Republic of the Philippines produce of the said real properties for the years 1947-1949 for the studies of
SUPREME COURT Rafael and Antonieta Jarantilla.8
Manila
FIRST DIVISION
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 Jarantilla’s 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
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 Remotigue’s 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
Jarantilla’s 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 Antonieta’s 8% share was limited to the
businesses enumerated therein. With regard to Antonieta’s 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 partnership’s 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 Antonieta’s
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 plaintiff’s 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.181avvphi1
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 attorney’s
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 RTC’s 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 RTC’s 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 Jarantilla’s 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 petitioner’s 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
Antonieta’s 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 Antonieta’s 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 partnership’s 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 petitioner’s claim was essentially
the same as Antonieta’s, 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
plaintiff’s 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 petitioner’s 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 partnership’s 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 partnership’s 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 one’s 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.1avvphi1 As held by this 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 petitioner’s 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 plaintiff’s [petitioner’s] 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.
Petitioner’s 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, petitioner’s 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. 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 spouse’s 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,
kaya’t 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 spouse’s 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 Mercado’s 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
Mercado’s 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 latter’s 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-partner’s 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 Justice’s
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 partnership’s 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 [Mercado’s] 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 People’s 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. NOS. 166299-300 December 13, 2005
AURELIO K. LITONJUA, JR., Petitioner,
vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS.
MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K.
LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING
CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec),
LUNETA THEATER, INC., E & L REALTY, (formerly E & L INT’L
SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC.,
BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP., EQUITY
TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM THEATRICAL
ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC.,
ODEON REALTY CORP., SARATOGA REALTY, INC., ACT THEATER
INC. (formerly General Theatrical & Film Exchange, INC.), AVENUE
REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC.,
(Formerly VF PHILIPPINES),Respondents.
DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner
Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the Court
of Appeals (CA) dated March 31, 20041 in consolidated cases C.A. G.R. Sp.
No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated December
07, 2004,2 denying petitioner’s motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K.
Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them started
when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City,
Aurelio filed a suit against his brother Eduardo and herein respondent Robert
T. Yang (Yang) and several corporations for specific performance and
accounting. In his complaint,3 docketed as Civil Case No. 69235 and
eventually raffled to Branch 68 of the court,4 Aurelio alleged that, since June
1973, he and Eduardo are into a joint venture/partnership arrangement in the
Odeon Theater business which had expanded thru investment in Cineplex,
Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of
Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings,
among other corporations. Yang is described in the complaint as petitioner’s
and Eduardo’s partner in their Odeon Theater investment.5 The same
complaint also contained the following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint
venture/partnership for the continuation of their family business and common
family funds ….
3.01.1 This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and other
relatives. Copy of this memorandum is attached hereto and made an integral
part as Annex "A" and the portion referring to [Aurelio] submarked
as Annex "A-1".
3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelio’s] retaining his share in the remaining family
businesses (mostly, movie theaters, shipping and land development) and
contributing his industry to the continued operation of these businesses,
[Aurelio] will be given P1 Million or 10% equity in all these businesses and
those to be subsequently acquired by them whichever is greater. . . .
4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years,
[Aurelio] and Eduardo had accumulated in their joint venture/partnership
various assets including but not limited to the corporate defendants and
[their] respective assets.
4.02 In addition . . . the joint venture/partnership … had also acquired
[various other assets], but Eduardo caused to be registered in the names of
other parties….
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants consist of
real properties …. A list of some of these real properties is attached hereto
and made an integral part as Annex "B".
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became
sour so that [Aurelio] requested for an accounting and liquidation of his share
in the joint venture/partnership [but these demands for complete accounting
and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo
and/or the corporate defendants as well as Bobby [Yang], are transferring . . .
various real properties of the corporations belonging to the joint
venture/partnership to other parties in fraud of [Aurelio]. In consequence,
[Aurelio] is therefore causing at this time the annotation on the titles of these
real properties… a notice of lis pendens …. (Emphasis in the original;
underscoring and words in bracket added.)
For ease of reference, Annex "A-1" of the complaint, which petitioner asserts
to have been meant for him by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. ….
I am trying my best to mold you the way I work so you can follow the pattern
…. You will be the only one left with the company, among us brothers and I
will ask you to stay as I want you to run this office every time I am away. I
want you to run it the way I am trying to run it because I will be all alone and I
will depend entirely to you (sic). My sons will not be ready to help me yet until
about maybe 15/20 years from now. Whatever is left in the corporation, I will
make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten
percent (10%) equity, whichever is greater. We two will gamble the whole
thing of what I have and what you are entitled to. …. It will be you and me
alone on this. If ever I pass away, I want you to take care of all of this. You
keep my share for my two sons are ready take over but give them the chance
to run the company which I have built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first ONE
HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt.
Artiaga so you can live better there. The rest I will give you in form of stocks
which you can keep. This stock I assure you is good and saleable. I will also
gladly give you the share of Wack-Wack …and Valley Golf … because you
have been good. The rest will be in stocks from all the corporations which I
repeat, ten percent (10%) equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as
defendants a quo, filed a joint ANSWER With Compulsory
Counterclaim denying under oath the material allegations of the complaint,
more particularly that portion thereof depicting petitioner and Eduardo as
having entered into a contract of partnership. As affirmative defenses,
Eduardo, et al., apart from raising a jurisdictional matter, alleged that the
complaint states no cause of action, since no cause of action may be derived
from the actionable document, i.e., Annex "A-1", being void under the terms
of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further
alleged that whatever undertaking Eduardo agreed to do, if any, under
Annex "A-1", are unenforceable under the provisions of the Statute of
Frauds.7
For his part, Yang - who was served with summons long after the other
defendants submitted their answer – moved to dismiss on the ground, inter
alia, that, as to him, petitioner has no cause of action and the complaint does
not state any.8 Petitioner opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative
Defenses.9 To this motion, petitioner interposed an Opposition with ex-Parte
Motion to Set the Case for Pre-trial.10
Acting on the separate motions immediately adverted to above, the trial
court, in an Omnibus Order dated March 5, 2003, denied the affirmative
defenses and, except for Yang, set the case for pre-trial on April 10, 2003.11
In another Omnibus Order of April 2, 2003, the same court denied the motion
of Eduardo, et al., for reconsideration12 and Yang’s motion to dismiss. The
following then transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the
right to seek reconsideration of the April 2, 2003 Omnibus Order and to
pursue his failed motion to dismiss13 to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of
April 2, 2003, but his motion was denied in an Order of July 4, 2003. 14
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP
No. 78774,15 to nullify the separate orders of the trial court, the first denying
his motion to dismiss the basic complaint and, the second, denying his
motion for reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that grave
abuse of discretion and injudicious haste attended the issuance of the trial
court’s aforementioned Omnibus Orders dated March 5, and April 2, 2003,
sought relief from the CA via similar recourse. Their petition for certiorari was
docketed as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003,16 the CA’s 14th Division ordered the
consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of
Authorities, the appellate court came out with the herein assailed Decision
dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners
therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of the writ
of certiorari in these consolidated cases annulling, reversing and setting
aside the assailed orders of the court a quo dated March 5, 2003, April 2,
2003 and July 4, 2003 and the complaint filed by private respondent [now
petitioner Aurelio] against all the petitioners [now herein respondents
Eduardo, et al.] with the court a quo is hereby dismissed.
SO ORDERED.17 (Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter alia, that the
alleged partnership, as evidenced by the actionable documents,
Annex "A" and "A-1" attached to the complaint, and upon which petitioner
solely predicates his right/s allegedly violated by Eduardo, Yang and the
corporate defendants a quo is "void or legally inexistent".
