G.R. No.

154486 December 1, 2010

FEDERICO JARANTILLA, JR., Petitioner,

vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA
REMOTIGUE, DOROTEO JARANTILLA and TOMAS JARANTILLA, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals dated July
30, 2002 in CA-G.R. CV No. 40887, which set aside the Decision3 dated December 18, 1992 of the
Regional Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.

The pertinent facts are as follows:

The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin,
Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the
grandchild of the late Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife Leda
Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas Jarantilla.

Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla, his
aunt, was the plaintiff therein. His co-respondents before he joined his aunt Antonieta in her
complaint, were his late aunt Conchita Jarantillas husband Buenaventura Remotigue, who died
during the pendency of the case, his cousin Cynthia Remotigue, the adopted daughter of Conchita
Jarantilla and Buenaventura Remotigue, and his brothers Doroteo and Tomas Jarantilla.6

In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of their
deceased parents.7 With the exception of the real property adjudicated to Pacita Jarantilla, the heirs
also agreed to allot the produce of the said real properties for the years 1947-1949 for the studies of
Rafael and Antonieta Jarantilla.8

In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an agreement
with the spouses Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to
each other by way of financial support to any commercial and agricultural activity on a joint business
arrangement. This business relationship proved to be successful as they were able to establish a
manufacturing and trading business, acquire real properties, and construct buildings, among other
things.9 This partnership ended in 1973 when the parties, in an "Agreement,"10 voluntarily agreed to
completely dissolve their "joint business relationship/arrangement."11

On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a document
wherein they acknowledged that while registered only in Buenaventura Remotigues name, they
were not the only owners of the capital of the businesses Manila Athletic Supply (712 Raon Street,
Manila), Remotigue Trading (Calle Real, Iloilo City) and Remotigue Trading (Cotabato City). In this
same "Acknowledgement of Participating Capital," they stated the participating capital of their co-
owners as of the year 1952, with Antonieta Jarantillas stated as eight thousand pesos (8,000.00)
and Federico Jarantilla, Jr.s as five thousand pesos (5,000.00).12

The present case stems from the amended complaint13 dated April 22, 1987 filed by Antonieta
Jarantilla against Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo
Jarantilla and Tomas Jarantilla, for the accounting of the assets and income of the co-ownership, for
its partition and the delivery of her share corresponding to eight percent (8%), and for damages.
Antonieta claimed that in 1946, she had entered into an agreement with Conchita and Buenaventura
Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to engage in business. Antonieta
alleged that the initial contribution of property and money came from the heirs inheritance, and her
subsequent annual investment of seven thousand five hundred pesos (7,500.00) as additional
capital came from the proceeds of her farm. Antonieta also alleged that from 1946-1969, she had
helped in the management of the business they co-owned without receiving any salary. Her salary
was supposedly rolled back into the business as additional investments in her behalf. Antonieta
further claimed co-ownership of certain properties14 (the subject real properties) in the name of the
defendants since the only way the defendants could have purchased these properties were through
the partnership as they had no other source of income.

The respondents, including petitioner herein, in their Answer,15 denied having formed a partnership
with Antonieta in 1946. They claimed that she was in no position to do so as she was still in school
at that time. In fact, the proceeds of the lands they partitioned were devoted to her studies. They
also averred that while she may have helped in the businesses that her older sister Conchita had
formed with Buenaventura Remotigue, she was paid her due salary. They did not deny the existence
and validity of the "Acknowledgement of Participating Capital" and in fact used this as evidence to
support their claim that Antonietas 8% share was limited to the businesses enumerated therein.
With regard to Antonietas claim in their other corporations and businesses, the respondents said
these should also be limited to the number of her shares as specified in the respective articles of
incorporation. The respondents denied using the partnerships income to purchase the subject real
properties and said that the certificates of title should be binding on her.16

During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the
original defendants, entered into a compromise agreement17 with Antonieta Jarantilla wherein he
supported Antonietas claims and asserted that he too was entitled to six percent (6%) of the
supposed partnership in the same manner as Antonieta was. He prayed for a favorable judgment in
this wise:

Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for an accounting from the other
defendants, and the partition of the properties of the co-ownership and the delivery to the plaintiff
and to defendant Federico Jarantilla, Jr. of their rightful share of the assets and properties in the co-
ownership.18 1avvphi1

The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve Compromise
Agreement20and on December 18, 1992, decided in favor of Antonieta, to wit:

WHEREFORE, premises above-considered, the Court renders judgment in favor of the plaintiff
Antonieta Jarantilla and against defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas
Jarantilla ordering the latter:

1. to deliver to the plaintiff her 8% share or its equivalent amount on the real properties
covered by TCT Nos. 35655, 338398, 338399 & 335395, all of the Registry of Deeds of
Quezon City; TCT Nos. (18303)23341, 142882 & 490007(4615), all of the Registry of Deeds
of Rizal; and TCT No. T-6309 of the Registry of Deeds of Cotabato based on their present
market value;

2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue Agro-
Industrial Corporation, Manila Athletic Supply, Inc., MAS Rubber Products, Inc. and Buendia
Recapping Corporation based on the shares of stocks present book value;
 3. to account for the assets and income of the co-ownership and deliver to plaintiff her
rightful share thereof equivalent to 8%;

4. to pay plaintiff, jointly and severally, the sum of 50,000.00 as moral damages;

5. to pay, jointly and severally, the sum of 50,000.00 as attorneys fees; and

6. to pay, jointly and severally, the costs of the suit.21

Both the petitioner and the respondents appealed this decision to the Court of Appeals. The
petitioner claimed that the RTC "erred in not rendering a complete judgment and ordering the
partition of the co-ownership and giving to [him] six per centum (6%) of the properties."22

While the Court of Appeals agreed to some of the RTCs factual findings, it also established that
Antonieta Jarantilla was not part of the partnership formed in 1946, and that her 8% share was
limited to the businesses enumerated in the Acknowledgement of Participating Capital. On July 30,
2002, the Court of Appeals rendered the herein challenged decision setting aside the RTCs
decision, as follows:

WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE and a new
one is hereby entered ordering that:

(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the assets and
profits of Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in
Cotabato City;

(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the assets
and profits of the above-mentioned enterprises; and, holding that

(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the extent
stated in their Articles of Incorporation:

(a) Rural Bank of Barotac Nuevo, Inc.;

(b) MAS Rubber Products, Inc.;

(c) Manila Athletic Supply, Inc.; and

(d) B. Remotigue Agro-Industrial Development Corp.

(4) No costs.23

The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but the Court of
Appeals denied this in a Resolution24 dated March 21, 2003.

Antonieta Jarantilla filed before this Court her own petition for review on certiorari25 dated September
16, 2002, assailing the Court of Appeals decision on "similar grounds and similar assignments of
errors as this present case"26 but it was dismissed on November 20, 2002 for failure to file the appeal
within the reglementary period of fifteen (15) days in accordance with Section 2, Rule 45 of the
Rules of Court.27
Petitioner filed before us this petition for review on the sole ground that:

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT

PETITIONER FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%) SHARE
OF THE OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS
USING COMMON FUNDS FROM THE BUSINESSES WHERE HE HAD OWNED SUCH SHARE.28

Petitioner asserts that he was in a partnership with the Remotigue spouses, the Deocampo spouses,
Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital the Remotigue spouses executed in 1957. He contends
that from this partnership, several other corporations and businesses were established and several
real properties were acquired. In this petition, he is essentially asking for his 6% share in the subject
real properties. He is relying on the Acknowledgement of Participating Capital, on his own testimony,
and Antonieta Jarantillas testimony to support this contention.

The core issue is whether or not the partnership subject of the Acknowledgement of Participating
Capital funded the subject real properties. In other words, what is the petitioners right over these
real properties?

It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, only questions of law may be raised by the parties and passed upon by this Court.29

A question of law arises when there is doubt as to what the law is on a certain state of facts, while
there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a
question to be one of law, the same must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact. Thus, the test of whether a
question is one of law or of fact is not the appellation given to such question by the party raising the
same; rather, it is whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.30

Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in resolving
the questions of law that are now in issue, shall look into the facts only in so far as the two courts a
quo differed in their appreciation thereof.

The RTC found that an unregistered partnership existed since 1946 which was affirmed in the 1957
document, the "Acknowledgement of Participating Capital." The RTC used this as its basis for giving
Antonieta Jarantilla an 8% share in the three businesses listed therein and in the other businesses
and real properties of the respondents as they had supposedly acquired these through funds from
the partnership.31

The Court of Appeals, on the other hand, agreed with the RTC as to Antonietas 8% share in the
business enumerated in the Acknowledgement of Participating Capital, but not as to her share in the
other corporations and real properties. The Court of Appeals ruled that Antonietas claim of 8% is
based on the "Acknowledgement of Participating Capital," a duly notarized document which was
specific as to the subject of its coverage. Hence, there was no reason to pattern her share in the
other corporations from her share in the partnerships businesses. The Court of Appeals also said
that her claim in the respondents real properties was more "precarious" as these were all covered
by certificates of title which served as the best evidence as to all the matters contained
therein.32 Since petitioners claim was essentially the same as Antonietas, the Court of Appeals also
ruled that petitioner be given his 6% share in the same businesses listed in the Acknowledgement of
Participating Capital.

Factual findings of the trial court, when confirmed by the Court of Appeals, are final and conclusive
except in the following cases: (1) when the inference made is manifestly mistaken, absurd or
impossible; (2) when there is a grave abuse of discretion; (3) when the finding is grounded entirely
on speculations, surmises or conjectures; (4) when the judgment of the Court of Appeals is based on
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals,
in making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are
contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of
specific evidence on which they are based; (9) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties and which, if properly considered, would justify a
different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on record.33

In this case, we find no error in the ruling of the Court of Appeals.

Both the petitioner and Antonieta Jarantilla characterize their relationship with the respondents as a
co-ownership, but in the same breath, assert that a verbal partnership was formed in 1946 and was
affirmed in the 1957 Acknowledgement of Participating Capital.

There is a co-ownership when an undivided thing or right belongs to different persons.34 It is a

partnership when two or more persons bind themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits among themselves.35 The Court, in Pascual
v. The Commissioner of Internal Revenue,36 quoted the concurring opinion of Mr. Justice Angelo
Bautista in Evangelista v. The Collector of Internal Revenue37 to further elucidate on the distinctions
between a co-ownership and a partnership, to wit:

I wish however to make the following observation: Article 1769 of the new Civil Code lays down the
rule for determining when a transaction should be deemed a partnership or a co-ownership. Said
article paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-
owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which the
returns are derived;

From the above it appears that the fact that those who agree to form a co- ownership share or do not
share any profits made by the use of the property held in common does not convert their venture into
a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or
not the persons sharing therein have a joint or common right or interest in the property. This only
means that, aside from the circumstance of profit, the presence of other elements constituting
partnership is necessary, such as the clear intent to form a partnership, the existence of a juridical
personality different from that of the individual partners, and the freedom to transfer or assign any
interest in the property by one with the consent of the others.

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain
real estate for profit in the absence of other circumstances showing a contrary intention cannot be
considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to share the gross
returns of that enterprise in proportion to their contribution, but who severally retain the title to their
respective contribution, are not thereby rendered partners. They have no common stock or capital,
and no community of interest as principal proprietors in the business itself which the proceeds
derived.

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are
only tenants in common.

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding
as tenants in common, and to divide the profits of disposing of it, the brother and the other not being
entitled to share in plaintiffs commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties.

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b)
generally participating in both profits and losses; (c) and such a community of interest, as far as third
persons are concerned as enables each party to make contract, manage the business, and dispose
of the whole property. x x x.

The common ownership of property does not itself create a partnership between the owners, though
they may use it for the purpose of making gains; and they may, without becoming partners, agree
among themselves as to the management, and use of such property and the application of the
proceeds therefrom.38 (Citations omitted.)

Under Article 1767 of the Civil Code, there are two essential elements in a contract of
partnership: (a) an agreement to contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties. The first element is undoubtedly present in
the case at bar, for, admittedly, all the parties in this case have agreed to, and did, contribute money
and property to a common fund. Hence, the issue narrows down to their intent in acting as they
did.39 It is not denied that all the parties in this case have agreed to contribute capital to a common
fund to be able to later on share its profits. They have admitted this fact, agreed to its veracity, and
even submitted one common documentary evidence to prove such partnership - the
Acknowledgement of Participating Capital.

As this case revolves around the legal effects of the Acknowledgement of Participating Capital, it
would be instructive to examine the pertinent portions of this document:

ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL

KNOW ALL MEN BY THESE PRESENTS:

That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of legal
age, Filipinos and residents of Loyola Heights, Quezon City, P.I. hereby state:

That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo City
and the Remotigue Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods and
equipments, and general merchandise are recorded in their respective books with Buenaventura
Remotigue as the registered owner and are being operated by them as such:
That they are not the only owners of the capital of the three establishments and their participation in
the capital of the three establishments together with the other co-owners as of the year 1952 are
stated as follows:

1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)25,000.00

2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND) 25,000.00

3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00

4. Rosita J. Deocampo (FIFTEEN THOUSAND).... 15,000.00

5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00

6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00

7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00

8. Quintin Vismanos (TWO THOUSAND)... 2,000.00

That aside from the persons mentioned in the next preceding paragraph, no other person has any
interest in the above-mentioned three establishments.

IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of April,
1957.

[Sgd.]
BUENAVENTURA REMOTIGUE

[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40

The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed by

Conchita Jarantilla-Remotigue and Buenaventura Remotigue in 1957. Petitioner does not dispute its
contents and is actually relying on it to prove his participation in the partnership. Article 1797 of the
Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion
to what he may have contributed, but the industrial partner shall not be liable for the losses. As for
the profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital. (Emphases supplied.)

It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the
absence of any such stipulations, then to his share in proportion to his contribution to the
partnership. The petitioner himself claims his share to be 6%, as stated in the Acknowledgement of
Participating Capital. However, petitioner fails to realize that this document specifically enumerated
the businesses covered by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City
and Remotigue Trading in Cotabato City. Since there was a clear agreement that the capital the
partners contributed went to the three businesses, then there is no reason to deviate from such
agreement and go beyond the stipulations in the document. Therefore, the Court of Appeals did not
err in limiting petitioners share to the assets of the businesses enumerated in the Acknowledgement
of Participating Capital.

In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity, the
shares to be paid out to the partners is necessarily limited only to its total resources, to wit:

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can
only pay out what it has in its coffers, which consists of all its assets. However, before the partners
can be paid their shares, the creditors of the partnership must first be compensated. After all the
creditors have been paid, whatever is left of the partnership assets becomes available for the
payment of the partners shares.42

There is no evidence that the subject real properties were assets of the partnership referred to in the
Acknowledgement of Participating Capital.

The petitioner further asserts that he is entitled to respondents properties based on the concept of
trust. He claims that since the subject real properties were purchased using funds of the partnership,
wherein he has a 6% share, then "law and equity mandates that he should be considered as a co-
owner of those properties in such proportion."43 In Pigao v. Rabanillo,44 this Court explained the
concept of trusts, to wit:

Express trusts are created by the intention of the trustor or of the parties, while implied trusts come
into being by operation of law, either through implication of an intention to create a trust as a matter
of law or through the imposition of the trust irrespective of, and even contrary to, any such intention.
In turn, implied trusts are either resulting or constructive trusts. Resulting trusts are based on the
equitable doctrine that valuable consideration and not legal title determines the equitable title or
interest and are presumed always to have been contemplated by the parties. They arise from the
nature or circumstances of the consideration involved in a transaction whereby one person thereby
becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of
another.45

On proving the existence of a trust, this Court held that:

Respondent has presented only bare assertions that a trust was created. Noting the need to prove
the existence of a trust, this Court has held thus:

"As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and
such proof must be clear and satisfactorily show the existence of the trust and its elements. While
implied trusts may be proved by oral evidence, the evidence must be trustworthy and received by
the courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite
declarations. Trustworthy evidence is required because oral evidence can easily be fabricated." 46

The petitioner has failed to prove that there exists a trust over the subject real properties. Aside from
his bare allegations, he has failed to show that the respondents used the partnerships money to
purchase the said properties. Even assuming arguendo that some partnership income was used to
acquire these properties, the petitioner should have successfully shown that these funds came from
his share in the partnership profits. After all, by his own admission, and as stated in the
Acknowledgement of Participating Capital, he owned a mere 6% equity in the partnership.

In essence, the petitioner is claiming his 6% share in the subject real properties, by relying on his
own self-serving testimony and the equally biased testimony of Antonieta Jarantilla. Petitioner has
not presented evidence, other than these unsubstantiated testimonies, to prove that the respondents
did not have the means to fund their other businesses and real properties without the partnerships
income. On the other hand, the respondents have not only, by testimonial evidence, proven their
case against the petitioner, but have also presented sufficient documentary evidence to substantiate
their claims, allegations and defenses. They presented preponderant proof on how they acquired
and funded such properties in addition to tax receipts and tax declarations.47 It has been held that
"while tax declarations and realty tax receipts do not conclusively prove ownership, they may
constitute strong evidence of ownership when accompanied by possession for a period sufficient for
prescription."48 Moreover, it is a rule in this jurisdiction that testimonial evidence cannot prevail over
documentary evidence.49 This Court had on several occasions, expressed our disapproval on using
mere self-serving testimonies to support ones claim. In Ocampo v. Ocampo,50 a case on partition of
a co-ownership, we held that:

Petitioners assert that their claim of co-ownership of the property was sufficiently proved by their
witnesses -- Luisa Ocampo-Llorin and Melita Ocampo. We disagree. Their testimonies cannot
prevail over the array of documents presented by Belen. A claim of ownership cannot be based
simply on the testimonies of witnesses; much less on those of interested parties, self-serving as they
are.51

It is true that a certificate of title is merely an evidence of ownership or title over the particular
property described therein. Registration in the Torrens system does not create or vest title as
registration is not a mode of acquiring ownership; hence, this cannot deprive an aggrieved party of a
remedy in law.52 However, petitioner asserts ownership over portions of the subject real properties
on the strength of his own admissions and on the testimony of Antonieta Jarantilla. As held by this
1avv phi 1

Court in Republic of the Philippines v. Orfinada, Sr.53:

Indeed, a Torrens title is generally conclusive evidence of ownership of the land referred to therein,
and a strong presumption exists that a Torrens title was regularly issued and valid. A Torrens title is
incontrovertible against any informacion possessoria, of other title existing prior to the issuance
thereof not annotated on the Torrens title. Moreover, persons dealing with property covered by a
Torrens certificate of title are not required to go beyond what appears on its face.54

As we have settled that this action never really was for partition of a co-ownership, to permit
petitioners claim on these properties is to allow a collateral, indirect attack on respondents admitted
titles. In the words of the Court of Appeals, "such evidence cannot overpower the conclusiveness of
these certificates of title, more so since plaintiffs [petitioners] claims amount to a collateral attack,
which is prohibited under Section 48 of Presidential Decree No. 1529, the Property Registration
Decree."55

SEC. 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to
collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in
accordance with law.

This Court has deemed an action or proceeding to be "an attack on a title when its objective is to
nullify the title, thereby challenging the judgment pursuant to which the title was decreed."56 In
Aguilar v. Alfaro,57 this Court further distinguished between a direct and an indirect or collateral
attack, as follows:
A collateral attack transpires when, in another action to obtain a different relief and as an incident to
the present action, an attack is made against the judgment granting the title. This manner of attack is
to be distinguished from a direct attack against a judgment granting the title, through an action
whose main objective is to annul, set aside, or enjoin the enforcement of such judgment if not yet
implemented, or to seek recovery if the property titled under the judgment had been disposed of. x x
x.

