G.R. No.

97212 June 30, 1993

BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D.
BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been illegally dismissed. The Labor Arbiter
decreed his reinstatement and awarded him his claim for unpaid salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter and dismissed petitioner's complaint
in a Resolution dated 29 November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had
bought the Jade Mountain business, that the new partnership had not retained petitioner Yu in his original position as Assistant General
Manager, and that there was no law requiring the new partnership to absorb the employees of the old partnership. Benjamin Yu, therefore, had
not been illegally dismissed by the new partnership which had simply declined to retain him in his former managerial position or any other
position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against the original members of the preceding
partnership, but these though impleaded had, apparently, not been served with summons in the proceedings before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul the Resolution of the NLRC as a
product of grave abuse of discretion amounting to lack or excess of jurisdiction.

FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export business operated by a registered
partnership with the firm name of "Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was originally organized on
28 June 1984 with Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the
Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a marble deposit found on land owned by the
Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses.
1
The partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General Manager with a monthly salary of
P4,000.00. According to petitioner Yu, however, he actually received only half of his stipulated monthly salary, since he had accepted the
promise of the partners that the balance would be paid when the firm shall have secured additional operating funds from abroad. Benjamin Yu
actually managed the operations and finances of the business; he had overall supervision of the workers at the marble quarry in Bulacan and
took charge of the preparation of papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora Bendal sold and transferred their
interests in the partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and
transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the
great bulk of the partnership interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm
name of Jade Mountain, though they moved the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the
Memorandum Agreement relating to the operation of the marble quarry was entered into with the Cruz spouses in February of 1988. 2 The
actual operations of the business enterprise continued as before. All the employees of the partnership continued working in the business, all,
save petitioner Benjamin Yu as it turned out.

The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a juridical personality separate and
distinct from that of each of its members. Such independent legal personality subsists, petitioner claims, notwithstanding changes in the
identities of the partners. Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain could not have
been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership which had hired petitioner Yu as
Assistant General Manager had been extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and
(2) if indeed a new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights under his employment
contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the changes in the membership of the
partnership was the dissolution of the old partnership which had hired petitioner in 1984 and the emergence of a new firm composed of Willy
Co and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite unaware is found in the Civil Code provisions relating to
partnerships. Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing
to be associated in the carrying on as distinguished from the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to Mandaluyong, petitioner Benjamin Yu reported to
the Mandaluyong office for work and there met private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter
had bought the business from the original partners and that it was for him to decide whether or not he was responsible for the obligations of
the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain business
enterprise. His unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing from November 1984 to
October 1988, moral and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The
partnership and Willy Co denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an employee by the present
or new partnership. 4

(1) without violation of the agreement between the partners;

xxx xxx xxx
(b) by the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified;
xxx xxx xxx

(2) in contravention of the agreement between the partners, where

the circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner at any
time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total partnership interest) to Mr.
Willy Co and Emmanuel Zapanta. The record does not show what happened to the remaining 18% of the original partnership interest. The
acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had originally
owned such 82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not, however, automatically result in the
termination of the legal personality of the old partnership. Article 1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is
completed.
In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of winding up and closing of
the affairs of the partnership. In the case at bar, it is important to underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its business
affairs. In other words, the new partnership simply took over the business enterprise owned by the preceeding partnership, and continued
using the old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old partnership, paying off its
debts, liquidating and distributing its net assets, and then re-assembling the said assets or most of them and opening a new business
enterprise. There were, no doubt, powerful tax considerations which underlay such an informal approach to business on the part of the retiring
and the incoming partners. It is not, however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described situation, not only the retiring partners (Rhodora Bendal, et al.) but
also the new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding partnership. In
Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts very similar to those in the case at bar, a withdrawing partner remains
liable to a third party creditor of the old partnership. 9 The liability of the new partnership, upon the other hand, in the set of circumstances
obtaining in the case at bar, is established in Article 1840 of the Civil Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership
continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the
representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to
one or more of the partners and one or more third persons, if the business is continued without liquidation of the
partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in
partnership property to the remaining partner, who continues the business without liquidation of partnership affairs,
either alone or with others;

(3) When any Partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1
and 2 of this Article, with the consent of the retired partners or the representative of the deceased partner, but without
any assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership property to one or more third
persons who promise to pay the debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners continue the business under the
provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the
partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either alone or with others without
liquidation of the partnership affairs;
The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the
creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a
stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set forth in this article the
creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any
claim of the retired partner or the representative of the deceased partner against the person or partnership continuing
the business on account of the retired or deceased partner's interest in the dissolved partnership or on account of any
consideration promised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the
old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his
claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired or previous partner insofar as such retired partner's interest in
the dissolved partnership is concerned. It is not necessary for the Court to determine under which one or mare of the above six (6)
paragraphs, the case at bar would fall, if only because the facts on record are not detailed with sufficient precision to permit such
determination. It is, however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries,
as well as other claims relating to his employment with the previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant general
manager to run the affairs of the business enterprise take over. An assistant general manager belongs to the most senior ranks of
management and a new partnership is entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu
as Assistant General Manager did not therefore constitute unlawful termination, or termination without just or authorized cause. We think that
the precise authorized cause for termination in the case at bar was redundancy. 10 The new partnership had its own new General Manager,
apparently Mr. Willy Co, the principal new owner himself, who personally ran the business of Jade Mountain. Benjamin Yu's old position as
Assistant General Manager thus became superfluous or redundant. 11 It follows that petitioner Benjamin Yu is entitled to separation pay at the
rate of one month's pay for each year of service that he had rendered to the old partnership, a fraction of at least six (6) months being
considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we consider that Benjamin Yu was very
shabbily treated by the new partnership. The old partnership certainly benefitted from the services of Benjamin Yu who, as noted, previously
ran the whole marble quarrying, processing and exporting enterprise. His work constituted value-added to the business itself and therefore, the
new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did not try to suggest that
there was any cause consisting of some blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to terminate
his services. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the business, the relocation of the main
office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co of control of operations. The treatment (including the
refusal to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to amount
to arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond by paying moral damages. This
Court, exercising its discretion and in view of all the circumstances of this case, believes that an indemnity for moral damages in the amount of
P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per annum on the amount of
unpaid wages, and of his separation pay, computed from the date of promulgation of the award of the Labor Arbiter. Finally, because the new
Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to attorney's fees in the amount
of ten percent (10%) of the total amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment filed by private respondents is
treated as their Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET
ASIDE. A new Decision is hereby ENTERED requiring private respondent Jade Mountain Products Company Limited to pay to petitioner
Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of
P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to December
1987) in the total amount of P72,000.00;

RESOLUTION
YNARES-SANTIAGO, J.:
The inherent powers of a Court to amend and control its processes and orders so as to make them conformable to law and justice includes the
right to reverse itself, especially when in its honest opinion it has committed an error or mistake in judgment, and that to adhere to its decision
will cause injustice to a party litigant.1
On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for Reconsideration of our Decision dated October 4,
2000. They maintain that there was no partnership between petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the other
hand; and that the latter being merely an employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo acted merely as guarantor of Geminesse
Enterprise. This was categorically affirmed by respondent's own witness, Elizabeth Bantilan, during her cross-examination. Furthermore,
Bantilan testified that it was Peter Lo who was the company's financier. Thus:
Q

- You mentioned a while ago the name William Belo. Now, what is the role of William Belo with Geminesse Enterprise?