In time, petitioner moved for reconsideration but his motion was denied by
the CA in its equally assailed Resolution of December 7, 2004.18 .
Hence, petitioner’s present recourse, on the contention that the CA erred:
A. When it ruled that there was no partnership created by the actionable
document because this was not a public instrument and immovable
properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a demandable
right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against
[respondent] Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal when all
that Petitioner had done was to support his pleaded cause of action by
another legal perspective/argument.
The petition lacks merit.
Petitioner’s demand, as defined in the petitory portion of his complaint in the
trial court, is for delivery or payment to him, as Eduardo’s and Yang’s
partner, of his partnership/joint venture share, after an accounting has been
duly conducted of what he deems to be partnership/joint venture property.19
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses between them.20 A contract of partnership is defined by the Civil Code
as one where two or more persons bound themselves to contribute money,
property, or industry to a common fund with the intention of dividing the
profits among themselves.21 A joint venture, on the other hand, is hardly
distinguishable from, and may be likened to, a partnership since their
elements are similar, i.e., community of interests in the business and sharing
of profits and losses. Being a form of partnership, a joint venture is generally
governed by the law on partnership.22
The underlying issue that necessarily comes to mind in this proceedings is
whether or not petitioner and respondent Eduardo are partners in the theatre,
shipping and realty business, as one claims but which the other denies. And
the issue bearing on the first assigned error relates to the question of what
legal provision is applicable under the premises, petitioner seeking, as it
were, to enforce the actionable document - Annex "A-1" - which he depicts in
his complaint to be the contract of partnership/joint venture between himself
and Eduardo. Clearly, then, a look at the legal provisions determinative of the
existence, or defining the formal requisites, of a partnership is indicated.
Foremost of these are the following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand
pesos or more, in money or property, shall appear in a public instrument,
which must be recorded in the Office of the Securities and Exchange
Commission.
Failure to comply with the requirement of the preceding paragraph shall not
affect the liability of the partnership and the members thereof to third
persons.
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by
the parties, and attached to the public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling
that Annex "A-1" does not meet the public instrumentation requirements
exacted under Article 1771 of the Civil Code. Moreover, being unsigned and
doubtless referring to a partnership involving more than P3,000.00 in money
or property, Annex "A-1" cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission (SEC), as called
for under the Article 1772 of the Code. And inasmuch as the inventory
requirement under the succeeding Article 1773 goes into the matter of
validity when immovable property is contributed to the partnership, the next
logical point of inquiry turns on the nature of petitioner’s contribution, if any,
to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioner’s
contribution consisted of immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that
[petitioner’s] contribution to the so-called "partnership/joint venture" was his
supposed share in the family business that is consisting of movie theaters,
shipping and land development under paragraph 3.02 of the complaint. In
other words, his contribution as a partner in the alleged partnership/joint
venture consisted of immovable properties and real rights. ….23
Significantly enough, petitioner matter-of-factly concurred with the appellate
court’s observation that, prescinding from what he himself alleged in his
basic complaint, his contribution to the partnership consisted of his share in
the Litonjua family businesses which owned variable immovable properties.
Petitioner’s assertion in his motion for reconsideration24 of the CA’s decision,
that "what was to be contributed to the business [of the partnership] was
[petitioner’s] industry and his share in the family [theatre and land
development] business" leaves no room for speculation as to what petitioner
contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under
Article 1773 of the Civil Code applies as long real property or real rights are
initially brought into the partnership. In short, it is really of no moment which
of the partners, or, in this case, who between petitioner and his brother
Eduardo, contributed immovables. In context, the more important
consideration is that real property was contributed, in which case an
inventory of the contributed property duly signed by the parties should be
attached to the public instrument, else there is legally no partnership to
speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues
that the immovables in question were not contributed, but were acquired after
the formation of the supposed partnership. Needless to stress, the Court
cannot accord cogency to this specious argument. For, as earlier stated,
petitioner himself admitted contributing his share in the supposed shipping,
movie theatres and realty development family businesses which already
owned immovables even before Annex "A-1" was allegedly executed.
Considering thus the value and nature of petitioner’s alleged contribution to
the purported partnership, the Court, even if so disposed, cannot plausibly
extend Annex "A-1" the legal effects that petitioner so desires and pleads to
be given. Annex "A-1", in fine, cannot support the existence of the
partnership sued upon and sought to be enforced. The legal and factual
milieu of the case calls for this disposition. A partnership may be constituted
in any form, save when immovable property or real rights are contributed
thereto or when the partnership has a capital of at least ₱3,000.00, in which
case a public instrument shall be necessary. 25 And if only to stress what has
repeatedly been articulated, an inventory to be signed by the parties and
attached to the public instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its
assailed Decision26 about the probative value and legal effect of Annex "A-
1" commends itself for concurrence:
Considering that the allegations in the complaint showed that [petitioner]
contributed immovable properties to the alleged partnership, the
"Memorandum" (Annex "A" of the complaint) which purports to establish the
said "partnership/joint venture" is NOT a public instrument and there was NO
inventory of the immovable property duly signed by the parties. As such, the
said "Memorandum" … is null and void for purposes of establishing the
existence of a valid contract of partnership. Indeed, because of the failure to
comply with the essential formalities of a valid contract, the purported
"partnership/joint venture" is legally inexistent and it produces no effect
whatsoever. Necessarily, a void or legally inexistent contract cannot be the
source of any contractual or legal right. Accordingly, the allegations in the
complaint, including the actionable document attached thereto, clearly
demonstrates that [petitioner] has NO valid contractual or legal right which
could be violated by the [individual respondents] herein. As a consequence,
[petitioner’s] complaint does NOT state a valid cause of action because NOT
all the essential elements of a cause of action are present. (Underscoring
and words in bracket added.)
Likewise well-taken are the following complementary excerpts from the CA’s
equally assailed Resolution of December 7, 2004 27 denying petitioner’s
motion for reconsideration:
Further, We conclude that despite glaring defects in the allegations in the
complaint as well as the actionable document attached thereto (Rollo, p.
191), the [trial] court did not appreciate and apply the legal provisions which
were brought to its attention by herein [respondents] in the their pleadings. In
our evaluation of [petitioner’s] complaint, the latter alleged inter alia to have
contributed immovable properties to the alleged partnership but the
actionable document is not a public document and there was no inventory of
immovable properties signed by the parties. Both the allegations in the
complaint and the actionable documents considered, it is crystal clear that
[petitioner] has no valid or legal right which could be violated by
[respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioner’s posture that Annex "A-1",
assuming its inefficacy or nullity as a partnership document, nevertheless
created demandable rights in his favor. As petitioner succinctly puts it in this
petition:
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be a
partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely
the contract does create rights and obligations of the parties and which rights
and obligations may be enforceable and demandable. Just because the
relationship created by the agreement cannot be specifically labeled or
pigeonholed into a category of nominate contract does not mean it is void or
unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this
Court - and earlier on the CA after he experienced a reversal of fortune
thereat - as an afterthought. The appellate court, however, cannot really be
faulted for not yielding to petitioner’s dubious stratagem of altering his theory
of joint venture/partnership to an innominate contract. For, at bottom, the
appellate court’s certiorari jurisdiction was circumscribed by what was
alleged to have been the order/s issued by the trial court in grave abuse of
discretion. As respondent Yang pointedly observed,28since the parties’ basic
position had been well-defined, that of petitioner being that the actionable
document established a partnership/joint venture, it is on those positions that
the appellate court exercised its certiorari jurisdiction. Petitioner’s act of
changing his original theory is an impermissible practice and constitutes, as
the CA aptly declared, an admission of the untenability of such theory in the
first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of stance,
he has now contended that the actionable instrument may be considered
an innominate contract. xxx Verily, this now changes [petitioner’s] theory of
the case which is not only prohibited by the Rules but also is an implied
admission that the very theory he himself … has adopted, filed and
prosecuted before the respondent court is erroneous.