Petitioners only piece of documentary evidence is the Acknowledgement of Participating Capital,

which as discussed above, failed to prove that the real properties he is claiming co-ownership of
were acquired out of the proceeds of the businesses covered by such document. Therefore,
petitioners theory has no factual or legal leg to stand on.

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in CA-G.R.
CV No. 40887, dated July 30, 2002 is AFFIRMED.

SO ORDERED.

G.R. No. L-9965 August 29, 1960

LUCINA BIGLANGAWA and LUCIA ESPIRITU, petitioners-appellees,

vs.
PASTOR B. CONSTANTINO, respondent-appellant.

SYLLABUS

1. COMPLAINTS; PRAYER; PURPOSE OF ACTION INDICATED BY PRAYER. Although the prayer in a

complaint does not determine the nature of the action, it not being a material part of the cause of action, it
logically indicates the purpose of the action.

2. ID.; NOTICE OF LIS PENDENS; COMPLAINT AS BASIS FOR ANNOTATION OF NOTICE. The amended
complaint in the instant case, not being "an action affecting the title or the right of possession of real
property" (Sec. 24, Rule 7, Rules of Court), nor one "to recover possession of real estate, or to quiet title
thereto, or to remove clouds upon the title thereof, or for partition or other proceeding of any kind in court
affecting the title to real estate or the use or occupation thereof or the buildings thereon" (Sec. 79, Land
Registration Act), can not be the basis for annotating a notice of lis pendens on the title of the defendants.

DECISION

BARRERA, J.:

The only issue, which is of law, involved in this appeal, is the legality of the annotation of lis
pendens predicated on the complaint of respondent-appellant Pastor B. Constantino.

On June 25, 1953, respondent Pastor B. Constantino filed with the Court of First Instance of Rizal an
amended complaint (docketed as Civil Case No. 2138) against petitioners Lucina Biglangawa and
Lucia Espiritu, as follows:

AMENDED COMPLAINT
Plaintiff, by his undersigned counsel, alleges:

As First Cause of Action

1. Plaintiff and defendants are residents of Malabon, Rizal.

2. Defendants Lucina Biglangawa and Lucia Espiritu were or have been the owners of a
parcel of land in Marulas, Polo, Bulacan, more particularly described in "Transfer Certificate
of Title No. 5459 as follows: . . . .

3. On January 14, 1950, defendant Lucina Biglangawa, with the consent of her co-owner
Lucia Espiritu, appointed plaintiff their exclusive agent to develop the area described in
paragraph 2 into subdivision lots and to sell them to prospective homeowners; and as
compensation for his services, defendants promised to pay him a commission of 20% on the
gross sales and a fee of 10% on the collections made by him payable from "the first
collections received from the purchasers in respect to each lot sold . . . .

4. The power thus conferred by Lucina Biglangawa to plaintiff was confirmed in a notarial
document executed on March 3, 1950 by her and her co-defendants, who are husband and
wife, with the added stipulation that they could not revoke the contract of agency without
plaintiff's consent. . . .

5. Advancing all the expenses incurred in the development and administration of the project,
plaintiff caused the subdivision of said property into 203 lots and advertised them for sale
under the name "BBB MARULAS SUBDIVISION No. 3'; and up to October, 1951 plaintiff had
disposed of more than half of the entire area at P10.00 and P12.00 per square meter.

6. Although under the express terms of the contract of January 14, 1950 (Exhibit "A") the
commissions of plaintiff for making 37 3 those sales and his collection fees of 10% were to
be paid to him "from the first collections received from the purchasers in respect to each lot
sold", defendants, in contravention of that agreement, oppressively and in bad faith adopted
the practice of paying the latter's compensation out of 30% only of the gross monthly
collections from the sales, such that, as of October 15, 1951 when a liquidation was made,
there was still a balance on plaintiff's commissions in the amount of P48,899.20.

7. Later, in October, 1951, defendants wantonly, oppressively, and in evident bad faith
terminated the agency contracts Exhibits "A" and "B" depriving plaintiff of his rights to
commission fees of 20% on the sale of the remaining lots and 10% fee on the cash receipts
of the business every month.

8. Defendants nevertheless, expressly acknowledge their liability to plaintiff in the sum of

P48,899.20 for unpaid commissions as of October 16, 1951; and they promised to pay
indebtedness to plaintiff in successive monthly installments beginning November, 1951, as
follows: . . . .

9. Plaintiff consented to the settlement of the balance of his commission in monthly

installments after the termination of the agency in consideration of defendant's promises that
they would compute and faithfully pay the percentage of monthly installments on the basis of
their monthly gross collections from the operation of "BBB MARULAS SUBDIVISION No. 3",
as stipulated in Exhibit "C", and shall follow that procedure until their total indebtedness is
fully settled.
 10. From October 16, 1951 to March 31, 1953, defendants made a total monthly gross
collection of around P52,849.63 from the business, and out of these receipts plaintiff was
entitled to minimum payments of P8,711.13 pursuant to Exhibit "C"; but again defendant
wantonly, fraudulently, oppressively, and in evident bad faith paid plaintiff only the sum of
P6,204.13 or P2,507.00 short of what plaintiff should have received during the period.

11. Upon gaining information of the breach of the contract by defendants about the end of
March, 1953 and verifying the existence of such breach, plaintiff immediately demanded of
defendants the difference between the amounts due to him under the contract Exhibit "C"
and those actually paid by them, but defendants wantonly, fraudulently, and without cause
refused to make necessary settlement.

xxx xxx xxx

13. The balance of plaintiff's commissions remaining unpaid as of the filing of this complaint,
excluding the underpayments from November, 1951 to March, 1953, is P39,534.62.

As to Second Cause of Action

1. Plaintiff reproduces paragraphs 1 to 13 of the first cause 3n 3 of action.

2. For defendants' gross and evident bad faith in refusing plaintiff's valid, just, and
demandable claim against them, plaintiff was forced to prosecute the present case against
them, and became liable for attorney's fees in the sum of P7,000.00.

WHEREFORE, plaintiff prays for judgment

(a) Ordering defendants to pay plaintiff the sum of P2,507.00 which is defendants'
underpayments from November, 1951 to March, 1953, with interest at the legal rate;

(b) Declaring defendants to have lost the right to pay plaintiff in monthly installments and
requiring them to pay plaintiff at once the balance of his commissions and fees in the amount
of P89,543.62, with interest at the legal rate from the filing of this complaint;

(c) Ordering defendants to pay plaintiff moral damages in the sum of P40,000.00, exemplary
damages in the sum of P30,000.00, and attorney's fees in the sum of P7,000.00.

(d) Granting costs and such other reliefs as this court may deem just and equitable in the
premises.

To this complaint, petitioners filed their answer on August 25, 1953.

While said Civil Case No. 2138 was pending in said court, respondent, on April 5, 1955, filed with the
Office of the Register of deeds of Bulacan, the following notice of lis pendens:

Please make of record the pendency of a complaint involving, among other things, rights and
interests and claims for services and damages on the following described property, which
has been converted into a subdivision as shown by the plan Psd-29964, situated in Marulas,
Polo, Bulacan, to wit: (Technical description of the real property mentioned in the complaint)
which property is more particularly described in Transfer Certificate of Title No. 5459 of the
 Register of Deeds of Bulacan. A copy of the complaint and amended complaint, marked
Appendices A and A-1, are attached hereto and made integral part hereof.

On April 6, 1955, the Register of Deeds of Bulacan requested petitioners to surrender their owner's
copy of Transfer Certificate of Title No. 5459 for annotation of said notice of lis pendens, but
petitioners refused to do so. However, on May 17, 1955, when petitioners registered the absolute
deed of sale in favor of Carmelita L. Santos covering some of the lots of the subdivision, said official
without their knowledge and consent, made the annotation of the lis pendens on petitioners'
aforementioned title, as well as on the title issued to Carmelita L. Santos.

Petitioners, therefore, on June 11, 1955, filed with the Court of First Instance of Bulacan, a petition
praying for the cancellation of said notice of lis pendens. To this petition, respondent filed his answer
on June 17, 1955, to which, petitioners filed their reply on June 23, 1955. On June 24, 1955,
respondent filed a rejoinder to said reply.

Acting on said petition, the court issued an order on July 19, 1955, which reads:

"ORDER

Upon consideration of the petition filed by Lucina Biglangawa and Lucia Espiritu dated June
11, 1955 and the answer thereto, and it appearing from the amended complaint of Pastor B.
Constantino, plaintiff in Civil Case No. 2138 of the Court of First Instance of Rizal
(respondent herein) that said action is purely and clearly a claim for money judgment which
does not affect the title or the right of possession of real property covered by Transfer
Certificate of Title No. T-5459 and it being a settled rule in this jurisdiction that a notice of lis
pendensmay be invoked as a remedy in cases where the very lis mota of the pending
litigation concerns directly the possession of, or title to a specific real property;

Wherefore, as prayed for, the Register of Deeds of Bulacan is hereby ordered to cancel
Entry No. 28176 for lis pendens on Transfer Certificate of Title No. T-5459 of the petitioners
as well as the annotation of the same on Transfer Certificate of Title No. T-014480 of
Carmelita L. Santos.

So ordered.

Respondent, on August 8, 1955, filed a motion for reconsideration of the above order, but the same
was denied by the court on September 30, 1955. Hence, this appeal.

Respondent-appellant claims that the lower court erred in holding that his pending action (Civil Case
No. 2138) in the Court of First Instance of Rizal, is purely a claim for money judgment which does
not affect the title or right of possession of petitioners' real property, covered by Transfer Certificate
of Title No. T-5459. Instead, he contends that the agreement whereby he was to be paid a
commission of 20% on the gross sales and a fee of 10% on the collections made by him, converted
him into a partner and gave him 1/5 participation in the property itself. Hence, he argues, his suit is
one for the settlement and adjustment of partnership interest or a partition action or proceeding.

Appellant's theory is neither supported by the allegations of his complaint, nor borne out by the
purpose of his action. There is no word or expression in the various paragraphs of his amended
complaint that suggests any idea of partnership. On the contrary, appellant expressly averred that
petitioners "appointed plaintiff (appellant) their exclusive agent to develop the area described in
paragraph 2 into subdivision lots and to sell them to prospective homeowners; and
as compensation for his services defendants (appellees) promised to pay him a commission of 20%
on the gross sales and a fee of 10% on the collections made by him. . . ." (See paragraph 3 of
amended complaint.) Categorically, appellant referred to himself as an agent, not a partner; entitled
to compensation, not participation, in the form of commission or fee, not a share.

It is true that in paragraph 5 of the amended complaint (supra) appellant claims to have
made advances for the expenses incurred in the development and administration of the property.
But again he never considered these as contributions to the business as to make him a partner;
otherwise, he would have so stated it in his complaint. In fact, after a liquidation of these advances
and the commissions due to appellant at the time of the termination of the agency, the whole
balance was considered as appellees' indebtedness which appellant consented to be settled in
monthly installments (see paragraphs 6, 8, and 9 of the amended complaint).

While it is true again that the prayer in a complaint does not determine the nature of the action, it not
being a material part of the cause of action, still it logically indicates, as it does in this case, the
purpose of the actor. The four paragraphs of the prayer seeks the recovery of fixed amounts
of underpayments and commissions and fees; not liquidation or accounting or partition as now
insisted upon by appellant.

Appellants's amended complaint, not being "an action affecting the title or the right of possession of
real property",1nor one "to recover possession of real estate, or to quiet title thereto, or to remove
clouds upon the title thereof, or for partition or other proceeding of any kind in court affecting the title
to real estate or the use or occupation thereof or the buildings thereon . . .",2 the same can not be the
basis for annotating a notice of lis pendens on the title of the petitioners-appellees.

Having reached the above conclusion, this Court finds it unnecessary to decide the incidental
matters raised by the parties during the pendency of this appeal.

Wherefore, finding no error in the appealed order of the court a quo, the same is hereby affirmed,
with costs against the respondent-appellant. So ordered.

G.R. No. 84197 July 28, 1989

PIONEER INSURANCE & SURETY CORPORATION, petitioner,

vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner,

vs.
COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER
MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES
and CONSTANCIO MAGLANA, respondents.

SYLLABUS

1. CIVIL LAW; DAMAGES; INSURANCE; AN INSURER IS SURROGATED TO THE RIGHTS OF THE INSURED
AGAINST THE WRONGDOER UPON RECEIPT OF THE INDEMNITY. The petitioners argument that the
respondents had no interest in the reinsurance contract as this is strictly between the petitioner as insured
and the reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance Code has no
basis. Under the provisions of Article 2207 of the Civil Code if a property is insured and the owner receives
the indemnity from the insurer, the insurer is deemed subrogated to the rights of the insured against the
wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrieved party is
the one entitled to recover the deficiency. Evidently, under this legal provision, the real party in interest with
regard to the portion of the indemnity paid is the insurer and not the insured. (PAL v. Heald Lumber Co.,
101 Phil. 1031; Manila Mahogany Manufacturing Corporation v. Court of Appeals, 154 SCRA 650 [1987]

2. REMEDIAL LAW; ACTIONS; PARTIES; ONLY THE REISURER OF THE INSURER ACTING AS AN ATTORNEY-
IN-FACT OF THE REINSURER CAN COLLECT AGAINST THE INDEMNITY AGREEMENT. The appellate court
did not commit a reversible error in dismissing the petitioners complaint as against the respondents for the
reason that the petitioner was not the real party in interest in the complaint and, therefore, has no cause of
action against the respondents.

3. ID.; EVIDENCE; FINDINGS OF FACT OF THE TRIAL COURT UPHELD ON APPEAL. We find the trial
courts findings on the matter replete with evidence to substantiate its finding that the counter-indemnitors
are not liable to the petitioner. Pioneer, having foreclosed the chattel mortgage on the planes and spare
parts, no longer has any further action against the defendants as indemnitors to recover any unpaid balance
of the price. The indemnity agreement was ipso jure extinguished upon the foreclosure of the chattel
mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the right of Pioneer
should they make payments to the latter. (Articles 2067 and 2080, New Civil Code)

4. CIVIL LAW; CONTRACTS; A DE FACTO PARTNERSHIP IS CREATED WHERE PERSONS ASSOCIATE

THEMSELVES BUT FAILED TO FORM A CORPORATION. Where persons associate themselves together
under articles to purchase property to carry on a business, and their organization is so defective as to come
short of creating a corporation within the statute, they become in legal effect partners inter se, and their
rights as members of the company to the property acquired by the company will be recognized (Smith v.
Schoodoc Pond Packing Co., 84 A 268, 109 Me. 555; Whipple v. Parker, 29 Mich. 369).

5. ID.; ID.; ID.; DOCTRINE NOT APPLICABLE WHERE THERE WAS REALLY NO INVENTION TO FORM A
CORPORATION; PARTIES NEED NOT SHARE IN LOSSES; CASE AT BAR. The petitioner never had the
intention to form a corporation with the respondents despite his representations to them. This gives
credence to the cross-claims of the respondents to the effect that they were induced and lured by the
petitioner to make contributions to a proposed corporation which was never formed because the petitioner
reneged on their agreement. Applying the principles of law earlier cited to the facts of the case, necessarily,
no de facto partnership was created among the parties which would entitle the petitioner to a
reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner
was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the
airplanes and spare parts.

DECISION

GUTIERREZ, JR., J.:

The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R.
CV No. 66195 which modified the decision of the then Court of First Instance of Manila in Civil Case
No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants
(respondents in G.R. No. 84197) was dismissed but in all other respects the trial court's decision
was affirmed.

The dispositive portion of the trial court's decision reads as follows:

WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim

to pay plaintiff the amount of P311,056.02, with interest at the rate of 12% per annum
compounded monthly; plus 15% of the amount awarded to plaintiff as attorney's fees
 from July 2,1966, until full payment is made; plus P70,000.00 moral and exemplary
damages.

It is found in the records that the cross party plaintiffs incurred additional
miscellaneous expenses aside from Pl51,000.00,,making a total of P184,878.74.
Defendant Jacob S. Lim is further required to pay cross party plaintiff, Bormaheco,
the Cervanteses one-half and Maglana the other half, the amount of Pl84,878.74 with
interest from the filing of the cross-complaints until the amount is fully paid; plus
moral and exemplary damages in the amount of P184,878.84 with interest from the
filing of the cross-complaints until the amount is fully paid; plus moral and exemplary
damages in the amount of P50,000.00 for each of the two Cervanteses.

Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses,

and another P20,000.00 to Constancio B. Maglana as attorney's fees.

xxx xxx xxx

WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against

defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is dismissed.
Instead, plaintiff is required to indemnify the defendants Bormaheco and the
Cervanteses the amount of P20,000.00 as attorney's fees and the amount of
P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid.

Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of

P20,000.00 as attorney's fees and costs.

No moral or exemplary damages is awarded against plaintiff for this action was filed
in good faith. The fact that the properties of the Bormaheco and the Cervanteses
were attached and that they were required to file a counterbond in order to dissolve
the attachment, is not an act of bad faith. When a man tries to protect his rights, he
should not be saddled with moral or exemplary damages. Furthermore, the rights
exercised were provided for in the Rules of Court, and it was the court that ordered it,
in the exercise of its discretion.

No damage is decided against Malayan Insurance Company, Inc., the third-party

defendant, for it only secured the attachment prayed for by the plaintiff Pioneer. If an
insurance company would be liable for damages in performing an act which is clearly
within its power and which is the reason for its being, then nobody would engage in
the insurance business. No further claim or counter-claim for or against anybody is
declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-
operator of Southern Air Lines (SAL) a single proprietorship.

On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and
executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and
one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to be paid in
installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while
the other aircraft, arrived in Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197)
as surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its
principal, Lim, for the balance price of the aircrafts and spare parts.

It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and
Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions)
contributed some funds used in the purchase of the above aircrafts and spare parts. The funds were
supposed to be their contributions to a new corporation proposed by Lim to expand his airline
business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of
Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the
Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against
any/all damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind
and nature which Pioneer may incur in consequence of having become surety upon the bond/note
and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts
of money which it or its representatives should or may pay or cause to be paid or become liable to
pay on them of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of
Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former. It
was stipulated therein that Lim transfer and convey to the surety the two aircrafts. The deed (Exhibit
D) was duly registered with the Office of the Register of Deeds of the City of Manila and with the
Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law
(Republic Act No. 776), respectively.

Lim defaulted on his subsequent installment payments prompting JDA to request payments from the
surety. Pioneer paid a total sum of P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the
Sheriff of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that
they are co-owners of the aircrafts,

On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of
preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.

In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging
that they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for
damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim
for the purchase of the aircrafts in question.

After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed
Pioneer's complaint against all other defendants.

As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint
against all the defendants was dismissed. In all other respects the trial court's decision was affirmed.

We first resolve G.R. No. 84197.

Petitioner Pioneer Insurance and Surety Corporation avers that:

 RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT
PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE
REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT
REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN
PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo - G.
R. No. 84197, p. 10)

The petitioner questions the following findings of the appellate court:

We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had

reinsured its risk of liability under the surety bond in favor of JDA and subsequently
collected the proceeds of such reinsurance in the sum of P295,000.00. Defendants'
alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffs instant action
for the recovery of the amount of P298,666.28 from defendants will no longer
prosper. Plaintiff Pioneer is not the real party in interest to institute the instant action
as it does not stand to be benefited or injured by the judgment.

