the debtor, ownership over the same is transferred.
8
Being the
owner, the borrower can dispose of it for whatever purpose he may deem proper.
In the instant petition, however, it is evident that Liwanag could not dispose of the money
as she pleased because it was only delivered to her for a single purpose, namely, for the
purchase of cigarettes, and if this was not possible then to return the money to Rosales.
32 | P a g e

Since in this case there was no transfer of ownership of the money delivered, Liwanag is
liable for conversion under Art. 315, par. l(b) of the Revised Penal Code.
WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals
dated November 29, 1993, is AFFIRMED. Costs against petitioner.
SO ORDERED.








































33 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 19892 September 6, 1923
TECK SEING AND CO., LTD., petitioner-appellee.
SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.
Del Rosario & Del Rosario and Block, Johnston and Greenbaum for appellants.
F. V. Arias for appellants Jo Ibec and Go Tayco.
No appearance for petitioner and appellee.
Jose A. Espiritu and Felipe Ysmael as amici curiae.
MALCOLM, J.:
Following the presentation of an application to be adjudged an insolvent by the "Sociedad
Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial Company, Piol &
Company, Riu Hermanos, and W. H. Anderson & Company, filed a motion in which the
Court was prayed to enter an order: "(A) Declaring the individual partners as described in
paragraph 5 parties to this proceeding; (B) to require each of said partners to file an
inventory of his property in the manner required by section 51 of Act No. 1956; and (C) that
each of said partners be adjudicated insolvent debtors in this proceeding." The trial judge
first granted the motion, but, subsequently, on opposition being renewed, denied it. It is
from this last order that an appeal was taken in accordance with section 82 of the
Insolvency Law.
There has been laid before us for consideration and decision a question of some
importance and of some intricacy. The issue in the case relates to a determination of the
nature of the mercantile establishment which operated under the name of Teck Seing &
co., Ltd., and this issue requires us to look into, and analyze, the document constituting
Teck Seing & Co., Ltd. It reads:
ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
Sepan todos por la presente:
Que nosotros, Santiago Jo Chung Cang, mayor de edad comerciante, vecino y residente
del municipio de Tabogon Provincia de Cebu, Islas Filipinas, Go Tayco, mayor de edad,
comerciante, vecino y residente del municipio de Cebu Provincia de Cebu, Islas Filipinas,
Yap Gueco, mayor de edad, comerciante, vecino y residente del municipio y Provincia de
Cebu, Islas Filipinas, Lim Yogsing, mayor de edad comerciante, vecino y residente del
municipio de Cebu, Provincia de Cebu, Islas Filipinas, y Jo Ybec, mayor de edad,
comerciante, vecino y residente del municipio de Jagna, Provincia de Bohol, Islas Filipinas,
hacemos constar por la presente, que constituimos y formamos una sociedad mercantil
limitada, bajo las leyes vigentes en las Islas Filipinas y para ser registrada de acuerdo con
los reglamentos vigentes del Codigo de Comercio en Filipinas.
Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra su domicilio principal
en la Calle Magallanes No. 94, de la Ciudad de Cebu, Provincia de Cebu, Islas Filipinas.
Que el capital social sera de treinta mil pesos (P30,000) moneda legal de las Islas
Filipinas, dividido en cinco acciones de a P6,000 como sigue:
Santiago Jo Chung Cang . . . . . . . . . . . . . P6,000.00
Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . . 6,000.00
Total . . . . . . . . . . . . . . . . . . . . . . 30,000.00
Que la duracion de la sociedad sera la de seis aos, a contar de la fecha de esta escritura,
pudiendo prorrogarse este tiempo a discrecion unanime de todos los accionistas.
El objeto de la sociedad sera la compra y venta de mercaderias en general.
34 | P a g e

El administrador o administradores de la sociedad podran, previa conformidad de los
accionistas, establecer cuantas sucursales o establecimientos considere necesarios para
facilitar sus negocios y el mayor desarrollo del comercio a que se dedica la sociedad,
verificando todas las operaciones que crean convenientes para el fomento de su capital.
Las ganancias o perdidas que resultaren durante cada ao comercial, se distribuiran
proporcionalmente entre los accionistas, de acuerdo con el capital aportado por cada uno
de los mismos.
Las ganancias que resultaren en cada ao comercial, si resultaren algunas ganancias, no
podran ser retiradas pors los accionistas hasta dentro del termino de tres aos a contar de
la fecha del primer balance anual del negocio, quedadno por tanto estas ganancias en
reserva, para ampliar el capital aportado opor los accionistas y ampliar por tanto la esfera
de accion emprendida por la misma sociedad. Al pasar o expirar el termino de tres aos,
cada accionista podra retirar o depositar en poder de la sociedad, las ganancias que le
debiera corresponder durante dicho termino de tres aos.