Be that as it may . …. We hold that this new theory contravenes [petitioner’s]
theory of the actionable document being a partnership document. If anything,
it is so obvious we do have to test the sufficiency of the cause of action on
the basis of partnership law xxx.29 (Emphasis in the original; Words in bracket
added).
But even assuming in gratia argumenti that Annex "A-1" partakes of a
perfected innominate contract, petitioner’s complaint would still be
dismissible as against Eduardo and, more so, against Yang. It cannot be
over-emphasized that petitioner points to Eduardo as the author of Annex "A-
1". Withal, even on this consideration alone, petitioner’s claim against Yang
is doomed from the very start.
As it were, the only portion of Annex "A-1" which could perhaps be remotely
regarded as vesting petitioner with a right to demand from respondent
Eduardo the observance of a determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers and I
will ask you to stay as I want you to run this office everytime I am away. I
want you to run it the way I am trying to run it because I will be alone and I
will depend entirely to you, My sons will not be ready to help me yet until
about maybe 15/20 years from now. Whatever is left in the corporation, I will
make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten
percent (10%) equity, whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon himself
under the above passage, if he indeed wrote Annex "A-1", is a promise
which is not to be performed within one year from "contract" execution on
June 22, 1973. Accordingly, the agreement embodied in Annex "A-1" is
covered by the Statute of Frauds and ergounenforceable for non-compliance
therewith.30 By force of the statute of frauds, an agreement that by its terms is
not to be performed within a year from the making thereof shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing and subscribed by the party charged. Corollarily, no
action can be proved unless the requirement exacted by the statute of frauds
is complied with.31
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million
or 10% equity of the family businesses supposedly promised by Eduardo to
give in the near future. Any suggestion that the stated amount or the equity
component of the promise was intended to go to a common fund would be to
read something not written in Annex"A-1". Thus, even this angle alone
argues against the very idea of a partnership, the creation of which requires
two or more contracting minds mutually agreeing to contribute money,
property or industry to a common fund with the intention of dividing the profits
between or among themselves.32
In sum then, the Court rules, as did the CA, that petitioner’s complaint for
specific performance anchored on an actionable document of partnership
which is legally inexistent or void or, at best, unenforceable does not state a
cause of action as against respondent Eduardo and the corporate
defendants. And if no of action can successfully be maintained against
respondent Eduardo because no valid partnership existed between him and
petitioner, the Court cannot see its way clear on how the same action could
plausibly prosper against Yang. Surely, Yang could not have become a
partner in, or could not have had any form of business relationship with, an
inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical
nexus that would tie Yang to him as his partner. In fact, attendant
circumstances would indicate the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint
venture/partnership with Eduardo was "for the continuation of their family
business and common family funds which were theretofore being mainly
managed by Eduardo." 33 But Yang denies kinship with the Litonjua family
and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint
venture/partnership with Eduardo and what his share in the businesses will
be. No allegation is made whatsoever about what Yang contributed, if any,
let alone his proportional share in the profits. But such allegation cannot,
however, be made because, as aptly observed by the CA, the actionable
document did not contain such provision, let alone mention the name of
Yang. How, indeed, could a person be considered a partner when the
document purporting to establish the partnership contract did not even
mention his name.
3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are
business partners in the [respondent] corporations," while "Bobby is his and
Eduardo’s partner in their Odeon Theater investment’ (par. 2.03). This means
that the partnership between petitioner and Eduardo came first; Yang
became their partner in their Odeon Theater investment thereafter. Several
paragraphs later, however, petitioner would contradict himself by alleging
that his "investment and that of Eduardo and Yang in the Odeon theater
business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six] corporate
respondents" This simply means that the "Odeon Theatre business" came
before the corporate respondents. Significantly enough, petitioner refers to
the corporate respondents as "progeny" of the Odeon Theatre business.34
Needless to stress, petitioner has not sufficiently established in his complaint
the legal vinculum whence he sourced his right to drag Yang into the fray.
The Court of Appeals, in its assailed decision, captured and formulated the
legal situation in the following wise:
[Respondent] Yang, … is impleaded because, as alleged in the complaint, he
is a "partner" of [Eduardo] and the [petitioner] in the Odeon Theater
Investment which expanded through reinvestments of profits and direct
investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioner’s] claim against … Yang arose from his alleged
partnership with petitioner and the …respondent. However, there was NO
allegation in the complaint which directly alleged how the supposed
contractual relation was created between [petitioner] and …Yang. More
importantly, however, the foregoing ruling of this Court that the purported
partnership between [Eduardo] is void and legally inexistent directly affects
said claim against …Yang. Since [petitioner] is trying to establish his claim
against … Yang by linking him to the legally inexistent partnership . . . such
attempt had become futile because there was NOTHING that would
contractually connect [petitioner] and … Yang. To establish a valid cause of
action, the complaint should have a statement of fact upon which to connect
[respondent] Yang to the alleged partnership between [petitioner] and
respondent [Eduardo], including their alleged investment in the Odeon
Theater. A statement of facts on those matters is pivotal to the complaint as
they would constitute the ultimate facts necessary to establish the elements
of a cause of action against … Yang. 35
Pressing its point, the CA later stated in its resolution denying petitioner’s
motion for reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable document attached to
the complaint that is controlling. Suffice it to state, We have not ignored the
actionable document … As a matter of fact, We emphasized in our decision
… that insofar as [Yang] is concerned, he is not even mentioned in the said
actionable document. We are therefore puzzled how a person not mentioned
in a document purporting to establish a partnership could be considered a
partner.36 (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his
theory of the case, as peremptorily determined by the CA, has been
discussed at length earlier and need not detain us long. Suffice it to say that
after the CA has ruled that the alleged partnership is inexistent, petitioner
took a different tack. Thus, from a joint venture/partnership theory which he
adopted and consistently pursued in his complaint, petitioner embraced the
innominate contract theory. Illustrative of this shift is petitioner’s statement in
par. #8 of his motion for reconsideration of the CA’s decision combined with
what he said in par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint
venture, or whatever, is a legal matter. What is determinative for purposes of
sufficiency of the complainant’s allegations, is whether the actionable
document bears out an actionable contract – be it a partnership, a joint
venture or whatever or some innominate contract … It may be noted that one
kind of innominate contract is what is known as du ut facias (I give that you
may do).37
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be a
partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).38
Springing surprises on the opposing party is offensive to the sporting idea of
fair play, justice and due process; hence, the proscription against a party
shifting from one theory at the trial court to a new and different theory in the
appellate court.39 On the same rationale, an issue which was neither averred
in the complaint cannot be raised for the first time on appeal.40 It is not
difficult, therefore, to agree with the CA when it made short shrift of
petitioner’s innominate contract theory on the basis of the foregoing basic
reasons.
Petitioner’s protestation that his act of introducing the concept of innominate
contract was not a case of changing theories but of supporting his pleaded
cause of action – that of the existence of a partnership - by another legal
perspective/argument, strikes the Court as a strained attempt to rationalize
an untenable position. Paragraph 12 of his motion for reconsideration of the
CA’s decision virtually relegates partnership as a fall-back theory. Two
paragraphs later, in the same notion, petitioner faults the appellate court for
reading, with myopic eyes, the actionable document solely as establishing a
partnership/joint venture. Verily, the cited paragraphs are a study of a party
hedging on whether or not to pursue the original cause of action or altogether
abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a
partnership between [respondent] Eduardo, Sr. and [petitioner], no
immovables were contributed to this partnership. xxx
14. All told, the Decision takes off from a false premise that the actionable
document attached to the complaint does not establish a contractual
relationship between [petitioner] and … Eduardo, Sr. and Roberto T Yang
simply because his document does not create a partnership or a joint
venture. This is … a myopic reading of the actionable document.