Plaintiff Pioneer's contention that it is representing the reinsurer to recover the

amount from defendants, hence, it instituted the action is utterly devoid of merit.
Plaintiff did not even present any evidence that it is the attorney-in-fact of the
reinsurance company, authorized to institute an action for and in behalf of the latter.
To qualify a person to be a real party in interest in whose name an action must be
prosecuted, he must appear to be the present real owner of the right sought to be
enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has
been held that the real party in interest is the party who would be benefited or injured
by the judgment or the party entitled to the avails of the suit (Salonga v. Warner
Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a present
substantial interest as distinguished from a mere expectancy or a future, contingent,
subordinate or consequential interest (Garcia v. David, 67 Phil. 27; Oglleaby v.
Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW
2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).

Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real
party in interest as it has already been paid by the reinsurer the sum of P295,000.00
the bulk of defendants' alleged obligation to Pioneer.

In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from
its reinsurer, the former was able to foreclose extra-judicially one of the subject
airplanes and its spare engine, realizing the total amount of P37,050.00 from the sale
of the mortgaged chattels. Adding the sum of P37,050.00, to the proceeds of the
reinsurance amounting to P295,000.00, it is patent that plaintiff has been overpaid in
the amount of P33,383.72 considering that the total amount it had paid to JDA totals
to only P298,666.28. To allow plaintiff Pioneer to recover from defendants the
amount in excess of P298,666.28 would be tantamount to unjust enrichment as it has
already been paid by the reinsurance company of the amount plaintiff has paid to
JDA as surety of defendant Lim vis-a-vis defendant Lim's liability to JDA. Well settled
is the rule that no person should unjustly enrich himself at the expense of another
(Article 22, New Civil Code). (Rollo-84197, pp. 24-25).

The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner
was paid by its reinsurer in the aforesaid amount, as this matter has never been raised by any of the
parties herein both in their answers in the court below and in their respective briefs with respondent
court; (Rollo, p. 11) (2) even assuming hypothetically that it was paid by its reinsurer, still none of the
respondents had any interest in the matter since the reinsurance is strictly between the petitioner
and the re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to recover from respondents Bormaheco and Maglana; and (4)
the principle of unjust enrichment is not applicable considering that whatever amount he would
recover from the co-indemnitor will be paid to the reinsurer.

The records belie the petitioner's contention that the issue on the reinsurance money was never
raised by the parties.

A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:

xxx xxx xxx

1. Has Pioneer a cause of action against defendants with respect to so much of its
obligations to JDA as has been paid with reinsurance money?

2. If the answer to the preceding question is in the negative, has Pioneer still any
claim against defendants, considering the amount it has realized from the sale of the
mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No. 84157).

In resolving these issues, the trial court made the following findings:

It appearing that Pioneer reinsured its risk of liability under the surety bond it had
executed in favor of JDA, collected the proceeds of such reinsurance in the sum of
P295,000, and paid with the said amount the bulk of its alleged liability to JDA under
the said surety bond, it is plain that on this score it no longer has any right to collect
to the extent of the said amount.

On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing
defendants for the amount paid to it by the reinsurers, notwithstanding that the cause
of action pertains to the latter, Pioneer says: The reinsurers opted instead that the
Pioneer Insurance & Surety Corporation shall pursue alone the case.. . . . Pioneer
Insurance & Surety Corporation is representing the reinsurers to recover the amount.'
In other words, insofar as the amount paid to it by the reinsurers Pioneer is suing
defendants as their attorney-in-fact.

But in the first place, there is not the slightest indication in the complaint that Pioneer
is suing as attorney-in- fact of the reinsurers for any amount. Lastly, and most
important of all, Pioneer has no right to institute and maintain in its own name an
action for the benefit of the reinsurers. It is well-settled that an action brought by an
attorney-in-fact in his own name instead of that of the principal will not prosper, and
this is so even where the name of the principal is disclosed in the complaint.

Section 2 of Rule 3 of the Old Rules of Court provides that 'Every

action must be prosecuted in the name of the real party in interest.'
This provision is mandatory. The real party in interest is the party who
would be benefitted or injured by the judgment or is the party entitled
to the avails of the suit.
 This Court has held in various cases that an attorney-in-fact is not a
real party in interest, that there is no law permitting an action to be
brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18
Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12;
Filipinos Industrial Corporation v. San Diego G.R. No. L- 22347,1968,
23 SCRA 706, 710-714.

The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has
collected P295,000.00 from the reinsurers, the uninsured portion of what it paid to
JDA is the difference between the two amounts, or P3,666.28. This is the amount for
which Pioneer may sue defendants, assuming that the indemnity agreement is still
valid and effective. But since the amount realized from the sale of the mortgaged
chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or
a total of P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has
no more claim against defendants. (Record on Appeal, pp. 360-363).

The payment to the petitioner made by the reinsurers was not disputed in the appellate court.
Considering this admitted payment, the only issue that cropped up was the effect of payment made
by the reinsurers to the petitioner. Therefore, the petitioner's argument that the respondents had no
interest in the reinsurance contract as this is strictly between the petitioner as insured and the
reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance Code has no
basis.

In general a reinsurer, on payment of a loss acquires the same rights by subrogation

as are acquired in similar cases where the original insurer pays a loss (Universal Ins.
Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).

The rules of practice in actions on original insurance policies are in general

applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania
Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).

Hence the applicable law is Article 2207 of the new Civil Code, to wit:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co.
(101 Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing
Corporation v. Court of Appeals (154 SCRA 650 [1987]):

Note that if a property is insured and the owner receives the indemnity from the
insurer, it is provided in said article that the insurer is deemed subrogated to the
rights of the insured against the wrongdoer and if the amount paid by the insurer
does not fully cover the loss, then the aggrieved party is the one entitled to recover
the deficiency. Evidently, under this legal provision, the real party in interest with
regard to the portion of the indemnity paid is the insurer and not the insured.
(Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the
reinsurer.

Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's
complaint as against the respondents for the reason that the petitioner was not the real party in
interest in the complaint and, therefore, has no cause of action against the respondents.

Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not
have been dismissed on the premise that the evidence on record shows that it is entitled to recover
from the counter indemnitors. It does not, however, cite any grounds except its allegation that
respondent "Maglanas defense and evidence are certainly incredible" (p. 12, Rollo) to back up its
contention.

On the other hand, we find the trial court's findings on the matter replete with evidence to
substantiate its finding that the counter-indemnitors are not liable to the petitioner. The trial court
stated:

Apart from the foregoing proposition, the indemnity agreement ceased to be valid
and effective after the execution of the chattel mortgage.

Testimonies of defendants Francisco Cervantes and Modesto Cervantes.

Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved,
agreed to issue the bond provided that the same would be mortgaged to it, but this
was not possible because the planes were still in Japan and could not be mortgaged
here in the Philippines. As soon as the aircrafts were brought to the Philippines, they
would be mortgaged to Pioneer Insurance to cover the bond, and this indemnity
agreement would be cancelled.

The following is averred under oath by Pioneer in the original complaint:

The various conflicting claims over the mortgaged properties have

impaired and rendered insufficient the security under the chattel
mortgage and there is thus no other sufficient security for the claim
sought to be enforced by this action.

This is judicial admission and aside from the chattel mortgage there is no other
security for the claim sought to be enforced by this action, which necessarily means
that the indemnity agreement had ceased to have any force and effect at the time
this action was instituted. Sec 2, Rule 129, Revised Rules of Court.

Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on
the planes and spare parts, no longer has any further action against the defendants
as indemnitors to recover any unpaid balance of the price. The indemnity agreement
was ipso jure extinguished upon the foreclosure of the chattel mortgage. These
defendants, as indemnitors, would be entitled to be subrogated to the right of Pioneer
should they make payments to the latter. Articles 2067 and 2080 of the New Civil
Code of the Philippines.

Independently of the preceding proposition Pioneer's election of the remedy of

foreclosure precludes any further action to recover any unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight and last installments to JDA
and Pioneer as surety having made of the payments to JDA, the alternative remedies
open to Pioneer were as provided in Article 1484 of the New Civil Code, known as
the Recto Law.

Pioneer exercised the remedy of foreclosure of the chattel mortgage both by

extrajudicial foreclosure and the instant suit. Such being the case, as provided by the
aforementioned provisions, Pioneer shall have no further action against the
purchaser to recover any unpaid balance and any agreement to the contrary is void.'
Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23
SCRA 791, 795-6.

The operation of the foregoing provision cannot be escaped from through the
contention that Pioneer is not the vendor but JDA. The reason is that Pioneer is
actually exercising the rights of JDA as vendor, having subrogated it in such rights.
Nor may the application of the provision be validly opposed on the ground that these
defendants and defendant Maglana are not the vendee but indemnitors. Pascual, et
al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.

The restructuring of the obligations of SAL or Lim, thru the change of their maturity
dates discharged these defendants from any liability as alleged indemnitors. The
change of the maturity dates of the obligations of Lim, or SAL extinguish the original
obligations thru novations thus discharging the indemnitors.

The principal hereof shall be paid in eight equal successive three

months interval installments, the first of which shall be due and
payable 25 August 1965, the remainder of which ... shall be due and
payable on the 26th day x x x of each succeeding three months and
the last of which shall be due and payable 26th May 1967.

However, at the trial of this case, Pioneer produced a memorandum executed by

SAL or Lim and JDA, modifying the maturity dates of the obligations, as follows:

The principal hereof shall be paid in eight equal successive three

month interval installments the first of which shall be due and payable
4 September 1965, the remainder of which ... shall be due and
payable on the 4th day ... of each succeeding months and the last of
which shall be due and payable 4th June 1967.

Not only that, Pioneer also produced eight purported promissory notes bearing
maturity dates different from that fixed in the aforesaid memorandum; the due date of
the first installment appears as October 15, 1965, and those of the rest of the
installments, the 15th of each succeeding three months, that of the last installment
being July 15, 1967.

These restructuring of the obligations with regard to their maturity dates, effected
twice, were done without the knowledge, much less, would have it believed that
these defendants Maglana (sic). Pioneer's official Numeriano Carbonel would have it
believed that these defendants and defendant Maglana knew of and consented to
the modification of the obligations. But if that were so, there would have been the
corresponding documents in the form of a written notice to as well as written
conformity of these defendants, and there are no such document. The consequence
 of this was the extinguishment of the obligations and of the surety bond secured by
the indemnity agreement which was thereby also extinguished. Applicable by
analogy are the rulings of the Supreme Court in the case of Kabankalan Sugar Co. v.
Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45
Phil. 532, 538.

Art. 2079. An extension granted to the debtor by the creditor without

the consent of the guarantor extinguishes the guaranty The mere
failure on the part of the creditor to demand payment after the debt
has become due does not of itself constitute any extension time
referred to herein, (New Civil Code).'

Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co.,
Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.

Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the
same. Consequently, Pioneer has no more cause of action to recover from these
defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an
express stipulation in the surety bond, the failure of JDA to present its claim to
Pioneer within ten days from default of Lim or SAL on every installment, released
Pioneer from liability from the claim.

Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru
the indemnity.

Art. 1318. Payment by a solidary debtor shall not entitle him to

reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or became illegal.

These defendants are entitled to recover damages and attorney's fees from Pioneer
and its surety by reason of the filing of the instant case against them and the
attachment and garnishment of their properties. The instant action is clearly
unfounded insofar as plaintiff drags these defendants and defendant Maglana.'
(Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).

We find no cogent reason to reverse or modify these findings.

Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.

We now discuss the merits of G.R. No. 84157.

Petitioner Jacob S. Lim poses the following issues:

l. What legal rules govern the relationship among co-investors whose agreement was
to do business through the corporate vehicle but who failed to incorporate the entity
in which they had chosen to invest? How are the losses to be treated in situations
where their contributions to the intended 'corporation' were invested not through the
corporate form? This Petition presents these fundamental questions which we
believe were resolved erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the failure of respondents
Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that as a consequence of such relationship all must
share in the losses and/or gains of the venture in proportion to their contribution. The petitioner,
therefore, questions the appellate court's findings ordering him to reimburse certain amounts given
by the respondents to the petitioner as their contributions to the intended corporation, to wit:

However, defendant Lim should be held liable to pay his co-defendants' cross-claims
in the total amount of P184,878.74 as correctly found by the trial court, with interest
from the filing of the cross-complaints until the amount is fully paid. Defendant Lim
should pay one-half of the said amount to Bormaheco and the Cervanteses and the
other one-half to defendant Maglana. It is established in the records that defendant
Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in the ownership of the subject
airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred
additional expenses, hence, the total sum of P 184,878.74.

We first state the principles.

While it has been held that as between themselves the rights of the stockholders in a
defectively incorporated association should be governed by the supposed charter
and the laws of the state relating thereto and not by the rules governing partners
(Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is
ordinarily held that persons who attempt, but fail, to form a corporation and who carry
on business under the corporate name occupy the position of partners inter se
(Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where
persons associate themselves together under articles to purchase property to carry
on a business, and their organization is so defective as to come short of creating a
corporation within the statute, they become in legal effect partners inter se, and their
rights as members of the company to the property acquired by the company will be
recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple
v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a
corporation for the development of land for irrigation purposes, and each conveyed
land to the corporation, and two of them contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and no stock was ever issued in the
corporation, it was treated as a trustee for the associates in an action between them
for an accounting, and its capital stock was treated as partnership assets, sold, and
the proceeds distributed among them in proportion to the value of the property
contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation does
not necessarily exist, for ordinarily persons cannot be made to assume the relation of
partners, as between themselves, when their purpose is that no partnership shall
exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29
L.Ed. 688), and it should be implied only when necessary to do justice between the
parties; thus, one who takes no part except to subscribe for stock in a proposed
corporation which is never legally formed does not become a partner with other
subscribers who engage in business under the name of the pretended corporation,
so as to be liable as such in an action for settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between certain
stockholders and other stockholders, who were also directors, will not be implied in
the absence of an agreement, so as to make the former liable to contribute for
payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79
Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to
appear during the pretrial despite notification. In his answer, the petitioner denied having received
any amount from respondents Bormaheco, the Cervanteses and Maglana. The trial court and the
appellate court, however, found through Exhibit 58, that the petitioner received the amount of
P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in the
ownership of the subject airplanes and spare parts. The record shows that defendant Maglana gave
P75,000.00 to petitioner Jacob Lim thru the Cervanteses.

It is therefore clear that the petitioner never had the intention to form a corporation with the
respondents despite his representations to them. This gives credence to the cross-claims of the
respondents to the effect that they were induced and lured by the petitioner to make contributions to
a proposed corporation which was never formed because the petitioner reneged on their agreement.
Maglana alleged in his cross-claim:

... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and
Maglana to expand his airline business. Lim was to procure two DC-3's from Japan
and secure the necessary certificates of public convenience and necessity as well as
the required permits for the operation thereof. Maglana sometime in May 1965, gave
Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim
acknowledged receipt thereof. Cervantes, likewise, delivered his share of the
undertaking. Lim in an undertaking sometime on or about August 9,1965, promised
to incorporate his airline in accordance with their agreement and proceeded to
acquire the planes on his own account. Since then up to the filing of this answer, Lim
has refused, failed and still refuses to set up the corporation or return the money of
Maglana. (Record on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-
claim and third party complaint:

Sometime in April 1965, defendant Lim lured and induced the answering defendants
to purchase two airplanes and spare parts from Japan which the latter considered as
their lawful contribution and participation in the proposed corporation to be known as
SAL. Arrangements and negotiations were undertaken by defendant Lim. Down
payments were advanced by defendants Bormaheco and the Cervanteses and
Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed and executed the alleged
chattel mortgage and surety bond agreement in his personal capacity as the alleged
proprietor of the SAL. The answering defendants learned for the first time of this
trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff
chattel mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to
file an adverse claim in the form of third party claim. Notwithstanding repeated oral
demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to
surrender the possession of the two planes and their accessories and or return the
amount advanced by the former amounting to an aggregate sum of P 178,997.14 as
evidenced by a statement of accounts, the latter ignored, omitted and refused to
comply with them. (Record on Appeal, pp. 341-342).

Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto
partnership was created among the parties which would entitle the petitioner to a reimbursement of
the supposed losses of the proposed corporation. The record shows that the petitioner was acting on
his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes
and spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of
Appeals is AFFIRMED.

SO ORDERED.

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

ISABELO MORAN, JR., petitioner,

vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.: +.wph! 1

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

As found by the respondent Court of Appeals, the undisputed facts indicate that: t.hqw

xxx xxx xxx

... on February 22, 1971 Pecson and Moran entered into an agreement whereby both
would contribute P15,000 each for the purpose of printing 95,000 posters (featuring
the delegates to the 1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a commission of P l,000 a month
starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a
liquidation of the accounts in the distribution and printing of the 95,000 posters would
be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that
only a few posters were printed; that on or about May 28, 1971, Moran executed in
favor of Pecson a promissory note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on
or before June 30, 1971), the whole sum becoming due upon default in the payment
of the first installment on the date due, complete with the costs of collection.

Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery
of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00, payment of his share in the
profits that the partnership would have earned, and, payment of unpaid commission; (2) on the
alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages
and attorney's fees.

After the trial, the Court of First Instance held that: t.hqw

From the evidence presented it is clear in the mind of the court that by virtue of the
partnership agreement entered into by the parties-plaintiff and defendant the plaintiff
did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the
Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters, the
defendant was able to print 2,000 copies only authorized of which, however, were
 sold at P5.00 each. Nothing more was done after this and it can be said that the
venture did not really get off the ground. On the other hand, the plaintiff failed to give
his full contribution of P15,000.00. Thus, each party is entitled to rescind the contract
which right is implied in reciprocal obligations under Article 1385 of the Civil Code
whereunder 'rescission creates the obligation to return the things which were the
object of the contract ...

WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C.

Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00, with
interest at the legal rate from the filing of the complaint on June 19, 1972, and the
costs of the suit.

For insufficiency of evidence, the counterclaim is hereby dismissed.

From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise
rendered a decision against the petitioner. The dispositive portion of the decision reads: t.hqw

PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a
new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to
pay plaintiff- appellant Mariano E. Pecson:

(a) Forty-seven thousand five hundred (P47,500) (the amount that could have
accrued to Pecson under their agreement);

(b) Eight thousand (P8,000), (the commission for eight months);

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's
Project);

(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the
time payment is made)

The petitioner contends that the respondent Court of Appeals decided questions of substance in a
way not in accord with law and with Supreme Court decisions when it committed the following errors:

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.

II

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S
INVESTMENT.

III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.

IV

ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT,
THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY
RECEIVED BY PECSON FROM MORAN.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE

PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.

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

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

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

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

2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;

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

4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a

month starting April 15, 1971 up to December 15, 1971;

5. That upon the termination of the partnership on December 15, 1971, a liquidation
of the account pertaining to the distribution and printing of the said 95,000 posters
shall be made.

The petitioner on the other hand admitted in his answer the existence of the partnership.

The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786,
Civil Code) and for interests and damages from the time he should have complied with his obligation
(Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil
Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the
appellee because the appellant therein was remiss in his obligations as a partner and as prime
contractor of the construction projects in question. This case was decided on a particular set of facts.
We awarded compensatory damages in the Uy case because there was a finding that the
constructing business is a profitable one and that the UP construction company derived some profits
from its contractors in the construction of roads and bridges despite its deficient capital." Besides,
there was evidence to show that the partnership made some profits during the periods from July 2,
1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two
government contracts worth P2,327,335.76 were not speculative. In the instant case, there is no
evidence whatsoever that the partnership between the petitioner and the private respondent would
have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no
basis for the award of speculative damages in favor of the private respondent.

Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much
more than what was expected of him. In this case, however, there was mutual breach. Private
respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further
failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only
2,000 copies.

Article 1797 of the Civil Code provides: t.hqw

The losses and profits shall be distributed in conformity with the agreement. If only
the share of each partner in the profits has been agreed upon, the share of each in
the losses shall be in the same proportion.

