PARTNERSHIP CASES (2ND EXAM)
complaint was dismissed insofar as the defendant
1. G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION
COMPANY, ET. AL defendants. BENJAMIN C.
DACO, defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-
appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.
CONCEPCION JR., J.:
This is an appeal interposed by the defendant
Benjamin C. Daco from the decision of the Court of
First Instance of Manila, Branch XVI, in Civil Case
No. 50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant
United Pioneer General Construction Company
to pay plaintiff the sum of P7,119.07 with
interest at the rate of 12% per annum until it is
fully paid, plus attorney's fees which the Court
fixes in the sum of Eight Hundred Pesos
(P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A.
Guizona, Noel C. Sim and Augusto Palisoc are
sentenced to pay the plaintiff in this case with
the understanding that the judgment against
these individual defendants shall be enforced
only if the defendant company has no more
leviable properties with which to satisfy the
judgment against it. .
The individual defendants shall also pay the
costs.
On April 22, 1961, the defendant company, a
general partnership duly registered under the laws
of the Philippines, purchased from the plaintiff a
motor vehicle on the installment basis and for this
purpose executed a promissory note for P9,440.00,
payable in twelve (12) equal monthly installments
of P786.63, the first installment payable on or
before May 22, 1961 and the subsequent
installments on the 22nd day of every month
thereafter, until fully paid, with the condition that
failure to pay any of said installments as they fall
due would render the whole unpaid balance
immediately due and demandable.
Having failed to receive the installment due on July
22, 1961, the plaintiff sued the defendant company
for the unpaid balance amounting to P7,119.07.
Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim,
Romulo B. Lumauig, and Augusto Palisoc were
included as co-defendants in their capacity as
general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was
consequently declared in default.1
1
Subsequently, on motion of the plaintiff, the
Romulo B. Lumauig is concerned.2
When the case was called for hearing, the
defendants and their counsels failed to appear
notwithstanding the notices sent to them.
Consequently, the trial court authorized the plaintiff
to present its evidence ex-parte3 , after which the
trial court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim
moved to reconsider the decision claiming that
since there are five (5) general partners, the joint
and subsidiary liability of each partner should not
exceed one-fifth (1/5 ) of the obligations of the
defendant company. But the trial court denied the
said motion notwithstanding the conformity of the
plaintiff to limit the liability of the defendants Daco
and Sim to only one-fifth (1/5 ) of the obligations of
the defendant company.4 Hence, this appeal.
The only issue for resolution is whether or not the
dismissal of the complaint to favor one of the
general partners of a partnership increases the joint
and subsidiary liability of each of the remaining
partners for the obligations of the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones,
shall be liable pro rata with all their property
and after all the partnership assets have been
exhausted, for the contracts which may be
entered into in the name and for the account of
the partnership, under its signature and by a
person authorized to act for the partnership.
However, any partner may enter into a separate
obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this
Court held:
The partnership of Yulo and Palacios was
engaged in the operation of a sugar estate in
Negros. It was, therefore, a civil partnership as
distinguished from a mercantile partnership.
Being a civil partnership, by the express
provisions of articles l698 and 1137 of the Civil
Code, the partners are not liable each for the
whole debt of the partnership. The liability
is pro rata and in this case Pedro Yulo is
responsible to plaintiff for only one-half of the
debt. The fact that the other partner, Jaime
Palacios, had left the country cannot increase
the liability of Pedro Yulo.
In the instant case, there were five (5) general
partners when the promissory note in question was
executed for and in behalf of the partnership. Since
the liability of the partners is pro rata, the liability
of the appellant Benjamin C. Daco shall be limited
to only one-fifth (1/5 ) of the obligations of the
defendant company. The fact that the complaint
against the defendant Romulo B. Lumauig was
dismissed, upon motion of the plaintiff, does not
unmake the said Lumauig as a general partner in
the defendant company. In so moving to dismiss
the complaint, the plaintiff merely condoned
Lumauig's individual liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified
is hereby AFFIRMED, without pronouncement as to
costs.
2. [G.R. No. 110782. September 25, 1998]
IRMA IDOS, petitioner, vs. COURT OF APPEALS
and PEOPLE OF THE
PHILIPPINES, respondents.
DECISION
QUISUMBING, J.:
Before this Court is the petition for review of
the Decision of respondent Court of
Appeals[1] dismissing petitioners appeal in CA-G.R.
CR No. 11960; and affirming her conviction as well
as the sentence imposed on her by the Regional
Trial Court of Malolos, Bulacan, in Criminal Case No.
1395-M-88[2] as follows:
WHEREFORE . . . the [c]ourt finds the
accused Irma Idos guilty beyond
reasonable doubt and is hereby sentenced
to suffer the penalty of imprisonment of
six (6) months and to pay a fine
of P135,000.00 and to pay private
complainant Eddie Alarilla the amount of
the check in question of P135,000.00 at
12% interest from the time of the filing of
the [i]nformation (August 10, 1988) until
said amount has been fully paid.
Elevated from the Third Division[3] of this
Court, the case was accepted for resolution en
banc on the initial impression that here, a
constitutional question might be involved.[4] It was
opined that petitioners sentence, particularly six
months imprisonment, might be in violation of the
constitutional guarantee against imprisonment for
non-payment of a debt.[5]
A careful consideration of the issues presented
in the petition as well as the comments thereon and
the findings of fact by the courts below in the light
of applicable laws and precedents convinces us,
however, that the constitutional dimension need
not be reached in order to resolve those issues
adequately. For, as herein discussed, the merits of
the petition could be determined without delving
into aspects of the cited constitutional guarantee
vis--vis provisions of the Bouncing Checks Law
(Batas Pambansa Blg. 22). There being no
necessity therefor, we lay aside discussions of the
constitutional challenge to said law in deciding this
petition.
The petitioner herein, Irma L. Idos, is a
businesswoman engaged in leather tanning. Her
accuser for violation of B.P. 22 is her erstwhile
supplier and business partner, the complainant
below, Eddie Alarilla.
As narrated by the Court of Appeals, the
background of this case is as follows:
The complainant Eddie Alarilla supplied
chemicals and rawhide to the accused-
appellant Irma L. Idos for use in the latters
business of manufacturing leather. In
1985, he joined the accused-appellants
business and formed with her a
2
partnership under the style Tagumpay
Manufacturing, with offices in Bulacan and
Cebu City.
However, the partnership was short
lived. In January, 1986 the parties agreed
to terminate their partnership. Upon
liquidation of the business the partnership
had as of May 1986 receivables and stocks
worth P1,800,000.00. The complainants
share of the assets was P900,000.00 to
pay for which the accused-appellant issued
the following postdated checks, all drawn
against Metrobank Branch in Mandaue,
Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the
first, second, and fourth checks, but the
third check (Exh. A) which is the subject of
this case, was dishonored on October 14,
1986 for insufficiency of funds.The
complainant demanded payment from the
accused-appellant but the latter failed to
pay. Accordingly, on December 18, 1986,
through counsel, he made a formal
demand for payment. (Exh. B) In a letter
dated January 2, 1987, the accused-
appellant denied liability. She claimed that
the check had been given upon demand of
complainant in May 1986 only as
assurance of his share in the assets of the
partnership and that it was not supposed
to be deposited until the stocks had been
sold.
Complainant then filed his complaint in the
Office of the Provincial Fiscal of Bulacan
which on August 22, 1988 filed an
information for violation of BP Blg. 22
against accused-appellant.
Complainant denied that the checks issued
to him by accused-appellant were subject
to the disposition of the stocks and the
collection of receivables of the
business. But the accused-appellant
insisted that the complainant had known
that the checks were to be funded from
the proceeds of the sale of the stocks and
the collection of receivables. She claimed
that the complainant himself asked for the
checks because he did not want to
continue in the tannery business and had
no use for a share of the stocks. (TSN, p.
7, April 14, 1991; id., pp. 8-9, Nov. 13,
1989; id., pp. 12, 16, 20, Feb. 14,
1990; id., p. 14, June 4, 1990).
On February 15, 1992, the trial court
rendered judgment finding the accused-
appellant guilty of the crime charged. The
accused-appellants motion for annulment
of the decision and for reconsideration was
denied by the trial court in its order dated
April 12, 1991.[6]
Herein respondent court thereafter affirmed on
appeal the decision of the trial court. Petitioner
timely moved for a reconsideration, but this was
subsequently denied by respondent court in its
Resolution[7] dated June 11, 1993. Petitioner has
now appealed to us by way of a petition
for certiorari under Rule 45 of the Rules of Court.
During the pendency of this petition, this Court
by a resolution[8] dated August 30, 1993, took note
of the compromise agreement executed between
the parties, regarding the civil aspect of the case,
as manifested by petitioner in a Motion to Render
Judgment based on Compromise Agreement[9]filed
on August 5, 1993. After submission of the
Comment[10] by the Solicitor General, and the
Reply[11] by petitioner, this case was deemed
submitted for decision.
Contending that the Court of Appeals erred in
its affirmance of the trial courts decision, petitioner
cites the following reasons to justify the review
of her case:
1. The Honorable Court of Appeals has decided
against the innocence of the accused based
on mere probabilities which, on the
contrary, should have warranted her
acquittal on reasonable doubt. Even then,
the conclusion of the trial court is contrary
to the evidence on record, including private
complainants judicial admission that there
was no consideration for the check.
2. The Honorable Court of Appeals has
confused and merged into one the legal
concepts of dissolution, liquidation and
termination of a partnership and, on the
basis of such misconception of the law,
disregarded the fact of absence of
consideration of the check and convicted the
accused.
3. While this appeal was pending, the parties
submitted for the approval of the Honorable
Court a compromise agreement on the civil
liability. The accused humbly submits that
this supervening event, which by its terms
puts to rest any doubt the Court of Appeals
had entertained against the defense of lack
of consideration, should have a legal effect
favorable to the accused, considering that
the dishonored check constitutes a private
transaction between partners which does
not involve the public interest, and
considering further that the offense is not
one involving moral turpitude.
4. The Honorable Court of Appeals failed to
appreciate the fact that the accused had
warned private complainant that the check
was not sufficiently funded, which should
have exonerated the accused pursuant to
the ruling in the recent case of Magno vs.
Court of Appeals, 210 SCRA 471, which calls
for a more flexible and less rigid application
of the Bouncing Checks law.[12]
For a thorough consideration of the merits of
petitioners appeal, we find pertinent and decisive
the following issues:
1. Whether respondent court erred in holding that
the subject check was issued by petitioner to apply
on account or for value, that is, as part of the
consideration of a buy-out of said complainants
interest in the partnership, and not merely as a
3
commitment on petitioners part to return the
investment share of complainant, along with any
profit pertaining to said share, in the partnership.
2. Whether the respondent court erred in
concluding that petitioner issued the subject check
knowing at the time of issue that she did not have
sufficient funds in or credit with the drawee bank
and without communicating this fact of insufficiency
of funds to the complainant.
Both inquiries boil down into one ultimate
issue: Did the respondent court err in affirming the
trial courts judgment that she violated Batas
Pambansa Blg. 22?
Considering that penal statutes are strictly
construed against the state and liberally in favor of
the accused, it bears stressing that for an act to be
punishable under the B.P. 22, it must come clearly
within both the spirit and the letter of the statute.
[13]
Otherwise, the act has to be declared outside
the laws ambit and a plea of innocence by the
accused must be sustained.
The relevant provisions of B.P. 22 state that:
SECTION 1. Checks without sufficient funds. Any
person who makes or draws and issues any check
to apply on account or for value, knowing at the
time of issue that he does not have sufficient funds
in or credit with the drawee bank for the payment
of such check in full upon its presentment, which
check is subsequently dishonored by the drawee
bank for insufficiency of funds or credit or would
have been dishonored for the same reason had not
the drawer, without any valid reason, ordered the
bank to stop payment, shall be punished by
imprisonment of not less than thirty days but not
more than one (1) year or by a fine of not less than
but not more than double the amount of the check
which fine shall in no case exceed Two hundred
thousand pesos, or both such fine and
imprisonment at the discretion of the court.