Per the Court’s own count, petitioner used in his complaint the mixed words
"joint venture/partnership" nineteen (19) times and the term "partner" four (4)
times. He made reference to the "law of joint venture/partnership [being
applicable] to the business relationship … between [him], Eduardo and
Bobby [Yang]" and to his "rights in all specific properties of their joint
venture/partnership". Given this consideration, petitioner’s right of action
against respondents Eduardo and Yang doubtless pivots on the existence of
the partnership between the three of them, as purportedly evidenced by the
undated and unsigned Annex "A-1". A void Annex "A-1", as an actionable
document of partnership, would strip petitioner of a cause of action under the
premises. A complaint for delivery and accounting of partnership property
based on such void or legally non-existent actionable document is
dismissible for failure to state of action. So, in gist, said the Court of Appeals.
The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision
and Resolution of the Court of Appeals AFFIRMED.
Cost against the petitioner.
SO ORDERED.
G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and
EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of their
acts. That the terms of a contract turn out to be financially disadvantageous
to them will not relieve them of their obligations therein. The lack of an
inventory of real property will not ipso facto release the contracting partners
from their respective obligations to each other arising from acts executed in
accordance with their agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision 1 of the Court of Appeals 2 (CA) in CA-GR CV No. 42378 and its
June 25, 1998 Resolution denying reconsideration. The assailed Decision
affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil
Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiffs
complaint. The counterclaims of the defendant are likewise ordered
dismissed. No pronouncement as to costs. 3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a
"joint venture agreement" with Respondent Manuel Torres for the
development of a parcel of land into a subdivision. Pursuant to the contract,
they executed a Deed of Sale covering the said parcel of land in favor of
respondent, who then had it registered in his name. By mortgaging the
property, respondent obtained from Equitable Bank a loan of P40,000 which,
under the Joint Venture Agreement, was to be used for the development of
the subdivision. 4 All three of them also agreed to share the proceeds from
the sale of the subdivided lots.
The project did not push through, and the land was subsequently foreclosed
by the bank.
According to petitioners, the project failed because of "respondent's lack of
funds or means and skills." They add that respondent used the loan not for
the development of the subdivision, but in furtherance of his own company,
Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement
the Agreement. With the said amount, he was able to effect the survey and
the subdivision of the lots. He secured the Lapu Lapu City Council's approval
of the subdivision project which he advertised in a local newspaper. He also
caused the construction of roads, curbs and gutters. Likewise, he entered
into a contract with an engineering firm for the building of sixty low-cost
housing units and actually even set up a model house on one of the
subdivision lots. He did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however, because
petitioners and their relatives had separately caused the annotations of
adverse claims on the title to the land, which eventually scared away
prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project. 5
Subsequently, petitioners filed a criminal case for estafa against respondent
and his wife, who were however acquitted. Thereafter, they filed the present
civil case which, upon respondent's motion, was later dismissed by the trial
court in an Order dated September 6, 1982. On appeal, however, the
appellate court remanded the case for further proceedings. Thereafter, the
RTC issued its assailed Decision, which, as earlier stated, was affirmed by
the CA.
Hence, this Petition. 6
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the subdivision.
Thus, they must bear the loss suffered by the partnership in the same
proportion as their share in the profits stipulated in the contract. Disagreeing
with the trial court's pronouncement that losses as well as profits in a joint
venture should be distributed equally, 7 the CA invoked Article 1797 of the
Civil Code which provides:
Art. 1797 — The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed capital,
he shall also receive a share in the profits in proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
. . . [The] Court of Appeals erred in concluding that the transaction
. . . between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769, and other
related provisions of the Civil Code of the Philippines. 8
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They contend
that the Joint Venture Agreement and the earlier Deed of Sale, both of which
were the bases of the appellate court's finding of a partnership, were void.
In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project.
Because the agreement entitled them to receive 60 percent of the proceeds
from the sale of the subdivision lots, they pray that respondent pay them
damages equivalent to 60 percent of the value of the property. 9
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this
5th day of March, 1969, by and between MR. MANUEL R. TORRES, . . . the
FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, . . . the SECOND PARTY:
WITNESSETH:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY,
this property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368
covering TCT No. T-0184 with a total area of 17,009 square meters, to be
sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of:
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency upon the
execution of this contract for the property entrusted by the SECOND PARTY,
for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and
promises herein contained the respective parties hereto do hereby stipulate
and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE
HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency,
for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not
actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY,
the necessary amount of TWENTY THOUSAND (P20,000.00) pesos,
Philippine currency, for their personal obligations and this particular amount
will serve as an advance payment from the FIRST PARTY for the property
mentioned to be sub-divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY,
the interest and the principal amount involving the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division
project is terminated and ready for sale to any interested parties, and the
amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency,
will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-
division project should be paid by the FIRST PARTY, exclusively and all the
expenses will not be deducted from the sales after the development of the
sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM
40% for the FIRST PARTY, and additional profits or whatever income
deriving from the sales will be divided equally according to the . . .
percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property involved will
start the work and all improvements upon the adjacent lots will be negotiated
in both parties['] favor and all sales shall [be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get
back the property mentioned provided the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND
PARTY, will be paid in full to the FIRST PARTY, including all necessary
improvements spent by the FIRST PARTY, and-the FIRST PARTY will be
given a grace period to turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who
executed same freely and voluntarily for the uses and purposes therein
stated. 10
A reading of the terms embodied in the Agreement indubitably shows the
existence of a partnership pursuant to Article 1767 of the Civil Code, which
provides:
Art. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund, with
the intention of dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would contribute property to
the partnership in the form of land which was to be developed into a
subdivision; while respondent would give, in addition to his industry, the
amount needed for general expenses and other costs. Furthermore, the
income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to
form a partnership. 11
It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the name of
the respondent. On the other hand, respondent caused the subject land to be
mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the roads, the curbs
and the gutters of the subdivision and entered into a contract to construct
low-cost housing units on the property.
Respondent's actions clearly belie petitioners' contention that he made no
contribution to the partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property, but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to
what has been expressly stipulated, but also to all necessary consequences
thereof, as follows:
Art. 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to have
understood the terms of the contract they voluntarily signed. If it was not in
consonance with their expectations, they should have objected to it and
insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual stipulations may
turn out to be financially disadvantageous will not relieve parties thereto of
their obligations. They cannot now disavow the relationship formed from such
agreement due to their supposed misunderstanding of its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article 1773
of the Civil Code, which provides:
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by
the parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to the public
instrument an inventory of the real property contributed, the partnership is
void.
We clarify. First, Article 1773 was intended primarily to protect third persons.