Que los accionistas no podran extraer ni disponer en ningun tiempo cualesquiera cantidad
o cantidades de la sociedad, que haya sido aportado por los mismos, para atender sus
gastos particulares ni aun pagando redito alguno sobre la cantidad que intenen disponer o
extraer de dicha sociedad.
El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente Jocson Jo, la
administracion de la Compaia, quienes podran usar indistintamente la firma social,
quedando por consiguiente autorizados amobs para hacer en nombre de ella toda calse
de operaciones, negocios y especulaciones mercantiles, practicando judicial y extra-
judicialment cuantos actos se requieran para el bien de la sociedad, nombrar procuradores
o abogados para reclamaciones y cobro de creditos y proponer ante los tribunales las
demandas, convenios, transacciones y excepciones procdentes. En caso de ausencia,
enfermedad o cualquier otro impedimento del accionista administrador Sr. Lim Yogsing,
este podra conferir poder general o especial al accionista que crea conveniente para que
en union del administrador auxiliar Sr. Vicente Jocson Jo, pudieran ambos administrar
convenientemente los negocios de la sociedad. Que los administradores podran tener los
empleados necesarios para el mejor que debieran percibir dichos empleados por servicios
rendidos a la sociedad.
Que ambos administradores podran disponer de mil discientos pesos (P1,200) moneda
filipina, anualmente, para sus gastos particulares, siendo dicha cantidad de P1,200 la que
corresponde a cada uno de dichos administradores, como emolumentos o salarios que se
les asigna a cas uno, por sus trabajos en la administracion de la sociedad. Entendiendose,
que, los accionistas podran disponer cada fin de aola gratificacion quese concedera a
cada administrador, si los negocios del ao fueran boyantes y justifiquen la concesion de
una gratificacion especial, aparte del salario aqui dispuesto y especificado.
Que pasado el termino de seis aos, y es de la conveniencia de los accionistas la
continuacion del negocio de esta sociedad, dicho termino sera prorrogado por igual
numero de aos, sin necesidas del otorgamiento de ulteriores escrituras, quedando la
presente en vigor hasta el termino dispuesto por todos los accionistas.
Que las diferencias que pudieran suscitarse entre los accionistas, bien sea por razon de lo
estipulado en esta en ella comprendidos, se procurara arreglar entre los mismos amistosa
y extrajudicialmente, y si no se consiguiere un arreglo de este modo, dichos accionistas
nombraran un arbitro, cuya resolucion estan todos obligados y por la presente se
comprometen y se obligan a acatarla en todas sus partes, renunciando ulteriores recursos.
En cuyos terminos dejamos formalizada esta escritura de sociedad mercantillimitada, y
prometemos cumplirla fiel y estrictamente segun los pactos que hemos establecido.
En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de Cebu, Islas
Filipinas, hoy 31 de octubre de mil novecientos diez y nueve.
(Fdos.) "LIM YOGSING
"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
Firnando en presencia de:
(Fdos.) "ATILANO LEYSON
"JULIO DIAZ
"ESTADOS UNIDOS DE AMERCA
"ISLAS FILIPINAS
"PROVINCIA DE CEBU
35 | P a g e

En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de octubre de
1919, A.D., ante mi, Notario Publico que subscribe, comprecieron personalmente Santiago
Jo Chung Cang, Go Tayco, Yap Gueco, Lim Yogsing y Jo Ybec, representado este ultimo
por Ho Seng Sian, segun autorizacion hecha en telegrama de fecha 27 de septiembre de
1919 que se me ha presentado en este mismo acto, de quienes doy fe de que les conozco
por ser las mismas personas que otorgaron el preinserto documento, ratificando ant emi
su contenido y manifestando ser el mismo un acto de su libre y voluntario otorgamiento. El
Sr. Santiago Jo Chung Cang me exhibio su cedula personal expedida en Cebu, Cebu, I.F.
el dia 19 de septiembre de 1919 bajo el No. H77742, Go Tayco tambien me exhibio la
suya expedida en Cebu, Cebu, I.F., el dia 9 de octubre de 1919 bajo el No. G2042490,
Yap Gueco tambien me exhibio la suya expedida en Cebu, Cebu, I.F. el dia 20 de enero
de 1919 bajo el No. F1452296, Lim Yogsing tambien me exhibio la suya expedida en
Cebu, Cebu, I.F., el dia 26 de febrero de 1919 bajo el No. F1455662, y Ho Seng Sian
representante de Jo Ybec, me exhibio su cedula personal expedida en Cebu, Cebu, I.f. el
dia 4 de febrero de 1919 bajo el No. F1453733.
Ante mi,
(Fdo.) "F.V.ARIAS
"Notario Publico
"Hasta el 1. de enero de 1920
"Asiento No. 157
Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.