The same penalty shall be imposed upon any
person who having sufficient funds in or credit with
the drawee bank when he makes or draws and
issues a check, shall fail to keep sufficient funds or
to maintain a credit or to cover the full amount of
the check if presented within a period of ninety (90)
days from the date appearing thereon, for which
reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation,
company or entity, the person or persons who
actually signed the check in behalf of such drawer
shall be liable under this Act.
SECTION 2. Evidence of knowledge of insufficient
funds. The making, drawing and issuance of a
check payment of which is refused by the drawee
because of insufficient funds in or credit with such
bank, when presented within ninety (90) days from
the date of the check, shall be prima facie evidence
of knowledge of such insufficiency of funds or
credit unless such maker or drawer pays the holder
thereof the amount due thereon, or makes
arrangements for payment in full by the drawee of
such check within five (5) banking days after
receiving notice that such check has not been paid
by the drawee. (Underscoring supplied)
 As decided by this Court, the elements of the
offense penalized under B.P. 22, are as follows: (1)
the making, drawing and issuance of any check to
apply to account or for value; (2) the knowledge of
the maker, drawer or issuer that at the time of
issue he does not have sufficient funds in or credit
with the drawee bank for the payment of such
check in full upon its presentment; and (3)
subsequent dishonor of the check by the drawee
bank for insufficiency of funds or credit or dishonor
for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.
[14]
In the present case, with regard to the first
issue, evidence on record would show that the
subject check was to be funded from receivables to
be collected and goods to be sold by the
partnership, and only when such collection and sale
were realized.[15] Thus, there is sufficient basis for
the assertion that the petitioner issued the subject
check (Metrobank Check No. 103115490 dated
October 30, 1986, in the amount of P135,828.87)
to evidence only complainants share or interest in
the partnership, or at best, to show her
commitment that when receivables are collected
and goods are sold, she would give to private
complainant the net amount due him representing
his interest in the partnership. It did not involve a
debt of or any account due and payable by the
petitioner.
Two facts stand out. Firstly, three of four
checks were properly encashed by complainant;
only one (the third) was not. But eventually even
this one was redeemed by petitioner. Secondly,
even private complainant admitted that there was
no consideration whatsoever for the issuance of the
check, whose funding was dependent on future
sales of goods and receipts of payment of account
receivables.
Now, it could not be denied that though the
parties petitioners and complainant had agreed to
dissolve the partnership, such agreement did not
automatically put an end to the partnership, since
they still had to sell the goods on hand and collect
the receivables from debtors. In short, they were
still in the process of winding up the affairs of the
partnership, when the check in question was
issued.
Under the Civil Code, the three final stages of a
partnership are (1) dissolution; (2) winding-up; and
(3) termination. These stages are distinguished, to
wit:
(1) Dissolution Defined
Dissolution is the change in the
relation of the partners caused
by any partner ceasing to be
associated in the carrying on of
the business (Art. 1828). It is
that point of time the partners
cease to carry on the business
together. [Citation omitted]
(2) Winding Up Defined
Winding up is the process of settling
business affairs after dissolution.
(NOTE: Examples of winding up:
the paying of previous
4
obligations; the collecting of
assets previously demandable;
even new business if needed to
wind up, as the contracting with
a demolition company for the
demolition of the garage used in
a used car partnership.)
(3) Termination Defined
Termination is the point in
time after all the partnership
affairs have been wound up.
[16]
[Citation
omitted] (Underscoring
supplied.)
These final stages in the life of a partnership
are recognized under the Civil Code that explicitly
declares that upon dissolution, the partnership is
not terminated, to wit:
Art. 1828. The dissolution of a partnership is the
change in the relation of the partners caused by
any partner ceasing to be associated in the carrying
on as distinguished from the winding up of the
business.
Art. 1829. On dissolution the partnership is not
terminated, but continues until the winding up of
partnership affairs is completed. (Underscoring
supplied.)
The best evidence of the existence of the
partnership, which was not yet terminated (though
in the winding up stage), were the unsold goods
and uncollected receivables, which were presented
to the trial court. Since the partnership has not
been terminated, the petitioner and private
complainant remained as co-partners. The check
was thus issued by the petitioner to complainant,
as would a partner to another, and not as payment
from a debtor to a creditor.
The more tenable view, one in favor of the
accused, is that the check was issued merely to
evidence the complainants share in the partnership
property, or to assure the latter that he would
receive in time his due share therein. The
alternative view that the check was in consideration
of a buy out is but a theory, favorable to the
complainant, but lacking support in the record; and
must necessarily be discarded.
For there is nothing on record which even
slightly suggests that petitioner ever became
interested in acquiring, much less keeping, the
shares of the complainant. What is very clear
therefrom is that the petitioner exerted her best
efforts to sell the remaining goods and to collect
the receivables of the partnership, in order to come
up with the amount necessary to satisfy the value
of complainants interest in the partnership at the
dissolution thereof. To go by accepted custom of
the trade, we are more inclined to the view that the
subject check was issued merely to evidence
complainants interest in the partnership.Thus, we
are persuaded that the check was not intended to
apply on account or for value; rather it should be
deemed as having been drawn without
consideration at the time of issue.
Absent the first element of the offense
penalized under B.P. 22, which is the making,
drawing and issuance of any check to apply on
account or for value, petitioners issuance of the
subject check was not an act contemplated in nor
made punishable by said statute.
As to the second issue, the Solicitor General
contends that under the Bouncing Checks Law, the
elements of deceit and damage are not essential or
required to constitute a violation thereof. In his
view, the only essential element is the knowledge
on the part of the maker or drawer of the check of
the insufficiency of his/her funds at the time of the
issuance of said check.
The Bouncing Checks Law makes the mere act
of issuing a bad or worthless check a special
offense punishable by law. Malice or intent in
issuing the worthless check is immaterial, the
offense being malum prohibitum,[17] so goes the
argument for the public respondents.
But of course this could not be an absolute
proposition without descending to absurdity. For if a
check were issued by a kidnap victim to a
kidnapper for ransom, it would be absurd to hold
the drawer liable under B.P. 22, if the check is
dishonored and unpaid. That would go against
public policy and common sense.
Public respondents further contend that since
petitioner issued the check in favor of complainant
Alarilla and when notified that it was returned for
insufficiency of funds, failed to make good the
check, then petitioner is liable for violation of B.P.
22.[18] Again, this matter could not be all that
simple. For while the makers knowledge of the
insufficiency of funds is legally presumed from the
dishonor of his checks for insufficiency of funds,
[19]
this presumption is rebuttable.
In the instant case, there is only a prima
facie presumption which did not preclude the
presentation of contrary evidence. [20] In fact, such
contrary evidence on two points could be gleaned
from the record concerning (1) lack of actual
knowledge of insufficiency of funds; and (2) lack of
adequate notice of dishonor.
Noteworthy for the defense, knowledge of
insufficiency of funds or credit in the drawee bank
for the payment of a check upon its presentment is
an essential element of the offense.[21] It must be
proved, particularly where the prima
facie presumption of the existence of this element
has been rebutted. The prima facie presumption
arising from the fact of drawing, issuing or making
a check, the payment of which was subsequently
refused for insufficiency of funds is, moreover, not
sufficient proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals,[22] it
was held that the subsequent dishonor of the
subject check issued by accused merely
engendered the prima facie presumption that she
knew of the insufficiency of funds, but did not
render the accused automatically guilty under B.P.
22.[23]
The prosecution has a duty to prove all the
elements of the crime, including the acts that give
rise to the prima facie presumption; petitioner, on
the other hand, has a right to rebut the prima
facie presumption.Therefore, if such knowledge of
insufficiency of funds is proven to
be actually absent or non-existent, the accused
should not be held liable for the offense defined
under the first paragraph of Section 1 of B.P.
22. Although the offense charged is a malum
5
prohibitum, the prosecution is not thereby excused
from its responsibility of proving beyond reasonable
doubt all the elements of the offense, one of which
is knowledge of the insufficiency of funds.
Section 1 of B.P. 22 specifically requires that
the person in making, drawing or issuing the check,
be shown that he knows at the time of issue, that
he does not have sufficient funds in or credit with
the drawee bank for the payment of such check in
full upon its presentment.
In the case at bar, as earlier discussed,
petitioner issued the check merely to evidence the
proportionate share of complainant in the
partnership assets upon its dissolution. Payment of
that share in the partnership was conditioned on
the subsequent realization of profits from the
unsold goods and collection of the receivables of
the firm. This condition must be satisfied or
complied with before the complainant can actually
encash the check. The reason for the condition is
that petitioner has no independent means to satisfy
or discharge the complainants share, other than by
the future sale and collection of the partnership
assets. Thus, prior to the selling of the goods and
collecting of the receivables, the complainant could
not, as of yet, demand his proportionate share in
the business. This situation would hold true until
after the winding up, and subsequent termination
of the partnership. For only then, when the goods
were already sold and receivables paid that cash
money could be availed of by the erstwhile
partners.
Complainant did not present any evidence that
petitioner signed and issued four checks actually
knowing that funds therefor would be insufficient at
the time complainant would present them to the
drawee bank. For it was uncertain at the time of
issuance of the checks whether the unsold goods
would have been sold, or whether the receivables
would have been collected by the time the checks
would be encashed. As it turned out, three were
fully funded when presented to the bank; the
remaining one was settled only later on.
Since petitioner issued these four checks
without actual knowledge of the insufficiency of
funds, she could not be held liable under B.P. 22
when one was not honored right away. For it is
basic doctrine that penal statutes such as B.P. 22
must be construed with such strictness as to
carefully safeguard the rights of the defendant x x
x.[24] The element of knowledge of insufficiency of
funds has to be proved by the prosecution; absent
said proof, petitioner could not be held criminally
liable under that law. Moreover, the presumption
of prima facie knowledge of such insufficiency in
this case was actually rebutted by petitioners
evidence.
Further, we find that the prosecution also failed
to prove adequate notice of dishonor of the subject
check on petitioners part, thus precluding any
finding of prima facie evidence of knowledge of
insufficiency of funds. There is no proof that notice
of dishonor was actually sent by the complainant or
by the drawee bank to the petitioner. On this point,
the record is bereft of evidence to the contrary.
But in fact, while the subject check initially
bounced, it was later made good by petitioner. In
addition, the terms of the parties compromise
agreement, entered into during the pendency of
this case, effectively invalidates the allegation of
failure to pay or to make arrangement for the
payment of the check in full. Verily, said
compromise agreement constitutes an arrangement
for the payment in full of the subject check.
The absence of notice of dishonor is crucial in
the present case. As held by this Court in prior
cases:
Because no notice of dishonor was actually sent to
and received by the petitioner, the prima
facie presumption that she knew about the
insufficiency of funds cannot apply. Section 2 of
B.P. 22 clearly provides that this presumption
arises not from the mere fact of drawing, making
and issuing a bum check; there must also be a
showing that, within five banking days from receipt
of the notice of dishonor, such maker or drawer
failed to pay the holder of the check the amount
due thereon or to make arrangement for its
payment in full by the drawee of such check.
[25]
[Underscoring supplied.]