Thus, the eminent Arturo M. Tolentino states that under the aforecited
provision which is a complement of Article 1771, 12 "The execution of a public
instrument would be useless if there is no inventory of the property
contributed, because without its designation and description, they cannot be
subject to inscription in the Registry of Property, and their contribution cannot
prejudice third persons. This will result in fraud to those who contract with the
partnership in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the law when
no such inventory is made." The case at bar does not involve third parties
who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis
for their claim that respondent should pay them 60 percent of the value of the
property. 13 They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and courts will not
tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which the
parties' rights and obligations to each other may be inferred and enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under
Article 1422 14 of the Civil Code, because it is the direct result of an earlier
illegal contract, which was for the sale of the land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of profits from the subdivision
project. Its first stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent. Consideration, more
properly denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another. 15
In this case, the cause of the contract of sale consisted not in the stated peso
value of the land, but in the expectation of profits from the subdivision
project, for which the land was intended to be used. As explained by the trial
court, "the land was in effect given to the partnership as [petitioner's]
participation therein. . . . There was therefore a consideration for the sale, the
[petitioners] acting in the expectation that, should the venture come into
fruition, they [would] get sixty percent of the net profits."
Liability of the Parties
Claiming that rerpondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay
damages equivalent to 60 percent of the value of the property, which was
their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners' acts
were not the cause of the failure of the project. 16 But it also ruled that neither
was respondent responsible therefor. 17 In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard the factual
findings of the appellate court relieving him of fault. Verily, factual issues
cannot be resolved in a petition for review under Rule 45, as in this case.
Petitioners have not alleged, not to say shown, that their Petition constitutes
one of the exceptions to this doctrine. 18Accordingly, we find no reversible
error in the CA's ruling that petitioners are not entitled to damages.
WHEREFORE, the Perition is hereby DENIED and the challenged Decision
AFFIRMED. Costs against petitioners.
SO ORDERED
G.R. No. 127347 November 25, 1999
ALFREDO N. AGUILA, JR., petitioner,
vs.
HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of
Appeals, dated November 29, 1990, which reversed the decision of the
Regional Trial Court, Branch 273, Marikina, Metro Manila, dated April 11,
1995. The trial court dismissed the petition for declaration of nullity of a deed
of sale filed by private respondent Felicidad S. Vda. de Abrogar against
petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged
in lending activities. Private respondent and her late husband, Ruben M.
Abrogar, were the registered owners of a house and lot, covered by Transfer
Certificate of Title No. 195101, in Marikina, Metro Manila. On April 18, 1991,
private respondent, with the consent of her late husband, and A.C. Aguila &
Sons, Co., represented by petitioner, entered into a Memorandum of
Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-
described property from the FIRST PARTY [Felicidad S. Vda. de Abrogar],
and pursuant to this agreement, a Deed of Absolute Sale shall be executed
by the FIRST PARTY conveying the property to the SECOND PARTY for
and in consideration of the sum of Two Hundred Thousand Pesos
(P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to
repurchase the said property within a period of ninety (90) days from the
execution of this memorandum of agreement effective April 18, 1991, for the
amount of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to
repurchase the said property within a period of ninety (90) days, the FIRST
PARTY is obliged to deliver peacefully the possession of the property to the
SECOND PARTY within fifteen (15) days after the expiration of the said 90
day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file
any lis pendens or whatever claims on the property nor shall be cause the
annotation of say claim at the back of the title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY
warrants her ownership of the property and shall defend the rights of the
SECOND PARTY against any party whom may have any interests over the
property;
(6) All expenses for documentation and other incidental expenses shall be for
the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the
property to the SECOND PARTY after the expiration of the 15-day grace
period given in paragraph 3 above, the FIRST PARTY shall pay an amount
equivalent to Five Percent of the principal amount of TWO HUNDRED
PESOS (P200.00) or P10,000.00 per month of delay as and for rentals and
liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the
property within ninety (90) days period above-mentioned, this memorandum
of agreement shall be deemed cancelled and the Deed of Absolute Sale,
executed by the parties shall be the final contract considered as entered
between the parties and the SECOND PARTY shall proceed to transfer
ownership of the property above described to its name free from lines and
encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a deed of
absolute sale, 3 dated June 11, 1991, wherein private respondent, with the
consent of her late husband, sold the subject property to A.C. Aguila & Sons,
Co., represented by petitioner, for P200,000,00. In a special power of
attorney dated the same day, April 18, 1991, private respondent authorized
petitioner to cause the cancellation of TCT No. 195101 and the issuance of a
new certificate of title in the name of A.C. Aguila and Sons, Co., in the event
she failed to redeem the subject property as provided in the Memorandum of
Agreement. 4
Private respondent failed to redeem the property within the 90-day period as
provided in the Memorandum of Agreement. Hence, pursuant to the special
power of attorney mentioned above, petitioner caused the cancellation of
TCT No. 195101 and the issuance of a new certificate of title in the name of
A.C. Aguila and Sons, Co. 5
Private respondent then received a letter dated August 10, 1991 from Atty.
Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that
she vacate the premises within 15 days after receipt of the letter and
surrender its possession peacefully to A.C. Aguila & Sons, Co. Otherwise,
the latter would bring the appropriate action in court. 6
Upon the refusal of private respondent to vacate the subject premises, A.C.
Aguila & Sons, Co. filed an ejectment case against her in the Metropolitan
Trial Court, Branch 76, Marikina, Metro Manila. In a decision, dated April 3,
1992, the Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons, Co.
on the ground that private respondent did not redeem the subject property
before the expiration of the 90-day period provided in the Memorandum of
Agreement. Private respondent appealed first to the Regional Trial Court,
Branch 163, Pasig, Metro Manila, then to the Court of Appeals, and later to
this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of
sale with the Regional Trial Court, Branch 273, Marikina, Metro Manila on
December 4, 1993. She alleged that the signature of her husband on the
deed of sale was a forgery because he was already dead when the deed was
supposed to have been executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for
falsification against petitioner with the Office of the Prosecutor of Quezon
City which was dismissed in a resolution, dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery because
they could not personally appear before Notary Public Lamberto C. Nanquil
on June 11, 1991 because her husband, Ruben Abrogar, died on May 8,
1991 or one month and 2 days before the execution of the Deed of Absolute
Sale, while the plaintiff was still in the Quezon City Medical Center
recuperating from wounds which she suffered at the same vehicular accident
on May 8, 1991, cannot be sustained. The Court is convinced that the three
required documents, to wit: the Memorandum of Agreement, the Special
Power of Attorney, and the Deed of Absolute Sale were all signed by the
parties on the same date on April 18, 1991. It is a common and accepted
business practice of those engaged in money lending to prepare an undated
absolute deed of sale in loans of money secured by real estate for various
reasons, foremost of which is the evasion of taxes and surcharges. The
plaintiff never questioned receiving the sum of P200,000.00 representing her
loan from the defendant. Common sense dictates that an established lending
and realty firm like the Aguila & Sons, Co. would not part with P200,000.00 to
the Abrogar spouses, who are virtual strangers to it, without the simultaneous
accomplishment and signing of all the required documents, more particularly
the Deed of Absolute Sale, to protect its interest.
xxx xxx xxx
WHEREFORE, foregoing premises considered, the case in caption is hereby
ORDERED DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-appellant
and defendant-appellee is indubitably an equitable mortgage. Article 1602 of
the New Civil Code finds strong application in the case at bar in the light of
the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is
unusually inadequate. The property is a two hundred forty (240) sq. m. lot.
On said lot, the residential house of plaintiff-appellant stands. The property is
inside a subdivision/village. The property is situated in Marikina which is
already part of Metro Manila. The alleged sale took place in 1991 when the
value of the land had considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00 or
P833.33 per square meter for both the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides that
plaintiff-appellant is obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen (15) days after the expiration
of the said ninety (90) day grace period. Otherwise stated, plaintiff-appellant
is to retain physical possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property "sold" as if they
were still the absolute owners. There was no provision for maintenance or
expenses, much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes
on the property "sold". It is well-known that payment of taxes accompanied
by actual possession of the land covered by the tax declaration, constitute
evidence of great weight that a person under whose name the real taxes
were declared has a claim of right over the land.