- William Belo is the friend of Marjorie Tocao and he was the guarantor of the company.

- What do you mean by guarantor?

A - He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for us. We can borrow
money from him.

(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3)
years of service or a total of P12,000.00;

- You mentioned a certain Peter Lo. Who is this Peter Lo?

(c) indemnity for moral damages in the amount of P20,000.00;

- Peter Lo is based in Singapore.

(d) six percent (6%) per annum legal interest computed on items (a) and (b) above,
commencing on 26 December 1989 and until fully paid; and

- What is the role of Peter Lo in the Geminesse Enterprise?

- He is the one fixing our orders that open the L/C.

- You mean Peter Lo is the financier?

Costs against private respondents.

- Yes, he is the financier.

SO ORDERED.

- And the defendant William Belo is merely the guarantor of Geminesse Enterprise, am I correct?

- Yes, sir2

(e) ten percent (10%) attorney's fees on the total amount due from private respondent Jade
Mountain.

G.R. No. 127405

September 20, 2001

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.
COURT OF APPEALS and NENITA A. ANAY, respondent.

The foregoing was neither refuted nor contradicted by respondent's evidence. It should be recalled that the business relationship created
between petitioner Tocao and respondent Anay was an informal partnership, which was not even recorded with the Securities and Exchange
Commission. As such, it was understandable that Belo, who was after all petitioner Tocao's good friend and confidante, would occasionally
participate in the affairs of the business, although never in a formal or official capacity.3 Again, respondent's witness, Elizabeth Bantilan,
confirmed that petitioner Belo's presence in Geminesse Enterprise's meetings was merely as guarantor of the company and to help petitioner
Tocao.4
Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the business enterprise. Respondent herself
professed lack of knowledge that petitioner Belo received any share in the net income of the partnership.5 On the other hand, petitioner Tocao
declared that petitioner Belo was not entitled to any share in the profits of Geminesse Enterprise.6 With no participation in the profits, petitioner
Belo cannot be deemed a partner since the essence of a partnership is that the partners share in the profits and losses. 7
Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no cause of action against him and
her complaint against him should accordingly be dismissed.
As regards the award of damages, petitioners argue that respondent should be deemed in bad faith for failing to account for stocks of
Geminesse Enterprise amounting to P208,250.00 and that, accordingly, her claim for damages should be barred to that extent. We do not
agree. Given the circumstances surrounding private respondent's sudden ouster from the partnership by petitioner Tocao, her act of
withholding whatever stocks were in her possession and control was justified, if only to serve as security for her claims against the partnership.
However, while we do not agree that the same renders private respondent in bad faith and should bar her claim for damages, we find that the
said sum of P208,250.00 should be deducted from whatever amount is finally adjudged in her favor on the basis of the formal account of the
partnership affairs to be submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY GRANTED. The Regional Trial Court of
Makati is hereby ordered to DISMISS the complaint, docketed as Civil Case No. 88-509, as against petitioner William T. Belo only. The sum of
P208,250.00 shall be deducted from whatever amount petitioner Marjorie Tocao shall be held liable to pay respondent after the normal
accounting of the partnership affairs.
SO ORDERED.
G.R. No. 167379

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-108484 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.

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.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the Decision1 of the Court of Appeals
(CA) in CA-G.R. CV No. 69200 and its Resolution2 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

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. 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

A2 1,260,000

1,940,000 x 24

P 46,560,000.00

B2 960,000

1,540,000 x 24

36,960,000.00

C2 1,400,000

2,100,000 x 16

33,600,000.00

D2 700,000

900,000 x 24

21,600,000.00

TWIN:
B1 2,500,000
SINGLE:
C1 3,500,000
ROW-TYPE TOWNHOMES:
D1 1,600,000

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

Balance = 70%

161,840,000

x .03069 x 48

P238,409,740

Total Amount (TCP + int. earn.)

P 69,360,000.00

238,409,740.00
P307,769,740.00

EXPENSES:
less: A

Building expenses

P 92,480,000.00

Commission (8% of TCP)

18,496,000.00

Admin. & Mgmt. expenses (2% of TCP)

4,624,000.00

Advertising & Promo exp. (2% of TCP)

4,624,000.00

Building expenses for the open

spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms.

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

Total Expenses

P175,545,740.009

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 Letter13 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 Letter14 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 substandard 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:

12,000,000.00

P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES

Total Projected Income (incl. income from interest earn.)

132,224,000.00

INCOME

CLUSTER:
A1 3,200,000

less:

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.
After trial, a decision be rendered:

P307,769,740.00
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;

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 Resolution32 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.

4. Making the Writ of Preliminary Injunction permanent;

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. 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;

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:

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

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.

d) denying the plaintiffs prayer for the issuance of a temporary restraining order or writ of preliminary injunction.
xxxx
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 extension18 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 Order24 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 Order28 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 reconsideration29 of the July 14, 1998 Order, which the RTC denied in its Order30
dated October 21, 1998.

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 about
P2,603,810.64. 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 "R1") 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 of P1,041,524.26 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 x34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 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:

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 Resolution43 dated March 7, 2005.

I
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
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 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

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 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 Corporation47 cited by the CA is not in point.

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)

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:

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.

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.
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,

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 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:

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:

(1) Each partner who has not caused dissolution wrongfully shall have:
(a) Those owing to creditors other than partners,
(a) All the rights specified in the first paragraph of this article, and
(b) Those owing to partners other than for capital and profits,
(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 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.

(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:

which is to hold and secure renewal of timber license instead of to secure the license as in the first partnership and the term of the second
partnership is fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to ship logs and realize profits.
An income was derived from the proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919).

(a) Those owing to separate creditors;

(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.

On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF INTEREST IN THE
PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves that Maglana and Rojas
shall purchase the interest, share and participation in the Partnership of Pahamotang assessed in the amount of P31,501.12. It was also
agreed in the said instrument that after payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured by
Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the owners of all equipment contributed by Pahamotang
and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second partnership, be dissolved. Pahamotang was paid
in fun on August 31, 1957. No other rights and obligations accrued in the name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of any written agreement or
reconstitution of their written Articles of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc. He left and abandoned
the partnership (Decision, R.A. 947).

SO ORDERED.

On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area (Decision, R.A. 948).
[G.R. No. 30616 : December 10, 1990.]

The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS Estate, Inc. by way of chattel
mortgage (Decision, R.A. p. 948).

192 SCRA 110

EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA, Defendant-Appellee.

On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in equipment, to the capital
investments of the partnership as well as his obligation to perform his duties as logging superintendent.

DECISION

Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised contributions and he will not work as
logging superintendent. Maglana then told Rojas that the latter's share will just be 20% of the net profits. Such was the sharing from 1957 to
1959 without complaint or dispute (Decision, R.A. 949).: nad
PARAS, J.:

This is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao, Seventh Judicial District, Branch III, in Civil
Case No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called Eastcoast Development Enterprises
(EDE) with only the two of them as partners. The partnership EDE with an indefinite term of existence was duly registered on January 21, 1955
with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests products licenses and concessions
over public and/or private forest lands and to operate, develop and promote such forests rights and concessions." (Rollo, p. 114).

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10") Maglana
notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery of properties, accounting,
receivership and damages, docketed as Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and voluminous accounts of the
Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied by Judge Romero for want of merit
(Ibid., p. 125). Judge Romero also required the inclusion of the entire year 1961 in the report to be submitted by the commissioners (Ibid., pp.
138-143). Accordingly, the commissioners started examining the records and supporting papers of the partnership as well as the information
furnished them by the parties, which were compiled in three (3) volumes.