The absence of a notice of dishonor necessarily
deprives an accused an opportunity to preclude a
criminal prosecution. Accordingly, procedural due
process clearly enjoins that a notice of dishonor be
actually served on petitioner. Petitioner has a right
to demand and the basic postulates of fairness
require that the notice of dishonor be actually sent
to and received by her to afford her the opportunity
to avert prosecution under B.P. 22.[26]
Further, what militates strongly against public
respondents stand is the fact that petitioner
repeatedly notified the complainant of the
insufficiency of funds. Instructive is the following
pronouncement of this Court in Magno v. Court of
Appeals:
Furthermore, the element of knowing at the time of
issue that he does not have sufficient funds in or
credit with the drawee bank for the payment of
such check in full upon its presentment, which
check is subsequently dishonored by the drawee
bank for insufficiency of funds or credit or would
have been dishonored for the same reason x x x is
inversely applied in this case. From the very
beginning, petitioner never hid the fact that he did
not have the funds with which to put up the
warranty deposit and as a matter of fact, he openly
intimated this to the vital conduit of the
transaction, Joey Gomez, to whom petitioner was
introduced by Mrs. Teng. It would have been
different if this predicament was not communicated
to all the parties he dealt with regarding the lease
agreement the financing of which was covered by
L.S. Finance Management.[27]
In the instant case, petitioner intimated to
private complainant the possibility that funds might
be insufficient to cover the subject check, due to
the fact that the partnerships goods were yet to be
sold and receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to
safeguard the interest of the banking system and
the legitimate public checking account user. It did
not intend to shelter or favor nor encourage users
of the system to enrich themselves through
manipulations and circumvention of the noble
purpose and objective of the law. Least should it be
6
used also as a means of jeopardizing honest-to-
goodness transactions with some color of get-rich
scheme to the prejudice of well-meaning
businessmen who are the pillars of society.
xxx
Thus, it behooves upon a court of law that in
applying the punishment imposed upon the
accused, the objective of retribution of a wronged
society, should be directed against the actual and
potential wrongdoers. In the instant case, there is
no doubt that petitioners four (4) checks were used
to collateralize an accommodation, and not to cover
the receipt of an actual account or credit for value
as this was absent, and therefore petitioner should
not be punished for mere issuance of the checks in
question. Following the aforecited theory, in
petitioners stead the potential wrongdoer, whose
operation could be a menace to society, should not
be glorified by convicting the petitioner.[28]
Under the circumstances obtaining in this case,
we find the petitioner to have issued the check in
good faith, with every intention of abiding by her
commitment to return, as soon as able, the
investments of complainant in the
partnership. Evidently, petitioner issued the check
with benign considerations in mind, and not for the
purpose of committing fraud, deceit, or violating
public policy
To recapitulate, we find the petition impressed
with merit. Petitioner may not be held liable for
violation of B.P. 22 for the following reasons: (1)
the subject check was not made, drawn and issued
by petitioner in exchange for value received as to
qualify it as a check on account or for value;
(2) there is no sufficient basis to conclude that
petitioner, at the time of issue of the check, had
actual knowledge of the insufficiency of funds; and
(3) there was no notice of dishonor of said check
actually served on petitioner, thereby depriving her
of the opportunity to pay or make arrangements for
the payment of the check, to avoid criminal
prosecution.
Having resolved the foregoing principal issues,
and finding the petition meritorious, we no longer
need to pass upon the validity and legality or
necessity of the purported compromise agreement
on civil liability between the petitioner and the
complainant.
WHEREFORE, the instant petition is hereby
GRANTED AND THE PETITIONER ACQUITTED. The
Decision of the respondent Court of Appeals in CA-
G.R. CR No. 11960 is hereby REVERSED and the
Decision of Regional Trial Court in Criminal Case
No. 1395-M-88 is hereby SET ASIDE.
3. G.R. No. L-27343 February 28, 1979
MANUEL G. SINGSONG, JOSE BELZUNCE,
AGUSTIN E. TONSAY, JOSE L. ESPINOS,
BACOLOD SOUTHERN LUMBER YARD, and
OPPEN, ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G.
SALDAJENO and her husband CECILIO
SALDAJENO LEON GARIBAY, TIMOTEO
TUBUNGBANUA, and THE PROVINCIAL
SHERIFF OF NEGROS OCCIDENTAL,
defendants, MARGARITA G. SALDAJENO and
her husband CECILIO SALDAJENO, defendants-
appellants.
FERNANDEZ, J.:
This is an appeal to the Court of Appeals from the
judgment of the Court of First Instance of Negros
Occidental in Civil Cage No. 5343, entitled "Manuel
G. Singson, et all vs. Isabela Sawmill, et al.,", the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING
CONSIDERATIONS, it is hereby held. (1) that
the contract, Appendix "F", of the Partial
Stipulation of Facts, Exh. "A", has not created a
chattel mortgage lien on the machineries and
other chattels mentioned therein, all of which
are property of the defendant partnership
"Isabela Sawmill", (2) that the plaintiffs, as
creditors of the defendant partnership, have a
preferred right over the assets of the said
partnership and over the proceeds of their sale
at public auction, superior to the right of the
defendant Margarita G. Saldajeno, as creditor of
the partners Leon Garibay and Timoteo
Tubungbanua; (3) that the defendant Isabela
Sawmill' is indebted to the plaintiff Oppen,
Esteban, Inc. in the amount of P1,288.89, with
legal interest thereon from the filing of the
complaint on June 5, 1959; (4) that the same
defendant is indebted to the plaintiff Manuel G.
Singsong in the total amount of P5,723.50, with
interest thereon at the rate of 1 % per month
from May 6, 1959, (the date of the statements
of account, Exhs. "L" and "M"), and 25% of the
total indebtedness at the time of payment, for
attorneys' fees, both interest and attorneys fees
being stipulated in Exhs. "I" to "17", inclusive;
(5) that the same defendant is indebted to the
plaintiff Agustin E. Tonsay in the amount of
P933.73, with legal interest thereon from the
filing of the complaint on June 5, 1959; (6) that
the same defendant is indebted to the plaintiff
Jose L. Espinos in the amount of P1,579.44,
with legal interest thereon from the filing of the
complaint on June 5, 1959; (7) that the same
defendant is indebted to the plaintiff Bacolod
Southern Lumber Yard in the amount of
Pl,048.78, with legal interest thereon from the
filing of the complaint on June 5, 1959; (8) that
the same defendant is indebted to the plaintiff
Jose Belzunce in the amount of P2,052.10, with
legal interest thereon from the filing of the
complaint on June 5. 1959; (9) that the
defendant Margarita G. Saldajeno, having
purchased at public auction the assets of the
defendant partnership over which the plaintiffs
have a preferred right, and having sold said
assets for P 45,000.00, is bound to pay to each
of the plaintiffs the respective amounts for
which the defendant partnership is held
indebted to, them, as above indicated and she
is hereby ordered to pay the said amounts, plus
attorneys fees equivalent to 25% of the
judgment in favor of the plaintiff Manuel G.
Singson, as stipulated in Exhs. "I" "to I-17",
inclusive, and 20% of the respective judgments
in favor of the other plaintiffs, pursuant to. Art.
2208, pars. (5) and (11), of the Civil Code of
the Philippines; (10) The defendants Leon
7
Garibay and Timoteo Tibungbanua are hereby
ordered to pay to the plaintiffs the respective
amounts adjudged in their favor in the event
that said plaintiffs cannot recover them from
the defendant Margarita G. Saldajeno and the
surety on the bond that she has filed for the
lifting of the injunction ordered by this court
upon the commencement of this case.
The cross-claim cf the defendant Margarita G.
Saldajeno against the defendants Leon Garibay
arid Timoteo Tubungbanua is hereby discussed
Margarita G. Saldajeno shall pay the costs. SO
ORDERED.1
In a resolution promulgated on February 3, 1967,
the Court of Appeals certified the records of this
case to the Supreme Court "considering that the
resolution of this appeal involves purely questions
or question of law over which this Court has no
jurisdiction ...2
On June 5. 1959, Manuel G. Singsong, Jose
Belzunce, Agustin E. Tonsay, Jose L. Espinos,
Bacolod Southern Lumber Yard, and Oppen,
Esteban, Inc. filed in the Court of first Instance of
Negros Occidental, Branch I, against "Isabela
Sawmill", Margarita G. Saldajeno and her husband
Cecilio Saldajeno, Leon Garibay, Timoteo
Tubungbanua and the Provincial Sheriff of Negros
Occidental a complaint the prayer of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be
issued restraining the defendant Provincial
Sheriff of Negros Occidental from proceeding
with the sales at public auction that he
advertised in two notices issued by him on May
18, 1959 in connection with Civil Case No. 5223
of this Honorable Court, until further orders of
this Court; and to make said injunction
permanent after hearing on the merits:
(2) That after hearing, the defendant
partnership be ordered; to pay to the plaintiff
Manuel G. Singson the sum of P3,723.50 plus
1% monthly interest thereon and 25%
attorney's fees, and costs; to pay to the plaintiff
JoseBelzunce the sum of P2,052.10, plus 6%
annual interest thereon and 25% for attorney's
fees, and costs;to pay to the plaintiff Agustin E.
Tonsay the sum of P993.73 plus 6% annual
interest thereon and 25% attorney's fees, and
costs; to pay to the plaintiff Bacolod Southern
Lumber Yard the sum of P1,048.78, plus 6%
annual interest thereon and 25% attorney's
fees, and costs; and to pay to the plaintiff
Oppen, Esteban, Inc. the sum of P1,350.89,
plus 6% annual interest thereon and 25%
attorney's fees and costs:
(3) That the so-called Chattel Mortgage
executed by the defendant Leon Garibay and
Timoteo Tubungbanua in favor of the defendant
Margarita G. Saldajeno on May 26, 1958 be
declared null and void being in fraud of
creditors of the defendant partnership and
without valuable consideration insofar as the
said defendant is concerned:
(4) That the Honorable Court order the sale of
public auction of the assets of the defendnat
 partnership in case the latter fails to pay the
judgment that the plaintiffs may recover in the
action, with instructions that the proceeds of
the sale b e applied in payment of said
judgment before any part of saod proceeds is
paid to the defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo
Tubungbanua, and Margarita G. Saldajeno be
declared jointly liable to the plaintifs for
whatever deficiency may remain unpaid after
the proceeds of the sale of the assets of the
defendnt partnership are supplied in payment of
the judgment that said plaintiffs may recover in
this action;
(6) The plaintiffs further pray for all other
remedies to which the Honorable Court will find
them entitled to, with costs to the defendants.
Bacolod City, June 4, 1959.3
The action was docketed as Civil Case No. 5343 of
said court.
In their amended answer, the defendants Margarita
G. Saldajeno and her husband, Cecilio Saldajeno,
alleged the following special and affirmative
defenses: xxx xxx xxx
2. That the defendant Isabela Sawmill has been
dissolved by virtue of an action entitled "In the
matter of: Dissolution of Isabela Sawmill as
partnership, etc. Margarita G. Saldajeno et al.
vs. Isabela Sawmill, et al., Civil Case No. 4787,
Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and
the decision of the Court of First Instance of
Negros Occidental in the aforesaid case, the
other defendants herein Messrs. Leon Garibay
and Timoteo Tubungbanua became the
successors-in-interest to the said defunct
partnership and have bound themselves to
answere for any and all obligations of the
defunct partnership to its creditors and third
persons;
4. That to secure the performance of the
obligations of the other defendants Leon
Garibay and Timoteo Tubungbanua to the
answering defendant herein, the former have
constituted a chattel mortgage over the
properties mentioned in the annexes to that
instrument entitled "Assignment of Rights with
Chattel Mortgage" entered into on May 26,
1968 and duly registered in the Register of
Deeds of Negros Occidental on the same date:
5. That all the plaintiffs herein, with the
exceptionof the plaintiff Oppen, Esteban, Inc.
are creditors of Messrs. Leon Garibay and
Timoteo Tubungbanua and not of the defunct
Isabela Sawmill and as such they have no cause
of action against answering defendant herein
and the defendant Isabela Sawmill;
6. That all the plaintiffs herein, except for the
plaintiff Oppen, Esteban, Inc. granted cash
advances, gasoline, crude oil, motor oil, grease,
rice and nipa to the defendants Leon Garibay
and Timoteo Tubungbanua with the knowledge
and notice that the Isabela Sawmill as a former
8
partnership of defendants Margarita G. Isabela
Sawmill as a former partnership of defendants
Margarita G. Saldajeno, Leon Garibay and
Timoteo Tubungbanua, has already been
dissolved;
7. That this Honorable Court has no
jurisdictionover the claims of the plaintiffs
Oppen, Esteban, Inc., Agustin R. Tonsay, Jose
L. Espinos, and the Bacolod Southern Lumber
Yard, it appearing that the amounts sought to
be recovered by them in this action is less than
P2,000.00 each, exclusive of interests;
8. That in so far as the claims of these alleged
creditors plaintiffs are concerned, there is a
misjoinder of parties because this is not a class
suit, and therefore this Honorable Court cannot
take jurisdictionof the claims for payment;
9. That the claims of plaintiffs-creditors, except
Oppen, Esteban, Inc. go beyond the limit
mentioned inthe statute of frauds, Art. 1403 of
the Civil Code, and are therefor unenforceable,
even assuming that there were such credits and
claims;
10. That this Honorable Court has no
jurisdiction in this case for it is well settled in
law and in jurisprudence that a court of first
instance has no power or jurisdiction to annul
judgments or decrees of a coordinate court
because other function devolves upon the
proper appellate court; (Lacuna, et al. vs.