Being a contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership. And even with an assurance made by one of the partners that
they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a
right to recover the highly speculative profits. It is a rare business venture guaranteed to give 100%
profits. In this case, on an investment of P15,000.00, the respondent was supposed to earn a
guaranteed P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters costing
P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature of expected profits is
obvious. We have to take various factors into account. The failure of the Commission on Elections to
proclaim all the 320 candidates of the Constitutional Convention on time was a major factor. The
petitioner undesirable his best business judgment and felt that it would be a losing venture to go on
with the printing of the agreed 95,000 copies of the posters. Hidden risks in any business venture
have to be considered.

It does not follow however that the private respondent is not entitled to recover any amount from the
petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The
latter used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total
printing cost of P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each.
The gross income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the
gross income of P10,000.00 and with no evidence on the cost of distribution, the net profits amount
to only P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and the
private respondent. And since only P4,000.00 was undesirable by the petitioner in printing the 2,000
copies, the remaining P6,000.00 should therefore be returned to the private respondent.

Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's
supposed commission has no justifiable basis in law.

Again, we agree with the petitioner.

The partnership agreement stipulated that the petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant profits. The parties could not
have intended the giving of a commission inspite of loss or failure of the venture. Since the venture
was a failure, the private respondent is not entitled to the P8,000.00 commission.

Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in
holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of
investment in a magazine venture.

In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice
of the Veterans" magazine venture, the respondent court ruled that: t.hqw

xxx xxx xxx

... Moran admittedly signed the promissory note of P20,000 in favor of Pecson.
Moran does not question the due execution of said note. Must Moran therefore pay
the amount of P20,000? The evidence indicates that the P20,000 was assigned by
Moran to cover the following: t.hqw

(a) P 7,000 the amount of the PNB check given by

Pecson to Moran representing Pecson's investment in
Moran's other project (the publication and printing of
the 'Voice of the Veterans');

(b) P10,000 to cover the return of Pecson's

contribution in the project of the Posters;

(c) P3,000 representing Pecson's commission for

three months (April, May, June, 1971).

Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the
Veterans' project, for this project never left the ground) ...

As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be
reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by the
record or are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332).
However, this rule admits of certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock
Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review and rectify
the findings of fact of the Court of Appeals when (1) the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken absurd
and impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making its findings, went beyond the issues of
the case and the same are contrary to the admissions of both the appellant and the appellee.

In this case, there is misapprehension of facts. The evidence of the private respondent himself
shows that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The
remaining P4,000.00 was the amount of profit that the private respondent expected to receive.

The records show the following exhibits- t.hqw

E Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor
of defendant. Defendant admitted the authenticity of this check and of his receipt of
 the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being offered for
the purpose of showing plaintiff's capital investment in the printing of the "Voice of
the Veterans" for which he was promised a fixed profit of P8,000. This investment of
P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory
note for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp.
20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant returned
P3,000.00 of the P6,000.00 investment thereby proportionately reducing the
promised profit to P4,000. With the balance of P3,000 (capital) and P4,000 (promised
profit), defendant signed and executed the promissory note for P7,000 marked
Exhibit 3 for the defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid
P4,000 representing full return of the capital investment and P1,000 partial payment
of the promised profit. The P3,000 balance of the promised profit was made part
consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is,
therefore, being presented to show the consideration for the P20,000 promissory
note.

F Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of
defendant. The authenticity of the check and his receipt of the proceeds thereof were
admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part
consideration, and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29,
1972), and it is being presented to show the consideration for the P20,000 note and
the existence and validity of the obligation.

xxx xxx xxx

L-Book entitled "Voice of the Veterans" which is being offered for the purpose of
showing the subject matter of the other partnership agreement and in which plaintiff
invested the P6,000 (Exhibit E) which, together with the promised profit of P8,000
made up for the consideration of the P14,000 promissory note (Exhibit 2; Exhibit P).
As explained in connection with Exhibit E. the P3,000 balance of the promised profit
was later made part consideration of the P20,000 promissory note.

M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit
E. This document is being offered for the purpose of further showing the transaction
as explained in connection with Exhibits E and L.

N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his
capital investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P).
This is also defendant's Exhibit 4. This document is being offered in support of
plaintiff's explanation in connection with Exhibits E, L, and M to show the transaction
mentioned therein.

xxx xxx xxx

P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being

offered for the purpose of showing the transaction as explained in connection with
Exhibits E, L, M, and N above.

Explaining the above-quoted exhibits, respondent Pecson testified that: t.hqw

Q During the pre-trial of this case, Mr. Pecson, the defendant
presented a promissory note in the amount of P14,000.00 which has
been marked as Exhibit 2. Do you know this promissory note?

A Yes, sir.

Q What is this promissory note, in connection with your transaction

with the defendant?

A This promissory note is for the printing of the "Voice of the

Veterans".

Q What is this "Voice of the Veterans", Mr. Pecson?

A It is a book.
t.hqw

(T.S.N., p. 19, Nov. 29, 1972)

Q And what does the amount of P14,000.00 indicated in the

promissory note, Exhibit 2, represent?

A It represents the P6,000.00 cash which I gave to Mr. Moran, as

evidenced by the Philippine National Bank Manager's check and the
P8,000.00 profit assured me by Mr. Moran which I will derive from the
printing of this "Voice of the Veterans" book.

Q You said that the P6,000.00 of this P14,000.00 is covered by, a

Manager's check. I show you Exhibit E, is this the Manager's check
that mentioned?

A Yes, sir.

Q What happened to this promissory note of P14,000.00 which you

said represented P6,000.00 of your investment and P8,000.00
promised profits?

A Latter, Mr. Moran returned to me P3,000.00 which represented

one-half (1/2) of the P6,000.00 capital I gave to him.

Q As a consequence of the return by Mr. Moran of one-half (1/2) of

the P6,000.00 capital you gave to him, what happened to the
promised profit of P8,000.00?

A It was reduced to one-half (1/2) which is P4,000.00.

Q Was there any document executed by Mr. Moran in connection

with the Balance of P3,000.00 of your capital investment and the
P4,000.00 promised profits?

A Yes, sir, he executed a promissory note.

 Q I show you a promissory note in the amount of P7,000.00 dated
March 30, 1971 which for purposes of Identification I request the
same to be marked as Exhibit M. . .

Court t.hqw

Mark it as Exhibit M.

Q (continuing) is this the promissory note which you said was

executed by Mr. Moran in connection with your transaction regarding
the printing of the "Voice of the Veterans"?

A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).

Q What happened to this promissory note executed by Mr. Moran,

Mr. Pecson?

A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by

the promissory note.

Q Was there a receipt issued by you covering this payment of

P4,000.00 in favor of Mr. Moran?

A Yes, sir.

(T.S.N., p. 23, Nov. 29, 1972).

Q You stated that Mr. Moran paid the amount of P4,000.00 on

account of the P7,000.00 covered by the promissory note, Exhibit M.
What does this P4,000.00 covered by Exhibit N represent?

A This P4,000.00 represents the P3,000.00 which he has returned of

my P6,000.00 capital investment and the P1,000.00 represents
partial payment of the P4,000.00 profit that was promised to me by
Mr. Moran.

Q And what happened to the balance of P3,000.00 under the

promissory note, Exhibit M?

A The balance of P3,000.00 and the rest of the profit was applied as
part of the consideration of the promissory note of P20,000.00.

(T.S.N., pp. 23-24, Nov. 29, 1972).

The respondent court erred when it concluded that the project never left the ground because the
project did take place. Only it failed. It was the private respondent himself who presented a copy of
the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error
to state that the project never took place and on this basis decree the return of the private
respondent's investment.
As already mentioned, there are risks in any business venture and the failure of the undertaking
cannot entirely be blamed on the managing partner alone, specially if the latter exercised his best
business judgment, which seems to be true in this case. In view of the foregoing, there is no reason
to pass upon the fourth and fifth assignments of errors raised by the petitioner. We likewise find no
valid basis for the grant of the counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the
petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND
(P6,000.00) PESOS representing the amount of the private respondent's contribution to the
partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS representing
one half (1/2) of the net profits gained by the partnership in the sale of the two thousand (2,000)
copies of the posters, with interests at the legal rate on both amounts from the date the complaint
was filed until full payment is made.

SO ORDERED.

G.R. No. L-18703 August 28, 1922

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,

vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING
CORPORATION,petitioners-appellants.

SYLLABUS

INVOLUNTARY INSOLVENCY; LIMITED PARTNERSHIP; ACT OF BANKRUPTCY; SOLVENCY OF PARTNERS.

In the Philippines a limited partnership duly organized in accordance with law has a personality distinct from
that of its members; and if it commits an act of bankruptcy, such as that of failing for more than thirty days
to pay debts amounting to P1,000 or more, it may be adjudged insolvent on the petition of three of its
creditors although its members may not be insolvent.

DECISION

ROMUALDEZ, J.:

The record of this proceeding having been transmitted to this court by virtue of an appeal taken
herein, a motion was presented by the appellants praying this court that this case be considered
purely a moot question now, for the reason that subsequent to the decision appealed from, the
partnership Campos Rueda & Co., voluntarily filed an application for a judicial decree adjudging itself
insolvent, which is just what the herein petitioners and appellants tried to obtain from the lower court
in this proceeding.

The motion now before us must be, and is hereby, denied even under the facts stated by the
appellants in their motion aforesaid. The question raised in this case is not purely moot one; the fact
that a man was insolvent on a certain day does not justify an inference that he was some time prior
thereto.
 Proof that a man was insolvent on a certain day does not justify an inference that he was on
a day some time prior thereto. Many contingencies, such as unwise investments, losing
contracts, misfortune, or accident, might happen to reduce a person from a state of solvency
within a short space of time. (Kimball vs. Dresser, 98 Me., 519; 57 Atl. Rep., 767.)

A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge Campos
Rueda & Co. insolvent in December, 1921, as prayed for in this case, and another to declare it
insolvent in July, 1922, as stated in the motion.

Turning to the merits of this appeal, we find that this limited partnership was, and is, indebted to the
appellants in various sums amounting to not less than P1,000, payable in the Philippines, which
were not paid more than thirty days prior to the date of the filing by the petitioners of the application
for involuntary insolvency now before us. These facts were sufficient established by the evidence.

The trial court denied the petition on the ground that it was not proven, nor alleged, that the
members of the aforesaid firm were insolvent at the time the application was filed; and that was said
partners are personally and solidarily liable for the consequence of the transactions of the
partnership, it cannot be adjudged insolvent so long as the partners are not alleged and proven to be
insolvent. From this judgment the petitioners appeal to this court, on the ground that this finding of
the lower court is erroneous.

The fundamental question that presents itself for decision is whether or not a limited partnership,
such as the appellee, which has failed to pay its obligation with three creditors for more than thirty
days, may be held to have committed an act of insolvency, and thereby be adjudged insolvent
against its will.

Unlike the common law, the Philippine statutes consider a limited partnership as a juridical entity for
all intents and purposes, which personality is recognized in all its acts and contracts (art. 116, Code
of Commerce). This being so and the juridical personality of a limited partnership being different from
that of its members, it must, on general principle, answer for, and suffer, the consequence of its acts
as such an entity capable of being the subject of rights and obligations. If, as in the instant case, the
limited partnership of Campos Rueda & Co. Failed to pay its obligations with three creditors for a
period of more than thirty days, which failure constitutes, under our Insolvency Law, one of the acts
of bankruptcy upon which an adjudication of involuntary insolvency can be predicated, this
partnership must suffer the consequences of such a failure, and must be adjudged insolvent. We are
not unmindful of the fact that some courts of the United States have held that a partnership may not
be adjudged insolvent in an involuntary insolvency proceeding unless all of its members are
insolvent, while others have maintained a contrary view. But it must be borne in mind that under the
American common law, partnerships have no juridical personality independent from that of its
members; and if now they have such personality for the purpose of the insolvency law, it is only by
virtue of general law enacted by the Congress of the United States on July 1, 1898, section 5,
paragraph (h), of which reads thus:

In the event of one or more but not all of the members of a partnership being adjudged
bankrupt, the partnership property shall not be administered in bankruptcy, unless by
consent of the partner or partners not adjudged bankrupt; but such partner or partners not
adjudged bankrupt shall settle the partnership business as expeditiously as its nature will
permit, and account for the interest of the partner or partners adjudged bankrupt.

The general consideration that these partnership had no juridical personality and the limitations
prescribed in subsection (h) above set forth gave rise to the conflict noted in American decisions, as
stated in the case of In reSamuels (215 Fed., 845), which mentions the two apparently conflicting
doctrines, citing one from In re Bertenshaw (157 Fed., 363), and the other from Francis vs. McNeal
(186 Fed., 481).

But there being in our insolvency law no such provision as that contained in section 5 of said Act of
Congress of July 1, 1898, nor any rule similar thereto, and the juridical personality of limited
partnership being recognized by our statutes from their formation in all their acts and contracts the
decision of American courts on this point can have no application in this jurisdiction, nor we see any
reason why these partnerships cannot be adjudged bankrupt irrespective of the solvency or
insolvency of their members, provided the partnership has, as such, committed some of the acts of
insolvency provided in our law. Under this view it is unnecessary to discuss the other points raised
by the parties, although in the particular case under consideration it can be added that the liability of
the limited partners for the obligations and losses of the partnership is limited to the amounts paid or
promised to be paid into the common fund except when a limited partner should have included his
name or consented to its inclusion in the firm name (arts. 147 and 148, Code of Commerce).

Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more than
thirty days to pay its obligations to the petitioners the Pacific Commercial Co. the Asiatic Petroleum
Co. and the International Banking Corporation, the case comes under paragraph 11 of section 20 of
Act No. 1956, and consequently the petitioners have the right to a judicial decree declaring the
involuntary insolvency of said partnership.

Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited partnership
Campos Rueda & Co. is and was on December 28, 1921, insolvent and liable for having failed for
more than thirty days to meet its obligations with the three petitioners herein, and it is ordered that
this proceeding be remanded to the Court of First Instance of Manila with instruction to said court to
issue the proper decrees under section 24 of Act No. 1956, and proceed therewith until its final
disposition.

It is so ordered without special finding as to costs.

G.R. No. 142612. July 29, 2005

OSCAR ANGELES and EMERITA ANGELES, Petitioners,

vs.
THE HON. SECRETARY OF JUSTICE and FELINO MERCADO, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for certiorari1 to annul the letter-resolution2 dated 1 February 2000 of the Secretary
of Justice in Resolution No. 155.3 The Secretary of Justice affirmed the resolution4 in I.S. No. 96-939
dated 28 February 1997 rendered by the Provincial Prosecution Office of the Department of Justice
in Santa Cruz, Laguna ("Provincial Prosecution Office"). The Provincial Prosecution Office resolved
to dismiss the complaint for estafa filed by petitioners Oscar and Emerita Angeles ("Angeles
spouses") against respondent Felino Mercado ("Mercado").
Antecedent Facts

On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa under Article 315
of the Revised Penal Code against Mercado before the Provincial Prosecution Office. Mercado is the
brother-in-law of the Angeles spouses, being married to Emerita Angeles sister Laura.

In their affidavits, the Angeles spouses claimed that in November 1992, Mercado convinced them to
enter into a contract of antichresis,5 colloquially known as sanglaang-perde, covering eight parcels of
land ("subject land") planted with fruit-bearing lanzones trees located in Nagcarlan, Laguna and
owned by Juana Suazo. The contract of antichresis was to last for five years with 210,000 as
consideration. As the Angeles spouses stay in Manila during weekdays and go to Laguna only on
weekends, the parties agreed that Mercado would administer the lands and complete the necessary
paperwork.6

After three years, the Angeles spouses asked for an accounting from Mercado. Mercado explained
that the subject land earned 46,210 in 1993, which he used to buy more lanzones trees. Mercado
also reported that the trees bore no fruit in 1994. Mercado gave no accounting for 1995. The
Angeles spouses claim that only after this demand for an accounting did they discover that Mercado
had put the contract of sanglaang-perde over the subject land under Mercado and his spouses
names.7 The relevant portions of the contract of sanglaang-perde, signed by Juana Suazo alone,
read:

xxx

Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO (210,000),

salaping gastahin, na aking tinanggap sa mag[-]asawa nila G. AT GNG. FELINO MERCADO, mga
nasa hustong gulang, Filipino, tumitira at may pahatirang sulat sa Bgy. Maravilla, bayan ng
Nagcarlan, lalawigan ng Laguna, ay aking ipinagbili, iniliwat at isinalin sa naulit na halaga, sa
nabanggit na mag[-] asawa nila G. AT GNG. FELINO MERCADO[,] sa kanila ay magmamana,
kahalili at ibang dapat pagliwatan ng kanilang karapatan, ang lahat na ibubunga ng lahat na puno ng
lanzones, hindi kasama ang ibang halaman na napapalooban nito, ng nabanggit na WALONG (8)
Lagay na Lupang Cocal-Lanzonal, sa takdang LIMA (5) NA [sic] TAON, magpapasimula sa taong
1993, at magtatapos sa taong 1997, kayat pagkatapos ng lansonesan sa taong 1997, ang
pamomosision at pakikinabang sa lahat na puno ng lanzones sa nabanggit na WALONG (8) Lagay
na Lupang Cocal-Lanzonal ay manunumbalik sa akin, sa akin ay magmamana, kahalili at ibang
dapat pagliwatan ng aking karapatan na ako ay walang ibabalik na ano pa mang halaga, sa mag[-]
asawa nila G. AT GNG. FELINO MERCADO.

Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na ako ay

bibigyan nila ng LIMA (5) na [sic] kaing na lanzones taon-taon sa loob ng LIMA (5) na [sic] taon ng
aming kasunduang ito.

Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na silang mag[-
]asawa nila G. AT GNG. FELINO MERCADO ang magpapaalis ng dapo sa puno ng lansones taon-
taon [sic] sa loob ng LIMA (5) [sic] taonng [sic] aming kasunduang ito.8

In his counter-affidavit, Mercado denied the Angeles spouses allegations. Mercado claimed that
there exists an industrial partnership, colloquially known as sosyo industrial, between him and his
spouse as industrial partners and the Angeles spouses as the financiers. This industrial partnership
had existed since 1991, before the contract of antichresis over the subject land. As the years
passed, Mercado used his and his spouses earnings as part of the capital in the business
transactions which he entered into in behalf of the Angeles spouses. It was their practice to enter
into business transactions with other people under the name of Mercado because the Angeles
spouses did not want to be identified as the financiers.

Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and contracts under
his name for the Angeles spouses. Mercado also attached the minutes of the barangay conciliation
proceedings held on 7 September 1996. During the barangay conciliation proceedings, Oscar
Angeles stated that there was a written sosyo industrial agreement: capital would come from the
Angeles spouses while the profit would be divided evenly between Mercado and the Angeles
spouses.9

The Ruling of the Provincial Prosecution Office

On 3 January 1997, the Provincial Prosecution Office issued a resolution recommending the filing of
criminal information for estafa against Mercado. This resolution, however, was issued without
Mercados counter-affidavit.

Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3 January 1997
resolution, Mercado moved for its reconsideration. Hence, on 26 February 1997, the Provincial
Prosecution Office issued an amended resolution dismissing the Angeles spouses complaint for
estafa against Mercado.

The Provincial Prosecution Office stated thus:

The subject of the complaint hinges on a partnership gone sour. The partnership was initially
unsaddled [with] problems. Management became the source of misunderstanding including the
accounting of profits, which led to further misunderstanding until it was revealed that the contract
with the orchard owner was only with the name of the respondent, without the names of the
complainants.