A duly registered Articles of Co-Partnership was filed together with an application for a timber concession covering the area located at Cateel
and Baganga, Davao with the Bureau of Forestry which was approved and Timber License No. 35-56 was duly issued and became the basis
of subsequent renewals made for and in behalf of the duly registered partnership EDE.

On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim, attaching thereto the amended answer
(Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p. 336).

Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the partnership, including marketing and
handling of cash and is authorized to sign all papers and instruments relating to the partnership, while appellant Rojas shall be the logging
superintendent and shall manage the logging operations of the partnership. It is also provided in the said articles of co-partnership that all
profits and losses of the partnership shall be divided share and share alike between the partners.

On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the report of the commissioners which
was opposed by the appellee.

During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership (Record on Appeal [R.A.] p. 946).

A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed upon to be submitted to the trial court:

On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).

On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).

Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as industrial partner.

(a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the second partnership;

On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the
firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose of the second partnership

(b) Their sharing basis: whether in proportion to their contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;

(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision, R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired from the second
partnership, that is, after August 31, 1957, when Pahamotang was finally paid his share the partnership of the defendant and
the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and proportion of their
respective contributions, or on the basis of share and share alike this covered by actual contributions of the plaintiff and the
defendant and by their verbal agreement; that the sharing of profits and losses is on the basis of actual contributions; that from
1957 to 1959, the sharing is on the basis of 80% for the defendant and 20% for the plaintiff of the profits, but from 1960 to the date
of dissolution, February 23, 1961, the plaintiff's share will be on the basis of his actual contribution and, considering his
indebtedness to the partnership, the plaintiff is not entitled to any share in the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in his or in his wife's name were acquired with
partnership funds or with funds of the defendant and the Court declares that there is no evidence that these properties were
acquired by the partnership funds, and therefore the same should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused them and who should be liable for them the
Court declares that neither parties is entitled to damages, for as already stated above it is not a wise policy to place a price on the
right of a person to litigate and/or to come to Court for the assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961; did it dissolve the partnership or
not the Court declares that the letter of the defendant to the plaintiff dated February 23, 1961, in effect dissolved the
partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise to the laborers and
employees of the Eastcoast Development Enterprises, the COURT DECLARES THE SAME AS NOT BELONGING TO THE
PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles David is VALID AND BINDING UPON
THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount of P69,000.00 the profits
he received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which according to him he is still entitled
to receive from the CMS Estate, Inc. is hereby denied considering that it has not yet been actually received, and further the receipt
is merely based upon an expectancy and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he should have received as logging
superintendent, and which was not paid to him, and this should be considered as part of Maglana's contribution likewise to the
partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after Pahamotang retired from the
second partnership.
The lower court is of the view that the second partnership superseded the first, so that when the second partnership was dissolved there was
no written contract of co-partnership; there was no reconstitution as provided for in the Maglana, Rojas and Pahamotang partnership contract.
Hence, the partnership which was carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership
and at will. It was considered as a partnership at will because there was no term, express or implied; no period was fixed, expressly or
impliedly (Decision, R.A. pp. 962-963).

On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development Enterprises (EDE) evidenced
by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or dissolved by the unregistered
articles of co-partnership among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and
accordingly, the terms and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the relations between him and
Maglana. Upon withdrawal of Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the legally constituted partnership EDE
(Exhibit "A") continues to govern the relations between them and it was legal error to consider a de facto partnership between said two
partners or a partnership at will. Hence, the letter of appellee Maglana dated February 23, 1961, did not legally dissolve the registered
partnership between them, being in contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-Partnership
(Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article 1837 of the Civil Code and to the sharing profits between them of
"share and share alike" as stipulated in the registered Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident that it was not the intention of the
partners to dissolve the first partnership, upon the constitution of the second one, which they unmistakably called an "Additional Agreement"
(Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for the fact that they took in one industrial partner; gave him an equal share in
the profits and fixed the term of the second partnership to thirty (30) years, everything else was the same. Thus, they adopted the same name,
EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and the capital contributions of Rojas and Maglana as
stipulated in both partnerships call for the same amounts. Just as important is the fact that all subsequent renewals of Timber License No. 3536 were secured in favor of the First Partnership, the original licensee. To all intents and purposes therefore, the First Articles of Partnership
were only amended, in the form of Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for PlaintiffAppellant, p. 5). Otherwise stated, even during the existence of the second partnership, all business transactions were carried out under the
duly registered articles. As found by the trial court, it is an admitted fact that even up to now, there are still subsisting obligations and contracts
of the latter (Decision, R.A. pp. 950-957). No rights and obligations accrued in the name of the second partnership except in favor of
Pahamotang which was fully paid by the duly registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said dissolution did not affect the first
partnership which continued to exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and participation in the second
partnership of Pahamotang and that thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang.
Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his obligation to contribute either in
cash or in equipment, to the capital investment of the partnership as well as his obligation to perform his duties as logging superintendent. This
reminder cannot refer to any other but to the provisions of the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he
will not be able to comply with the promised contributions and he will not work as logging superintendent. By such statements, it is obvious that
Roxas understood what Maglana was referring to and left no room for doubt that both considered themselves governed by the articles of the
duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be considered as a De Facto
Partnership, nor a Partnership at Will, for as stressed, there is an existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing
even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the
withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and
Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits
and losses of the partnership shall be divided "share and share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the commissioners appointed for
the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961 are as follows: Eufracio Rojas who
should have contributed P158,158.00, contributed only P18,750.00 while Maglana who should have contributed P160,984.00, contributed
P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute (Article 1786, Civil Code) and for interests and
damages from the time he should have complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94
[1984]). Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership
(Ibid., p. 95).

Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports which was approved by the trial
court, they showed that on 50-50% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and
finally on the basis of actual capital contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is unquestionably a continuation of
the duly registered partnership and the sharing of profits and losses which should be on the basis of share and share alike as provided for in
the duly registered Articles of Co-Partnership, no plausible reason could be found to disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the withdrawal of Pahamotang, Rojas
entered into a management contract with another logging enterprise, the CMS Estate, Inc., a company engaged in the same business as the
partnership. He withdrew his equipment, refused to contribute either in cash or in equipment to the capital investment and to perform his duties
as logging superintendent, as stipulated in their partnership agreement. The records also show that Rojas not only abandoned the partnership
but also took funds in an amount more than his contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby MODIFIED in the sense that the
duly registered partnership of Eastcoast Development Enterprises continued to exist until liquidated and that the sharing basis of the partners
should be on share and share alike as provided for in its Articles of Partnership, in accordance with the computation of the commissioners. We
also hereby AFFIRM the decision of the trial court in all other respects.: nad
SO ORDERED.
G.R. No. L-22825