Ofilada, et al., G.R. No. L-13548, September
30, 1959; Cabigao vs. del Rosario, 44 Phil. 182;
PNB vs. Javellana, 49 O.G. No. 1, p.124), as it
appears from the complaint in this case to annul
the decision of this same court, but of another
branch (Branch II, Judge Querubin presiding).4
Said defendants interposed a cross-claim against
the defendsants Leon Garibay and Timoteo
Tubungbanua praying "that in the event that
judgment be rendered ordering defendant cross
claimant to pay to the plaintiffs the amount claimed
in the latter's complaint, that the cross claimant
whatever amount is paid by the latter to the
plaintiff in accordance to the said judgment. ...5
After trial, judgment was rendered in favor of the
plaintiffs and against the defendants.
The defendants, Margarita G. Saldajeno and her
husband Cecilio Saldajeno, appealed to the Court of
Appeals assigning the following errors:
I
THE COURT A QUO ERRED IN ASSUMING
JURISDICTION OVER THE CASE.
II
THE COURT A QUO ERRED IN HOLDING THAT THE
ISSUE WITH REFERENCE TO THE WITHDRAWAL OF
DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO FROM THE PARTNERSHIP "SABELA
SAWMILL" WAS WHETHER OR NOT SUCH
WITHDRAWAL CAUSED THE "COMPLETE
DISAPPEARANCE" OR "EXTINCTION" OF SAID
PARTNERSHIP.
 III
THE COURT A QUO ERRED IN OT HOLDING THAT
THE WITHDRAWAL OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO AS A PARTNER
THEREIN DISSOLVED THE PARTNERSHIP "ISABELA
SAWMILL" (FORMED ON JAN. 30, 1951 AMONG
LEON GARIBAY, TIMOTEO TUBUNGBANUA AND
SAID MARGARITA G. SALDAJENO).
IV
THE COURT A QUO ERRED IN ISSUING THE WRIT
OF PRELIMINARY INJUNCTION.
V under the firm name "Isabela Sawmill", a copy of
THE COURT A QUO ERRED IN HOLDING THAT THE
CHATTEL MORTGAGE DATED MAY 26, 1958, WHICH
CONSTITUTED THE JUDGMENT IN CIVIL CASE NO.
4797 AND WHICH WAS FORECLOSED IN CIVIL
CASE NO. 5223 (BOTH OF THE COURT OF FIRST
INSTANCE OF NEGROS OCCIDENTAL) WAS NULL
AND VOID.
VI
THE COURT A QUO ERRED IN HOLDING THAT THE
CHATTLES ACQUIRED BY DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO IN THE FORECLOSURE
SALE IN CIVIL CASE NO. 5223 CONSTITUTED 'ALL
THE ASSETS OF THE DEFENDNAT PARTNERSHIP.
VII
THE COURT A QUO ERRED IN HOLDING THAT
DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO BECAME PRIMARILY LIABLE TO THE
PLAINTFFS-APPELLEES FOR HAVING ACQUIRED
THE MORTGAGED CHATTLES IN THE FORECLOSURE
SALE CONDUCTED IN CONNECTION WITH CIVIL
CASE NO. 5223.
VIII
THE COURT A QUO ERRED IN HOLDING
DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO LIABLE FOR THE OBLIGATIONS OF
MESSRS. LEON GARIBAY AND TIMOTEO
TUBUNGBANUA, INCURRED BY THE LATTER AS
PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER
THE DISSOLUTION OF THE OLD PARTNERSHIP IN
WHICH SAID MARGARITA G. SALDAJENO WAS A
PARTNER.
IX
THE COURT A QUO ERRED IN HOLDING
DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES
FOR ATTORNEY'S FEES.
X Timoteo Tubungbanua did not divide the assets and
THE COURT A QUO ERRED IN NOT DISMISSING
THE COMPLAINT OF THE PLAINTIFFS-APPELLEES.
XI
THE COURT A QUO ERRED IN DISMISSING THE
CROSS-CLAIM OF DEFENDANT-APPELLANT
9
MARGARITA G. SALDAJENO AGAINST CROSS-
DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA.6
The facts, as found by the trial court, are:
At the commencement of the hearing of the case on
the merits the plaintiffs and the defendant Cecilio
and Margarita g. Saldajeno submittee a Partial
Stipulation of Facts that was marked as Exh. "A".
Said stipulation reads as folows:
1. That on January 30, 1951 the defendants Leon
Garibay, Margarita G. Saldejeno, and Timoteo
Tubungbanua entered into a Contract of Partnership
which is hereto attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen,
Esteban, Inc. sold a Motor Truck and two Tractors
to the partnership Isabela Sawmill for the sum of
P20,500.00. In order to pay the said purcahse
price, the said partnership agreed to make
arrangements with the International Harvester
Company at Bacolod City so that the latter would
sell farm machinery to Oppen, Esteban, Inc. with
the understanding that the price was to be paid by
the partnership. A copy of the corresponding
contract of sle is attached hereto as Appendix "B".
3. That through the method of payment stipulated
in the contract marked as Appendix "B" herein, the
International Harvester Company has been paid a
total of P19,211.11, leaving an unpaid balance of
P1,288.89 as shown in the statements hereto
attached as Appendices "C", "C-1", and "C-2".
4. That on April 25, 1958 Civil Case No. 4797 was
filed by the spouses Cecilio Saldajeno and Margarita
G. Saldajeno against the Isabela Sawmill, Leon
Garibay, and Timoteo Tubungbanua, a copy of
which Complaint is attached as Appendix 'D'.
5. That on April 27, 1958 the defendants
LeonGaribay, Timoteo Tubungbanua and Margarita
G. Saldajeno entered into a "Memorandum
Agreement", a copy of which is hereto attached as
Appendix 'E' in Civil Case 4797 of the Court of First
Instance of Negros Occidental.
6. That on May 26, 1958 the defendants Leon
Garibay, Timoteo Tubungbanua and Margarita G.
Saldajeno executed a document entitled
"Assignment of Rights with Chattel Mortgage", a
copy of which documents and its Annexes "A" to
"A-5" forming a part of the record of the above
mentioned Civil Case No. 4797, which deed was
referred to in the Decision of the Court ofFirst
Instance of Negros Occidental in Civil Case No.
4797 dated May 29, 1958, a copy of which is hereto
attached as Appendix "F" and "F-1" respectively.
7. That thereafter the defendants Leon Garibay and
properties of the "Isabela Sawmill" between them,
but they continued the business of said partnership
under the same firm name "Isabela Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of
Negros Occidental published two (2) notices that he
would sell at public auction on June 5, 1959 at
Isabela, Negros Occidental certain trucks, tractors,
machinery, officeequipment and other things that
were involved in Civil Case No. 5223 of the Court of
First Instance of Negros Occidental, entitled
"Margarita G. Saldajeno vs. Leon Garibay, et al."
See Appendices "G" and "G-1".
9. That on October 15, 1969 the Provincial Sheriff
of Negros Occidental executed a Certificate ofSale
in favor of the defendant Margarita G. Saldajeno, as
a result of the sale conducted by him on October 14
and 15, 1959 for the enforcement of the judgment
rendered in Civil Case No. 5223 of the Court of First
Instance of Negros Occidental, a certified copy of
which certificte of sale is hereto attached as
Appendix "H".
10. That on October 20, 1959 the defendant
Margarita G. Saldajeno executed a deed of sale in
favor of the Pan Oriental Lumber Company
transfering to the latter for the sum of P45,000.00
the trucks, tractors, machinery, and other things
that she had purchashed at a public auction
referred to in the foregoing paragraph, a certified
true copy of which Deed of Sale is hereto attached
as Appendix "I".
11. The plaintiffs and the defendants Cecilio
Saldajeno and Margarita G. Saldajeno reserve the
right to present additional evidence at the hearing
of this case.
Forming parts of the above copied stipulation are
documents that were marked as Appendices "A",
"B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G", "G-
1", "H", and "I".
The plaintiffs and the defendants Cecilio and
Margarita G. Saldajeno presented additional
evidence, mostly documentary, while the cross-
defendants did not present any evidence. The case
hardly involves quetions of fact at all, but only
questions of law.
The fact that the defendnat 'Isabela Sawmill' is
indebted to theplaintiff Oppen, Esteban, Inc. in the
amount of P1,288.89 as the unpaid balance of an
obligation of P20,500.00 contracted on February 3,
10956 is expressly admitted in paragraph 2 and 3
of the Stipulation, Exh. "A" and its Appendices "B",
"C", "C-1", and "C-2".
The plaintiff Agustin E. Tonssay proved by his own
testimony and his Exhs. "B" to"G" that from
October 6, 1958 to November 8, 1958 he advanced
a total of P4,200.00 to the defendant 'Isabela
Sawmill'. Agaist the said advances said defendant
delivered to Tonsay P3,266.27 worth of lumber,
leavng an unpaid balance of P933.73, which
balance was confirmed on May 15, 1959 by the
defendant Leon Garibay, as Manager of the
defendant partnership.
The plaintiff Manuel G. Singsong proved by his own
testimony and by his Exhs. "J" to "L" that from May
25, 1988 to January 13, 1959 he sold on credit to
the defendnat "Isabela Sawmill" rice and bran, on
account of which business transaction there
remains an unpaid balance of P3,580.50. The same
plaintiff also proved that the partnership ownes him
the sum of P143.00 for nipa shingles bought from
him on credit and unpaid for.
10
The plaintiff Jose L. Espinos proved through the
testimony of his witness Cayetano Palmares and his
Exhs. "N" to "O-3" that he owns the "Guia Lumber
Yard", that on October 11, 1958 said lumber yard
advanced the sum of P2,500.00 to the defendant
"Isabela Sawmill", that against the said cash
advance, the defendant partnership delivered to
Guia Lumber Yard P920.56 worth of lumber, leaving
an outstanding balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved
through the testimony of the witness Cayetano
Palmares an its Exhs. "P" to "Q-1" that on October
11, 1958 said plaintiff advanced the sum of
P1,500.00 to the defendsant 'Isabela Sawmill', that
against the said cash advance, the defendant
partnership delivered to the said plaintiff on
November 19, 1958 P377.72 worth of lumber, and
P73.54 worth of lumber on January 27, 1959,
leaving an outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the
testimony of Leon Garibay whom he called as his
witness, and through the Exhs. "R" to "E" that from
September 14, 1958 to November 27, 1958 he sold
to the defedant "Isabela Sawmill" gasoline, motor
fuel, and lubricating oils, and that on account of
said transactions, the defendant partnersip ownes
him an unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that
on October 13 and 14, 1959 the Provincial Sheriff
sold to the defendant Margrita G. Saldajeno for
P38,040.00 the assets of the defendant "Isabela
Sawmill" which the defendants Leon G. Garibay and
Timoteo Tubungbanua had mortgaged to her, and
said purchase price was applied to the judgment
that she has obtained against he said mortgagors in
Civil Case No. 5223 of this Court.
Appendix "I" of the same stipulation Exh. "A" shows
that on October 20, 1959 the defendant Margarita
G. Saldajeno sold to the PAN ORIENTAL LUMBER
COMPANY for P45,000.00 part of the said
properties that she had bought at public aucton one
week before.
xxx xxx xxx7
It is contended by the appellants that the Court of
First Instance of Negros Occidental had no
jurisdiction over Civil Case No. 5343 because the
plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay,
Jose L. Espinos and the Bacolod Southern Lumber
Yard sought to collect sums of moeny, the biggest
amount of which was less than P2,000.00 and,
therefore, within the jurisdiction of the municipal
court.
This contention is devoid of merit because all the
plaintiffs also asked for the nullity of the
assignment of right with chattel mortgage entered
into by and between Margarita G. Saldajeno and
her former partners Leon Garibay and Timoteo
Tubungbanua. This cause of action is not capable of
pecuniary estimation and falls under the jurisdiction
of the Court of First Instnace. Where the basic issue
is something more than the right to recover a sum
of money and where the money claim is purely
incidental to or a consequence of the principal relief
sought, the action is as a case where the subject of
the litigation is not capable of pecuniary estimation
and is cognizable exclusively by the Court of First
Instance.