The accusation of "estafa" here lacks enough credible evidentiary support to sustain a prima facie
finding.

Premises considered, it is respectfully recommended that the complaint for estafa be dismissed.

RESPECTFULLY SUBMITTED.10

The Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution Office
denied in a resolution dated 4 August 1997.

The Ruling of the Secretary of Justice

On appeal to the Secretary of Justice, the Angeles spouses emphasized that the document
evidencing the contract of sanglaang-perde with Juana Suazo was executed in the name of the
Mercado spouses, instead of the Angeles spouses. The Angeles spouses allege that this document
alone proves Mercados misappropriation of their 210,000.

The Secretary of Justice found otherwise. Thus:

Reviewing the records of the case, we are of the opinion that the indictment of [Mercado] for the
crime of estafa cannot be sustained. [The Angeles spouses] failed to show sufficient proof that
[Mercado] deliberately deceived them in the "sanglaang perde" transaction. The document alone,
which was in the name of [Mercado and his spouse], failed to convince us that there was deceit or
false representation on the part of [Mercado] that induced the [Angeles spouses] to part with their
money. [Mercado] satisfactorily explained that the [Angeles spouses] do not want to be revealed as
the financiers. Indeed, it is difficult to believe that the [Angeles spouses] would readily part with their
money without holding on to some document to evidence the receipt of money, or at least to inspect
the document involved in the said transaction. Under the circumstances, we are inclined to believe
that [the Angeles spouses] knew from the very start that the questioned document was not really in
their names.

In addition, we are convinced that a partnership truly existed between the [Angeles spouses] and
[Mercado]. The formation of a partnership was clear from the fact that they contributed money to a
common fund and divided the profits among themselves. Records would show that [Mercado] was
able to make deposits for the account of the [Angeles spouses]. These deposits represented their
share in the profits of their business venture. Although the [Angeles spouses] deny the existence of
a partnership, they, however, never disputed that the deposits made by [Mercado] were indeed for
their account.

The transcript of notes on the dialogue between the [Angeles spouses] and [Mercado] during the
hearing of their barangay conciliation case reveals that the [Angeles spouses] acknowledged their
joint business ventures with [Mercado] although they assailed the manner by which [Mercado]
conducted the business and handled and distributed the funds. The veracity of this transcript was
not raised in issued [sic] by [the Angeles spouses]. Although the legal formalities for the formation of
a partnership were not adhered to, the partnership relationship of the [Angeles spouses] and
[Mercado] is evident in this case. Consequently, there is no estafa where money is delivered by a
partner to his co-partner on the latters representation that the amount shall be applied to the
business of their partnership. In case of misapplication or conversion of the money received, the co-
partners liability is civil in nature (People v. Clarin, 7 Phil. 504)

WHEREFORE, the appeal is hereby DISMISSED.11

Hence, this petition.

Issues

The Angeles spouses ask us to consider the following issues:

1. Whether the Secretary of Justice committed grave abuse of discretion amounting to lack of
jurisdiction in dismissing the appeal of the Angeles spouses;

2. Whether a partnership existed between the Angeles spouses and Mercado even without any
documentary proof to sustain its existence;

3. Assuming that there was a partnership, whether there was misappropriation by Mercado of the
proceeds of the lanzones after the Angeles spouses demanded an accounting from him of the
income at the office of the barangay authorities on 7 September 1996, and Mercado failed to do so
and also failed to deliver the proceeds to the Angeles spouses;

4. Whether the Secretary of Justice should order the filing of the information for estafa against
Mercado.12

The Ruling of the Court

The petition has no merit.

Whether the Secretary of Justice Committed

Grave Abuse of Discretion

An act of a court or tribunal may constitute grave abuse of discretion when the same is performed in
a capricious or whimsical exercise of judgment amounting to lack of jurisdiction. The abuse of
discretion must be so patent and gross as to amount to an evasion of positive duty, or to a virtual
refusal to perform a duty enjoined by law, as where the power is exercised in an arbitrary and
despotic manner because of passion or personal hostility.13

The Angeles spouses fail to convince us that the Secretary of Justice committed grave abuse of
discretion when he dismissed their appeal. Moreover, the Angeles spouses committed an error in
procedure when they failed to file a motion for reconsideration of the Secretary of Justices
resolution. A previous motion for reconsideration before the filing of a petition for certiorari is
necessary unless: (1) the issue raised is one purely of law; (2) public interest is involved; (3) there is
urgency; (4) a question of jurisdiction is squarely raised before and decided by the lower court; and
(5) the order is a patent nullity.14 The Angeles spouses failed to show that their case falls under any
of the exceptions. In fact, this present petition for certiorari is dismissible for this reason alone.

Whether a Partnership Existed

Between Mercado and the Angeles Spouses

The Angeles spouses allege that they had no partnership with Mercado. The Angeles spouses rely
on Articles 1771 to 1773 of the Civil Code, which state that:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money
or property, shall appear in a public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public
instrument.

The Angeles spouses position that there is no partnership because of the lack of a public instrument
indicating the same and a lack of registration with the Securities and Exchange Commission ("SEC")
holds no water. First, the Angeles spouses contributed money to the partnership and not immovable
property. Second, mere failure to register the contract of partnership with the SEC does not
invalidate a contract that has the essential requisites of a partnership. The purpose of registration of
the contract of partnership is to give notice to third parties. Failure to register the contract of
partnership does not affect the liability of the partnership and of the partners to third persons. Neither
does such failure to register affect the partnerships juridical personality. A partnership may exist
even if the partners do not use the words "partner" or "partnership."
Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a contract
showing a sosyo industrial or industrial partnership, contribution of money and industry to a common
fund, and division of profits between the Angeles spouses and Mercado.

Whether there was

Misappropriation by Mercado

The Secretary of Justice adequately explained the alleged misappropriation by Mercado: "The
document alone, which was in the name of [Mercado and his spouse], failed to convince us that
there was deceit or false representation on the part of [Mercado] that induced the [Angeles spouses]
to part with their money. [Mercado] satisfactorily explained that the [Angeles spouses] do not want to
be revealed as the financiers."15

Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the civil case for
damages, injunction and restraining order filed by the Angeles spouses against Mercado and Leo
Cerayban, stated:

xxx [I]t was the practice to have all the contracts of antichresis of their partnership secured in
[Mercados] name as [the Angeles spouses] are apprehensive that, if they come out into the open as
financiers of said contracts, they might be kidnapped by the New Peoples Army or their business
deals be questioned by the Bureau of Internal Revenue or worse, their assets and unexplained
income be sequestered, as xxx Oscar Angeles was then working with the government.16

Furthermore, accounting of the proceeds is not a proper subject for the present case.

For these reasons, we hold that the Secretary of Justice did not abuse his discretion in dismissing
the appeal of the Angeles spouses.

WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present petition
for certiorari is DISMISSED.

SO ORDERED.

G.R. No. 109248 July 3, 1995

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

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

SYLLABUS

1. CIVIL LAW; CONTRACTS; PARTNERSHIP AT WILL; DISSOLUTION, ELUCIDATED. A partnership that

does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada,
Ortega and Castillo," is indeed such a partnership need not be unduly belabored. The birth and life of a
partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with
whom a person wishes to associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each
partners capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages. In passing, neither would the presence of a
period for its specific duration or the statement of a particular purpose for its creation prevent the
dissolution of any partnership by an act or will of a partner. Among partners, mutual agency arises and the
doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve
the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to
be associated in the carrying on, as might be distinguished from the winding up of, the business. Upon its
dissolution, the partnership continues and its legal personality is retained until the complete winding up of
its business culminating in its termination. The liquidation of the assets of the partnership following its
dissolution is governed by various provisions of the Civil Code, however, an agreement of the partners, like
any other contract, is binding among them and normally takes precedence to the extent applicable over the
Codes general provisions. And here, the term "retirement" must have been used in the Articles of
Partnership in a generic sense to mean the dissociation by a partner, inclusive of resignation or withdrawal,
from the partnership that thereby dissolves it.

2. ID.; ID.; ID.; ID.; WITHDRAWAL OF PARTNER; BAD FAITH, NOT PRESENT. Attorney Misa did not act in
bad faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among
the partners. It would not be right, to let any of the partners remain in the partnership under such an
atmosphere of animosity; certainly, not against their will. Indeed, for as long as the reason for withdrawal of
a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm
and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context
here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act
for a dishonest purpose or moral obliquity.

DECISION

VITUG, J.:

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

The antecedents of the controversy, summarized by respondent Commission and quoted at length
by the appellate court in its decision, are hereunder restated.

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

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

 I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective
at the end of this month.

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

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

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

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

stating:

"The partnership has ceased to be mutually satisfactory because of the

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

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and
Clearing Department (SICD) a petition for dissolution and liquidation of partnership, docketed
as SEC Case No. 3384 praying that the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the
partnership of) Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in the
partnership assets plus the profits, rent or interest attributable to the use of
his right in the assets of the dissolved partnership;

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

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

"5. Order the respondents to pay petitioner moral damages with the amount
of P500,000.00 and exemplary damages in the amount of P200,000.00.
 "Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."

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

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

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

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

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

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

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

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

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

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney
Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death
of the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa
to renew his application for receivership (in CA G.R. SP No. 24648). He expressed concern over the
need to preserve and care for the partnership assets. The other partners opposed the prayer.

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

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

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

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

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

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

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

The partnership agreement (amended articles of 19 August 1948) does not provide for a
specified period or undertaking. The "DURATION" clause simply states:

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

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

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

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

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

The birth and life of a partnership at will is predicated on the mutual desire and consent of the
partners. The right to choose with whom a person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of
that mutual resolve, along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership4 but that it can result in a
liability for damages.5

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

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

The liquidation of the assets of the partnership following its dissolution is governed by various
provisions of the Civil Code; 10 however, an agreement of the partners, like any other contract, is
binding among them and normally takes precedence to the extent applicable over the Code's
general provisions. We here take note of paragraph 8 of the "Amendment to Articles of Partnership"
reading thusly:

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

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

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

SO ORDERED.

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

WILLIAM UY, plaintiff-appellee,

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

R.P. Sarandi for appellant.

Jose L. Uy & Andres P. Salvador for appellee.

CONCEPCION JR., J.: t.hq w

Appeal from the decision of the Court of First Instanre of Manila, dissolving the "U.P. Construction
Company" and ordering the defendant Bartolome Puzon to pay the plaintiff the amounts of: (1)
P115,102.13, with legal interest thereon from the date of the filing of the complaint until fully paid; (2)
P200,000.00, as plaintiffs share in the unrealized profits of the "U.P. Construction Company" and (3)
P5,000.00, as and for attorney's fees.

It is of record that the defendant Bartolome Puzon had a contract with the Republic of the Philippines
for the construction of the Ganyangan Bato Section of the Pagadian Zamboanga City Road,
province of Zamboanga del Sur 1 and of five (5) bridges in the Malangas-Ganyangan Road. 2 Finding
difficulty in accomplishing both projects, Bartolome Puzon sought the financial assistance of the plaintiff,
William Uy. As an inducement, Puzon proposed the creation of a partnership between them which would
be the sub-contractor of the projects and the profits to be divided equally between them. William Uy
inspected the projects in question and, expecting to derive considerable profits therefrom, agreed to the
proposition, thus resulting in the formation of the "U.P. Construction Company" 3 which was subsequently
engaged as subcontractor of the construction projects. 4

The partners agreed that the capital of the partnership would be P100,000.00 of which each partner shall
contribute the amount of P50,000.00 in cash. 5 But, as heretofore stated, Puzon was short of cash and he
promised to contribute his share in the partnership capital as soon as his application for a loan with the
Philippine National Bank in the amount of P150,000.00 shall have been approved. However, before his
loan application could be acted upon, he had to clear his collaterals of its incumbrances first. For this
purpose, on October 24, 1956, Wilham Uy gave Bartolome Puzon the amount of P10,000.00 as advance
contribution of his share in the partnership to be organized between them under the firm name U.P.
CONSTRUCTION COMPANY which amount mentioned above will be used by Puzon to pay his
obligations with the Philippine National Bank to effect the release of his mortgages with the said
Bank. 6 On October 29, 1956, William Uy again gave Puzon the amount of P30,000.00 as his partial
contribution to the proposed partnership and which the said Puzon was to use in payment of his
obligation to the Rehabilitation Finance Corporation. 7 Puzon promised William Uy that the amount of
P150,000.00 would be given to the partnership to be applied thusly: P40,000.00, as reimbursement of the
capital contribution of William Uy which the said Uy had advanced to clear the title of Puzon's property;
P50,000.00, as Puzon's contribution to the partnership; and the balance of P60,000.00 as Puzon's
personal loan to the partnership. 8
Although the partnership agreement was signed by the parties on January 18, 1957, 9 work on the projects
was started by the partnership on October 1, 1956 in view of the insistence of the Bureau of Public
Highways to complete the project right away. 10 Since Puzon was busy with his other projects, William Uy
was entrusted with the management of the projects and whatever expense the latter might incur, would
be considered as part of his contribution. 11 At the end of December, 1957, William Uy had contributed to
the partnership the amount of P115,453.39, including his capital. 12

The loan of Puzon was approved by the Philippine National Bank in November, 1956 and he gave to
William Uy the amount of P60,000.00. Of this amount, P40,000.00 was for the reimbursement of Uy's
contribution to the partnership which was used to clear the title to Puzon's property, and the P20,000.00
as Puzon's contribution to the partnership capital. 13

To guarantee the repayment of the above-mentioned loan, Bartolome Puzon, without the knowledge and
consent of William Uy, 14 assigned to the Philippine National Bank all the payments to be received on
account of the contracts with the Bureau of Public Highways for the construction of the afore-mentioned
projects. 15 By virtue of said assignment, the Bureau of Public Highways paid the money due on the
partial accomplishments on the government projects in question to the Philippine National Bank which, in
turn, applied portions of it in payment of Puzon's loan. Of the amount of P1,047,181.07, released by the
Bureau of Public Highways in payment of the partial work completed by the partnership on the projects,
the amount of P332,539.60 was applied in payment of Puzon's loan and only the amount of P27,820.80
was deposited in the partnership funds, 16 which, for all practical purposes, was also under Puzon's
account since Puzon was the custodian of the common funds.

As time passed and the financial demands of the projects increased, William Uy, who supervised the
said projects, found difficulty in obtaining the necessary funds with which to pursue the construction
projects. William Uy correspondingly called on Bartolome Puzon to comply with his obligations under
the terms of their partnership agreement and to place, at lest, his capital contribution at the disposal
of the partnership. Despite several promises, Puzon, however, failed to do so. 17 Realizing that his
verbal demands were to no avail, William Uy consequently wrote Bartolome Puzon pormal letters of
demand, 18 to which Puzon replied that he is unable to put in additional capital to continue with the
projects. 19

Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of the construction
projects, wrote the subcontractor, U.P. Construction Company, on November 20, 1957, advising the
partnership, of which he is also a partner, that unless they presented an immediate solution and capacity
to prosecute the work effectively, he would be constrained to consider the sub-contract terminated and,
thereafter, to assume all responsibilities in the construction of the projects in accordance with his original
contract with the Bureau of Public Highways. 20 On November 27, 1957, Bartolome Puzon again wrote the
U.P.Construction Company finally terminating their subcontract agreement as of December 1, 1957. 21

Thereafter, William Uy was not allowed to hold office in the U.P. Construction Company and his authority
to deal with the Bureau of Public Highways in behalf of the partnership was revoked by Bartolome Puzon
who continued with the construction projects alone. 22

On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the terms of their
partnership agreement, instituted an action in court, seeking, inter alia, the dissolution of the
partnership and payment of damages.

Answering, Bartolome Puzon denied that he violated the terms of their agreement claiming that it
was the plaintiff, William Uy, who violated the terms thereof. He, likewise, prayed for the dissolution
of the partnership and for the payment by the plaintiff of his, share in the losses suffered by the
partnership.
After appropriate proceedings, the trial court found that the defendant, contrary to the terms of their
partnership agreement, failed to contribute his share in the capital of the partnership applied
partnership funds to his personal use; ousted the plaintiff from the management of the firm, and
caused the failure of the partnership to realize the expected profits of at least P400,000.00. As a
consequence, the trial court dismissed the defendant's counterclaim and ordered the dissolution of
the partnership. The trial court further ordered the defendant to pay the plaintiff the sum of
P320,103.13.

Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the appeal
before this Court, the said Bartolome Puzon died, and was substituted by Franco Puzon.

The appellant makes in his brief nineteen (19) assignment of errors, involving questions of fact,
which relates to the following points:

(1) That the appellant is not guilty of breach of contract; and

(2) That the amounts of money the appellant has been order to pay the appellee is not supported by
the evidence and the law.

After going over the record, we find no reason for rejecting the findings of fact below, justifying the
reversal of the decision appealed from.

The findings of the trial court that the appellant failed to contribute his share in the capital of the
partnership is clear incontrovertible. The record shows that after the appellant's loan the amount of
P150,000.00 was approved by the Philippin National Bank in November, 1956, he gave the amount
P60,000.00 to the appellee who was then managing the construction projects. Of this amount,
P40,000.00 was to be applied a reimbursement of the appellee's contribution to the partnership
which was used to clear the title to the appellant's property, and th balance of P20,000.00, as
Puzon's contribution to the partnership. 23 Thereafter, the appellant failed to make any further
contributions the partnership funds as shown in his letters to the appellee wherein he confessed his
inability to put in additional capital to continue with the projects. 24

Parenthetically, the claim of the appellant that the appellee is equally guilty of not contributing his share in
the partnership capital inasmuch as the amount of P40,000.00, allegedly given to him in October, 1956 as
partial contribution of the appellee is merely a personal loan of the appellant which he had paid to the
appellee, is plainly untenable. The terms of the receipts signed by the appellant are clear and unequivocal
that the sums of money given by the appellee are appellee's partial contributions to the partnership
capital. Thus, in the receipt for P10,000.00 dated October 24, 1956, 25 the appellant stated: +.w ph!1

Received from Mr. William Uy the sum of TEN THOUSAND PESOS (P10,000.00) in
Check No. SC 423285 Equitable Banking Corporation, dated October 24, 1956, as
advance contribution of the share of said William Uy in the partnership to be
organized between us under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be used by the undersigned to pay
his obligations with the Philippine National Bank to effect the release of his
mortgages with the said bank. (Emphasis supplied)

In the receipt for the amount of P30,000.00 dated October 29, 1956, 26 the appellant also said: + .w ph!1

Received from William Uy the sum of THIRTY THOUSAND PESOS (P30,000.00) in

Check No. SC423287, of the Equitable Banking Corporation, as partial contribution
of the share of the said William Uy to the U.P. CONSTRUCTION COMPANY for
 which the undersigned will use the said amount in payment of his obligation to the
Rehabilitation Finance Corporation. (Emphasis supplied)

The findings of the trial court that the appellant misapplied partnership funds is, likewise, sustained
by competent evidence. It is of record that the appellant assigned to the Philippine National Bank all
the payments to be received on account of the contracts with the Bureau of Public Highways for the
construction of the aforementioned projects to guarantee the repayment of the bank. 27 By virtue of
the said appeflant's personal loan with the said bank assignment, the Bureau of Public Highways paid the
money due on the partial accomplishments on the construction projects in question to the Philippine
National Bank who, in turn, applied portions of it in payment of the appellant's loan. 28

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

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

The question of whom to believe being a matter large dependent on the trier's discretion, the findings of
the trial court who had the better opportunity to examine and appraise the fact issue, certainly deserve
respect.