It is well-settled that the presence of even one of the circumstances in Article
1602 of the New Civil Code is sufficient to declare a contract of sale with right
to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is
unusually inadequate, has retained possession of the subject property and
has continued paying the realty taxes over the subject property,
(circumstances mentioned in par. (1) (2) and (5) of Article 1602 of the New
Civil Code), it must be conclusively presumed that the transaction the parties
actually entered into is an equitable mortgage, not a sale with right to
repurchase. The factors cited are in support to the finding that the Deed of
Sale/Memorandum of Agreement with right to repurchase is in actuality an
equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was
executed by reason of the loan extended by defendant-appellee to plaintiff-
appellant. The amount of loan being the same with the amount of the
purchase price.
xxx xxx xxx
Since the real intention of the party is to secure the payment of debt, now
deemed to be repurchase price: the transaction shall then be considered to
be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature
of a pactum commissorium which is clearly prohibited by Article 2088 of the
New Civil Code. Article 2088 of the New Civil Code reads:
Art. 2088. The creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose of them. Any stipulation to the contrary is null and
void.
The aforequoted provision furnishes the two elements for pactum
commissorium to exist: (1) that there should be a pledge or mortgage
wherein a property is pledged or mortgaged by way of security for the
payment of principal obligation; and (2) that there should be a stipulation for
an automatic appropriation by the creditor of the thing pledged and
mortgaged in the event of non-payment of the principal obligation within the
stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to
plaintiff-appellant secured by a mortgage on the property of plaintiff-
appellant. The loan was payable within ninety (90) days, the period within
which plaintiff-appellant can repurchase the property. Plaintiff-appellant will
pay P230,000.00 and not P200,000.00, the P30,000.00 excess is the interest
for the loan extended. Failure of plaintiff-appellee to pay the P230,000.00
within the ninety (90) days period, the property shall automatically belong to
defendant-appellee by virtue of the deed of sale executed.
Clearly, the agreement entered into by the parties is in the nature of pactum
commissorium. Therefore, the deed of sale should be declared void as we
hereby so declare to be invalid, for being violative of law.
xxx xxx xxx
WHEREFORE, foregoing considered, the appealed decision is hereby
REVERSED and SET ASIDE. The questioned Deed of Sale and the
cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant and
the issuance of TCT No. 267073 issued in favor of defendant-appellee
pursuant to the questioned Deed of Sale is hereby declared VOID and is
hereby ANNULLED. Transfer Certificate of Title No. 195101 of the Registry
of Marikina is hereby ordered REINSTATED. The loan in the amount of
P230,000.00 shall be paid within ninety (90) days from the finality of this
decision. In case of failure to pay the amount of P230,000.00 from the period
therein stated, the property shall be sold at public auction to satisfy the
mortgage debt and costs and if there is an excess, the same is to be given to
the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C.
Aguila & Co., against which this case should have been brought; (2) the
judgment in the ejectment case is a bar to the filing of the complaint for
declaration of nullity of a deed of sale in this case; and (3) the contract
between A.C. Aguila & Sons, Co. and private respondent is a pacto de
retro sale and not an equitable mortgage as held by the appellate court.
The petition is meritorious.
Rule 3, §2 of the Rules of Court of 1964, under which the complaint in this
case was filed, provided that "every action must be prosecuted and defended
in the name of the real party in interest." A real party in interest is one who
would be benefited or injured by the judgment, or who is entitled to the avails
of the suit. 7 This ruling is now embodied in Rule 3, §2 of the 1997 Revised
Rules of Civil Procedure. Any decision rendered against a person who is not
a real party in interest in the case cannot be executed. 8 Hence, a complaint
filed against such a person should be dismissed for failure to state a cause of
action. 9
Under Art. 1768 of the Civil Code, a partnership "has a juridical personality
separate and distinct from that of each of the partners." The partners cannot
be held liable for the obligations of the partnership unless it is shown that the
legal fiction of a different juridical personality is being used for fraudulent,
unfair, or illegal purposes. 10 In this case, private respondent has not shown
that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title to the subject
property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of
Agreement was executed between private respondent, with the consent of
her late husband, and A.C. Aguila & Sons, Co., represented by petitioner.
Hence, it is the partnership, not its officers or agents, which should be
impleaded in any litigation involving property registered in its name. A
violation of this rule will result in the dismissal of the complaint. 11 We cannot
understand why both the Regional Trial Court and the Court of Appeals
sidestepped this issue when it was squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom
this action should be prosecuted makes it unnecessary to discuss the other
issues raised by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED
and the complaint against petitioner is DISMISSED.
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 goodwill 28 (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.
G.R. No. 178782 September 21, 2011
JOSEFINA P. REALUBIT, Petitioner,
vs.
PROSENCIO D. JASO and EDEN G. JASO, Respondents.
DECISION
PEREZ, J.:
The validity as well as the consequences of an assignment of rights in a joint
venture are at issue in this petition for review filed pursuant to Rule 45 of the
1997 Rules of Civil Procedure,1 assailing the 30 April 2007
Decision2rendered by the Court of Appeals’ (CA) then Twelfth Division in CA-
G.R. CV No. 73861,3 the dispositive portion of which states:
WHEREFORE, the Decision appealed from is SET ASIDE and we order the
dissolution of the joint venture between defendant-appellant Josefina
Realubit and Francis Eric Amaury Biondo and the subsequent conduct of
accounting, liquidation of assets and division of shares of the joint venture
business.