Presentado a las diez y cuarenta y tres minutos de la maana de hoy, segun el asiento
No. 125, pagina 9 del Tomo 1. del Libro Diario. Cebu, 11 de febrero de 1920.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
Inscrito el documento que preced al folio 84 hoja No. 188, inscripcion 1.a del Tomo 3. del
Libro Registro de Sociedades Mercantiles. Cebu, 11 de febrero de 1920. Honorarios
treinta pesos con cincuenta centavos. Art. 197, Ley No. 2711, Codigo Administrativo.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio"
Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is not a
corporation. Neither is it contended by any one that Teck Seing & Co., Ltd., is accidental
partnership denominated cuenta en participacion(joint account association).
Counsel for the petitioner and appellee described his client in once place in his opposition
to the motion of the creditors as "una verdadera sociedad anonima" (a true sociedad
anonima). The provisions of the Code of Commerce relating to sociedades anonimas were,
however, repealed by section 191 of the Corporation Law (Act No. 1459), with the
exceptions the sociedades anonimas lawfully organized at the time of the passage of the
Corporation Law were recognized, which is not our case.
The document providing for the partnership contract purported to form "una sociedad
mercantil limitada," and counsel for the petitioner's first contention was that Teck Seing &
Co., Ltd., was not "una sociedad regular colectiva, ni siquiera comanditaria, sino una
sociedad mercantil limitada." Let us see if the partnership contract created a "sociedad en
comandita," or, as it is known in English, and will hereafter be spoken of, "a limited
partnership."
To establish a limited partnership there must be, at least, one general partner and the
name of the least one of the general partners must appear in the firm name. (Code of
Commerce, arts. 122 [2], 146, 148.) But neither of these requirements have been fulfilled.
The general rule is, that those who seek to avail themselves of the protection of laws
permitting the creation of limited partnerships must show a substantially full compliance
with such laws. A limited partnership that has not complied with the law of its creation is not
considered a limited partnership at all, but a general partnership in which all the members
are liable. (Mechem, Elements of Partnership, p. 412; Gilmore, Partnership, pp. 499, 595;
20 R C. L. 1064.)
The contention of the creditors and appellants is that the partnership contract established a
general partnership.
Article 125 of the Code of Commerce provides that the articles of general copartnership
must estate the names, surnames, and domiciles of the partners; the firm name; the
names, and surnames of the partners to whom the management of the firm and the use of
36 | P a g e

its signature is instrusted; the capital which each partner contributes in cash, credits, or
property, stating the value given the latter or the basis on which their appraisement is to be
made; the duration of the copartnership; and the amounts which, in a proper case, are to
be given to each managing partner annually for his private expenses, while the succeeding
article of the Code provides that the general copartnership must transact business under
the name of all its members, of several of them, or of one only. Turning to the document
before us, it will be noted that all of the requirements of the Code have been met, with the
sole exception of that relating to the composition of the firm name. We leave consideration
of this phase of the case for later discussion.
The remaining possibility is the revised contention of counsel for the petitioners to the
effect that Teck Seing & Co., Ltd., is "una sociedad mercantil "de facto" solamente" (only
a de facto commercial association), and that the decision of the Supreme court in the case
of Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil., 498), is controlling. It was this
argument which convinced the trial judge, who gave effect to his understanding of the case
last cited and which here must be given serious attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the firm
Kieng-Chiong-Seng was not organized by means of any public document; that the
partnership had not been recorded in the mercantile registry; and that Kieng-Chiong-Seng
was not proven to be the firm name, but rather the designation of the partnership. The
conclusion then was, that the partnership in question was merely de facto and that,
therefore, giving effect to the provisions of article 120 of the Code of Commerce, the right
of action was against the persons in charge of the management of the association.
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side by side
with the facts before us, a marked difference is at once disclosed. In the cited case, the
organization of the partnership was not evidenced by any public document; here, it is by a
public document. In the cited case, the partnership naturally could not present a public
instrument for record in the mercantile registry; here, the contract of partnership has been
duly registered. But the two cases are similar in that the firm name failed to include the
name of any of the partners.
We come then to the ultimate question, which is, whether we should follow the decision in
Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we should differentiate the two
cases, holding Teck Seing & Co., Ltd., a general copartnership, notwithstanding the failure
of the firm name to include the name of one of the partners. Let us now notice this decisive
point in the case.
Article 119 of the Code of Commerce requires every commercial association before
beginning its business to state its article, agreements, and conditions in a public
instrument, which shall be presented for record in the mercantile registry. Article 120, next
following, provides that the persons in charge of the management of the association who
violate the provisions of the foregoing article shall be responsible in solidum to the persons
not members of the association with whom they may have transacted business in the
name of the association. Applied to the facts before us, it would seem that Teck Seing &
Co., Ltd. has fulfilled the provisions of article 119. Moreover, to permit the creditors only to
look to the person in charge of the management of the association, the partner Lim
Yogsing, would not prove very helpful to them.
What is said in article 126 of the Code of Commerce relating to the general copartnership
transacting business under the name of all its members or of several of them or of one
only, is wisely included in our commercial law. It would appear, however, that this provision
was inserted more for the protection of the creditors than of the partners themselves. A
distinction could well be drawn between the right of the alleged partnership to institute
action when failing to live up to the provisions of the law, or even the rights of the partners
as among themselves, and the right of a third person to hold responsible a general
copartnership which merely lacks a legal firm name in order to make it a partnership de
jure.