The jurisdiction of all courts in the Philippines, in so
far as the authority thereof depends upon the
nature of litigation, is defined in the amended
Judiciary Act, pursuant to which courts of first
instance shall have exclusive original jurisdiction
over any case the subject matter of which is not
capable of pecuniary estimation. An action for the
annulment of a judgment and an order of a court of
justice belongs to th category.8
In determining whether an action is one the subject
matter of which is not capable of pecuniary
estimation this Court has adopted the criterion of
first ascertaining the nature of the principal action
or remedy sought. If it is primarily for the recovery
of a sum of money, the cliam is considered capable
of pecuniary estimation, and whether jurisdiciton is
in the municipal courts or in the courts of first
instance would depend on the amount of the claim.
However, where the basic issue is something other
than the right to recover a sum of money, where
the money claim is purely incidental to, or a
consequence of, the principal relief sought, this
Court has considered such actions as cases where
the subject ogf the litigation may not be estimated
in terms of money, and are cognizable exclusively
by courts of first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this
Court held:
Actions for specific performance of
contracts have been expressly
prounounced to be exclusively
cognizable by courts of first
instance: De Jesus vs. Judge Garcia,
L-26816, February
1967; Manufacturers' Distributors,
Inc. vs. Yu Siu Liong, L-21285, April
29, 1966. And no cogent reason
appears, and none is here advanced
by the parties, why an actin for
rescission (or resolution) should be
differently treated, a "rescission"
being a counterpart, so to speak, of
"specific performance'. In both
cases, the court would certainly
have to undertake an investigation
into facts that would justify one act
of the other. No award for damages
may be had in an action for
resicssion without first conducting an
inquiry into matters which would
justify the setting aside of a
contract, in the same manner that
courts of first instance would have to
make findings of fact and law in
actions not capable of pecuniary
estimnation espressly held to be so
by this Court, arising from issues
like those arised in Arroz v. Alojado,
et al., L-22153, March 31, 1967 (the
legality or illegality of
conveyance sought for and the
determination of the validity of the
money deposit made); De Ursua v.
Pelayo, L-13285, April 18, 1950
(validity of a judgment); Bunayog v.
Tunas, L-12707, December 23, 1959
(validity of a mortgage); Baito v.
Sarmiento, L-13105, August 25,
1960 (the relations of the parties,
the right to support created by the
relation, etc., in actions for
support); De Rivera, et al. v. Halili,
L-15159, September 30, 1963 (the
validity or nullity of documents upon
which claims are predicated). Issues
of the same nature may be raised by
a party against whom an action for
rescission has been brought, or by
the plaintiff himself. It is, therefore,
difficult to see why a prayer for
damages in an action for rescission
should be taken as the basis for
concluding such action for resiccison
should be taken as the basis for
concluding such action as one cpable
of pecuniary estimation - a prayer
which must be included in the main
action if plaintiff is to be
compensated for what he may have
suffered as a result of the breach
committed by defendant, and not
later on precluded from recovering
damages by the rule against splitting
a cause of action and discouraging
multiplicitly of suits.
The foregoing doctrine was reiterated in The Good
Development Corporation vs. Tutaan, 10 where this
Court held:
On the issue of which court has
jurisdiction, the case of SENO vs.
Pastolante, et al., is in point. It was
ruled therein that although the
purposes of an action is to recover
an amount plus interest which
comes within the original jurisidction
28,
of the Justice of the Peace Court, yet
when said action involves the
foreclosure of a chattel mortgage
covering personal properties valued
at more than P2,000, (now
P10,000.00) the action should be
instituted before the Court of First
Instance.
In the instanct, case, the action is to
recover the amount of P1,520.00
plus interest and costs, and involves
the foreclosure of a chattel mortgage
of personal properties valued at
P15,340.00, so that it is clearly
within the competence of the
respondent court to try and resolve.
In the light of the foregoing recent rulings, the
Court of First Instance of Negros Occidental did no
err in exercising jurisidction over Civil Case No.
5343.
The appellants also contend that the chattel
mortgage may no longer be annulled because it had
the been judicially approved in Civil Case No. 4797 of
the Court of First Instance of Negros Occidental and
said chattel mortgage had been ordered foreclosed
in Civil Case No. 5223 of the same court.
On the question of whether a court may nullify a
final judgment of another court of co-equal,
11
concurrent and coordinate jusridiction, this Court
originally ruled that:
A court has no power to interfere
with the judgments or decrees of a
court of concurrent or coordinate
jurisdiction having equal power to
grant the relief sought by the
injunction.
The various branches of the Court of
First Instance of Manila are in a
sense coordinate courts and cannot
be allowed to interfere with each
others' judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953
case 12 where this Court said:
The rule which prohibits a Judge
from intertering with the actuations
of the Judge of another branch of
the same court is not infringed when
the Judge who modifies or annuls
the order isued by the other Judge
acts in the same case and belongs to
the same court (Eleazar vs.
Zandueta, 48 Phil. 193. But the rule
is infringed when the Judge of a
branch of the court issues a writ of
preliminary injunction in a case to
enjoint the sheriff from carrying out
an order by execution issued in
another case by the Judge of
another branch of the same court.
(Cabigao and Izquierdo vs. Del
Rosario et al., 44 Phil. 182).
This ruling was maintained in 1967. In Mas vs.
Dumaraog, 13 the judgment sought to be annulled
was rendered by the Court of First Instance of Iloilo
and the action for annullment was filed with the
Court of First Instance of Antique, both courts
belonging to the same Judicial District. This Court
held that:
The power to open, modify or vacant
a judgment is not only possessed by
but restricted to the court in which
the judgment was rendered.
The reason of this Court was:
Pursuant to the policy of judicial
stability, the judgment of a court of
competent jurisdiction may not be
interfered with by any court
concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction
to annul a judgement of a branch of the court of
First Instance belongs solely to the very same
branch which rendered the judgement. 14
Two years later, the same doctrine was laid down in
the Sterling Investment case.15
In December 1971, however, this court re-
examined and reversed its earlier doctrine on the
matter. In Dupla v. Court of Appeals, 16 this
Tribunal, speaking through Mr. Justice Villamor
declared:
12
... the underlying philosophy
expressed in the Dumara-og case,
the policy of judicial stability, to the
end that the judgment of a court of
competent jurisdiction may not be
interfered with by any court of
concurrent jurisdiction may not be
interfered with by any court of
concurrent jurisdiciton, this Court
feels that this is as good an occasion
as any to re-examine the doctrine
laid down ...
In an action to annul the judgment
of a court, the plaintiff's cause of
action springs from the alleged
nullity of the judgment based on one
ground or another, particularly
fraud, which fact affords the plaintiff
a right to judicial interference in his
behalf. In such a suit the cause of
action is entirely different from that
in the actgion which grave rise to
the judgment sought to be annulled,
for a direct attack against a final and
executory judgment is not a
incidental to, but is the main object
of the proceeding. The cause of
action in the two cases being distinct
and separate from each other, there
is no plausible reason why the venue
of the action to annul the judgment
should necessarily follow the venue
of the previous action ...
The present doctrine which postulate
that one court or one branch of a
court may not annul the judgment of
another court or branch, not only
opens the door to a violation of
Section 2 of Rule 4, (of the Rules of
Court) but also limit the opportunity
for the application of said rule.
Our conclusion must therefore be
that a court of first instance or a
branch thereof has the authority and
jurisdiction to take cognizance of,
and to act in, suit to annul final and
executory judgment or order
rendered by another court of first
instance or by another branch of the
same court...
In February 1974 this Court reiterated the ruling in
the Dulap case.17
In the light of the latest ruling of the Supreme
Court, there is no doubt that one branch of the
Court of First Instance of Negros Occidental can
take cognizance of an action to nullify a final
judgment of the other two branches of the same
court.
It is true that the dissolution of a partnership is
caused by any partner ceasing to be associated in
the carrying on of the business. 18 However, on
dissolution, the partnershop is not terminated but
continuous until the winding up to the business. 19
The remaining partners did not terminate the
business of the partnership "Isabela Sawmill".
Instead of winding up the business of the
partnership, they continued the business still in the
name of said partnership. It is expressly stipulated
in the memorandum-agreement that the remaining
partners had constituted themselves as the
partnership entity, the "Isabela Sawmill". 20
There was no liquidation of the assets of the
partnership. The remaining partners, Leon Garibay
and Timoteo Tubungbanua, continued doing the
business of the partnership in the name of "Isabela
Sawmill". They used the properties of said
partnership.
The properties mortgaged to Margarita G.
Saldajeno by the remaining partners, Leon Garibay
and Timoteo Tubungbanua, belonged to the
partnership "Isabela Sawmill." The appellant,
Margarita G. Saldajeno, was correctly held liable by
the trial court because she purchased at public
auction the properties of the partnership which
were mortgaged to her.
It does not appear that the withdrawal of Margarita
G. Saldajeno from the partnership was published in
the newspapers. The appellees and the public in
general had a right to expect that whatever, credit
they extended to Leon Garibay and Timoteo
Tubungbanua doing the business in the name of the
partnership "Isabela Sawmill" could be enforced
against the proeprties of said partnership. The
judicial foreclosure of the chattel mortgage
executed in favor of Margarita G. Saldajeno did not
relieve her from liability to the creditors of the
partnership.
The appellant, margrita G. Saldajeno, cannot
complain. She is partly to blame for not insisting on
the liquidaiton of the assets of the partnership. She
even agreed to let Leon Garibay and Timoteo
Tubungbanua continue doing the business of the
partnership "Isabela Sawmill" by entering into the
memorandum-agreement with them.
Although it may be presumed that Margarita G.
Saldajeno had action in good faith, the appellees
aslo acted in good faith in extending credit to the
partnership. Where one of two innocent persons
must suffer, that person who gave occasion for the
damages to be caused must bear the
consequences. Had Margarita G. Saldajeno not
entered into the memorandum-agreement allowing
Leon Garibay and Timoteo Tubungbanua to
continue doing the business of the aprtnership, the
applees would not have been misled into thinking
that they were still dealing with the partnership
"Isabela Sawmill". Under the facts, it is of no
moment that technically speaking the partnership
"Isabela Sawmill" was dissolved by the withdrawal
therefrom of Margarita G. Saldajeno. The
partnership was not terminated and it continued
doping business through the two remaining
partners.
The contention of the appellant that the appleees
cannot bring an action to annul the chattel
mortgage of the propertiesof the partnership
executed by Leon Garibay and Timoteo
Tubungbanua in favor of Margarita G. Saldajeno
has no merit.
As a rule, a contract cannot be assailed by one who
is not a party thereto. However, when a contract
13
prejudices the rights of a third person, he may file
an action to annul the contract.
This Court has held that a person, who is not a
party obliged principally or subsidiarily under a
contract, may exercised an action for nullity of the
contract if he is prejudiced in his rights with respect
to one of the contracting parties, and can show
detriment which would positively result to him from
the contract in which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their
rights by the execution of the chattel mortgage
over the properties of the partnership "Isabela
Sawmill" in favopr of Margarita G. Saldajeno by the
remaining partners, Leon Garibay and Timoteo
Tubungbanua. Hence, said appelees have a right to
file the action to nullify the chattel mortgage in
question.
The portion of the decision appealed from ordering
the appellants to pay attorney's fees to the
plaintiffs-appellees cannot be sustained. There is no
showing that the appellants displayed a wanton
disregard of the rights of the plaintiffs. Indeed, the
appellants believed in good faith, albeit
erroneously, that they are not liable to pay the
claims.
The defendants-appellants have a right to be
reimbursed whatever amounts they shall pay the
appellees by their co-defendants Leon Garibay and
Timoteo Tubungbanua. In the memorandum-
agreement, Leon Garibay and Timoteo Tubungbaun
undertook to release Margarita G. Saldajeno from
any obligation of "Isabela Sawmill" to third
persons. 22
WHEREFORE, the decision appealed from is hereby
affirmed with the elimination of the portion ordering
appellants to pay attorney's fees and with the
modification that the defendsants, Leon Garibay
and Timoteo Tubungbanua, should reimburse the
defendants-appellants, Margarita G. Saldajeno and
her husband Cecilio Saldajeno, whatever they shall
pay to the plaintiffs-appellees, without
pronouncement as to costs.