That the assignment to the Philippine National Bank prejudicial to the partnership cannot be denied.
The record show that during the period from March, 1957 to September, 1959, the appellant
Bartolome Puzon received from the Bureau of Public highways, in payment of the work
accomplished on the construction projects, the amount of P1,047,181.01, which amount rightfully
and legally belongs to the partnership by virtue of the subcontract agreements between the appellant
and the U.P. Construction Company. In view of the assignemt made by Puzon to the Philippine
National Bank, the latter withheld and applied the amount of P332,539,60 in payment of the
appellant's personal loan with the said bank. The balance was deposited in Puzon's current account
and only the amount of P27,820.80 was deposited in the current account of the partnership. 30 For
sure, if the appellant gave to the partnership all that were eamed and due it under the subcontract
agreements, the money would have been used as a safe reserve for the discharge of all obligations of the
firm and the partnership would have been able to successfully and profitably prosecute the projects it
subcontracted.

When did the appellant make the reimbursement claimed by him?

For the same period, the appellant actually disbursed for the partnership, in connection with the
construction projects, the amount of P952,839.77. 31 Since the appellant received from the Bureau of
Public Highways the sum of P1,047,181.01, the appellant has a deficit balance of P94,342.24. The
appellant, therefore, did not make complete restitution.

The findings of the trial court that the appellee has been ousted from the management of the
partnership is also based upon persuasive evidence. The appellee testified that after he had
demanded from the appellant payment of the latter's contribution to the partnership capital, the said
appellant did not allow him to hold office in the U.P. Construction Company and his authority to deal
with the Bureau of Public Highways was revoked by the appellant. 32

As the record stands, We cannot say, therefore, that the decis of the trial court is not sustained by the
evidence of record as warrant its reverw.
Since the defendantappellant was at fauh, the tral court properly ordered him to reimburse the
plaintiff-appellee whatever amount latter had invested in or spent for the partnership on account of
construction projects.

How much did the appellee spend in the construction projects question?

It appears that although the partnership agreement stated the capital of the partnership is
P100,000.00 of which each part shall contribute to the partnership the amount of P50,000.00
cash 33 the partners of the U.P. Construction Company did contribute their agreed share in the
capitalization of the enterprise in lump sums of P50,000.00 each. Aside from the initial amount
P40,000.00 put up by the appellee in October, 1956, 34 the partners' investments took, the form of cash
advances coveting expenses of the construction projects as they were incurred. Since the determination
of the amount of the disbursements which each of them had made for the construction projects require an
examination of the books of account, the trial court appointed two commissioners, designated by the
parties, "to examine the books of account of the defendant regarding the U.P. Construction Company and
his personal account with particular reference to the Public Works contract for the construction of the
Ganyangan-Bato Section, Pagadian-Zamboanga City Road and five (5) Bridges in Malangas-Ganyangan
Road, including the payments received by defendant from the Bureau of Public Highways by virtue of the
two projects above mentioned, the disbursements or disposition made by defendant of the portion thereof
released to him by the Philippine National Bank and in whose account these funds are deposited . 35

In due time, the loners so appointed, 36 submitted their report 37 they indicated the items wherein they are
in agreement, as well as their points of disagreement.

In the commissioners' report, the appellant's advances are listed under Credits; the money received
from the firm, under Debits; and the resulting monthly investment standings of the partners, under
Balances. The commissioners are agreed that at the end of December, 1957, the appellee had a
balance of P8,242.39. 38 It is in their respective adjustments of the capital account of the appellee that
the commissioners had disagreed.

Mr. Ablaza, designated by the appellant, would want to charge the appellee with the sum of
P24,239.48, representing the checks isssued by the appellant, 39 and encashed by the appellee or his
brother, Uy Han so that the appellee would owe the partnership the amount of P15,997.09.

Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee the following
additional amounts:

(1) P7,497.80 items omitted from the books of partnership but recognized and charged to
Miscellaneous Expenses by Mr. Ablaza;

(2) P65,103.77 payrolls paid by the appellee in the amount P128,103.77 less payroll remittances
from the appellant in amount of P63,000.00; and

(3) P26,027.04 other expeses incurred by the appellee at construction site.

With respect to the amount of P24,239.48, claimed by appellant, we are hereunder adopting the
findings of the trial which we find to be in accord with the evidence:

To enhance defendant's theory that he should be credited P24,239.48, he presented checks

allegedly given to plaintiff and the latter's brother, Uy Han, marked as Exhibits 2 to 11. However,
defendant admitted that said cheeks were not entered nor record their books of account, as
expenses for and in behalf of partnership or its affairs. On the other hand, Uy Han testified that of the
cheeks he received were exchange for cash, while other used in the purchase of spare parts
requisitioned by defendant. This testimony was not refuted to the satisfaction of the Court,
considering that Han's explanation thereof is the more plausible because if they were employed in
the prosecution of the partners projects, the corresponding disbursements would have certainly been
recorded in its books, which is not the case. Taking into account defendant is the custodian of the
books of account, his failure to so enter therein the alleged disbursements, accentuates the falsity of
his claim on this point. 40

Besides, as further noted by the trial court, the report Commissioner Ablaza is unreliable in view of his
proclivity to favor the appellant and because of the inaccurate accounting procedure adopted by him in
auditing the books of account of the partnership unlike Mr. Tayag's report which inspires faith and
credence. 41

As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the appellee out of
his personal funds which not been entered in the books of the partnership but which been
recognized and conceded to by the auditor designated by the appellant who included the said
amount under Expenses. 42

The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is likewise clear and
convincing. 43

As for the sum of of P26,027.04, the same represents the expenses which the appelle paid in connection
withe the projects and not entered in the books of the partnership since all vouchers and receipts were
sent to the Manila office which were under the control of the appellant. However, officer which were under
the control of the appellant. However, a list of these expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ-
4.

In resume', the appelllee's credit balance would be as follows:

+.wph!1

Undisputed
balance as of
Dec. 1967

Add: Items P 8,242.

omitted from
the books but

recognized
and charged
to
Miscellaneous

Expenses by 7,497.80
Mr. Ablaza
Add: Payrolls P128,103.77
paid by the
appellee

Less: 63,000.00 65,103.77

Payroll
 remittances
received

Add: Other
expenses
incurred at
the

site (Exhs, 26,027.04

ZZ, ZZ-1 to
ZZ-4)

TOTAL P106,871.00

At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00 which he
also advanced for the construction projects but which were not included in the Commissioner's
Report. 44

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

Appellee's total P106,871.00

credits

Add: 3,917,39
unrecorded
balances for
the month of
Dec. 1957
(Exhs. KKK,
KK-1 to
KKK_19,
KKK-22)

Add: 4,665.00
Payments to
Munoz, as
subcontractor
of five,(5)
Bridges (p.
264 tsn;
Exhs. KKK-
20, KKK-21)

Total Pl 15,453.39
Investments

Regarding the award of P200,000.00 as his share in the unrealized profits of the partnership, the
appellant contends that the findings of the trial court that the amount of P400,000.00 as reasonable
profits of the partnership venture is without any basis and is not supported by the evidence. The
appemnt maintains that the lower court, in making its determination, did not take into consideration
the great risks involved in business operations involving as it does the completion of the projects
within a definite period of time, in the face of adverse and often unpredictable circumstances, as well
as the fact that the appellee, who was in charge of the projects in the field, contributed in a large
measure to the failure of the partnership to realize such profits by his field management.

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

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

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

Contrary to the appellant's claim, the partnership showed some profits during the period from July 2,
1956 to December 31, 1957. If the Profit and Loss Statement 45 showed a net loss of P134,019.43, this
was primarily due to the confusing accounting method employed by the auditor who intermixed h and
accthe cas ruamethod of accounting and the erroneous inclusion of certain items, like personal expenses
of the appellant and afteged extraordinary losses due to an accidental plane crash, in the operating
expenses of the partnership, Corrected, the Profit and Loss Statement would indicate a net profit of
P41,611.28.

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

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

During the trial of this case, it was discovered that the appellant had money and credits receivable
froin the projects in question, in the custody of the Bureau of Public Highways, in the amount of
P128,669.75, representing the 10% retention of said projects.49 After the trial of this case, it was shown
that the total retentions Wucted from the appemnt amounted to P145,358.00. 50 Surely, these retained
amounts also form part of the profits of the partnership.

Had the appellant not been remiss in his obligations as partner and as prime contractor of the
construction projects in question as he was bound to perform pursuant to the partnership and
subcontract agreements, and considering the fact that the total contract amount of these two
projects is P2,327,335.76, it is reasonable to expect that the partnership would have earned much
more than the P334,255.61 We have hereinabove indicated. The award, therefore, made by the trial
court of the amount of P200,000.00, as compensatory damages, is not speculative, but based on
reasonable estimate.

WHEREFORE, finding no error in the decision appealed from, the said decision is hereby affirmed
with costs against the appellant, it being understood that the liability mentioned herein shall be home
by the estate of the deceased Bartolome Puzon, represented in this instance by the administrator
thereof, Franco Puzon.

SO ORDERED.
G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and

LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

Leonardo Abola for petitioners.

Baisas, Alberto & Associates for respondent.

MAKALINTAL, J.:

On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7,
1955 the Articles of Co-partnership was amended as to include herein respondent, Estrella Abad
Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza
Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that capacity,
with a contribution of P17,500 each. The amended Articles provided, inter alia, that "the contribution
of Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and
losses "shall be divided and distributed among the partners ... in the proportion of 70% for the first
three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad
Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."

On December 17, 1963 herein respondent filed suit against the three other partners in the Court of
First Instance of Manila, alleging that the partnership, which was also made a party-defendant, had
been paying dividends to the partners except to her; and that notwithstanding her demands the
defendants had refused and continued to refuse and let her examine the partnership books or to
give her information regarding the partnership affairs to pay her any share in the dividends declared
by the partnership. She therefore prayed that the defendants be ordered to render accounting to her
of the partnership business and to pay her corresponding share in the partnership profits after such
accounting, plus attorney's fees and costs.

The defendants, in their answer, denied ever having declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the
partnership books; and byway of affirmative defense alleged that the amended Articles of Co-
partnership did not express the true agreement of the parties, which was that the plaintiff was not an
industrial partner; that she did not in fact contribute industry to the partnership; and that her share of
30% was to be based on the profits which might be realized by the partnership only until full payment
of the loan which it had obtained in December, 1955 from the Rehabilitation Finance Corporation in
the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged
her property as security.

The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee
(respondent here) is an industrial partner as claimed by her or merely a profit sharer entitled to 30%
of the net profits that may be realized by the partnership from June 7, 1955 until the mortgage loan
from the Rehabilitation Finance Corporation shall be fully paid, as claimed by appellants (herein
petitioners)." On that issue the Court of First Instance found for the plaintiff and rendered judgement
"declaring her an industrial partner of Evangelista & Co.; ordering the defendants to render an
accounting of the business operations of the (said) partnership ... from June 7, 1955; to pay the
plaintiff such amounts as may be due as her share in the partnership profits and/or dividends after
such an accounting has been properly made; to pay plaintiff attorney's fees in the sum of P2,000.00
and the costs of this suit."

The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a
quo.

In the petition before Us the petitioners have assigned the following errors:

I. The Court of Appeals erred in the finding that the respondent is an industrial
partner of Evangelista & Co., notwithstanding the admitted fact that since 1954 and
until after promulgation of the decision of the appellate court the said respondent was
one of the judges of the City Court of Manila, and despite its findings that respondent
had been paid for services allegedly contributed by her to the partnership. In this
connection the Court of Appeals erred:

(A) In finding that the "amended Articles of Co-partnership," Exhibit

"A" is conclusive evidence that respondent was in fact made an
industrial partner of Evangelista & Co.

(B) In not finding that a portion of respondent's testimony quoted in

the decision proves that said respondent did not bind herself to
contribute her industry, and she could not, and in fact did not,
because she was one of the judges of the City Court of Manila since
1954.

(C) In finding that respondent did not in fact contribute her industry,
despite the appellate court's own finding that she has been paid for
the services allegedly rendered by her, as well as for the loans of
money made by her to the partnership.

II. The lower court erred in not finding that in any event the respondent was lawfully
excluded from, and deprived of, her alleged share, interests and participation, as an
alleged industrial partner, in the partnership Evangelista & Co., and its profits or net
income.

III. The Court of Appeals erred in affirming in toto the decision of the trial court
whereby respondent was declared an industrial partner of the petitioner, and
petitioners were ordered to render an accounting of the business operation of the
partnership from June 7, 1955, and to pay the respondent her alleged share in the
net profits of the partnership plus the sum of P2,000.00 as attorney's fees and the
costs of the suit, instead of dismissing respondent's complaint, with costs, against the
respondent.

It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by
the Court of Appeals. The evidence presented by the parties as the trial in support of their respective
positions on the issue of whether or not the respondent was an industrial partner was thoroughly
analyzed by the Court of Appeals on its decision, to the extent of reproducing verbatim therein the
lengthy testimony of the witnesses.

It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its
jurisdiction being limited to reviewing errors of law that might have been commited by the lower
court. It should be observed, in this regard, that the Court of Appeals did not hold that the Articles of
Co-partnership, identified in the record as Exhibit "A", was conclusive evidence that the respondent
was an industrial partner of the said company, but considered it together with other factors,
consisting of both testimonial and documentary evidences, in arriving at the factual conclusion
expressed in the decision.

The findings of the Court of Appeals on the various points raised in the first assignment of error are
hereunder reproduced if only to demonstrate that the same were made after a through analysis of
then evidence, and hence are beyond this Court's power of review.

The aforequoted findings of the lower Court are assailed under Appellants' first
assigned error, wherein it is pointed out that "Appellee's documentary evidence does
not conclusively prove that appellee was in fact admitted by appellants as industrial
partner of Evangelista & Co." and that "The grounds relied upon by the lower Court
are untenable" (Pages 21 and 26, Appellant's Brief).

The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint

being that "In finding that the appellee is an industrial partner of appellant
Evangelista & Co., herein referred to as the partnership the lower court relied
mainly on the appellee's documentary evidence, entirely disregarding facts and
circumstances established by appellants" evidence which contradict the said finding'
(Page 21, Appellants' Brief). The lower court could not have done otherwise but rely
on the exhibits just mentioned, first, because appellants have admitted their
genuineness and due execution, hence they were admitted without objection by the
lower court when appellee rested her case and, secondly the said exhibits
indubitably show the appellee is an industrial partner of appellant company.
Appellants are virtually estopped from attempting to detract from the probative force
of the said exhibits because they all bear the imprint of their knowledge and consent,
and there is no credible showing that they ever protested against or opposed their
contents prior of the filing of their answer to appellee's complaint. As a matter of fact,
all the appellant Evangelista, Jr., would have us believe as against the cumulative
force of appellee's aforesaid documentary evidence is the appellee's Exhibit "A",
as confirmed and corroborated by the other exhibits already mentioned, does not
express the true intent and agreement of the parties thereto, the real understanding
between them being the appellee would be merely a profit sharer entitled to 30% of
the net profits that may be realized between the partners from June 7, 1955, until the
mortgage loan of P30,000.00 to be obtained from the RFC shall have been fully paid.
This version, however, is discredited not only by the aforesaid documentary evidence
brought forward by the appellee, but also by the fact that from June 7, 1955 up to the
filing of their answer to the complaint on February 8, 1964 or a period of over eight
(8) years appellants did nothing to correct the alleged false agreement of the
parties contained in Exhibit "A". It is thus reasonable to suppose that, had appellee
not filed the present action, appellants would not have advanced this obvious
afterthought that Exhibit "A" does not express the true intent and agreement of the
parties thereto.

At pages 32-33 of appellants' brief, they also make much of the argument that 'there
is an overriding fact which proves that the parties to the Amended Articles of
Partnership, Exhibit "A", did not contemplate to make the appellee Estrella Abad
Santos, an industrial partner of Evangelista & Co. It is an admitted fact that since
before the execution of the amended articles of partnership, Exhibit "A", the appellee
Estrella Abad Santos has been, and up to the present time still is, one of the judges
of the City Court of Manila, devoting all her time to the performance of the duties of
her public office. This fact proves beyond peradventure that it was never
 contemplated between the parties, for she could not lawfully contribute her full time
and industry which is the obligation of an industrial partner pursuant to Art. 1789 of
the Civil Code.

The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the
decision, and then concluded as follows:

One cannot read appellee's testimony just quoted without gaining the very definite
impression that, even as she was and still is a Judge of the City Court of Manila, she
has rendered services for appellants without which they would not have had the
wherewithal to operate the business for which appellant company was organized.
Article 1767 of the New Civil Code which provides that "By contract of partnership
two or more persons bind themselves, to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves, 'does not
specify the kind of industry that a partner may thus contribute, hence the said
services may legitimately be considered as appellee's contribution to the common
fund. Another article of the same Code relied upon appellants reads:

'ART. 1789. An industrial partner cannot engage in business for

himself, unless the partnership expressly permits him to do so; and if
he should do so, the capitalist partners may either exclude him from
the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either
case.'

It is not disputed that the provision against the industrial partner engaging in
business for himself seeks to prevent any conflict of interest between the industrial
partner and the partnership, and to insure faithful compliance by said partner with
this prestation. There is no pretense, however, even on the part of the appellee is
engaged in any business antagonistic to that of appellant company, since being a
Judge of one of the branches of the City Court of Manila can hardly be characterized
as a business. That appellee has faithfully complied with her prestation with respect
to appellants is clearly shown by the fact that it was only after filing of the complaint
in this case and the answer thereto appellants exercised their right of exclusion
under the codal art just mentioned by alleging in their Supplemental Answer dated
June 29, 1964 or after around nine (9) years from June 7, 1955 subsequent to
the filing of defendants' answer to the complaint, defendants reached an agreement
whereby the herein plaintiff been excluded from, and deprived of, her alleged share,
interests or participation, as an alleged industrial partner, in the defendant
partnership and/or in its net profits or income, on the ground plaintiff has never
contributed her industry to the partnership, instead she has been and still is a judge
of the City Court (formerly Municipal Court) of the City of Manila, devoting her time to
performance of her duties as such judge and enjoying the privilege and emoluments
appertaining to the said office, aside from teaching in law school in Manila, without
the express consent of the herein defendants' (Record On Appeal, pp. 24-25).
Having always knows as a appellee as a City judge even before she joined appellant
company on June 7, 1955 as an industrial partner, why did it take appellants many
yearn before excluding her from said company as aforequoted allegations? And how
can they reconcile such exclusive with their main theory that appellee has never
been such a partner because "The real agreement evidenced by Exhibit "A" was to
grant the appellee a share of 30% of the net profits which the appellant partnership
may realize from June 7, 1955, until the mortgage of P30,000.00 obtained from the
Rehabilitation Finance Corporal shall have been fully paid." (Appellants Brief, p. 38).
 What has gone before persuades us to hold with the lower Court that appellee is an
industrial partner of appellant company, with the right to demand for a formal
accounting and to receive her share in the net profit that may result from such an
accounting, which right appellants take exception under their second assigned error.
Our said holding is based on the following article of the New Civil Code:

'ART. 1899. Any partner shall have the right to a formal account as to
partnership affairs:

(1) If he is wrongfully excluded from the partnership business or possession of its

property by his co-partners;

(2) If the right exists under the terms of any agreement;

(3) As provided by article 1807;

(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction
to reviewing only errors of law, accepting as conclusive the factual findings of the lower court upon
its own assessment of the evidence.

The judgment appealed from is affirmed, with costs.

G.R. No. L-6304 December 29, 1953

SERGIO V. SISON, plaintiff-appellant,

vs.
HELEN J. MCQUAID, defendant-appellee.