The civil law and the common law alike seem to point to a difference between the rights of
the partners who have failed to comply with the law and the rights of third persons who
have dealt with the partnership.
The supreme court of Spain has repeatedly held that notwithstanding the obligation of the
members to register the articles of association in the commercial registry, agreements
containing all the essential requisites are valid as between the contracting parties,
whatever the form adopted, and that, while the failure to register in the commercial registry
necessarily precludes the members from enforcing rights acquired by them against third
persons, such failure cannot prejudice the rights of third persons. (See decisions of
December 6, 1887, January 25, 1888, November 10, 1890, and January 26, 1900.) The
same reasoning would be applicable to the less formal requisite pertaining to the firm
name.
37 | P a g e

The common law is to the same effect. The State of Michigan had a statute prohibiting the
transaction of business under an assumed name or any other than the real name of the
individual conducting the same, unless such person shall file with the county clerk a
certificate setting forth the name under which the business is to be conducted and the real
name of each of the partners, with their residences and post-office addresses, and making
a violation thereof a misdemeanor. The supreme Court of Michigan said:
The one object of the act is manifestly to protect the public against imposition and fraud,
prohibiting persons from concealing their identity by doing business under an assumed
name, making it unlawful to use other than their real names in transacting business without
a public record of who they are, available for use in courts, and to punish those who violate
the prohibition. The object of this act is not limited to facilitating the collection of debts, or
the protection of those giving credit to persons doing business under an assumed name. It
is not unilateral in its application. It applies to debtor and creditor, contractor and
contractee, alike. Parties doing business with those acting under an assumed name,
whether they buy or sell, have a right, under the law, to know who they are, and who to
hold responsible, in case the question of damages for failure to perform or breach of
warranty should arise.
The general rule is well settled that, where statutes enacted to protect the public against
fraud or imposition, or to safeguard the public health or morals, contain a prohibition and
impose a penalty, all contracts in violation thereof are void. . . .
As this act involves purely business transactions, and affects only money interests, we
think it should be construed as rendering contracts made in violation of it unlawful and
unforceable at the instance of the offending party only, but not as designed to take away
the rights of innocent parties who may have dealt with the offenders in ignorance of their
having violated the statute. (Cashin vs. Pliter [1912], 168 Mich., 386; Ann. Cas. [1913-C,
697.)
The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs.
Hernandez [1903], 1 Phil., 705), contains the following pertinent observations:
Another case may be supposed. A partnership is organized for commercial purposes. It
fails to comply with the requirements of article 119. A creditor sues the partnership for a
debt contracted by it, claiming to hold the partners severally. They answer that their failure
to comply with the Code of Commerce makes them a civil partnership and that they are in
accordance with article 1698 of the Civil Code only liable jointly. To allow such liberty of
action would be to permit the parties by a violation of the Code to escape a liability which
the law has seen fit to impose upon persons who organized commercial partnership;
"Because it would be contrary to all legal principles that the nonperformance of a duty
should redound to the benefit of the person in default either intentional or unintentional."
(Mercantile Law, Eixala, fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916], 33
Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following
comment after articles 121 and 126 of the Code:
From the decisions cited in this and in the previous comments, the following is deduced:
1st. Defects in the organization cannot affect relations with third persons. 2d. Members
who contract with other persons before the association is lawfully organized are liable to
these persons. 3d. The intention to form an association is necessary, so that if the intention
of mutual participation in the profits and losses in a particular business is proved, and there
are no articles of association, there is no association. 4th. An association, the articles of
which have not been registered, is valid in favor of third persons. 5th. The private pact or
agreement to form a commercial association is governed not by the commercial law but by
the civil law. 6th. Secret stipulationsexpressed in a public instrument, but not inserted in the
articles of association, do not affect third persons, but are binding on the parties
themselves. 7th. An agreement made in a public instrument, other than the articles of
association, by means of which one of the partners guarantees to another certain profits or
secures him from losses, is valid between them, without affecting the association.
8th. Contracts entered into by commercial associations defectively organized are valid
when they are voluntarily executed by the parties, if the only controversy relates to whether
or not they complied with the agreement.
xxx xxx xxx
The name of the collective merchant is called firm name. By this name, the new being is
distinguished from others, its sphere of action fixed, and the juridical personality better
determined, without constituting an exclusive character of the general partnership to such
an extent as to serve the purpose of giving a definition of said kind of a mercantile
partnership, as is the case in our Code.
Having in mind that these partnerships are prevailingly of a personal character, article 126
says that they must transact business under the name of all its members, of some of them,
or of one only, the words "and company" to be added in the latter two cases.
38 | P a g e

It is rendered impossible for the general partnership to adopt a firm name appropriate to its
commercial object; the law wants to link, and does link, the solidary and unlimited
responsibility of the members of this partnership with the formation of its name, and
imposes a limitation upon personal liberty in its selection, not only by prescribing the
requisites, but also by prohibiting persons not members of the company from including
their names in its firm name under penalty of civil solidary responsibility.