Let a copy hereof and the records of the case be remanded to the trial court
for appropriate proceedings.4
The Facts
On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a
Joint Venture Agreement with Francis Eric Amaury Biondo (Biondo), a
French national, for the operation of an ice manufacturing business. With
Josefina as the industrial partner and Biondo as the capitalist partner, the
parties agreed that they would each receive 40% of the net profit, with the
remaining 20% to be used for the payment of the ice making machine which
was purchased for the business.5 For and in consideration of the sum of
₱500,000.00, however, Biondo subsequently executed a Deed of
Assignment dated 27 June 1997, transferring all his rights and interests in
the business in favor of respondent Eden Jaso (Eden), the wife of
respondent Prosencio Jaso.6 With Biondo’s eventual departure from the
country, the Spouses Jaso caused their lawyer to send Josefina a letter
dated 19 February 1998, apprising her of their acquisition of said
Frenchman’s share in the business and formally demanding an accounting
and inventory thereof as well as the remittance of their portion of its profits. 7
Faulting Josefina with unjustified failure to heed their demand, the Spouses
Jaso commenced the instant suit with the filing of their 3 August 1998
Complaint against Josefina, her husband, Ike Realubit (Ike), and their alleged
dummies, for specific performance, accounting, examination, audit and
inventory of assets and properties, dissolution of the joint venture,
appointment of a receiver and damages. Docketed as Civil Case No. 98-
0331 before respondent Branch 257 of the Regional Trial Court (RTC) of
Parañaque City, said complaint alleged, among other matters, that the
Spouses Realubit had no gainful occupation or business prior to their joint
venture with Biondo; that with the income of the business which earned not
less than ₱3,000.00 per day, they were, however, able to acquire the two-
storey building as well as the land on which the joint venture’s ice plant
stands, another building which they used as their office and/or residence and
six (6) delivery vans; and, that aside from appropriating for themselves the
income of the business, the Spouses Realubit have fraudulently concealed
the funds and assets thereof thru their relatives, associates or dummies. 8
Served with summons, the Spouses Realubit filed their Answer dated 21
October 1998, specifically denying the material allegations of the foregoing
complaint. Claiming that they have been engaged in the tube ice trading
business under a single proprietorship even before their dealings with
Biondo, the Spouses Realubit, in turn, averred that their said business
partner had left the country in May 1997 and could not have executed the
Deed of Assignment which bears a signature markedly different from that
which he affixed on their Joint Venture Agreement; that they refused the
Spouses Jaso’s demand in view of the dubious circumstances surrounding
their acquisition of Biondo’s share in the business which was established at
Don Antonio Heights, Commonwealth Avenue, Quezon City; that said
business had already stopped operations on 13 January 1996 when its plant
shut down after its power supply was disconnected by MERALCO for non-
payment of utility bills; and, that it was their own tube ice trading business
which had been moved to 66-C Cenacle Drive, Sanville Subdivision, Project
6, Quezon City that the Spouses Jaso mistook for the ice manufacturing
business established in partnership with Biondo.9
The issues thus joined and the mandatory pre-trial conference subsequently
terminated, the RTC went on to try the case on its merits and, thereafter, to
render its Decision dated 17 September 2001, discounting the existence of
sufficient evidence from which the income, assets and the supposed
dissolution of the joint venture can be adequately reckoned. Upon the finding,
however, that the Spouses Jaso had been nevertheless subrogated to
Biondo’s rights in the business in view of their valid acquisition of the latter’s
share as capitalist partner,10 the RTC disposed of the case in the following
wise:
WHEREFORE, defendants are ordered to submit to plaintiffs a complete
accounting and inventory of the assets and liabilities of the joint venture from
its inception to the present, to allow plaintiffs access to the books and
accounting records of the joint venture, to deliver to plaintiffs their share in
the profits, if any, and to pay the plaintiffs the amount of ₱20,000. for moral
damages. The claims for exemplary damages and attorney’s fees are denied
for lack of basis.11
On appeal before the CA, the foregoing decision was set aside in the herein
assailed Decision dated 30 April 2007, upon the following findings and
conclusions: (a) the Spouses Jaso validly acquired Biondo’s share in the
business which had been transferred to and continued its operations at 66-C
Cenacle Drive, Sanville Subdivision, Project 6, Quezon City and not
dissolved as claimed by the Spouses Realubit; (b) absent showing of
Josefina’s knowledge and consent to the transfer of Biondo’s share, Eden
cannot be considered as a partner in the business, pursuant to Article 1813
of the Civil Code of the Philippines; (c) while entitled to Biondo’s share in the
profits of the business, Eden cannot, however, interfere with the
management of the partnership, require information or account of its
transactions and inspect its books; (d) the partnership should first be
dissolved before Eden can seek an accounting of its transactions and
demand Biondo’s share in the business; and, (e) the evidence adduced
before the RTC do not support the award of moral damages in favor of the
Spouses Jaso.12
The Spouses Realubit’s motion for reconsideration of the foregoing decision
was denied for lack of merit in the CA’s 28 June 2007 Resolution,13 hence,
this petition.
The Issues
The Spouses Realubit urge the reversal of the assailed decision upon the
negative of the following issues, to wit:
A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS
TO THE JOINT VENTURE.
B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA
REALUBIT] AS PARTNER IN THE JOINT VENTURE TO RENDER [A]N
ACCOUNTING TO ONE WHO IS NOT A PARTNER IN SAID JOINT
VENTURE.
C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY
RIGHT IN THE JOINT VENTURE AND IN THE SEPARATE ICE BUSINESS
OF PETITIONER[S].14
The Court’s Ruling
We find the petition bereft of merit.
The Spouses Realubit argue that, in upholding its validity, both the RTC and
the CA inordinately gave premium to the notarization of the 27 June 1997
Deed of Assignment executed by Biondo in favor of the Spouses Jaso.
Calling attention to the latter’s failure to present before the RTC said assignor
or, at the very least, the witnesses to said document, the Spouses Realubit
maintain that the testimony of Rolando Diaz, the Notary Public before whom
the same was acknowledged, did not suffice to establish its authenticity
and/or validity. They insist that notarization did not automatically and
conclusively confer validity on said deed, since it is still entirely possible that
Biondo did not execute said deed or, for that matter, appear before said
notary public.15 The dearth of merit in the Spouses Realubit’s position is,
however, immediately evident from the settled rule that documents
acknowledged before notaries public are public documents which are
admissible in evidence without necessity of preliminary proof as to their
authenticity and due execution.16
It cannot be gainsaid that, as a public document, the Deed of Assignment
Biondo executed in favor of Eden not only enjoys a presumption of
regularity17 but is also considered prima facie evidence of the facts therein
stated.18 A party assailing the authenticity and due execution of a notarized
document is, consequently, required to present evidence that is clear,
convincing and more than merely preponderant.19 In view of the Spouses
Realubit’s failure to discharge this onus, we find that both the RTC and the
CA correctly upheld the authenticity and validity of said Deed of Assignment
upon the combined strength of the above-discussed disputable presumptions
and the testimonies elicited from Eden20 and Notary Public Rolando
Diaz.21 As for the Spouses’ Realubit’s bare assertion that Biondo’s signature
on the same document appears to be forged, suffice it to say that, like
fraud,22 forgery is never presumed and must likewise be proved by clear and
convincing evidence by the party alleging the same.23 Aside from not being
borne out by a comparison of Biondo’s signatures on the Joint Venture
Agreement24 and the Deed of Assignment,25 said forgery is, moreover
debunked by Biondo’s duly authenticated certification dated 17 November
1998, confirming the transfer of his interest in the business in favor of Eden.26
Generally understood to mean an organization formed for some temporary
purpose, a joint venture is likened to a particular partnership or one which
"has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation."27 The rule is settled
that joint ventures are governed by the law on partnerships 28 which are, in
turn, based on mutual agency or delectus personae.29 Insofar as a partner’s
conveyance of the entirety of his interest in the partnership is concerned,
Article 1813 of the Civil Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in the partnership
does not itself dissolve the partnership, or, as against the other partners in
the absence of agreement, entitle the assignee, during the continuance of
the partnership, to interfere in the management or administration of the
partnership business or affairs, or to require any information or account of
partnership transactions, or to inspect the partnership books; but it merely
entitles the assignee to receive in accordance with his contracts the profits to
which the assigning partners would otherwise be entitled. However, in case
of fraud in the management of the partnership, the assignee may avail
himself of the usual remedies.
In the case of a dissolution of the partnership, the assignee is entitled to
receive his assignor’s interest and may require an account from the date only
of the last account agreed to by all the partners.
From the foregoing provision, it is evident that "(t)he transfer by a partner of
his partnership interest does not make the assignee of such interest a
partner of the firm, nor entitle the assignee to interfere in the management of
the partnership business or to receive anything except the assignee’s profits.