SYLLABUS

1. PLEADING AND PRACTICE; DISMISSAL OF COMPLAINT; PRESCRIPTION OF ACTION, NOT SHOWN.

Where it is not clear from the allegations of the complaint just when plaintiffs cause of action accrued, and
consequently, it cannot be determined with certainty whether that action has already prescribed or not, the
defense of prescription can not be sustained on a mere motion to dismiss based on what appears on the
face of the complaint.

2. ID.; ID.; NO CAUSE OF ACTION. Plaintiff seeks to recover from defendant one-half of the purchase
price of lumber sold by the partnership to the United States Army. But his complaint does not show why he
should be entitled to the sum he claims. It does not allege that there has been a liquidation of their
partnership business and the said sum has been found to be due him as his share of the profits. Held: The
complaint states no cause of action. The proceeds from the sale of a certain amount of lumber cannot be
considered profits until costs and expenses have been deducted. Moreover, the profits of a business cannot
be determined by taking into account the result of one particular transaction instead of all the transactions
had. Hence, the need for a general liquidation before a member of a partnership may claim a specific sum as
his share of the profits.

DECISION
REYES, J.:

On March 28, 1951, plaintiff brought an action in the Court of First Instance of Manila against
defendant, alleging that during the year 1938 the latter borrowed from him various sums of money,
aggregating P2,210, to enable her to pay her obligation to the Bureau of Forestry and to add to her
capital in her lumber business, receipt of the amounts advanced being acknowledged in a document,
Exhibit A, executed by her on November 10, 1938 and attached to the complaint; that as defendant
was not able to pay the loan in 1938, as she had promised, she proposed to take in plaintiff as a
partner in her lumber business, plaintiff to contribute to the partnership the said sum of P2,210 due
him from defendant in addition to his personal services; that plaintiff agreed to defendant's proposal
and, as a result, there was formed between them, under the provisions of the Civil Code, a
partnership in which they were to share alike in the income or profits of the business, each to get
one-half thereof; that in accordance with said contract, plaintiff, together with defendant, rendered
services to the partnership without compensation from June 15, 1938 to December, 1941; that
before the last World War, the partnership sold to the United States Army 230,000 board feet of
lumber for P13,800, for the collection of which sum defendant, as manager of the partnership, filed
the corresponding claim with the said army after the war; that the claim was "finally" approved and
the full amount paid the complaint does not say when but defendant has persistently refused to
deliver one-half of it, or P6,900, to plaintiff notwithstanding repeated demands, investing the whole
sum of P13,800 for her own benefit. Plaintiff, therefore, prays for judgment declaring the existence of
the alleged partnership and requiring the defendant to pay him the said sum of P6,900, in addition to
damages and costs.

Notified of the action, defendant filed a motion to dismiss on the grounds that plaintiff's action had
already prescribed, that plaintiff's claim was not provable under the Statute of Frauds, and that the
complaint stated no cause of action. Sustaining the first ground, the court dismissed the case,
whereupon, plaintiff appealed to the Court of Appeals; but that court has certified the case here on
the ground that the appeal involved only questions of law.

It is not clear from the allegations of the complaint just when plaintiff's cause of action accrued.
Consequently, it cannot be determined with certainty whether that action has already prescribed or
not. Such being the case, the defense of prescription can not be sustained on a mere motion to
dismiss based on what appears on the face of the complaint.

But though the reason given for the order of dismissal be untenable, we find that the said order
should be upheld on the ground that the complaint states no cause of action, which is also one of the
grounds on which defendant's motion to dismiss was based. Plaintiff seeks to recover from
defendant one-half of the purchase price of lumber sold by the partnership to the United States
Army. But his complaint does not show why he should be entitled to the sum he claims. It does not
allege that there has been a liquidation of the partnership business and the said sum has been found
to be due him as his share of the profits. The proceeds from the sale of a certain amount of lumber
cannot be considered profits until costs and expenses have been deducted. Moreover, the profits of
the business cannot be determined by taking into account the result of one particular transaction
instead of all the transactions had. Hence, the need for a general liquidation before a member of a
partnership may claim a specific sum as his share of the profits.

In view of the foregoing, the order of dismissal is affirmed, but on the ground that the complaint
states no cause of action and without prejudice to the filing of an action for accounting or liquidation
should that be what plaintiff really wants. Without costs in this instance.
G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,

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

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-
G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila, Branch
II in Civil Case No. 116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue
Leung in the business of Sun Wah Panciteria and ordering the petitioner to pay to the private
respondent his share in the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the then Court of First
Instance of Manila, Branch II to recover the sum equivalent to twenty-two percent (22%) of the
annual profits derived from the operation of Sun Wah Panciteria since October, 1955 from petitioner
Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor.
Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun Wah
Panciteria was actually a partnership and that he was one of the partners having contributed
P4,000.00 to its initial establishment.

The private respondents evidence is summarized as follows:

About the time the Sun Wah Panciteria started to become operational, the private respondent gave
P4,000.00 as his contribution to the partnership. This is evidenced by a receipt identified as Exhibit
"A" wherein the petitioner acknowledged his acceptance of the P4,000.00 by affixing his signature
thereto. The receipt was written in Chinese characters so that the trial court commissioned an
interpreter in the person of Ms. Florence Yap to translate its contents into English. Florence Yap
issued a certification and testified that the translation to the best of her knowledge and belief was
correct. The private respondent identified the signature on the receipt as that of the petitioner
(Exhibit A-3) because it was affixed by the latter in his (private respondents') presence. Witnesses
So Sia and Antonio Ah Heng corroborated the private respondents testimony to the effect that they
were both present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further testified
that he himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery of his
own investment in another amount of P4,000.00 An examination was conducted by the PC Crime
Laboratory on orders of the trial court granting the private respondents motion for examination of
certain documentary exhibits. The signatures in Exhibits "A" and 'D' when compared to the signature
of the petitioner appearing in the pay envelopes of employees of the restaurant, namely Ah Heng
and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two receipts were
indeed the signatures of the petitioner.

Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered
by the latter's Equitable Banking Corporation Check No. 13389470-B from the profits of the
operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings
Department of the China Banking Corporation testified that said check (Exhibit B) was deposited by
and duly credited to the private respondents savings account with the bank after it was cleared by
the drawee bank, the Equitable Banking Corporation. Another witness Elvira Rana of the Equitable
Banking Corporation testified that the check in question was in fact and in truth drawn by the
petitioner and debited against his own account in said bank. This fact was clearly shown and
indicated in the petitioner's statement of account after the check (Exhibit B) was duly cleared. Rana
further testified that upon clearance of the check and pursuant to normal banking procedure, said
check was returned to the petitioner as the maker thereof.

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

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

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

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

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

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

FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration

filed by the plaintiff, which was granted earlier by the Court, is hereby reiterated and
the decision rendered by this Court on September 30, 1980, is hereby amended. The
dispositive portion of said decision should read now as follows:

WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against
the defendant, ordering the latter to pay the former the sum equivalent to 22% of the
net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus
the sum of P5,000.00 as and for attorney's fees and costs of suit. (p. 150, Rollo)

The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court.
The questioned decision was further modified by the appellate court. The dispositive portion of the
appellate court's decision reads:
 WHEREFORE, the decision appealed from is modified, the dispositive portion
thereof reading as follows:

1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of
the net profit of P2,000.00 a day from judicial demand to May 15, 1971;

2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May
16, 1971 to August 30, 1975;

3. And thereafter until fully paid the sum equivalent to 22% of the net profit of
P8,000.00 a day.

Except as modified, the decision of the court a quo is affirmed in all other respects.
(p. 102, Rollo)

Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's
decision. The dispositive portion of the resolution reads:

WHEREFORE, the dispositive portion of the amended judgment of the court a

quo reading as follows:

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

defendant, ordering the latter to pay to the former the sum equivalent to 22% of the
net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus
the sum of P5,000.00 as and for attorney's fees and costs of suit.

is hereby retained in full and affirmed in toto it being understood that the date of judicial demand is
July 13, 1978. (pp. 105-106, Rollo).

In the same resolution, the motion for reconsideration filed by petitioner was denied.

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

The pertinent portions of the complaint state:

xxx xxx xxx

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

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

3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four
thousand pesos (P4,000.00), Philippine Currency, of which copy for the receipt of
such amount, duly acknowledged by the defendant is attached hereto as Annex "A",
and form an integral part hereof; (p. 11, Rollo)

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

Therefore, the lower courts did not err in construing the complaint as one wherein the private
respondent asserted his rights as partner of the petitioner in the establishment of the Sun Wah
Panciteria, notwithstanding the use of the term financial assistance therein. We agree with the
appellate court's observation to the effect that "... given its ordinary meaning, financial assistance is
the giving out of money to another without the expectation of any returns therefrom'. It connotes
an ex gratia dole out in favor of someone driven into a state of destitution. But this circumstance
under which the P4,000.00 was given to the petitioner does not obtain in this case.' (p. 99, Rollo)
The complaint explicitly stated that "as a return for such financial assistance, plaintiff (private
respondent) would be entitled to twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature of the
action filed in court is determined by the facts alleged in the complaint as constituting the cause of
action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v.
Court of Appeals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue in the instant case was whether or not
the private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria.

The petitioner also contends that the respondent court gravely erred in giving probative value to the
PC Crime Laboratory Report (Exhibit "J") on the ground that the alleged standards or specimens
used by the PC Crime Laboratory in arriving at the conclusion were never testified to by any witness
nor has any witness identified the handwriting in the standards or specimens belonging to the
petitioner. The supposed standards or specimens of handwriting were marked as Exhibits "H" "H-1"
to "H-24" and admitted as evidence for the private respondent over the vigorous objection of the
petitioner's counsel.

The records show that the PC Crime Laboratory upon orders of the lower court examined the
signatures in the two receipts issued separately by the petitioner to the private respondent and So
Sia (Exhibits "A" and "D") and compared the signatures on them with the signatures of the petitioner
on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong,
employees of the restaurant. After the usual examination conducted on the questioned documents,
the PC Crime Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in
both receipts (Exhibits "A" and "D") were the signatures of the petitioner.

The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented
by the private respondent for marking as exhibits, the petitioner did not interpose any objection.
Neither did the petitioner file an opposition to the motion of the private respondent to have these
exhibits together with the two receipts examined by the PC Crime Laboratory despite due notice to
him. Likewise, no explanation has been offered for his silence nor was any hint of objection
registered for that purpose.

Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored. The
records sufficiently establish that there was a partnership.

The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate
Appellate Court gravely erred in not resolving the issue of prescription in favor of petitioner. The
alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after
the lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From October 1, 1955 to
July 13, 1978, no written demands were ever made by private respondent.

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

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

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

in relation to Article 1155 thereof which provides:

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

The argument is not well-taken.

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

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

The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
 person or partnership continuing the business, at the date of dissolution, in the
absence or any agreement to the contrary.

Regarding the prescriptive period within which the private respondent may demand an accounting,
Articles 1806, 1807, and 1809 show that the right to demand an accounting exists as long as the
partnership exists. Prescription begins to run only upon the dissolution of the partnership when the
final accounting is done.

Finally, the petitioner assails the appellate court's monetary awards in favor of the private
respondent for being excessive and unconscionable and above the claim of private respondent as
embodied in his complaint and testimonial evidence presented by said private respondent to support
his claim in the complaint.

Apart from his own testimony and allegations, the private respondent presented the cashier of Sun
Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the restaurant.

Mrs. Licup stated:

ATTY. HIPOLITO (direct examination to Mrs. Licup).

Q Mrs. Witness, you stated that among your duties was that you were
in charge of the custody of the cashier's box, of the money, being the
cashier, is that correct?

A Yes, sir.

Q So that every time there is a customer who pays, you were the one
who accepted the money and you gave the change, if any, is that
correct?

A Yes.

Q Now, after 11:30 (P.M.) which is the closing time as you said, what
do you do with the money?

A We balance it with the manager, Mr. Dan Fue Leung.

ATTY. HIPOLITO:

I see.

Q So, in other words, after your job, you huddle or confer together?

A Yes, count it all. I total it. We sum it up.

Q Now, Mrs. Witness, in an average day, more or less, will you

please tell us, how much is the gross income of the restaurant?
 A For regular days, I received around P7,000.00 a day during my shift
alone and during pay days I receive more than P10,000.00. That is
excluding the catering outside the place.

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

A Sometimes three times a month; sometimes two times a month or

more.

xxx xxx xxx

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

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

Q How much is that?

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

Q Per service?

A Per service, Per catering.

Q So in other words, Mrs. witness, for your shift alone in a single day
from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses
an income of P7,000.00 in a regular day?

A Yes.

Q And ten thousand pesos during pay day.?

A Yes.

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

xxx xxx xxx

COURT:

Any cross?

ATTY. UY (counsel for defendant):

No cross-examination, Your Honor. (T.S.N. p. 65, November 15,

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

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

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

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

The defendant was given all the chance to present all conceivable witnesses, after
the plaintiff has rested his case on February 25, 1981, however, after presenting
several witnesses, counsel for defendant promised that he will present the defendant
as his last witness. Notably there were several postponement asked by counsel for
the defendant and the last one was on October 1, 1981 when he asked that this case
be postponed for 45 days because said defendant was then in Hongkong and he
(defendant) will be back after said period. The Court acting with great concern and
understanding reset the hearing to November 17, 1981. On said date, the counsel for
the defendant who again failed to present the defendant asked for another
postponement, this time to November 24, 1981 in order to give said defendant
another judicial magnanimity and substantial due process. It was however a
condition in the order granting the postponement to said date that if the defendant
cannot be presented, counsel is deemed to have waived the presentation of said
witness and will submit his case for decision.

On November 24, 1981, there being a typhoon prevailing in Manila said date was
declared a partial non-working holiday, so much so, the hearing was reset to
December 7 and 22, 1981. On December 7, 1981, on motion of defendant's counsel,
the same was again reset to December 22, 1981 as previously scheduled which
hearing was understood as intransferable in character. Again on December 22, 1981,
the defendant's counsel asked for postponement on the ground that the defendant
was sick. the Court, after much tolerance and judicial magnanimity, denied said
motion and ordered that the case be submitted for resolution based on the evidence
on record and gave the parties 30 days from December 23, 1981, within which to file
their simultaneous memoranda. (Rollo, pp. 148-150)

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

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

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

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

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

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;

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

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

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.

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

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

SO ORDERED.

G.R. No. 127405 October 4, 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No.
41616,1 affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil Case No.
88-509.2

Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent
Nenita A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean
Water Purifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie
Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local
distribution of kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay
the job of marketing the product considering her experience and established relationship with West
Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo
acted as capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and sales
force while Tocao hired and fired employees, determined commissions and/or salaries of the
employees, and assigned them to different branches. The parties agreed that Belos name should
not appear in any documents relating to their transactions with West Bend Company. Instead, they
agreed to use Anays name in securing distributorship of cookware from that company. The parties
agreed further that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the
business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty
percent (30%) of the sales she would make; and (4) two percent (2%) for her demonstration
services. The agreement was not reduced to writing on the strength of Belos assurances that he
was sincere, dependable and honest when it came to financial commitments.

Anay having secured the distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business took off successfully.
They operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie
Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his
monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited
Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987
and to the southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26,
1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as president and general
manager of Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in
Manila on July 13, 1987. A portion of the letter reads:

"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20)
years now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the
Vice President Sales Marketing and a business partner of our company, will attend in response to
the invitation." (Italics supplied.)3

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the
business on account of the unsatisfactory sales record in the Makati and Cubao offices. On August
31, 1987, she received a plaque of appreciation from the administrative and sales people through
Marjorie Tocao4 for her excellent job performance. On October 7, 1987, in the presence of Anay,
Belo signed a memo5 entitling her to a thirty-seven percent (37%) commission for her personal sales
"up Dec 31/87." Belo explained to her that said commission was apart from her ten percent (10%)
share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a
letter6 addressed to the Cubao sales office to the effect that she was no longer the vice-president of
Geminesse Enterprise. The following day, October 10, she received a note from Lina T. Cruz,
marketing manager, that Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices.7 Anay attempted to contact Belo. She wrote him
twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988
and the audit of the company to determine her share in the net profits. When her letters were not
answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not
answered.

Anay still received her five percent (5%) overriding commission up to December 1987. The following
year, 1988, she did not receive the same commission although the company netted a gross sales of
P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with
damages8 against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati,
Branch 140.

In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the
following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988;
(2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also
prayed for an audit of the finances of Geminesse Enterprise from the inception of its business
operation until she was "illegally dismissed" to determine her ten percent (10%) share in the net
profits. She further prayed that she be paid the five percent (5%) "overriding commission" on the
remaining 150 West Bend cookware sets before her "dismissal."

In their answer,9 Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay that was
"neither reduced in writing, nor ratified," was "either unenforceable or void or inexistent." As far as
Belo was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have
been a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole
proprietorship of Marjorie Tocao. Because Anay merely acted as marketing demonstrator of
Geminesse Enterprise for an agreed remuneration, and her complaint referred to either her
compensation or dismissal, such complaint should have been lodged with the Department of Labor
and not with the regular court.

Petitioners (defendants therein) further alleged that Anay filed the complaint on account of "ill-will
and resentment" because Marjorie Tocao did not allow her to "lord it over in the Geminesse
Enterprise." Anay had acted like she owned the enterprise because of her experience and expertise.
Hence, petitioners were the ones who suffered actual damages "including unreturned and
unaccounted stocks of Geminesse Enterprise," and "serious anxiety, besmirched reputation in the
business world, and various damages not less than P500,000.00." They also alleged that, to
"vindicate their names," they had to hire counsel for a fee of P23,000.00.

At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an
employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to
damages.10

In their defense, Belo denied that Anay was supposed to receive a share in the profit of the
business. He, however, admitted that the two had agreed that Anay would receive a three to four
percent (3-4%) share in the gross sales of the cookware. He denied contributing capital to the
business or receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao,
who was new in the business. He attended and/or presided over business meetings of the venture in
his capacity as a guarantor but he never participated in decision-making. He claimed that he wrote
the memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from the
business venture at the request of Tocao, because Anay had no other income.

For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay.
However, she admitted that Anay was an expert in the cookware business and hence, they agreed
to grant her the following commissions: thirty-seven percent (37%) on personal sales; five percent
(5%) on gross sales; two percent (2%) on product demonstrations, and two percent (2%) for
recruitment of personnel. Marjorie denied that they agreed on a ten percent (10%) commission on
the net profits. Marjorie claimed that she got the capital for the business out of the sale of the sewing
machines used in her garments business and from Peter Lo, a Singaporean friend-financier who
loaned her the funds with interest. Because she treated Anay as her "co-equal," Marjorie received
the same amounts of commissions as her. However, Anay failed to account for stocks valued at
P200,000.00.

On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:

"WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the
years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent
(10%) share of plaintiff in the net profits of the cookware business;

2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition when plaintiff was wrongfully excluded from the
partnership by defendants;

3. Ordering defendants to pay plaintiff overriding commission on the total production which for the
period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary

damages, and

5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.

SO ORDERED."