Of course, the form required by the Code for the adoption of the firm name does not
prevent the addition thereto of any other title connected with the commercial purpose of the
association. The reader may see our commentaries on the mercantile registry about the
business names and firm names of associations, but it is proper to establish here that,
while the business name may be alienated by any of the means admitted by the law, it
seems impossible to separate the firm names of general partnerships from the juridical
entity for the creation of which it was formed. (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does not
contain the name of all or any of the partners as prescribed by the Code of Commerce
prevents the creation of a general partnership, Professor Jose A. Espiritu, as amicus curi,
states:
My opinion is that such a fact alone cannot and will not be a sufficient cause of preventing
the formation of a general partnership, especially if the other requisites are present and the
requisite regarding registration of the articles of association in the Commercial Registry has
been complied with, as in the present case. I do not believe that the adoption of a wrong
name is a material fact to be taken into consideration in this case; first, because the mere
fact that a person uses a name not his own does not prevent him from being bound in a
contract or an obligation he voluntarily entered into; second, because such a requirement
of the law is merely a formal and not necessarily an essential one to the existence of the
partnership, and as long as the name adopted sufficiently identity the firm or partnership
intended to use it, the acts and contracts done and entered into under such a name bind
the firm to third persons; and third, because the failure of the partners herein to adopt the
correct name prescribed by law cannot shield them from their personal liabilities, as neither
law nor equity will permit them to utilize their own mistake in order to put the blame on third
persons, and much less, on the firm creditors in order to avoid their personal possibility.
The legal intention deducible from the acts of the parties controls in determining the
existence of a partnership. If they intend to do a thing which in law constitutes a
partnership, they are partners, although their purpose was to avoid the creation of such
relation. Here, the intention of the persons making up Teck Seing & co., Ltd. was to
establish a partnership which they erroneously denominated a limited partnership. If this
was their purpose, all subterfuges resorted to in order to evade liability for possible losses,
while assuming their enjoyment of the advantages to be derived from the relation, must be
disregarded. The partners who have disguised their identity under a designation distinct
from that of any of the members of the firm should be penalized, and not the creditors who
presumably have dealt with the partnership in good faith.
Articles 127 and 237 of the Code of Commerce make all the members of the general
copartnership liable personally and in solidum with all their property for the results of the
transactions made in the name and for the account of the partnership. Section 51 of the
Insolvency Law, likewise, makes all the property of the partnership and also all the
separate property of each of the partners liable. In other words, if a firm be insolvent, but
one or more partners thereof are solvent, the creditors may proceed both against the firm
and against the solvent partner or partners, first exhausting the assets of the firm before
seizing the property of the partners. (Brandenburg of Bankcruptcy, sec. 108; De los
Reyes vs. Lukban and Borja [1916], 35 Phil., 757; Involuntary Insolvency of Campos
Rueda & Co. vs. Pacific Commercial Co. [1922], 44 Phil., 916).
We reach the conclusion that the contract of partnership found in the document
hereinbefore quoted established a general partnership or, to be more exact, a partnership
as this word is used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be returned to the
court of origin for further proceedings pursuant to the motion presented by the creditors, in
conformity with the provisions of the Insolvency Law. Without special findings as to the
costs in this instance, it is ordered.
Araullo, C.J., Johnson, Street, Avancea, Villamor, Johns and Romualdez, JJ., concur.




39 | P a g e

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-9186 April 29, 1957
COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
JUAN ISASI, M. SALUSTIANA ALDECOA, CLAUDIO ZULOAGA, MIREN ZULOAGA,
HUGO P. RODRIGUEZ, and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Ambrosio Padilla, Solicitor Jose Alejandro, Solicitor Conrado
T. Limcaoco, Pedro P. Magaliman and Zoilo R. Sandoval for petitioner.
Emilio Abello and Hugo P. Rodriguez for respondents.
FELIX, J.:
Juan Isasi, M. Salustiana Aldecoa assisted by her husband Jesus Isasi, Claudio Zuloaga,
Jr., Miren Zuloaga and Hugo P. Rodriguez in his capacity as Liquidator of the Partnership
Aldecoa, Zuloaga and Isasi, instituted originally this case against the Collector of Internal
Revenue of the Republic of the Philippines in the Court of First Instance of Negros
Occidental (Civil Case No. 2028), but by virtue of the enactment of Republic Act No. 1125,
creating the Court of Tax Appeals, same was remanded to the latter Court in accordance
with section 22 of said Act.
From the agreed stipulation of facts and other pleadings filed by the parties, it appears that
plaintiffs Juan Isasi, M. Salustiana Aldecoa, Claudio Zuloaga, Jr., and Miren Zuloaga
formed a partnership known as "Aldecoa, Zuloaga e Isasi" organized principally for the
exploitation, development and utilization of Haciendas Manucao and Conchita, located in
the municipalities of Binalbagan and Hinigaran, Negros, Occidental. The partnership
agreement "Escritura de Constitucion de la Sociedad Agricola Aldecoa, Zuloaga e Isasi"
was duly registered on October 27, 1947.