February 14, 1925

TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL., plaintiffs-appellants,

vs.
SALVADOR SERRA, defendant-appellee.
Eduardo Gutierrez Repide for appellants.
Hilado and Hilado, Fisher, DeWitt, Perkins and Brady, Araneta and Zaragosa, Antonio Sanz and Jose Galan y Blanco for appellee.
VILLAMOR, J.:
On February 1, 1919, plaintiffs and defendant entered into a contract of partnership, marked Exhibit A, for the construction and exploitation of
a railroad line from the "San Isidro" and "Palma" centrals to the place known as "Nandong." The original capital stipulated was P150,000. It
was covenanted that the parties should pay this amount in equal parts and the plaintiffs were entrusted with the administration of the
partnership. The agreed capital of P150,000, however, did not prove sufficient, as the expenses up to May 15, 1920, had reached the amount
of P226,092.92, as per statement Exhibit B, presented by the administrator and O.K.'d by the defendant.
January 29, 1920, the defendant entered into a contract of sale with Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga,
whereby he sold to the latter the estate and central known as "Palma" with its running business, as well as all the improvements, machineries
and buildings, real and personal properties, rights, choses in action and interests, including the sugar plantation of the harvest year of 1920 to
1921, covering all the property of the vendor. This contract was executed before a notary public of Iloilo and is evidenced by Exhibit 1 of the
defendant, paragraph 5 of which reads as follows:
5. The party of the first part hereby states that he has entered into a contract with the owners of the "San Isidro" Central for the
construction, operation, and exploitation of a railroad line of about 10 kilometers extending from the "Palma" Central and "San
Isidro" Central to a point known as "Nandong," the expenses until the termination of which shall be for the account of the "San
Isidro" Central, and of which expenses, one-half shall be borne by the "Palma" Central with the obligation to reimburse same
within five (5) years with interest at the rate of 10 per cent per annum to the said "San Isidro" Central. The vendee hereby
obligates himself to respect the aforesaid contract and all obligations arising therefrom.

Before the delivery to the purchasers of the hacienda thus sold, Eusebio R. de Luzuriaga renounced all his rights under the contract of
January 29, 1920, in favor of Messrs. Venancio Concepcion and Phil. C. Whitaker. This gave rise to the fact that on July 17, 1920, Venancio
Concepcion and Phil. C. Whitaker and the herein defendant executed before Mr. Antonio Sanz, a notary public in and for the City of Manila,
another deed of absolute sale of the said "Palma" Estate for the amount of P1,695,961.90, of which the vendor received at the time of
executing the deed the amount of P945,861.90, and the balance was payable by installments in the form and manner stipulated in the
contract. The purchasers guaranteed the unpaid balance of the purchase price by a first and special mortgage in favor of the vendor upon the
hacienda and the central with all the improvements, buildings, machineries, and appurtenances then existing on the said hacienda.
Clause 6 of the deed of July 17, 1920, contains the following stipulations:
6. Messrs. Phil. C. Whitaker and Venancio Concepcion hereby state that they are aware of the contract that Mr. Salvador Serra
has with the proprietors of the "San Isidro" Central for the operation and exploitation of a railroad line about 10 kilometers long
from the "Palma" and "San Isidro" centrals to the place known as "Nandong;" and hereby obligate themselves to respect the said
contract and subrogate themselves into the rights and obligations thereunder. They also bind themselves to comply with all the
contracts heretofore entered by the vendor with the customers, coparceners on shares and employees.
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the plaintiffs the one-half of the railroad line
pertaining to the latter, executing therefor the document Exhibit 5. The price of this sale was P237,722.15, excluding any amount which the
defendant might be owing to the plaintiffs. Of the purchase price, Venancio Concepcion and Phil. C. Whitaker paid the sum of P47,544.43 only.
In the deed Exhibit 5, the plaintiffs and Concepcion and Whitaker agreed, among other things, that the partnership "Palma" and "San Isidro,"
formed by the agreement of February 1, 1919, between Serra, Lazaro Mota, now deceased, and Juan J. Vidaurrazaga for himself and in
behalf of his brother, Felix and Dionisio Vidaurrazaga, should be dissolved upon the execution of this contract, and that the said partnership
agreement should be totally cancelled and of no force and effect whatever.
So it results that the "Hacienda Palma," with the entire railroad, the subject-matter of the contract of partnership between plaintiffs and
defendant, became the property of Whitaker and Concepcion. Phil. C. Whitaker and Venancio Concepcion having failed to pay to the
defendant a part of the purchase price, that is, P750,000, the vendor, the herein defendant, foreclosed the mortgage upon the said hacienda,
which was adjudicated to him at the public sale held by the sheriff for the amount of P500,000, and the defendant put in possession thereof,
including what was planted at the time, together with all the improvements made by Messrs. Phil. C. Whitaker and Venancio Concepcion.
Since the defendant Salvador Serra failed to pay one-half of the amount expended by the plaintiffs upon the construction of the railroad line,
that is, P113,046.46, as well as Phil. C. Whitaker and Venancio Concepcion, the plaintiffs instituted the present action praying: (1) That the
deed of February 1, 1919, be declared valid and binding; (2) that after the execution of the said document the defendant improved
economically so as to be able to pay the plaintiffs the amount owed, but that he refused to pay either in part or in whole the said amount
notwithstanding the several demands made on him for the purpose; and (3) that the defendant be sentenced to pay plaintiffs the aforesaid
sum of P113,046.46, with the stipulated interest at 10 per cent per annum beginning June 4, 1920, until full payment thereof, with the costs of
the present action.
Defendant set up three special defenses: (1) The novation of the contract by the substitution of the debtor with the conformity of the creditors;
(2) the confusion of the rights of the creditor and debtor; and (3) the extinguishment of the contract, Exhibit A.
The court a quo in its decision held that there was a novation of the contract by the substitution of the debtor, and therefore absolved the
defendant from the complaint with costs against the plaintiffs. With regard to the prayer that the said contract be declared valid and binding,
the court held that there was no way of reviving the contract which the parties themselves in interest had spontaneously and voluntarily
extinguished. (Exhibit 5.)
Plaintiffs have appealed from this judgment and as causes for the review, they allege that the trial court erred: (a) In holding that Messrs.
Whitaker and Concepcion, upon purchasing the "Palma" Central, were subrogated in the place of the defendant in all his rights and obligations