4. G.R. No. L-21906 December 24,
1968
INOCENCIA DELUAO and FELIPE
DELUAO plaintiffs-appellees,
vs.
NICANOR CASTEEL and JUAN
DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
Aportadera and Palabrica and Pelaez, Jalandoni and
Jamir plaintiffs-appellees.
Ruiz Law Offices for defendant-appellant.
CASTRO, J.:
This is an appeal from the order of May 2, 1956,
the decision of May 4, 1956 and the order of May
21, 1956, all of the Court of First Instance of
Davao, in civil case 629. The basic action is for
specific performance, and damages resulting from
an alleged breach of contract.
In 1940 Nicanor Casteel filed a fishpond application
for a big tract of swampy land in the then Sitio of
Malalag (now the Municipality of Malalag),
Municipality of Padada, Davao. No action was taken
thereon by the authorities concerned. During the
Japanese occupation, he filed another fishpond
application for the same area, but because of the
conditions then prevailing, it was not acted upon
either. On December 12, 1945 he filed a third
fishpond application for the same area, which, after
a survey, was found to contain 178.76 hectares.
Upon investigation conducted by a representative of
the Bureau of Forestry, it was discovered that the
area applied for was still needed for firewood
production. Hence on May 13, 1946 this third
application was disapproved.
Despite the said rejection, Casteel did not lose
interest. He filed a motion for reconsideration.
While this motion was pending resolution, he was
advised by the district forester of Davao City that
no further action would be taken on his motion,
unless he filed a new application for the area
concerned. So he filed on May 27, 1947 his
fishpond application 1717.
Meanwhile, several applications were submitted by
other persons for portions of the area covered by
Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his
fishpond application 1202 covering 10 hectares of
land found inside the area applied for by Casteel;
he was later granted fishpond permit F-289-C
covering 9.3 hectares certified as available for
fishpond purposes by the Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his
fishpond application 762 over a portion of the land
applied for by Casteel. Alejandro Cacam's fishpond
application 1276, filed on December 26, 1946, was
given due course on December 9, 1947 with the
issuance to him of fishpond permit F-539-C to
develop 30 hectares of land comprising a portion of
the area applied for by Casteel, upon certification of
the Bureau of Forestry that the area was likewise
available for fishpond purposes. On November 17,
1948 Felipe Deluao filed his own fishpond
application for the area covered by Casteel's
application.
Because of the threat poised upon his position by
the above applicants who entered upon and spread
themselves within the area, Casteel realized the
urgent necessity of expanding his occupation
thereof by constructing dikes and cultivating
marketable fishes, in order to prevent old and new
squatters from usurping the land. But lacking
financial resources at that time, he sought financial
aid from his uncle Felipe Deluao who then extended
loans totalling more or less P27,000 with which to
finance the needed improvements on the fishpond.
Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area
applied for by him were already occupied by rival
applicants, Casteel immediately filed the
corresponding protests. Consequently, two
administrative cases ensued involving the area in
question, to wit: DANR Case 353, entitled "Fp. Ap.
No. 661 (now Fp. A. No. 1717), Nicanor Casteel,
applicant-appellant versus Fp. A. No. 763, Victorio
D. Carpio, applicant-appellant"; and DANR Case
353-B, entitled "Fp. A. No. 661 (now Fp. A. No.
1717), Nicanor Casteel, applicant-protestant versus
Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit
No. 539-C, Alejandro Cacam, Permittees-
Respondents."
However, despite the finding made in the
investigation of the above administrative cases that
Casteel had already introduced improvements on
portions of the area applied for by him in the form
of dikes, fishpond gates, clearings, etc., the
Director of Fisheries nevertheless rejected Casteel's
application on October 25, 1949, required him to
remove all the improvements which he had
introduced on the land, and ordered that the land
be leased through public auction. Failing to secure a
favorable resolution of his motion for
reconsideration of the Director's order, Casteel
appealed to the Secretary of Agriculture and
Natural Resources.
In the interregnum, some more incidents occurred.
To avoid repetition, they will be taken up in our
discussion of the appellant's third assignment of
error.
On November 25, 1949 Inocencia Deluao (wife of
Felipe Deluao) as party of the first part, and
Nicanor Casteel as party of the second part,
executed a contract denominated a "contract of
service" the salient provisions of which are as
follows:
That the Party of the First Part in
consideration of the mutual covenants and
agreements made herein to the Party of the
Second Part, hereby enter into a contract of
service, whereby the Party of the First Part
hires and employs the Party of the Second
Part on the following terms and conditions,
to wit:
That the Party of the First Part will finance
as she has hereby financed the sum of
TWENTY SEVEN THOUSAND PESOS
(P27,000.00), Philippine Currency, to the
Party of the Second Part who renders only
his services for the construction and
improvements of a fishpond at Barrio
Malalag, Municipality of Padada, Province of
Davao, Philippines;
That the Party of the Second Part will be the
Manager and sole buyer of all the produce
of the fish that will be produced from said
fishpond;

14
 That the Party of the First Part will be the
administrator of the same she having
financed the construction and improvement
of said fishpond;
That this contract was the result of a verbal
agreement entered into between the Parties
sometime in the month of November, 1947,
with all the above-mentioned conditions
enumerated; ...
On the same date the above contract was entered
into, Inocencia Deluao executed a special power of
attorney in favor of Jesus Donesa, extending to the
latter the authority "To represent me in the
administration of the fishpond at Malalag,
Municipality of Padada, Province of Davao,
Philippines, which has been applied for fishpond
permit by Nicanor Casteel, but rejected by the
Bureau of Fisheries, and to supervise, demand,
receive, and collect the value of the fish that is
being periodically realized from it...."
On November 29, 1949 the Director of Fisheries
rejected the application filed by Felipe Deluao on
November 17, 1948. Unfazed by this rejection,
Deluao reiterated his claim over the same area in
the two administrative cases (DANR Cases 353 and
353-B) and asked for reinvestigation of the
application of Nicanor Casteel over the subject
fishpond. However, by letter dated March 15, 1950
sent to the Secretary of Commerce and Agriculture
and Natural Resources (now Secretary of
Agriculture and Natural Resources), Deluao
withdrew his petition for reinvestigation.
On September 15, 1950 the Secretary of
Agriculture and Natural Resources issued a decision
in DANR Case 353, the dispositive portion of which
reads as follows:
In view of all the foregoing considerations,
Fp. A. No. 661 (now Fp. A. No. 1717) of
Nicanor Casteel should be, as hereby it is,
reinstated and given due course for the area
indicated in the sketch drawn at the back of
the last page hereof; and Fp. A. No. 762 of
Victorio D. Carpio shall remain rejected.
On the same date, the same official issued a
decision in DANR Case 353-B, the dispositive
portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C
of Leoncio Aradillos and Fishpond Permit No.
F-539-C of Alejandro Cacam, should be, as
they are hereby cancelled and revoked;
Nicanor Casteel is required to pay the
improvements introduced thereon by said
permittees in accordance with the terms
and dispositions contained elsewhere in this
decision....
Sometime in January 1951 Nicanor Casteel forbade
Inocencia Deluao from further administering the
fishpond, and ejected the latter's representative
(encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit
A) entered into between Inocencia Deluao and
Nicanor Casteel, Felipe Deluao and Inocencia
Deluao on April 3, 1951 filed an action in the Court
15
of First Instance of Davao for specific performance
and damages against Nicanor Casteel and Juan
Depra (who, they alleged, instigated Casteel to
violate his contract), praying inter alia, (a) that
Casteel be ordered to respect and abide by the
terms and conditions of said contract and that
Inocencia Deluao be allowed to continue
administering the said fishpond and collecting the
proceeds from the sale of the fishes caught from
time to time; and (b) that the defendants be
ordered to pay jointly and severally to plaintiffs the
sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte
motion for the issuance of a preliminary injunction,
praying among other things, that during the
pendency of the case and upon their filling the
requisite bond as may be fixed by the court, a
preliminary injunction be issued to restrain Casteel
from doing the acts complained of, and that after
trial the said injunction be made permanent. The
lower court on April 26, 1951 granted the motion,
and, two days later, it issued a preliminary
mandatory injunction addressed to Casteel, the
dispositive portion of which reads as follows:
POR EL PRESENTE, queda usted ordenado
que, hasta nueva orden, usted, el
demandado y todos usu abogados, agentes,
mandatarios y demas personas que obren
en su ayuda, desista de impedir a la
demandante Inocencia R. Deluao que
continue administrando personalmente la
pesqueria objeto de esta causa y que la
misma continue recibiendo los productos de
la venta de los pescados provenientes de
dicha pesqueria, y que, asimismo, se
prohibe a dicho demandado Nicanor Casteel
a desahuciar mediante fuerza al encargado
de los demandantes llamado Jesus Donesa
de la pesqueria objeto de la demanda de
autos.
On May 10, 1951 Casteel filed a motion to dissolve
the injunction, alleging among others, that he was
the owner, lawful applicant and occupant of the
fishpond in question. This motion, opposed by the
plaintiffs on June 15, 1951, was denied by the
lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer
with counterclaim, amended on January 8, 1952,
denying the material averments of the plaintiffs'
complaint. A reply to the defendants' amended
answer was filed by the plaintiffs on January 31,
1952.
The defendant Juan Depra moved on May 22, 1951
to dismiss the complaint as to him. On June 4,
1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint
motion to dismiss on the ground that the plaintiffs'
complaint failed to state a claim upon which relief
may be granted. The motion, opposed by the
plaintiffs on October 12, 1951, was denied for lack
of merit by the lower court in its order of October
22, 1951. The defendants' motion for
reconsideration filed on October 31, 1951 suffered
the same fate when it was likewise denied by the
lower court in its order of November 12, 1951.
After the issues were joined, the case was set for
trial. Then came a series of postponements. The
lower court (Branch I, presided by Judge Enrique A.
Fernandez) finally issued on March 21, 1956 an
order in open court, reading as follows: .
Upon petition of plaintiffs, without any
objection on the part of defendants, the
hearing of this case is hereby transferred to
May 2 and 3, 1956 at 8:30 o'clock in the
morning.
This case was filed on April 3, 1951
and under any circumstance this Court will
not entertain any other transfer of hearing
of this case and if the parties will not be
ready on that day set for hearing, the court
will take the necessary steps for the final
determination of this case. (emphasis
supplied)
On April 25, 1956 the defendants' counsel received
a notice of hearing dated April 21, 1956, issued by
the office of the Clerk of Court (thru the special
deputy Clerk of Court) of the Court of First Instance
of Davao, setting the hearing of the case for May 2
and 3, 1956 before Judge Amador Gomez of Branch
II. The defendants, thru counsel, on April 26, 1956
filed a motion for postponement. Acting on this
motion, the lower court (Branch II, presided by
Judge Gomez) issued an order dated April 27,
1956, quoted as follows:
This is a motion for postponement of the
hearing of this case set for May 2 and 3,
1956. The motion is filed by the counsel for
the defendants and has the conformity of
the counsel for the plaintiffs.
An examination of the records of this case
shows that this case was initiated as early
as April 1951 and that the same has been
under advisement of the Honorable Enrique
A. Fernandez, Presiding Judge of Branch No.
I, since September 24, 1953, and that
various incidents have already been
considered and resolved by Judge
Fernandez on various occasions. The last
order issued by Judge Fernandez on this
case was issued on March 21, 1956,
wherein he definitely states that the Court
will not entertain any further postponement
of the hearing of this case.
CONSIDERING ALL THE FOREGOING, the
Court believes that the consideration and
termination of any incident referring to this
case should be referred back to Branch I, so
that the same may be disposed of therein.
(emphasis supplied)
A copy of the abovequoted order was served on the
defendants' counsel on May 4, 1956.