The records show that for the tax years 1948 and 1949, the firm Aldecoa, Zuloaga e Isasi
filed its income tax returns and the Collector of Internal Revenue assessed the sum of
P26,873.66 against said partnership which the latter paid and that the members of the
partnership filed their individual income tax returns for the years 1948, 1949, 1950 and
1951, in which returns they indicated the shares of the profit or dividends that they allege to
have received from the partnership. On June 30, 1951, the partners agreed to dissolve the
partnership and the agreement of dissolution was duly recorded in the Securities and
Exchange Commission on October 25, 1951, wherein plaintiff Hugo P. Rodriguez was
appointed as liquidator.
Believing that the partnership "Aldecoa, Zuloaga e Isasi" was a duly registered general co-
partnership (sociedad colectiva) and therefore not subject to income tax under Section 24
of the National Internal Revenue Code, plaintiffs filed with defendant on July 16, 1951, a
claim for the refund of P26,873.66 which the partnership had paid as income tax. The claim
for refund not having been acted upon by defendant, a complaint was filed with the Court
of First Instance of Negros Occidental on August 4, 1951, praying the defendant be
ordered to return to plaintiffs the aforementioned sum with costs, and for such other
remedies as may be just and equitable in the premises.
On September 14, 1951, the Provincial Fiscal of Negros Occidental answered the
complaint admitting some of the averments thereof and at the same time denying plaintiff's
allegations that Aldecoa, Zuloaga e Isasi is a general or regular collective partnership, the
truth being said partnership was a limited partner ship and as such cannot be exempt from
income tax. The Fiscal further set up the affirmative defense that it being a civil
partnership, whether registered or not, Aldecoa, Zuloaga e Isasi could be taxed as a
corporation under Section 24 of the National Internal Revenue Code. He therefore prayed
that the complaint be dismissed with costs against plaintiffs.
After the parties had filed their respective memoranda, the of Tax Appeals which took the
case rendered a decision ordering defendant to refund the sum of P26,873.66, without
costs, and making the following pronouncements:
In view of the foregoing, we are, therefore, of the opinion and so hold that the partnership
"Aldecoa, Zuloaga e Isasi" was a duly registered general co-partnership (compania
colectiva) with the meaning and contemplation of sections 24 and 26 of the National
Internal Revenue Code and as such it is not liable for income tax as a juridical person
although the partners composing it are liable in their individual capacity. Since it is admitted
that during the calendar years 1948, 1949, 1950 and 1951, the plaintiff partners Juan Isasi,
M. Salustiana Aldecoa, Claudio Zuloaga and Zuloaga of the said partnership had filed their
respective individual income tax returns, and in these returns, the said plaintiff partners
indicated the amounts they had received as income from the partnership and paid the
40 | P a g e

income tax assessed against them by the defendant Collector of Internal Revenue on
account thereof, the total amount of P26,873.66 paid by the partnership "Aldecoa, Zuloaga
e Isasi" as income tax for the fiscal years from July 1, 1948, to June 30, 1950, is therefore
refundable.
From this decision, defendant filed with this Court a petition to review the said decision
making the following assignment of errors:
1. That the respondent Court of Tax Appeals erred in holding that the term "duly registered
general co-partnership (sociedad colectiva)" found in sections 24 and 26 of the National
Internal Revenue Code includes civil partnerships which have adopted the form
of compaias colectivas and (were) duly registered;
2. That the respondent Court of Tax Appeals erred in finding that the partnership "Aldecoa,
Zuloaga e Isasi" has adopted the form of general partnership (sociedad colectiva) under
the Code of Commerce; and
3. That the respondent Court of Tax Appeals Erred in holding that the partnership
"Aldecoa, Zuloaga e Isasi" was a duly registered general co-partnership (sociedad
colectiva) within the meaning and contemplation of the aforesaid sections of the Tax Code
and was not therefore liable to pay income tax.
The dispute arose from a divergence of opinion as to the proper interpretation and
application of sections 24 and 26 of the National Revenue Code, which reads as follows:
SEC. 24. RATE OF TAX ON CORPORATIONS. There shall be levied, assessed,
collective and paid annually upon the total net income received in the proceeding taxable
year from all sources by every corporation organized in, or existing under the laws of the
Philippines no matter how created or organizedbut not including duly registered general co-
partnership (compaias colectivas), a tax upon such income equal to the sum of the
following: . . .
Sec. 26. TAX LIABILITY OF MEMBERS OF DULY REGISTERED GENERAL CO.-
PARTNERSHIPS. Persons carrying on business in general co-partnership (compaia
colectiva) duly registered in the mercantile registry shall be liable for income tax only in
their individual capacity, and the share of the profits of the registered general co-
partnership (compaia colectiva) to which any taxable partner would be entitled, whether
divided or otherwise, shall be returned for taxation and the tax paid in accordance with the
provisions of this Title.