under the contract relating to the railroad line existing between the "Palma" and the "San Isidro" centrals and that the plaintiffs agreed to this
subrogation; (b) in holding that the deed Exhibit A of February 1, 1919, had been extinguished in its entirety and made null and void by the
agreement Exhibit 5 dated December 16, 1920; (c) in absolving the defendant from the complaint and in sentencing the plaintiffs to pay the
costs; and (d) in not sentencing the defendant to pay the plaintiffs the sum of P113,046.46, with legal interest at 10 per cent per annum from
June 4, 1920, until full payment, with costs against the defendant.
Taking for granted that the defendant was under obligation to pay the plaintiffs one-half of the cost of the construction of the railroad line in
question, by virtue of the contract of partnership Exhibit A, the decisive point here to determine is whether there was a novation of the contract
by the substitution of the debtor with the consent of the creditor, as required by article 1205 of the Civil Code. If so, it is clear that the obligation
of the defendant was, in accordance with article 1156 of the same code, extinguished.
It should be noted that in order to give novation its legal effect, the law requires that the creditor should consent to the substitution of a new
debtor. This consent must be given expressly for the reason that, since novation extinguishes the personality of the first debtor who is to be
substituted by new one, it implies on the part of the creditor a waiver of the right that he had before the novation which waiver must be express
under the principle that renuntiatio non praesumitur, recognized by the law in declaring that a waiver of right may not be performed unless the
will to waive is indisputably shown by him who holds the right.
The fact that Phil. C. Whitaker and Venancio Concepcion were willing to assume the defendant's obligation to the plaintiffs is of no avail, if the
latter have not expressly consented to the substitution of the first debtor. Neither can the letter, Exhibit 6, on page 87 of the record be
considered as proof of the consent of the plaintiffs to the substitution of the debtor, because that exhibit is a letter written by plaintiffs to Phil. C.
Whitaker and Venancio Concepcion for the very reason that the defendant had told them (plaintiffs) that after the sale of the "Hacienda Palma"
to Messrs. Phil. C. Whitaker and Venancio Concepcion, the latter from then on would bear the cost of the repairs and maintenance of the
railroad line and of the construction of whatever addition thereto might be necessary. So the plaintiffs by their letter of August 14th, submitted a
statement of account to Phil. C. Whitaker and Venancio Concepcion containing the accounts of the "San Isidro" Central, as stated June 30,
1920, saying that they had already explained previously the reason for the increase in the expenses and since the retiring partner, Mr. Serra,
had already given conformity with the accounts, as stated May 15, 1920, it remained only to hear the conformity of the new purchasers for the
accounts covering the period from May 15 to June 30, 1920, and their authority for future investments, or their objection, if any, to the amounts
previously expended. Neither can the testimony of Julio Infante in connection with Exhibit 7 be taken as evidence of the consent of the
plaintiffs to the change of the person of the debtor for that of Messrs. Phil. C. Whitaker and Venancio Concepcion. This witness testified, in
substance, that he is acquainted with the partnership formed by the owners of the "Hacienda Palma" and Hacienda San Isidro" for the
construction of the railroad line; that the cost of the construction thereof was originally estimated at P150,000; that the owner of the "Hacienda
Palma" would pay one-half of this amount; that when the "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and Venancio Concepcion,
the latter agreed to pay one-half of the cost of P150,000; that as the cost of construction exceeded P200,000, he, as an employee of Messrs.
Phil. C. Whitaker and Venancio Concepcion, could not O.K. the accounts as presented by the plaintiffs, and suggested that they take up in
writing their points of view directly with Messrs. Phil. C. Whitaker and Venancio Concepcion. Then the plaintiffs did as suggested, and wrote
the letter Exhibit 7 in which they asked the new owners of the "Hacienda Palma" their decision upon the following three questions: 1. Will the
"Palma" Central accept the statement of account as presented by the "San Isidro" Central regarding the actual cost of the railroad line "PalmaSan Isidro-Nandong?" 2. Is the "Palma" Central willing to continue as co-proprietor of the railroad line for the exploitation of the sugar-cane
business of "Nandong" and neighboring barrios, and therefore to pay 50 per cent of the expenses that may be incurred in completing the line?
It was but natural that the plaintiffs should have done this. Defendant transferred his hacienda to Messrs. Phil. C. Whitaker and Venancio
Concepcion and made it known to the plaintiffs that the new owners would hold themselves liable for the cost of constructing the said railroad
line. Plaintiffs could not prevent the defendant from selling to Phil. C. Whitaker and Venancio Concepcion his "Hacienda Palma" with the rights
that he had over the railroad in question. The defendant ceased to be a partner in said line and, therefore, the plaintiffs had to take the
vendees as their new partners. Plaintiffs had to come to an understanding with the new owners of the "Hacienda Palma" in connection with the
railroad line "Palma-San Isidro-Nandong." But in all of this, there was nothing to show the express consent, the manifest and deliberate
intention of the plaintiffs to exempt the defendant from his obligation and to transfer it to his successors in interest, Messrs. Phil. C. Whitaker
and Venancio Concepcion.

The plaintiffs were not a party to the document Exhibit 1. Neither in this document, nor in others in the record, do we find any stipulation
whereby the obligation of the defendant was novated with the consent of the creditor, and as it has been held in the case of Martinez vs.
Cavives (25 Phil., 581), the oral evidence tending to prove such a fact as this is not in law sufficient.
As has been said, in all contracts of novation consisting in the change of the debtor, the consent of the creditor is indispensable, pursuant to
article 1205 of the Civil Code which reads as follows:
Novation which consists in the substitution of a new debtor in the place of the original one may be made without the knowledge of
the latter, but not without the consent of the creditor.
Mr. Manresa in his commentaries on articles 1205 and 1206 of the Civil Code (vol. 8, 1907 ed., pp. 424-426) says as follows:
Article 1205 clearly says in what this kind of novation must consist, because in stating that another person must be substituted in
lieu of the debtor, it means that it is not enough to extend the juridical relation to that other person, but that it is necessary to place
the latter in the same position occupied by the original debtor.
Consequently, the obligation contracted by a third person to answer for the debtor, as in the case of suretyship, in the last
analysis, does not work as a true novation, because the third person is not put in the same position as the debtor the latter
continues in his same place and with the same obligation which is guaranteed by the former.
Since it is necessary that the third person should become a debtor in the same position as the debtor whom he substitutes, this
change and the resulting novation may be respected as to the whole debt, thus untying the debtor from his obligation, except the
eventual responsibilities of which we shall speak later, or he may continue with the character of such debtor and also allow the
third person to participate in the obligation. In the first case, there is a complete and perfect novation; in the second, there is a
change that does not free the debtor nor authorize the extinguishment of the accessory obligations of the latter. In this last
hypothesis, if there has been no agreement as to solidarity, the first and the new debtor should be considered as obligated
severally.
The provisions of article 1205 which require the consent of the creditor as an indispensable requisite in this kind of novation and
not always that of the debtor, while not making it impossible to express the same, imply the distinction between these two forms of
novation and it is based on the simple consideration of justice that since the consequences of the substitution may be prejudicial
to the creditor, but not to the debtor, the consent of the creditor alone is necessary.
The two forms of this novation, also impliedly recognized by article 1206 which employs the word "delegate," as applied to the
debt, are the expromission and the delegation. Between these, there is a marked difference of meaning and, as a consequence, a
logical difference of requisite and another clear difference as to their effects, of which we shall speak later.
In the expromission, the initiative of the change does not emanate from the debtor and may be made even without his consent,
since it consists in a third person assuming his obligation; it logically requires the consent of this third man and of the creditor and
in this last requisite lies the difference between novation and payment, as the latter can be effected by a third person even against
the will of the creditor, whereas in the former case it cannot.
In the delegation, the debtor offers and the creditor accepts a third person who consents to the substitution so that the intervention
and the consent of these three persons are necessary and they are respectively known as delegante, delegatario, and delegado.
It must be noted that the consent need not be given simultaneously and that it may be given afterwards, as for example, that of
the creditor delegatario to the proposition of the debtor accepted by the delegado.

Delegation notably differs from the mere indication made by the debtor that a third person shall pay the debt; in this case, there is
no novation and the former is not acquitted of his obligation and his relations with the third person are regulated by the rules of
agency. The French Code in article 1276 expressly provides for this case, as well as the inverse one where the debtor points out
somebody else to answer for the payment, declaring that there is no novation in either case. The same sound criterion is impliedly
accepted by our Code.

In order that novation of a contract by subrogation of the debtor may take effect and thus liberate the first debtor from the
obligation, it is necessary that the subrogation be made with the consent of the creditor. (Decision of March 2, 1897.)
It is undeniable that obligations judicially declared, as well as those acquired by any title, can be novated by substituting a new
debtor in place of the primitive, only when the creditor gives his consent to the substitution. (Decision of November 15, 1899.)