On the scheduled date of hearing, that is, on May
2, 1956, the lower court (Branch I, with Judge
Fernandez presiding), when informed about the
defendants' motion for postponement filed on April
26, 1956, issued an order reiterating its previous
order handed down in open court on March 21,
1956 and directing the plaintiffs to introduce their
evidence ex parte, there being no appearance on
the part of the defendants or their counsel. On the
16
basis of the plaintiffs' evidence, a decision was
rendered on May 4, 1956 the dispositive portion of
which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision
a favor de los demandantes y en contra del
demandado Nicanor Casteel:
(a) Declara permanente el interdicto
prohibitorio expedido contra el demandado;
(b) Ordena al demandado entregue la
demandante la posesion y administracion de
la mitad () del "fishpond" en cuestion con
todas las mejoras existentes dentro de la
misma;
(c) Condena al demandado a pagar a la
demandante la suma de P200.00
mensualmente en concepto de danos a
contar de la fecha de la expiracion de los 30
dias de la promulgacion de esta decision
hasta que entregue la posesion y
administracion de la porcion del "fishpond"
en conflicto;
(d) Condena al demandado a pagar a la
demandante la suma de P2,000.00 valor de
los pescado beneficiados, mas los intereses
legales de la fecha de la incoacion de la
demanda de autos hasta el completo pago
de la obligacion principal;
(e) Condena al demandado a pagar a la
demandante la suma de P2,000.00, por
gastos incurridos por aquella durante la
pendencia de esta causa;
(f) Condena al demandado a pagar a la
demandante, en concepto de honorarios, la
suma de P2,000.00;
(g) Ordena el sobreseimiento de esta
demanda, por insuficiencia de pruebas, en
tanto en cuanto se refiere al demandado
Juan Depra;
(h) Ordena el sobreseimiento de la
reconvencion de los demandados por falta
de pruebas;
(i) Con las costas contra del demandado,
Casteel.
The defendant Casteel filed a petition for relief from
the foregoing decision, alleging, inter alia, lack of
knowledge of the order of the court a quo setting
the case for trial. The petition, however, was denied
by the lower court in its order of May 21, 1956, the
pertinent portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire
from the Clerk of Court whether the trial of
this case has been transferred or not, but to
inquire from the presiding Judge,
particularly because his motion asking the
transfer of this case was not set for hearing
and was not also acted upon.
Atty. Ruiz knows the nature of the order of
this Court dated March 21, 1956, which
reads as follows:
 Upon petition of the plaintiff without
any objection on the part of the
defendants, the hearing of this case
is hereby transferred to May 2 and
3, 1956, at 8:30 o'clock in the
morning.
This case was filed on April 3, 1951,
and under any circumstance this
Court will not entertain any other
transfer of the hearing of this case,
and if the parties will not be ready
on the day set for hearing, the Court
will take necessary steps for the final
disposition of this case.
In view of the order above-quoted, the
Court will not accede to any transfer of this
case and the duty of Atty. Ruiz is no other
than to be present in the Sala of this Court
and to call the attention of the same to the
existence of his motion for transfer.
Petition for relief from judgment filed by
Atty. Ruiz in behalf of the defendant, not
well taken, the same is hereby denied.
Dissatisfied with the said ruling, Casteel appealed
to the Court of Appeals which certified the case to
us for final determination on the ground that it
involves only questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed
gross abuse of discretion when it ordered
reception of the appellees' evidence in the
absence of the appellant at the trial on May
2, 1956, thus depriving the appellant of his
day in court and of his property without due
process of law;
(2) Whether the lower court committed
grave abuse of discretion when it denied the
verified petition for relief from judgment
filed by the appellant on May 11, 1956 in
accordance with Rule 38, Rules of Court;
and
(3) Whether the lower court erred in
ordering the issuance ex parte of a writ of
preliminary injunction against defendant-
appellant, and in not dismissing appellees'
complaint.
1. The first and second issues must be resolved
against the appellant.
The record indisputably shows that in the order
given in open court on March 21, 1956, the lower
court set the case for hearing on May 2 and 3, 1956
at 8:30 o'clock in the morning and empathically
stated that, since the case had been pending since
April 3, 1951, it would not entertain any further
motion for transfer of the scheduled hearing.
An order given in open court is presumed received
by the parties on the very date and time of
promulgation,1 and amounts to a legal notification
for all legal purposes.2 The order of March 21,
1956, given in open court, was a valid notice to the
parties, and the notice of hearing dated April 21,
17
1956 or one month thereafter, was a superfluity.
Moreover, as between the order of March 21, 1956,
duly promulgated by the lower court, thru Judge
Fernandez, and the notice of hearing signed by a
"special deputy clerk of court" setting the hearing in
another branch of the same court, the former's
order was the one legally binding. This is because
the incidents of postponements and adjournments
are controlled by the court and not by the clerk of
court, pursuant to section 4, Rule 31 (now sec. 3,
Rule 22) of the Rules of Court.
Much less had the clerk of court the authority to
interfere with the order of the court or to transfer
the cage from one sala to another without authority
or order from the court where the case originated
and was being tried. He had neither the duty nor
prerogative to re-assign the trial of the case to a
different branch of the same court. His duty as such
clerk of court, in so far as the incident in question
was concerned, was simply to prepare the trial
calendar. And this duty devolved upon the clerk of
court and not upon the "special deputy clerk of
court" who purportedly signed the notice of
hearing.
It is of no moment that the motion for
postponement had the conformity of the appellees'
counsel. The postponement of hearings does not
depend upon agreement of the parties, but upon
the court's discretion.3
The record further discloses that Casteel was
represented by a total of 12 lawyers, none of whom
had ever withdrawn as counsel. Notice to Atty. Ruiz
of the order dated March 21, 1956 intransferably
setting the case for hearing for May 2 and 3, 1956,
was sufficient notice to all the appellant's eleven
other counsel of record. This is a well-settled rule in
our jurisdiction.4
It was the duty of Atty. Ruiz, or of the other
lawyers of record, not excluding the appellant
himself, to appear before Judge Fernandez on the
scheduled dates of hearing Parties and their
lawyers have no right to presume that their
motions for postponement will be granted. 5 For
indeed, the appellant and his 12 lawyers cannot
pretend ignorance of the recorded fact that since
September 24, 1953 until the trial held on May 2,
1956, the case was under the advisement of Judge
Fernandez who presided over Branch I. There was,
therefore, no necessity to "re-assign" the same to
Branch II because Judge Fernandez had exclusive
control of said case, unless he was legally inhibited
to try the case and he was not.
There is truth in the appellant's contention that it is
the duty of the clerk of court not of the Court
to prepare the trial calendar. But the assignment or
reassignment of cases already pending in one sala
to another sala, and the setting of the date of trial
after the trial calendar has been prepared, fall
within the exclusive control of the presiding judge.
The appellant does not deny the appellees' claim
that on May 2 and 3, 1956, the office of the clerk of
court of the Court of First Instance of Davao was
located directly below Branch I. If the appellant and
his counsel had exercised due diligence, there was
no impediment to their going upstairs to the second
storey of the Court of First Instance building in
Davao on May 2, 1956 and checking if the case was
scheduled for hearing in the said sala. The
appellant after all admits that on May 2, 1956 his
counsel went to the office of the clerk of court.
The appellant's statement that parties as a matter
of right are entitled to notice of trial, is correct. But
he was properly accorded this right. He was notified
in open court on March 21, 1956 that the case was
definitely and intransferably set for hearing on May
2 and 3, 1956 before Branch I. He cannot argue
that, pursuant to the doctrine in Siochi vs.
Tirona,6 his counsel was entitled to a timely notice
of the denial of his motion for postponement. In the
cited case the motion for postponement was the
first one filed by the defendant; in the case at bar,
there had already been a series of postponements.
Unlike the case at bar, the Siochi case was not
intransferably set for hearing. Finally, whereas the
cited case did not spend for a long time, the case at
bar was only finally and intransferably set for
hearing on March 21, 1956 after almost five
years had elapsed from the filing of the complaint
on April 3, 1951.
The pretension of the appellant and his 12 counsel
of record that they lacked ample time to prepare
for trial is unacceptable because between March 21,
1956 and May 2, 1956, they had one month and
ten days to do so. In effect, the appellant had
waived his right to appear at the trial and therefore
he cannot be heard to complain that he has been
deprived of his property without due process of
law.7 Verily, the constitutional requirements of due
process have been fulfilled in this case: the lower
court is a competent court; it lawfully acquired
jurisdiction over the person of the defendant
(appellant) and the subject matter of the action;
the defendant (appellant) was given an opportunity
to be heard; and judgment was rendered upon
lawful hearing.8
2. Finally, the appellant contends that the lower
court incurred an error in ordering the issuance ex
parte of a writ of preliminary injunction against
him, and in not dismissing the appellee's complaint.
We find this contention meritorious.
Apparently, the court a quo relied on exhibit A
the so-called "contract of service" and the
appellees' contention that it created a contract of
co-ownership and partnership between Inocencia
Deluao and the appellant over the fishpond in
question.
Too well-settled to require any citation of authority
is the rule that everyone is conclusively presumed
to know the law. It must be assumed, conformably
to such rule, that the parties entered into the so-
called "contract of service" cognizant of the
mandatory and prohibitory laws governing the filing
of applications for fishpond permits. And since they
were aware of the said laws, it must likewise be
assumed in fairness to the parties that they
did not intend to violate them. This view must
perforce negate the appellees' allegation that
exhibit A created a contract of co-ownership
between the parties over the disputed fishpond.
Were we to admit the establishment of a co-
ownership violative of the prohibitory laws which
will hereafter be discussed, we shall be compelled
to declare altogether the nullity of the contract.
This would certainly not serve the cause of equity
and justice, considering that rights and obligations
18
have already arisen between the parties. We shall
therefore construe the contract as one of
partnership, divided into two parts namely, a
contract of partnership to exploit the fishpond
pending its award to either Felipe Deluao or Nicanor
Casteel, and a contract of partnership to divide the
fishpond between them after such award. The first
is valid, the second illegal.
It is well to note that when the appellee Inocencia
Deluao and the appellant entered into the so-called
"contract of service" on November 25, 1949, there
were two pending applications over the fishpond.
One was Casteel's which was appealed by him to
the Secretary of Agriculture and Natural Resources
after it was disallowed by the Director of Fisheries
on October 25, 1949. The other was Felipe Deluao's
application over the same area which was likewise
rejected by the Director of Fisheries on November
29, 1949, refiled by Deluao and later on withdrawn
by him by letter dated March 15, 1950 to the
Secretary of Agriculture and Natural Resources.
Clearly, although the fishpond was then in the
possession of Casteel, neither he nor, Felipe Deluao
was the holder of a fishpond permit over the area.
But be that as it may, they were not however
precluded from exploiting the fishpond pending
resolution of Casteel's appeal or the approval of
Deluao's application over the same area
whichever event happened first. No law, rule or
regulation prohibited them from doing so. Thus,
rather than let the fishpond remain idle they
cultivated it.
The evidence preponderates in favor of the view
that the initial intention of the parties was not to
form a co-ownership but to establish a partnership
Inocencia Deluao as capitalist partner and
Casteel as industrial partner the ultimate
undertaking of which was to divide into two equal
parts such portion of the fishpond as might have
been developed by the amount extended by the
plaintiffs-appellees, with the further provision that
Casteel should reimburse the expenses incurred by
the appellees over one-half of the fishpond that
would pertain to him. This can be gleaned, among
others, from the letter of Casteel to Felipe Deluao
on November 15, 1949, which states, inter alia:
... [W]ith respect to your allowing me to use
your money, same will redound to your
benefit because you are the ones interested
in half of the work we have done so far,
besides I did not insist on our being
partners in my fishpond permit, but it was
you "Tatay" Eping the one who wanted that
we be partners and it so happened that we
became partners because I am poor, but in
the midst of my poverty it never occurred to
me to be unfair to you. Therefore so that
each of us may be secured, let us have a
document prepared to the effect that we are
partners in the fishpond that we caused to
be made here in Balasinon, but it does not
mean that you will treat me as one of your
"Bantay" (caretaker) on wage basis but not
earning wages at all, while the truth is that
we are partners. In the event that you are
not amenable to my proposition and
consider me as "Bantay" (caretaker)
instead, do not blame me if I withdraw all
my cases and be left without even a little
and you likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the
appellant that a document be drawn evidencing
their partnership, the appellee Inocencia Deluao
and the appellant executed exhibit A which,
although denominated a "contract of service," was
actually the memorandum of their partnership
agreement. That it was not a contract of the
services of the appellant, was admitted by the
appellees themselves in their letter10 to Casteel
dated December 19, 1949 wherein they stated that
they did not employ him in his (Casteel's) claim but
because he used their money in developing and
improving the fishpond, his right must be divided
between them. Of course, although exhibit A did
not specify any wage or share appertaining to the
appellant as industrial partner, he was so entitled
this being one of the conditions he specified for
the execution of the document of partnership.11
Further exchanges of letters between the parties
reveal the continuing intent to divide the fishpond.