It shall be noted in the case at bar that the cause of action accrued before the effectivity of
the new Civil Code and, therefore, it is to be governed by the pertinent provisions of the old
Civil Code (Art. 2253, new Civil Code) and the Code of Commerce, although the provisions
of the latter Code on partnership have been repealed by Article 2270, No. 2, of the new
Civil Code.
Under the old codes, there was a distinction between civil and commercial partnership and
since sections 24 and 26 of the Tax Code, under which respondent partners claim their
right to be refunded, expressly exempts from corporation tax "duly registered general co-
partnerships" (sociedades colectivas), respondent partners maintain that their defunct
partnership (which by its purposes and scope seemed to partake of the nature of a civil
partnership), was dully registered and had the form and style of a general co-partnership
and is, therefore, entitled to the exemption. They also advanced the theory that a
partnership, whether civil or commercial, would be entitled to the exemption as long as it is
a general partnership, because the Tax Code makes qualification to this effect.
The issues left for Us to determine in this appeal are: whether the term duly registered
general co-partnership (sociedades colectivas) used in sections 24 and 26 of the Tax Code
includes both the commercial civil ones, and whether the partnership Aldecoa, Zuloaga e
Isasi falls within said classification and hence entitled to the benefit granted therein.
There is no dispute that the partnership agreement entered into by the respondent partners
was styled "Escritura de Constitucion de la Sociedad Agricola Limitada Aldecoa, Zuloaga e
Isasi", thereby giving said partnership is a limited one. On the other hand, said agreement
specifies that the primary purpose for which the partnership was organized was the
exploitation of the two haciendas "Manucao" and "Conchita", as stated in paragraph 3
thereof which declares that:
3.o Que el objeto de la sociedad es la rehabilitation de las haciendas citadas y de sus
pertenencias, y la explotacion agricola de las mismas, en la forma que crea oportuno el
gerente de la misma, y para llevar a cabo dicho objeto y los fines generales de la
sociedad, la misma podra:
and petitioner contends, that this clause clearly indicates that respondents' partnership was
a civil partnership which justifies petitioner's stand in collecting the taxes in question. In
passing upon this point, We must take into consideration the provision of the old Civil Code
which states that:
41 | P a g e

Art. 1670. Partnerships which on account of the purpose to which they devoted are
civil may adopt any of the forms recognized by the Code of Commerce. In such cases its
provisions shall be applicable to them in so far they do no conflict with those of this Code,
and Chief Justice Arellano saw fit to apply this particular provision in his concurring opinion
in the case ofCompaia Agricola de Ultramar vs. Reyes, 4 Phil., 2, by enunciating that:
The civil partnership without ceasing to be, civil by reason of its object maybe created in all
forms recognized in the code of Commerce. It may be a collective or general partnership, a
partnership oncomandita or an anonymous partnership. In this case if it will adopt the form
of a general partnership then the provisions of Article 125 to 144 inclusive would be
applicable to it. If it would adopt the form a partnership on comandita then Articles 145 to
150 would be applicable and if the form is that of an anonymous partnership then the
provisions of Articles 157 to 174 of the Code of Commerce would be applicable in so far as
they are in no conflict with the articles of the present code.
From the above-quoted opinion, a civil partnership adopting a form recognized by the Code
of Commerce (sociedad colectiva) does not necessarily cease to be a civil partnership.
Members of a partnership organized for civil purposes may form themselves into a general
or collective partnership (sociedad colectiva) which is sanctioned by Sections 125 to 144 of
the Code of Commerce and register as such in the registry in which case their obligations
and liabilities will be governed by the provisions of said Code as long as they are not in
conflict with the Civil Code. This organization in mercantile form does not transform the civil
partnership into a commercial one, but just the same it is a sociedad colectiva, and since
Sections 24 and 26 of the Tax Code duly registered general co-partnership (Compaia
colectiva)", there is no reason why a civil organized in accordance with the provisions of
the Code of Commerce and duly registered as such should not fall within the exemption
provided for in said Sections of the Tax Code.
IN VIEW OF THIS CONCLUSION, we now have to find out whether the partnership
Aldecoa, Zuloaga e Isasi has adopted the form of a general partnership (compaia
colectiva) or of a "Sociedad Agricola Limitada Aldecoa, Zuloaga e Isasi", as the partners
thereof named their own association.
Article 122 of the Code of Commerce prescribes the following:
ART. 122. As a general rule commercial associations shall be established by the adoption
of any of the following forms:
1. The regular general co-partnership in which all the partners, under a collective
commercial name, bind themselves participate, in the proportion they establish in the same
rights and obligations.
2. The limited co-partnership to which one or more persons contribute a specific amount of
capital to a common fund, to become liable for the business transactions of the firm
executed exclusively by others under a collective name.
3. (The provisions of this paragraph have been repealed by the Corporation Law).