In the case of E.C. McCullough & Co. vs. Veloso and Serna (46 Phil., 1), it appears that McCullough and Co., Inc., sold to Veloso a real estate
worth P700,000 on account of which Veloso paid P50,000, promising to pay the balance at the times and manner stipulated in the contract. He
further bound himself to pay 10 per cent of the amount of the debt as attorney's fees in case of litigation. To secure the unpaid balance of the
purchaser price he executed a first mortgage upon the property in favor of the vendor. Subsequently, Veloso sold the property for P100,000 to
Joaquin Serna who bound himself to respect the mortgage in favor of McCullough and Co., Inc., and to assume Veloso's obligation to pay the
unpaid balance of the purchase price of the property at the times agreed upon in the contract between Veloso and McCullough and Co., Inc.

Novation can in no case be presumed in contracts, but it is necessary that it should result from the will of the parties, or that the
old and the new one be altogether incompatible. (Decision of December 31, 1904.)

Veloso had paid on account of the price the amount of P50,000, and Serna also made several payments aggregating the total amount of
P250,000. But after this, neither Veloso nor Serna made further payments and thus gave cause for a litigation. The court in deciding the case
said:

The consent of the creditor required in a novation consisting of the change of debtors (art. 1205, Civil Code) must appear in an
express and positive manner and must be given with the deliberate intention of exonerating the primitive debtor of his obligations
and transfer them wholly upon the new debtor. (Decision of June 22, 1911.)

The defendant contends that having sold the property to Serna, and the latter having assumed the obligation to pay the plaintiff
the unpaid balance of the price secured by the mortgage upon the property, he was relieved from this obligation and it then
devolved upon Serna to pay the plaintiff. This means that as a consequence of the contract between the defendant and Serna, the
contract between the defendant and the plaintiff was novated by the substitution of Serna as a new debtor. This is untenable. In
order that this novation may take place, the law requires the consent of the creditor (art. 1205 of the Civil Code). The plaintiff did
not intervene in the contract between Veloso and Serna and did not expressly give his consent to this substitution. Novation must
be express, and cannot be presumed.
In Martinez vs. Cavives (25 Phil., 581), it was held that:
. . . The consent of the new debtor is as essential to the novation as is that of the creditor . . . .
There is no express stipulation in any of the documents of record that the obligation of the defendant was novated, and the parol
evidence tending to show that it was novated is not sufficient in law to establish that fact.
The same doctrine was upheld in the case of Vaca vs. Kosca (26 Phil., 388):
A new debtor cannot be substituted for the original obligor in the first contract without the creditor's consent.
The supreme court of Spain has constantly laid down the same doctrine with regard to novation of contracts:
The obligations and rights in a contract cannot be novated with regard to a third person who has not intervened in the execution
thereof. (Decision of June 28, 1860.)
Novation by the change of debtors cannot be effected without the express approval of the creditor. (Decisions of February 8, 1862
and June 12, 1867.)
Novation should not be established by presumptions but by the express will of the parties. (Decisions of February 14, 1876 and
June 16, 1883.)

An obligation cannot be deemed novated by means of modifications which do not substantially change the essence thereof, nor
when it is not extinguished by another obligation, nor when the debtor is not substituted. (Decision of March 14, 1908.)

In the decision in the case of Martinez vs. Cavives, supra, the following decisions of the several courts of the United States are cited, wherein
this question was decided in the same manner:
In Latiolais, admrx. vs. Citizens' Bank of Louisiana (33 La. Ann., 1444), one Duclozel mortgaged property to the defendant bank
for the triple purpose of obtaining shares in the capital stock of the bank, bonds which the bank was authorized to issue, and loans
to him as a stockholder. Duclozel subsequently sold this mortgaged property to one Sproule, who, as one of the terms of the sale,
assumed the liabilities of his vendor to the bank. Sproule sold part of the property to Graff and Chalfant. The debt becoming due,
the bank brought suit against the last two named and Sproule as owners. Duclozel was not made a party. The bank discontinued
these proceedings and subsequently brought suit against Latiolais, administratrix of Duclozel, who had died.
The court said: "But the plaintiff insists that in its petition in the proceeding first brought the bank ratified the sale made by
Duclozel to Sproule, and by the latter to other parties, in treating them as owners. Be that so, but it does not follow in the absence
of either a formal and express or of an implied consent to novate, which should be irresistibly inferred from surrounding
circumstances, that it has discharged Duclozel unconditionally, and has accepted those parties as new delegated debtors in his
place. Nemo presumitur donare.
"Novation is a contract, the object of which is: either to extinguish an existing obligation and to substitute a new one in
its place; or to discharge an old debtor and substitute a new one to him; or to substitute a new creditor to an old
creditor with regard to whom the debtor is discharged.
"It is never presumed. The intention must clearly result from the terms of the agreement or by a full discharge of the
original debt. Novation by the substitution of a new debtor can take place without the consent of the debtor, but the
delegation does not operate a novation, unless the creditor has expressly declared that he intends to discharge with
delegating debtor, and the delegating debtor was not in open failure or insolvency at the time. The mere indication by
a debtor of a person who is to pay in his place does not operate a novation. Delegatus debitor est odiosus in lege.
"The most that could be inferred would be that the bank in the exercise of a sound discretion, proposed to better its
condition by accepting an additional debtor to be and remain bound with the original one."
In Fidelity L. & T. Co. vs. Engleby (99 Va., 168), the court said: "Whether or not a debt has been novated is a question of fact and
depends entirely upon the intention of the parties to the particular transaction claimed to be novated. In the absence of

satisfactory proof to the contrary, the presumption is that the debt has not been extinguished by taking the new evidence in the
absence of an intention expressed or implied, being treated as a conditional payment merely."
In Hamlin vs. Drummond (91 Me., 175; 39 A., 551), it was said that novation is never presumed but must always be proven. In
Netterstorn vs. Gallistel (110 Ill. App., 352), it was said that the burden of establishing a novation is on the party who asserts its
existence; that novation is not easily presumed; and that it must clearly appear before the court will recognize it.
Notwithstanding the doctrines above quoted, defendant's counsel calls our attention to the decision of the supreme court of Spain of June 16,
1908, wherein it was held that the provisions of article 1205 of Code do not mean nor require that the consent of the creditor to the change of a
debtor must be given just at the time when the debtors agree on the substitution, because its evident object being the full protection of the
rights of the creditor, it is sufficient if the latter manifests his consent in any form and at any time as long as the agreement among the debtors
holds good. And defendant insists that the acts performed by the plaintiffs after the "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker
and Venancio Concepcion constitute evidence of the consent of the creditor. First of all, we should have an idea of the facts upon which that
decision was rendered by the supreme court of Spain.
A partnership known as "La Azucarera de Pravia" obtained a fire insurance policy from the company "La Union y Fenix Espanol," by virtue of
which, said company insured in consideration of an annual premium of 3,000 pesetas, the buildings, machinery and other apparatuses
pertaining to the "Pravia Factory" for ten years and for half their value, and another insurance from another insurance company insuring the
same property and effects for the other half of their value.
Later, "La Azucarera de Pravia," with other sugar companies, ceded all its property to another company known as "Sociedad General
Azucarera de Espaa," in which in consideration of certain amount of stock that the said "Sociedad General Azucarera de Espaa" issued to
the "La Azucarera de Pravia," the latter was merged with the former. After the cession, "La Union y Fenix Expaol" sued the "Sociedad
General Azucarera de Espaa" demanding the payment of the premium that should have been paid by the "La Azucarera de Pravia," which
payment the "Sociedad General Azucarera de Espaa" refused to make on the ground that the "La Azucarera de Pravia" was not merged with
the "Sociedad General Azucarera de Espaa," but merely transferred its properties to the latter in consideration of the stock that was issued to
the "La Azucarera de Pravia." It was further contended by the "Sociedad General Azucarera de Espaa" that even if it were true that in the
contract of cession it appeared that the "La Azucarera de Pravia" was merged with the "Sociedad General Azucarera de Espaa,"
nevertheless, there was no such merger in law, for in truth and in fact, the "La Azucarera de Pravia" had ceded only its property, but not its
rights and obligations; that the existence of the partnership known as "La Azucarera de Pravia" was proven by its registration in the mercantile
register, which was not cancelled, did it contain any statement to the effect that the "La Azucarera de Pravia" had been extinguished or had
ceased to do business even after the cession of properties to the "Sociedad General Azucarera de Espaa." Another argument advanced by
the "Sociedad General" was that at the time the "Azucarera de Pravia" ceded its properties to the "Sociedad General Azucarera de Espaa,"
the insurance company "La Union y Fenix Espanol" did not assent to the subrogation of the "Sociedad General Azucarera" into the rights and
obligations of the "Azucarera de Pravia," assuming that there had been such a subrogation or substitution of a debtor by another.
The supreme court of Spain gave judgment in favor of the "La Union y Fenix Espaol" insurance company for the following reasons:
1. While it is true that it cannot be strictly said that "La Azucarera de Pravia" was merged with the "Sociedad General Azucarera
de Espaa," the document whereby the property of the "La Azucarera de Pravia" was ceded to the "Sociedad General Azucarera
de Espaa" clearly and expressly recites that this company upon taking charge of the immovable property of the "La Azucarera de
Pravia" accepted in general, with respect to the property ceded, "everything belonging to the same," after making provisions about
active and passive easements, contracts for transportation and other matters.
The supreme court held that by virtue of the words hereinabove quoted, the "Sociedad General Azucarera de Espaa" took over the obligation
to pay the insurance premiums of the "La Azucarera de Pravia" inasmuch as said insurance pertained to the property that was ceded.