In a letter,12dated March 24, 1950, the appellant
suggested that they divide the fishpond and the
remaining capital, and offered to pay the Deluaos a
yearly installment of P3,000 presumably as
reimbursement for the expenses of the appellees
for the development and improvement of the one-
half that would pertain to the appellant. Two days
later, the appellee Felipe Deluao
replied,13expressing his concurrence in the
appellant's suggestion and advising the latter to ask
for a reconsideration of the order of the Director of
Fisheries disapproving his (appellant's) application,
so that if a favorable decision was secured, then
they would divide the area.
Apparently relying on the partnership agreement,
the appellee Felipe Deluao saw no further need to
maintain his petition for the reinvestigation of
Casteel's application. Thus by letter14 dated March
15, 1950 addressed to the Secretary of Agriculture
and Natural Resources, he withdrew his petition on
the alleged ground that he was no longer interested
in the area, but stated however that he wanted his
interest to be protected and his capital to be
reimbursed by the highest bidder.
The arrangement under the so-called "contract of
service" continued until the decisions both dated
September 15, 1950 were issued by the Secretary
of Agriculture and Natural Resources in DANR Cases
353 and 353-B. This development, by itself,
brought about the dissolution of the partnership.
Moreover, subsequent events likewise reveal the
intent of both parties to terminate the partnership
because each refused to share the fishpond with
the other.
Art. 1830(3) of the Civil Code enumerates, as one
of the causes for the dissolution of a partnership,
"... any event which makes it unlawful for the
business of the partnership to be carried on or for
the members to carry it on in partnership." The
approval of the appellant's fishpond application by
the decisions in DANR Cases 353 and 353-B
brought to the fore several provisions of law which
made the continuation of the partnership unlawful
and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the
holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to
him, without the previous consent or approval of
19
the Secretary of Agriculture and Natural
Resources.15 To the same effect is Condition No. 3
of the fishpond permit which states that "The
permittee shall not transfer or sublet all or any area
herein granted or any rights acquired therein
without the previous consent and approval of this
Office." Parenthetically, we must observe that in
DANR Case 353-B, the permit granted to one of the
parties therein, Leoncio Aradillos, was cancelled not
solely for the reason that his permit covered a
portion of the area included in the appellant's prior
fishpond application, but also because, upon
investigation, it was ascertained thru the admission
of Aradillos himself that due to lack of capital, he
allowed one Lino Estepa to develop with the latter's
capital the area covered by his fishpond permit F-
289-C with the understanding that he (Aradillos)
would be given a share in the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise
known as the Public Land Act, likewise provides
that
The lessee shall not assign, encumber, or
sublet his rights without the consent of the
Secretary of Agriculture and Commerce, and
the violation of this condition shall avoid the
contract; Provided, That assignment,
encumbrance, or subletting for purposes of
speculation shall not be permitted in any
case: Provided, further, That nothing
contained in this section shall be understood
or construed to permit the assignment,
encumbrance, or subletting of lands leased
under this Act, or under any previous Act, to
persons, corporations, or associations which
under this Act, are not authorized to lease
public lands.
Finally, section 37 of Administrative Order No. 14 of
the Secretary of Agriculture and Natural Resources
issued in August 1937, prohibits a transfer or
sublease unless first approved by the Director of
Lands and under such terms and conditions as he
may prescribe. Thus, it states:
When a transfer or sub-lease of area and
improvement may be allowed. If the
permittee or lessee had, unless otherwise
specifically provided, held the permit or
lease and actually operated and made
improvements on the area for at least one
year, he/she may request permission to
sub-lease or transfer the area and
improvements under certain conditions.
(a) Transfer subject to approval. A sub-
lease or transfer shall only be valid when
first approved by the Director under such
terms and conditions as may be prescribed,
otherwise it shall be null and void. A
transfer not previously approved or reported
shall be considered sufficient cause for the
cancellation of the permit or lease and
forfeiture of the bond and for granting the
area to a qualified applicant or bidder, as
provided in subsection (r) of Sec. 33 of this
Order.
Since the partnership had for its object the division
into two equal parts of the fishpond between the
appellees and the appellant after it shall have been
awarded to the latter, and therefore it envisaged
the unauthorized transfer of one-half thereof to
parties other than the applicant Casteel, it was
dissolved by the approval of his application and the
award to him of the fishpond. The approval was an
event which made it unlawful for the business of
the partnership to be carried on or for the members
to carry it on in partnership.
The appellees, however, argue that in approving
the appellant's application, the Secretary of
Agriculture and Natural Resources likewise
recognized and/or confirmed their property right to
one-half of the fishpond by virtue of the contract of
service, exhibit A. But the untenability of this
argument would readily surface if one were to
consider that the Secretary of Agriculture and
Natural Resources did not do so for the simple
reason that he does not possess the authority to
violate the aforementioned prohibitory laws nor to
exempt anyone from their operation.
However, assuming in gratia argumenti that the
approval of Casteel's application, coupled with the
foregoing prohibitory laws, was not enough to
cause the dissolution ipso facto of their partnership,
succeeding events reveal the intent of both parties
to terminate the partnership by refusing to share
the fishpond with the other.
On December 27, 1950 Casteel wrote 17 the appellee
Inocencia Deluao, expressing his desire to divide
the fishpond so that he could administer his own
share, such division to be subject to the approval of
the Secretary of Agriculture and Natural Resources.
By letter dated December 29, 1950, 18 the appellee
Felipe Deluao demurred to Casteel's proposition
because there were allegedly no appropriate
grounds to support the same and, moreover, the
conflict over the fishpond had not been finally
resolved.
The appellant wrote on January 4, 1951 a last
letter19 to the appellee Felipe Deluao wherein the
former expressed his determination to administer
the fishpond himself because the decision of the
Government was in his favor and the only reason
why administration had been granted to the
Deluaos was because he was indebted to them. In
the same letter, the appellant forbade Felipe Deluao
from sending the couple's encargado, Jesus
Donesa, to the fishpond. In reply thereto, Felipe
Deluao wrote a letter20 dated January 5, 1951 in
which he reiterated his refusal to grant the
administration of the fishpond to the appellant,
stating as a ground his belief "that only the
competent agencies of the government are in a
better position to render any equitable arrangement
relative to the present case; hence, any action we
may privately take may not meet the procedure of
legal order."
Inasmuch as the erstwhile partners articulated in
the aforecited letters their respective resolutions
not to share the fishpond with each other in
direct violation of the undertaking for which they
have established their partnership each must be
deemed to have expressly withdrawn from the
partnership, thereby causing its dissolution
pursuant to art. 1830(2) of the Civil Code which
provides, inter alia, that dissolution is caused "by
the express will of any partner at any time."
20
In this jurisdiction, the Secretary of Agriculture and
Natural Resources possesses executive and
administrative powers with regard to the survey,
classification, lease, sale or any other form of
concession or disposition and management of the
lands of the public domain, and, more specifically,
with regard to the grant or withholding of licenses,
permits, leases and contracts over portions of the
public domain to be utilized as fishponds. 21, Thus,
we held in Pajo, et al. vs. Ago, et al. (L-15414,
June 30, 1960), and reiterated in Ganitano vs.
Secretary of Agriculture and Natural Resources, et
al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of
Agriculture and Commerce (Natural
Resources) by law regarding the disposition
of public lands such as granting of licenses,
permits, leases, and contracts, or
approving, rejecting, reinstating, or
cancelling applications, or deciding
conflicting applications, are all executive
and administrative in nature. It is a well-
recognized principle that purely
administrative and discretionary functions
may not be interfered with by the
courts (Coloso v. Board of Accountancy,
G.R. No. L-5750, April 20, 1953). In
general, courts have no supervising power
over the proceedings and action of the
administrative departments of the
government. This is generally true with
respect to acts involving the exercise of
judgment or discretion, and findings of fact.
(54 Am. Jur. 558-559) Findings of fact by
an administrative board or official, following
a hearing, are binding upon the courts and
will not be disturbed except where the
board or official has gone beyond his
statutory authority, exercised
unconstitutional powers or clearly acted
arbitrarily and without regard to his duty or
with grave abuse of discretion... (emphasis
supplied)
In the case at bar, the Secretary of Agriculture and
Natural Resources gave due course to the
appellant's fishpond application 1717 and awarded
to him the possession of the area in question. In
view of the finality of the Secretary's decision in
DANR Cases 353 and 353-B, and considering the
absence of any proof that the said official exceeded
his statutory authority, exercised unconstitutional
powers, or acted with arbitrariness and in disregard
of his duty, or with grave abuse of discretion, we
can do no less than respect and maintain
unfettered his official acts in the premises. It is a
salutary rule that the judicial department should
not dictate to the executive department what to do
with regard to the administration and disposition of
the public domain which the law has entrusted to
its care and administration. Indeed, courts cannot
superimpose their discretion on that of the land
department and compel the latter to do an act
which involves the exercise of judgment and
discretion.22
Therefore, with the view that we take of this case,
and even assuming that the injunction was properly
issued because present all the requisite grounds for
its issuance, its continuation, and, worse, its
declaration as permanent, was improper in the face
of the knowledge later acquired by the lower court
that it was the appellant's application over the
fishpond which was given due course. After the
Secretary of Agriculture and Natural Resources
approved the appellant's application, he became to
all intents and purposes the legal permittee of the
area with the corresponding right to possess,
occupy and enjoy the same. Consequently, the
lower court erred in issuing the preliminary
mandatory injunction. We cannot overemphasize
that an injunction should not be granted to take
property out of the possession and control of one
party and place it in the hands of another whose
title has not been clearly established by law.23
However, pursuant to our holding that there was a
partnership between the parties for the exploitation
of the fishpond before it was awarded to Casteel,
this case should be remanded to the lower court for
the reception of evidence relative to an accounting
from November 25, 1949 to September 15, 1950,
in order for the court to determine (a) the profits
realized by the partnership, (b) the share (in the
profits) of Casteel as industrial partner, (e) the
share (in the profits) of Deluao as capitalist partner,
and (d) whether the amounts totalling about
P27,000 advanced by Deluao to Casteel for the
development and improvement of the fishpond
have already been liquidated. Besides, since the
appellee Inocencia Deluao continued in possession
and enjoyment of the fishpond even after it was
awarded to Casteel, she did so no longer in the
concept of a capitalist partner but merely as
creditor of the appellant, and therefore, she must
likewise submit in the lower court an accounting of
the proceeds of the sales of all the fishes harvested
from the fishpond from September 16, 1950 until
Casteel shall have been finally given the possession
and enjoyment of the same. In the event that the
appellee Deluao has received more than her lawful
credit of P27,000 (or whatever amounts have been
advanced to Casteel), plus 6% interest thereon per
annum, then she should reimburse the excess to
the appellant.
ACCORDINGLY, the judgment of the lower court is
set aside. Another judgment is hereby rendered:
(1) dissolving the injunction issued against the
appellant, (2) placing the latter back in possession
of the fishpond in litigation, and (3) remanding this
case to the court of origin for the reception of
evidence relative to the accounting that the parties
must perforce render in the premises, at the
termination of which the court shall render
judgment accordingly. The appellant's counterclaim
is dismissed. No pronouncement as to costs.
5. G.R. No. 17024 March 24, 1922
DOMINGO BEARNEZA, plaintiff-appelle,
vs.
BALBINO DEQUILLA, defendant-appellant.
C. Lozano and Cecilio I. Lim for appellant.
Montinola, Montinola & Hontiveros for appellee.
21
ROMUALDEZ, J.:
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 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 claim for damages, and reversed insofar as it
court says in its decision, the defendant, in his declares the said plaintiff owner of one-half of the
letters to Perpetua or her husband, makes fish pond, "Alimango" and "Dalusan," here in
reference to the fish pond, calling it "our," or "your dispute.
fish pond," this reference cannot be held to include
the land on which the said fish pond was built. It No special finding as to costs is made. So ordered.
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.

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.

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.

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.

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

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