The trial court held that there was indeed an "oral partnership agreement between the plaintiff and
the defendants," based on the following: (a) there was an intention to create a partnership; (b) a
common fund was established through contributions consisting of money and industry, and (c) there
was a joint interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin and the
administrative officer of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal
International, Inc., buttressed the fact that a partnership existed between the parties. The letter of
Roger Muencheberg of West Bend Company stating that he awarded the distributorship to Anay and
Marjorie Tocao because he was convinced that with Marjories financial contribution and Anays
experience, the combination of the two would be invaluable to the partnership, also supported that
conclusion. Belos claim that he was merely a "guarantor" has no basis since there was no written
evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of attending and/or
presiding over meetings of Geminesse Enterprise plus his issuance of a memo giving Anay 37%
commission on personal sales belied this. On the contrary, it demonstrated his involvement as a
partner in the business.
The trial court further held that the payment of commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to in business circles as an impetus to
bigger sales volume. It did not matter that the agreement was not in writing because Article 1771 of
the Civil Code provides that a partnership may be "constituted in any form." The fact that Geminesse
Enterprise was registered in Marjorie Tocaos name is not determinative of whether or not the
business was managed and operated by a sole proprietor or a partnership. What was registered with
the Bureau of Domestic Trade was merely the business name or style of Geminesse Enterprise.

The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent
partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as
well as damages or share in the profits "realized from the appropriation of the partnership business
and goodwill." An innocent partner thus possesses "pecuniary interest in every existing contract that
was incomplete and in the trade name of the co-partnership and assets at the time he was
wrongfully expelled."

Petitioners appeal to the Court of Appeals11 was dismissed, but the amount of damages awarded by
the trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary
damages. Their Motion for Reconsideration was denied by the Court of Appeals for lack of
merit.12 Petitioners Belo and Marjorie Tocao are now before this Court on a petition for review
on certiorari, asserting that there was no business partnership between them and herein private
respondent Nenita A. Anay who is, therefore, not entitled to the damages awarded to her by the
Court of Appeals.

Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership
existed between them and private respondent Anay because Geminesse Enterprise "came into
being" exactly a year before the "alleged partnership" was formed, and that it was very unlikely that
petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing,
without any "memorandum whatsoever regarding the alleged partnership."13

The issue of whether or not a partnership exists is a factual matter which are within the exclusive
domain of both the trial and appellate courts. This Court cannot set aside factual findings of such
courts absent any showing that there is no evidence to support the conclusion drawn by the court a
quo.14 In this case, both the trial court and the Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership. This Court finds no reason to rule otherwise.

To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more
persons bind themselves to contribute money, property or industry to a common fund; and (2)
intention on the part of the partners to divide the profits among themselves.15 It may be constituted in
any form; a public instrument is necessary only where immovable property or real rights are
contributed thereto.16 This implies that since a contract of partnership is consensual, an oral contract
of partnership is as good as a written one. Where no immovable property or real rights are involved,
what matters is that the parties have complied with the requisites of a partnership. The fact that there
appears to be no record in the Securities and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article 1772 of the Civil Code17 did not cause the
nullification of the partnership. The pertinent provision of the Civil Code on the matter states:

Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first paragraph.

Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the partnership and
hence, under the law, she was the industrial or managing partner. It was through her reputation with
the West Bend Company that the partnership was able to open the business of distributorship of that
companys cookware products; it was through the same efforts that the business was propelled to
financial success. Petitioner Tocao herself admitted private respondents indispensable role in
putting up the business when, upon being asked if private respondent held the positions of
marketing manager and vice-president for sales, she testified thus:

"A: No, sir at the start she was the marketing manager because there were no one to sell yet, its
only me there then her and then two (2) people, so about four (4). Now, after that when she recruited
already Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of
marketing managers of which definitely Nita as superior to them would be the Vice President."18

By the set-up of the business, third persons were made to believe that a partnership had indeed
been forged between petitioners and private respondents. Thus, the communication dated June 4,
1986 of Missy Jagler of West Bend Company to Roger Muencheberg of the same company states:

"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge
does not have cookware experience. Nita Anay has started to gather former managers, Lina Torda
and Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela,
Menchu Javier. They will continue to gather other key people and build up the organization. All they
need is the finance and the products to sell."19

On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face
of the established fact that he presided over meetings regarding matters affecting the operation of
the business. Moreover, his having authorized in writing on October 7, 1987, on a stationery of his
own business firm, Wilcon Builders Supply, that private respondent should receive thirty-seven
(37%) of the proceeds of her personal sales, could not be interpreted otherwise than that he had a
proprietary interest in the business. His claim that he was merely a guarantor is belied by that
personal act of proprietorship in the business. Moreover, if he was indeed a guarantor of future debts
of petitioner Tocao under Article 2053 of the Civil Code,20 he should have presented documentary
evidence therefor. While Article 2055 of the Civil Code simply provides that guaranty must be
"express," Article 1403, the Statute of Frauds, requires that "a special promise to answer for the
debt, default or miscarriage of another" be in writing.21

Petitioner Tocao, a former ramp model,22 was also a capitalist in the partnership. She claimed that
she herself financed the business. Her and petitioner Belos roles as both capitalists to the
partnership with private respondent are buttressed by petitioner Tocaos admissions that petitioner
Belo was her boyfriend and that the partnership was not their only business venture together. They
also established a firm that they called "Wiji," the combination of petitioner Belos first name, William,
and her nickname, Jiji.23 The special relationship between them dovetails with petitioner Belos claim
that he was acting in behalf of petitioner Tocao. Significantly, in the early stage of the business
operation, petitioners requested West Bend Company to allow them to "utilize their banking and
trading facilities in Singapore" in the matter of importation and payment of the cookware
products.24 The inevitable conclusion, therefore, was that petitioners merged their respective capital
and infused the amount into the partnership of distributing cookware with private respondent as the
managing partner.

The business venture operated under Geminesse Enterprise did not result in an employer-employee
relationship between petitioners and private respondent. While it is true that the receipt of a
percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the
business,25 the evidence in the case at bar controverts an employer-employee relationship between
the parties. In the first place, private respondent had a voice in the management of the affairs of the
cookware distributorship,26 including selection of people who would constitute the administrative staff
and the sales force. Secondly, petitioner Tocaos admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse Enterprise,27 private respondent
received only commissions and transportation and representation allowances28 and not a fixed
salary.29 Petitioner Tocao testified:

"Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y.
Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21,
1987, will you please go over this and tell the Honorable Court whether you ever came across this
document and know of your own knowledge the amount ---

A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain
percentage for promotions, advertising, incentive.

Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote:
Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount?

A: Oh yes, sir.

Q: I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?

A: Yes, sir.

Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is
this?

A: Thats her overriding commission.

Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the
same P21,410.50 is merely by coincidence?

A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a
sense because of her expertise in the business she is vital to my business. So, as part of the
incentive I offer her the same thing.

Q: So, in short you are saying that this you have shared together, I mean having gotten from the
company P21,140.50 is your way of indicating that you were treating her as an equal?

A: As an equal.

Q: As an equal, I see. You were treating her as an equal?

A: Yes, sir.

Q: I am calling again your attention to Exh. Y Overrides Makati the other one is ---

A: That is the same thing, sir.

Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount
there you will acknowledge you have received that?
A: Yes, sir.

Q: Again in concept of commission, representation, promotion, etc.?

A: Yes, sir.

Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she
received the same amount?

A: Yes, sir.

Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?

A: No, sir.

Q: It is again in concept of you treating Miss Anay as your equal?

A: Yes, sir." (Italics supplied.)30

If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall
receive the same income in the business. In a partnership, each partner must share in the profits
and losses of the venture, except that the industrial partner shall not be liable for the losses.31 As an
industrial partner, private respondent had the right to demand for a formal accounting of the
business and to receive her share in the net profit.32

The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a
sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on
August 19, 1987 was merely the name of that enterprise.33 While it is true that in her undated
application for renewal of registration of that firm name, petitioner Tocao indicated that it would be
engaged in retail of "kitchenwares, cookwares, utensils, skillet,"34 she also admitted that the
enterprise was only "60% to 70% for the cookware business," while 20% to 30% of its business
activity was devoted to the sale of water sterilizer or purifier.35 Indubitably then, the business name
Geminesse Enterprise was used only for practical reasons - it was utilized as the common name for
petitioner Tocaos various business activities, which included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return the "unaccounted and
unremitted stocks of Geminesse Enterprise amounting to P208,250.00."36 Obviously a ploy to offset
the damages awarded to private respondent, that claim, more than anything else, proves the
existence of a partnership between them. In Idos v. Court of Appeals, this Court said:

"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. x x x."37

It is not surprising then that, even after private respondent had been unceremoniously booted out of
the partnership in October 1987, she still received her overriding commission until December 1987.

Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap
for herself and/or for petitioner Belo financial gains resulting from private respondents efforts to
make the business venture a success. Thus, as petitioner Tocao became adept in the business
operation, she started to assert herself to the extent that she would even shout at private respondent
in front of other people.38 Her instruction to Lina Torda Cruz, marketing manager, not to allow private
respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her
perception that private respondent was no longer necessary in the business operation,39 and resulted
in a falling out between the two. However, a mere falling out or misunderstanding between partners
does not convert the partnership into a sham organization.40 The partnership exists until dissolved
under the law. Since the partnership created by petitioners and private respondent has no fixed term
and is therefore a partnership at will predicated on their mutual desire and consent, it may be
dissolved by the will of a partner. Thus:

"x x x. The right to choose with whom a person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of
that mutual resolve, along with each partners capability to give it, and the absence of cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but that it can result in a
liability for damages."41

An unjustified dissolution by a partner can subject him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personae allows the partners to have
the power, although not necessarily the right to dissolve the partnership.42

In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is
shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9,
1987, no longer the vice-president for sales of Geminesse Enterprise.43 By that memo, petitioner
Tocao effected her own withdrawal from the partnership and considered herself as having ceased to
be associated with the partnership in the carrying on of the business. Nevertheless, the partnership
was not terminated thereby; it continues until the winding up of the business.44

The winding up of partnership affairs has not yet been undertaken by the partnership. This is
1wphi1

manifest in petitioners claim for stocks that had been entrusted to private respondent in the pursuit
of the partnership business.

The determination of the amount of damages commensurate with the factual findings upon which it
is based is primarily the task of the trial court.45 The Court of Appeals may modify that amount only
when its factual findings are diametrically opposed to that of the lower court,46 or the award is
palpably or scandalously and unreasonably excessive.47 However, exemplary damages that are
awarded "by way of example or correction for the public good,"48should be reduced to P50,000.00,
the amount correctly awarded by the Court of Appeals. Concomitantly, the award of moral damages
of P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly, attorneys
fees that should be granted on account of the award of exemplary damages and petitioners evident
bad faith in refusing to satisfy private respondents plainly valid, just and demandable
claims,49 appear to have been excessively granted by the trial court and should therefore be reduced
to P25,000.00.

WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among
petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the
winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil Code.
This case is remanded to the Regional Trial Court for proper proceedings relative to said dissolution.
The appealed decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with
MODIFICATIONS, as follows ---
 1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the
partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in
order to determine private respondents ten percent (10%) share in the net profits of the
partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%)
overriding commission for the one hundred and fifty (150) cookware sets available for
disposition since the time private respondent was wrongfully excluded from the partnership
by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding
commission on the total production which, for the period covering January 8, 1988 to
February 5, 1988, amounted to P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in
the amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys
fees in the amount of P25,000.00.

SO ORDERED.

G.R. No. 144214 July 14, 2003

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE, petitioners,

vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C.
RAMIREZ,respondents.

PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the latter's dissolution,
liquidation and winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision1 and the
July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed
Decision disposed as follows:

"WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered
by the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED
and in lieu thereof a new decision is rendered ordering the [petitioners] jointly and severally
to pay and reimburse to [respondents] the amount of P253,114.00. No pronouncement as to
costs."4

Reconsideration was denied in the impugned Resolution.

The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with
a capital of P750,000 for the operation of a restaurant and catering business under the name
"Aquarius Food House and Catering Services."5 Villareal was appointed general manager and
Carmelito Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5, 1984.
His capital contribution of P250,000 was paid by his parents, Respondents Cesar and Carmelita
Ramirez.6

After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000
was refunded to him in cash by agreement of the partners.7

In the same month, without prior knowledge of respondents, petitioners closed down the restaurant,
allegedly because of increased rental. The restaurant furniture and equipment were deposited in the
respondents' house for storage.8

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested
in continuing their partnership or in reopening the restaurant, and that they were accepting the
latter's offer to return their capital contribution.9

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the
deterioration of the restaurant furniture and equipment stored in their house. She also reiterated the
request for the return of their one-third share in the equity of the partnership. The repeated oral and
written requests were, however, left unheeded.10

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a
Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the
partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that
respondents had been paid, upon the turnover to them of furniture and equipment worth over
P400,000; and that the latter had no right to demand a return of their equity because their share,
together with the rest of the capital of the partnership, had been spent as a result of irreversible
business losses.12

In their Reply, respondents alleged that they did not know of any loan encumbrance on the
restaurant. According to them, if such allegation were true, then the loans incurred by petitioners
should be regarded as purely personal and, as such, not chargeable to the partnership. The former
further averred that they had not received any regular report or accounting from the latter, who had
solely managed the business. Respondents also alleged that they expected the equipment and the
furniture stored in their house to be removed by petitioners as soon as the latter found a better
location for the restaurant.13

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture
and Equipment14 on July 8, 1988. The furniture and the equipment stored in their house were
inventoried and appraised at P29,000.15 The display freezer was sold for P5,000 and the proceeds
were paid to them.16

After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership, which could
be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held there liable as follows:18
 "WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the
[petitioners] ordering the [petitioners] to pay jointly and severally the following:

(a) Actual damages in the amount of P250,000.00

(b) Attorney's fee in the amount of P30,000.00

(c) Costs of suit."

The CA Ruling

The CA held that, although respondents had no right to demand the return of their capital
contribution, the partnership was nonetheless dissolved when petitioners lost interest in continuing
the restaurant business with them. Because petitioners never gave a proper accounting of the
partnership accounts for liquidation purposes, and because no sufficient evidence was presented to
show financial losses, the CA. computed their liability as follows:

"Consequently, since what has been proven is only the outstanding obligation of the
partnership in the amount of P240,658.00, although contracted by the partnership before
[respondents'] have joined the partnership but in accordance with Article 1826 of the New
Civil Code, they are liable which must have to be deducted from the remaining capitalization
of the said partnership which is in the amount of P1,000,000.00 resulting in the amount of
P759,342.00, and in order to get the share of [respondents], this amount of P759,342.00
must be divided into three (3) shares or in the amount of P253,114.00 for each share and
which is the only amount which [petitioner] will return to [respondents'] representing the
contribution to the partnership minus the outstanding debt thereof."19

Hence, this Petition.20

Issues

In their Memorandum,21 petitioners submit the following issues for our consideration:

"9.1. Whether the Honorable Court of Appeals' decision ordering the distribution of the
capital contribution, instead of the net capital after the dissolution and liquidation of a
partnership, thereby treating the capital contribution like a loan, is in accordance with law and
jurisprudence;

"9.2. Whether the Honorable Court of Appeals' decision ordering the petitioners to jointly and
severally pay and reimburse the amount of [P]253,114.00 is supported by the evidence on
record; and

"9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as
to costs."22

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the
latter's share in the partnership; (2) whether the CA's computation of P253,114 as respondents'
share is correct; and (3) whether the CA was likewise correct in not assessing costs.

This Court's Ruling

The Petition has merit.

First Issue:
Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was
dissolved on March 1, 1987. They found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the former's dissatisfaction with, and loss of
trust in, the latter's management of the partnership affairs. These findings were amply supported by
the evidence on record. Respondents consequently demanded from petitioners the return of their
one-third equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of their equity share.
Except as managers of the partnership, petitioners did not personally hold its equity or assets. "The
partnership has a juridical personality separate and distinct from that of each of the partners."23 Since
the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund
the equity of the retiring partners.24

Second Issue:
What Must Be Returned?

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can
only pay out what it has in its coffers, which consists of all its assets. However, before the partners
can be paid their shares, the creditors of the partnership must first be compensated.25 After all the
creditors have been paid, whatever is left of the partnership assets becomes available for the
payment of the partners' shares.

Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third share
in the partnership cannot be determined until all the partnership assets will have been liquidated
in other words, sold and converted to cash and all partnership creditors, if any, paid. The CA's
computation of the amount to be refunded to respondents as their share was thus erroneous.

First, it seems that the appellate court was under the misapprehension that the total capital
contribution was equivalent to the gross assets to be distributed to the partners at the time of the
dissolution of the partnership. We cannot sustain the underlying idea that the capital contribution at
the beginning of the partnership remains intact, unimpaired and available for distribution or return to
the partners. Such idea is speculative, conjectural and totally without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or
decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of
the business. In the present case, the financial statements presented before the trial court showed
that the business had made meager profits.26However, notable therefrom is the omission of any
provision for the depreciation27 of the furniture and the equipment. The amortization of the
goodwill28 (initially valued at P500,000) is not reflected either. Properly taking these non-cash items
into account will show that the partnership was actually sustaining substantial losses, which
consequently decreased the capital of the partnership. Both the trial and the appellate courts in fact
recognized the decrease of the partnership assets to almost nil, but the latter failed to recognize the
consequent corresponding decrease of the capital.
Second, the CA's finding that the partnership had an outstanding obligation in the amount of
P240,658 was not supported by evidence. We sustain the contrary finding of the RTC, which had
rejected the contention that the obligation belonged to the partnership for the following reason:

"x x x [E]vidence on record failed to show the exact loan owed by the partnership to its
creditors. The balance sheet (Exh. '4') does not reveal the total loan. The Agreement (Exh.
'A') par. 6 shows an outstanding obligation of P240,055.00 which the partnership owes to
different creditors, while the Certification issued by Mercator Finance (Exh. '8') shows that it
was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former being the nominal
party defendant in the instant case, who obtained a loan of P355,000.00 on Oct. 1983, when
the original partnership was not yet formed."

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the
partnership to Jesus Jose when he withdrew from the partnership.

Because of the above-mentioned transactions, the partnership capital was actually reduced. When
petitioners and respondents ventured into business together, they should have prepared for the fact
that their investment would either grow or shrink. In the present case, the investment of respondents
substantially dwindled. The original amount of P250,000 which they had invested could no longer be
returned to them, because one third of the partnership properties at the time of dissolution did not
amount to that much.

It is a long established doctrine that the law does not relieve parties from the effects of unwise,
foolish or disastrous contracts they have entered into with all the required formalities and with full
awareness of what they were doing. Courts have no power to relieve them from obligations they
have voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise
investments.29

Petitioners further argue that respondents acted negligently by permitting the partnership assets in
their custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have
liquidated these sole tangible assets of the partnership and considered the proceeds as payment of
their net capital. Hence, petitioners argue that the turnover of the remaining partnership assets to
respondents was precisely the manner of liquidating the partnership and fully settling the latter's
share in the partnership.

We disagree. The delivery of the store furniture and equipment to private respondents was for the
purpose of storage. They were unaware that the restaurant would no longer be reopened by
petitioners. Hence, the former cannot be faulted for not disposing of the stored items to recover their
capital investment.

Third Issue:
Costs

Section 1, Rule 142, provides:

"SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in these
rules, costs shall be allowed to the prevailing party as a matter of course, but the court shall
have power, for special reasons, to adjudge that either party shall pay the costs of an action,
or that the same be divided, as may be equitable. No costs shall be allowed against the
Republic of the Philippines unless otherwise provided by law."
Although, as a rule, costs are adjudged against the losing party, courts have discretion, "for special
reasons," to decree otherwise. When a lower court is reversed, the higher court normally does not
award costs, because the losing party relied on the lower court's judgment which is presumed to
have been issued in good faith, even if found later on to be erroneous. Unless shown to be patently
capricious, the award shall not be disturbed by a reviewing tribunal.

WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE.
This disposition is without prejudice to proper proceedings for the accounting, the liquidation and the
distribution of the remaining partnership assets, if any. No pronouncement as to costs.

SO ORDERED.