2. While it is true that "La Union y Fenix Espaol" insurance company did not give its consent to the contract of cession at the
moment of its execution, yet the mere fact that the said insurance company now sues the "Sociedad General Azucarera de
Espaa" is an incontrovertible proof that the said insurance company accepts the substitution of the new debtor.
By comparing the facts of that case with the defenses of the case at bar, it will be seen that, whereas in the former case the creditor sued the
new debtor, in the instant case the creditor sues the original debtor. The supreme court of Spain in that case held that the fact that the creditor
sued the new debtor was proof incontrovertible of his assent to the substitution of the debtor. This would seem evident because the judicial
demand made on the new debtor to comply with the obligation of the first debtor is the best proof that the creditor accepts the change of the
debtor. His complaint is an authentic document where his consent is given to the change of the debtor. We are not holding that the creditor's
consent must necessarily be given in the same instrument between the first and the new debtor. The consent of the creditor may be given
subsequently, but in either case it must be expressly manifested. In the present case, however, the creditor makes judicial demand upon the
first debtor for the fulfillment of his obligation, evidently showing by this act that he does not give his consent to the substitution of the new
debtor. We are of the opinion that the decision of the supreme court of Spain of June 16, 1908, cannot be successfully invoked in support of
defendant's contention. Wherefore, we hold that in accordance with article 1205 of the Civil Code, in the instant case, there was no novation of
the contract, by the change of the person of the debtor.
Another defense urged by the defendant is the merger of the rights of debtor and creditor, whereby under article 1192 of the Civil Code, the
obligation, the fulfillment of which is demanded in the complaint, became extinguished. It is maintained in appellee's brief that the debt of the
defendant was transferred to Phil. C. Whitaker and Venancio Concepcion by the document Exhibit 1. These in turn acquired the credit of the
plaintiffs by virtue of the debt, Exhibit 5; thus the rights of the debtor and creditor were merged in one person. The argument would at first
seem to be incontrovertible, but if we bear in mind that the rights and titles which the plaintiffs sold to Phil. C. Whitaker and Venancio
Concepcion refer only to one-half of the railroad line in question, it will be seen that the credit which they had against the defendant for the
amount of one-half of the cost of construction of the said line was not included in the sale contained in Exhibit 5. That the plaintiffs sold their
rights and titles over one-half of the line, is evident from the very Exhibit 5. The purchasers, Phil. C. Whitaker and Venancio Concepcion, to
secure the payment of the price, executed a mortgage in favor of the plaintiffs on the same rights and titles that they had bought and also upon
what they had purchased from Mr. Salvador Serra. In other words, Phil. C. Whitaker and Venancio Concepcion mortgaged unto the plaintiffs
what they had bought from the plaintiffs and also what they had bought from Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio
Concepcion had purchased something from Mr. Salvador Serra, the herein defendant, regarding the railroad line, it was undoubtedly the onehalf thereof pertaining to Mr. Salvador Serra. This clearly shows that the rights and titles transferred by the plaintiffs to Phil. C. Whitaker and
Venancio Concepcion were only those they had over the other half of the railroad line. Therefore, as already stated, since there was no
novation of the contract between the plaintiffs and the defendant, as regards the obligation of the latter to pay the former one-half of the cost of
the construction of the said railroad line, and since the plaintiffs did not include in the sale, evidenced by Exhibit 5, the credit that they had
against the defendant, the allegation that the obligation of the defendant became extinguished by the merger of the rights of creditor and
debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio Concepcion is wholly untenable.
Appellants assign also as a ground of their appeal the holding of the court that by the termination of the partnership, as shown by the
document Exhibit 5, no legal rights can be derived therefrom.
By virtue of the contract Exhibit 5, the plaintiffs and Phil. C. Whitaker and Venancio Concepcion, by common consent, decided to dissolve the
partnership between the "Hacienda Palma" and "Hacienda San Isidro," thus cancelling the contract of partnership of February 1, 1919.
Counsel for appellee in his brief and oral argument maintains that the plaintiffs cannot enforce any right arising out of that contract of
partnership, which has been annulled, such as the right to claim now a part of the cost of the construction of the railroad line stipulated in that
contract.
Defendant's contention signifies that any person, who has contracted a valid obligation with a partnership, is exempt from complying with his
obligation by the mere fact of the dissolution of the partnership. Defendant's contention is untenable. The dissolution of a partnership must not
be understood in the absolute and strict sense so that at the termination of the object for which it was created the partnership is extinguished,
pending the winding up of some incidents and obligations of the partnership, but in such case, the partnership will be reputed as existing until