Even a casual scrutiny of the partnership agreement executed by the respondent partners
would reveal that they followed the pattern set for the pattern set for the regular co-
partnership (Arts. 122, No. 2, 125, 126, 131, 133 and 136 of the Code of Commerce). They
have a firm name Aldecoa, Zuloaga e Isasi; that firm name was composed of all the
surnames of the partners to which the words "and company" (to indicate
the limited partnership Art. 146 of the Code of Commerce) is not added; the
management of the firm was entrusted to a partner, Don Juan Isasi; the contribution
of all the partners was expressly provided therein there being no person Contributing a
specific amount of capital to a common fund to become liable for the business transactions
of the firm executedexclusively by others under a collective name, as is the case in limited
partnerships (Art. 122, No. 2, Code of Commerce); the duration of the partnership was
made to last until June 30, 1952; and it allowed its manager, Don Juan Isasi to engage in
the same kind of undertaking. It is unmistakable, notwithstanding the title of the partnership
agreement (Escritura de Constitucion de la Sociedad Agricola Limitada Aldecoa, Zuloaga e
Isasi), that the partners intended to organize a general partnership under the Code of
Commerce. For this reason, We agree with the Court of Tax Appeals when it states:
To establish a limited partnership there must be at least one general partner and the name
of at least one of the general partners must appear in the firm name. (Articles 122(2), 146,
148, Code of Commerce). If these requisites are not complied with, the partnership,
notwithstanding the fact that the articles of association are entitled "limited partnership" (Jo
Chung Cang vs. Pacific Commercial Co., 45 Phil. 142). An examination of the firm name of
the partnership "Aldecoa, Zuloaga e Isasi" will readily show that neither of this
requirements have been fulfilled; instead it operated under the name of all its members of
some of them, or of only one (without necessarily adding to the name of names stated in
last two cases, the words "and company" (par. 1, Art. 126, Code of Commerce). A limited
partnership that has not complied with the law of its creation is not considered a limited
42 | P a g e

partnership at all, but a general partnership in which all the members are liable (Hechen,
Elements of Partnership, p. 412; Gilmore, Partnership, p. 499; 20 R.C.L. 1064). Moreover,
a limited partnership cannot perform any act in the management of the partner interests
and cannot even examine the condition and state of partnership administration except at
stated times. (Articles 122 (2), 148 and 150, Code of Commerce), unlike the partnership
Aldecoa, Zuloaga e Isasi, wherein all the partners exercised powers of management and
administration.
We, therefore, declare that the Partnership "Aldecoa, Zuloaga e Isasi" was a duly
registered general co-partnership (sociedad colectiva) within the meaning and
contemplation of sections 24 and 26 of the National Internal Revenue Code.
Wherefore, the decision appealed from is hereby affirmed, without pronouncement as to
costs. It is so ordered.
Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur.

Separate Opinions
REYES, J.B.L., J., concurring:
I concur in the opinion of Justice Alfonso Felix, but would like to stress the following points:
1. The essence of a limited partnership is precisely the presence of one or more limited
partners, who by the articles of co-partnership are not liable to firm creditors beyond their
capital contribution; who are not authorized to take part in the firm the management nor to
have their names included in the firm name. None of these restrictions are imposed upon
any of the members of "Aldecoa, Zuloaga e, Isasi." How could this association then be a
limited partnership when it had no limited partner?
2. In laying emphasis on the terms "sociedad agricola limitada" used in the partnership
articles, the Solicitor General overlooks that in the Spanish the word "limitada" has no
significance whatever. The partnership, sociedador compaia, had to be
either colectiva or comanditaria (en comandita) or anonima. Legally, there is no such entity
as a sociedad limitada co-partnerships; but the correlative Spanish term is sociedad en
comandita or sociedad comanditaria, not "sociedad limitada".
3. If the firm "Aldecoa, Zuloaga e Isasi" was not a sociedad en comandita," it had
necessarily to be a "sociedad colectiva". It could not be a sociedad anonima, because
these could not be organized after 1906, when the corporation law was enacted (Benguet
Consolidated vs. Pineda, 52 Off. Gaz. (No. 4) 1961).
4. The Internal Revenue Code, sec. 26, exempts from the corporation tax those "persons
carrying on business in general co-partnership"; and the construction of the phrase
indicates that the word "business" is here used in the sense of transactions, not precisely
of commercial character. The law is more concerned with the manner in which the
business is carried out, rather than the nature of such business; hence it can not be said
that the exemption excludes civil partnerships.
5. If the reason for exempting general co-partnerships from the tax is "to encourage the
registration of partnerships so that the government and the public may have notice of the
organizational facts and of the names of the individual partners" (Tan Senguan & Co. vs.
Collector of Internal Revenue, 55 Phil. 439), that purpose is attained upon recording of the
articles, regardless of the civil mercantile purpose of the partnership, and whether the
partners are solidarily liable to creditors or not. The creditors are duly notified and can take
the necessary measures to safeguard their interests.