the juridical relations arising out of the contract are dissolved. This doctrine has been upheld by the supreme court of Spain in its decision of
February 6, 1903, in the following case: There was a partnership formed between several persons to purchase some lands sold by the state.
The partnership paid the purchase price and distributed among its members the lands so acquired, but after the lapse of some time, one of the
partners instituted an action in the court of Badajoz, praying that he be accepted as a partner with the same rights and obligations as the
others, for the reason that he had not been allowed all that he had a right to. The court granted the petition, which judgment was affirmed by
the Audiencia de Caceres.
From that decision the defendant sued out a writ of error alleging infringement of articles 1680 and 1700 of the Civil Code, on the proposition
that all contracts are reputed consummated and therefore extinguished, when the contracting parties fulfill all the obligations arising therefrom
and that by the payment of the money and the granting and distribution of the lands without any opposition, the juridical relations between the
contracting parties become extinguished and none of the parties has any right of action under the contract. The supreme court, holding that
some corrections and liquidations asked by the actor were still pending, denied the writ, ruling that the articles cited were not infringed
because a partnership cannot be considered as extinguished until all the obligations pertaining to it are fulfilled. (11 Manresa, page 312.)
The dissolution of a firm does not relieve any of its members from liability for existing obligations, although it does save them from new
obligations to which they have not expressly or impliedly assented, and any of them may be discharged from old obligations by novation of
other form of release. It is often said that a partnership continues, even after dissolution, for the purpose of winding up its affairs. (30 Cyc.,
page 659.)
Another question presented by appellee's counsel in his memorandum and oral argument is that as in the partnership articles of February 1,
1919, it was covenanted that the defendant would put up one-half of the cost of the railroad line within five years from the date, that is, from
February 1, 1919, with interest at 10 per cent per annum, the present action is premature since, from the execution of the contract until
October 25, 1922, the date of the complaint, the five years, within which the defendant could pay his part of the cost of the construction of the
line, had not yet elapsed. Suffice it to say that the plaintiff and the successors in interest of the defendant, by mutual consent, dissolved the
partnership on June 16, 1920, cancelling the contract Exhibit A to all of which the defendant consented as evidence by his allegations in his
answer. If this is so, there is no reason for waiting for the expiration of the five years which the parties themselves had seen fit to stipulate and
therefore the provisions of article 113, regarding the fulfillment of pure obligations, must be applied in this case.
For all of the foregoing, the judgment appealed from is reversed, and we hold that the defendant Salvador Serra is indebted to the plaintiffs,
the Testate Estate of Lazaro Mota, et al., in the amount of P113,046.46, and said defendant is hereby sentenced to pay the plaintiffs the said
amount, together with the agreed interest at the rate of 10 per cent per annum from the date of the filing of the complaint.
Without special pronouncement as to costs, it is so ordered.
G.R. No. 17024

of the expenses of the business, which obligation she made good, and both agreeing to divide the profits between themselves, which they had
been doing until the death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed Domingo Bearnez, the herein plaintiff, as her heir to succeed to all her
rights and interests in the fish pond in question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery of the part of the fish pond belonging to his
decedent, Perpetua, and delivery having been refused, Domingo Bearneza brought this action to recover said part of the fish pond belonging
to his decedent, Perpetua, and delivery having been refused, Domingo Bearneza brought this action recover said part of the fish pond and
one-half of the profits received by the defendant from the fish pond from the year 1913 to 1919, as damages (the amended complaint was filed
on April 12, 1920), amounting, according to plaintiff, to the sum of thirteen thousand one hundred pesos (13,100).
In his answer, the defendant denies generally and specifically the allegations of the complaint, and alleges, as special defense, that "the
formation of the supposed partnership between the plaintiff and the defendant for the exploitation of the aforesaid fish pond was not carried
into effect, on account of the plaintiff having refused to defray the expenses of reconstruction and exploitation of said fish pond." As another
special defense, the defendant alleges "that in the event that the court should hold the plaintiff to be entitled to the undivided one-half of the
fish pond, claimed in the complaint, the plaintiff's action has prescribed, the time for bringing the same having elapsed."
Proceedings having been held as usual, the court below rendered judgment, declaring the plaintiff owner of one-half of the fish pond, which
was composed of the portions known as "Alimango" and "Dalusan," but without awarding him any of the damages claimed by him, the same
not having been proven, in the opinion of the court, and ordering the defendant to pay the costs.
From this judgment the defendant appeals, making various assignments of error. The plaintiff did not appeal from that part of the judgment
denying his claim for damages; hence the only question we are called upon to decide is whether or not the plaintiff has any right to maintain an
action for the recovery of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence of which the proof contained in the record is
conclusive and there is no dispute, was of a civil nature. It was a particular partnership, as defined in article 1678 of the Civil Code, it having
had for its subject-matter a specified thing, to with, the exploitation of the aforementioned fish pond. Although, as the trial court says in its
decision, the defendant, in his letters to Perpetua or her husband, makes reference to the fish pond, calling it "our," or "your fish pond," this
reference cannot be held to include the land on which the said fish pond was built. It has not been proven that Perpetua Bearneza participated
in the ownership of said land, and Exhibits 2 and 3 of the defendant show that he has been paying, as exclusive owner of the fish pond, the
land tax thereon, although in Exhibit X he says that the said land belongs to the State. The conclusion, therefore, from the evidence is that the
land on which the fish pond was constructed did not constitute a part of the subject- matter of the aforesaid partnership.

March 24, 1922

DOMINGO BEARNEZA, plaintiff-appelle,

vs.
BALBINO DEQUILLA, defendant-appellant.

Now, this partnership not having been organized in the form of a mercantile partnership, and, therefore, the provisions of the Code of
Commerce not being applicable thereto (article 1670 of the Civil Code), it was dissolved by the death of Perpetua Bearneza, and falls under
the provisions of article 1700, subsection 3, of the same Code, and not under the exception established in the last paragraph of said article
1700 of the Civil Code.

C. Lozano and Cecilio I. Lim for appellant.

Montinola, Montinola & Hontiveros for appellee.

Neither can it be maintained that the partnership continued to exist after the death of Perpetua, inasmuch as it does not appear that any
stipulation to that effect has ever been made by her and the defendant, pursuant to the provisions of article 1704 of the Code last cited.

ROMUALDEZ, J.:

The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent legal status was that of a partnership in liquidation,
and the only rights inherited by her testamentary heir, the herein plaintiff, were those resulting from the said liquidation in favor of the deceased
partner, and nothing more. Before this liquidation is made, which up to the present has not been effected, it is impossible to determine what
rights or interests, if any, the deceased had, the partnership bond having been dissolved.

In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza formed a partnership for the purpose of exploiting a fish
pond situated in the barrio of Talisay, municipality of Barotac Nuevo, Province of Iloilo, Perpetua obligating herself to contribute to the payment

There is no sufficient ground for holding that a community of property existed between the plaintiff and the defendant, it not being known
whether the deceased still had any interest in the partnership property which could have been transmitted by will to the plaintiff. There being no
community of property, article 395 of the Civil Code cited by the plaintiff in support of his contention can have no application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff and the defendant. It is true that the latter's act in requiring the heirs
of Perpetua to contribute to the payment of the expenses of exploitation of the aforesaid fishing industry was an attempt to continue the
partnership, but it is also true that neither the said heirs collectively, nor the plaintiff individually, took any action in response to that
requirement, nor made any promise to that effect, and therefore no new contract of partnership existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar as it denies the plaintiff's claim for damages, and reversed insofar as
it declares the said plaintiff owner of one-half of the fish pond, "Alimango" and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.
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.

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 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.

YNARES-SANTIAGO, J.:
Petitioner filed a petition for certiorari before the Court of Appeals,11 raising the following issues:
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;

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 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.
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.

obligations as outlined in their dissolution agreement were transmitted to respondents. They, therefore, had the capacity to sue and seek the
court's intervention to compel petitioner to fulfill his obligations.

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

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.

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 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 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

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 is REMANDED to the Regional Trial
Court of Cadiz City, Branch 60, which is ORDERED to determine the proper docket fee based on the estimated amount that plaintiffs therein
seek to collect, and direct said plaintiffs to pay the same within a reasonable time, provided the applicable prescriptive or reglementary period
has not yet expired. Thereafter, the trial court is ORDERED to conduct the appropriate proceedings in Civil Case No. 416-C.
Costs against petitioner.1wphi1.nt
SO ORDERED.