The assignment does not purport to transfer an interest in the partnership,
but only a future contingent right to a portion of the ultimate residue as the
assignor may become entitled to receive by virtue of his proportionate
interest in the capital."30 Since a partner’s interest in the partnership includes
his share in the profits,31 we find that the CA committed no reversible error in
ruling that the Spouses Jaso are entitled to Biondo’s share in the profits,
despite Juanita’s lack of consent to the assignment of said Frenchman’s
interest in the joint venture. Although Eden did not, moreover, become a
partner as a consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA correctly granted
her prayer for dissolution of the joint venture conformably with the right
granted to the purchaser of a partner’s interest under Article 1831 of the Civil
Code.32 1âwphi1
Considering that they involve questions of fact, neither are we inclined to
hospitably entertain the Spouses Realubit’s insistence on the supposed fact
that Josefina’s joint venture with Biondo had already been dissolved and that
the ice manufacturing business at 66-C Cenacle Drive, Sanville Subdivision,
Project 6, Quezon City was merely a continuation of the same business they
previously operated under a single proprietorship. It is well-entrenched
doctrine that questions of fact are not proper subjects of appeal by certiorari
under Rule 45 of the Rules of Court as this mode of appeal is confined to
questions of law.33 Upon the principle that this Court is not a trier of facts, we
are not duty bound to examine the evidence introduced by the parties below
to determine if the trial and the appellate courts correctly assessed and
evaluated the evidence on record.34 Absent showing that the factual findings
complained of are devoid of support by the evidence on record or the
assailed judgment is based on misapprehension of facts, the Court will limit
itself to reviewing only errors of law.35
Based on the evidence on record, moreover, both the RTC36 and the
CA37 ruled out the dissolution of the joint venture and concluded that the ice
manufacturing business at the aforesaid address was the same one
established by Juanita and Biondo. As a rule, findings of fact of the CA are
binding and conclusive upon this Court,38 and will not be reviewed or
disturbed on appeal39 unless the case falls under any of the following
recognized exceptions: (1) when the conclusion is a finding grounded entirely
on speculation, surmises and conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) where there is a grave abuse
of discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of fact are conflicting; (6) when the CA, in making its
findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings are contrary
to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioners' main and reply
briefs are not disputed by the respondents; and, (10) when the findings of
fact of the CA are premised on the supposed absence of evidence and
contradicted by the evidence on record.40Unfortunately for the Spouses
Realubit’s cause, not one of the foregoing exceptions applies to the case.
WHEREFORE, the petition is DENIED for lack of merit and the assailed CA
Decision dated 30 April 2007 is, accordingly, AFFIRMED in toto.
SO ORDERED.
G.R. No. 206147
MICHAEL C. GUY, Petitioner,
vs.
ATTY. GLENN C. GACOTT, Respondent.
DECISION
MENDOZA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the
Rules of Court filed by petitioner Michael C. Guy (Guy), assailing the June
25, 2012 Decision1 and the March 5, 2013 Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV No. 94816, which affirmed the June 28,
20093 and February 19, 20104 Orders of the Regional Trial Court, Branch 52,
Puerto Princesa City, Palawan (RTC), in Civil Case No. 3108, a case for
damages. The assailed RTC orders denied Guy's Motion to Lift Attachment
Upon Personalty5 on the ground that he was not a judgment debtor.
The Facts
It appears from the records that on March 3, 1997, Atty. Glenn
Gacott (Gacott) from Palawan purchased two (2) brand new transreceivers
from Quantech Systems Corporation (QSC) in Manila through its employee
Rey Medestomas (Medestomas), amounting to a total of P18,000.00. On
May 10, 1997, due to major defects, Gacott personally returned the
transreceivers to QSC and requested that they be replaced. Medestomas
received the returned transreceivers and promised to send him the
replacement units within two (2) weeks from May 10, 1997.
Time passed and Gacott did not receive the replacement units as promised.
QSC informed him that there were no available units and that it could not
refund the purchased price. Despite several demands, both oral and written,
Gacott was never given a replacement or a refund. The demands caused
Gacott to incur expenses in the total amount of P40,936.44. Thus, Gacott
filed a complaint for damages. Summons was served upon QSC and
Medestomas, afterwhich they filed their Answer, verified by Medestomas
himself and a certain Elton Ong (Ong). QSC and Medestomas did not
present any evidence during the trial.6
In a Decision,7 dated March 16, 2007, the RTC found that the two (2)
transreceivers were defective and that QSC and Medestomas failed to
replace the same or return Gacott's money. The dispositive portion of the
decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering
the defendants to jointly and severally pay plaintiff the following:
1. Purchase price plus 6% per annum from March 3, P
1997 up to and until fully paid ------------ 18,000.00
2. Actual Damages ----------------------------------- 40,000.00
3. Moral Damages ----------------------------------- 75,000.00
4. Corrective Damages ------------------------------- 100,000.00
5. Attorney’s Fees ------------------------------------ 60,000.00
6. Costs.
SO ORDERED.
The decision became final as QSC and Medestomas did not interpose an
appeal. Gacott then secured a Writ of Execution,8 dated September 26,
2007.
During the execution stage, Gacott learned that QSC was not a corporation,
but was in fact a general partnership registered with the Securities and
Exchange Commission (SEC). In the articles of partnership,9 Guy was
appointed as General Manager of QSC.
To execute the judgment, Branch Sheriff Ronnie L. Felizarte (Sheriff
Felizarte) went to the main office of the Department of Transportation and
Communications, Land Transportation Office (DOTC-LTO), Quezon City, and
verified whether Medestomas, QSC and Guy had personal properties
registered therein.10 Upon learning that Guy had vehicles registered in his
name, Gacott instructed the sheriff to proceed with the attachment of one of
the motor vehicles of Guy based on the certification issued by the DOTC-
LTO.11
On March 3, 2009, Sheriff Felizarte attached Guy’s vehicle by virtue of the
Notice of Attachment/Levy upon Personalty12 served upon the record
custodian of the DOTC-LTO of Mandaluyong City. A similar notice was
served to Guy through his housemaid at his residence.
Thereafter, Guy filed his Motion to Lift Attachment Upon Personalty, arguing
that he was not a judgment debtor and, therefore, his vehicle could not be
attached.13 Gacott filed an opposition to the motion.
The RTC Order
On June 28, 2009, the RTC issued an order denying Guy’s motion. It
explained that considering QSC was not a corporation, but a registered
partnership, Guy should be treated as a general partner pursuant to Section
21 of the Corporation Code, and he may be held jointly and severally liable
with QSC and Medestomas. The trial court wrote:
All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof x x x. Where, by any
wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership x x x, loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is incurred, the partnership
is liable therefore to the same extent as the partner so acting or omitting to
act. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Article 1822 and 1823.14
Accordingly, it disposed:
WHEREFORE, with the ample discussion of the matter, this Court finds and
so holds that the property of movant Michael Guy may be validly attached in
satisfaction of the liabilities adjudged by this Court against Quantech Co., the
latter being an ostensible Corporation and the movant being considered by
this Court as a general partner therein in accordance with the order of this
court impressed in its decision to this case imposing joint and several liability
to the defendants. The Motion to Lift Attachment Upon Personalty submitted
by the movant is therefore DENIED for lack of merit.
SO ORDERED.15
Not satisfied, Guy moved for reconsideration of the denial of his motion. He
argued that he was neither impleaded as a defendant nor validly served with
summons and, thus, the trial court did not acquire jurisdiction over his
person; that under Article 1824 of the Civil Code, the partners were only
solidarily liable for the partnership liability under exceptional circumstances;
and that in order for a partner to be liable for the debts of the partnership, it
must be shown that all partnership assets had first been exhausted. 16
On February 19, 2010, the RTC issued an order17denying his motion.
The denial prompted Guy to seek relief before the CA.
The CA Ruling
On June 25, 2012, the CA rendered the assailed decision dismissing Guy’s
appeal for the same reasons given by the trial court. In addition thereto, the
appellate court stated:
We hold that Michael Guy, being listed as a general partner of QSC during
that time, cannot feign ignorance of the existence of the court summons. The
verified Answer filed by one of the partners, Elton Ong, binds him as a
partner because the Rules of Court does not require that summons be
served on all the partners. It is sufficient that service be made on the
"president, managing partner, general manager, corporate secretary,
treasurer or in-house counsel." To Our mind, it is immaterial whether the
summons to QSC was served on the theory that it was a corporation. What is
important is that the summons was served on QSC’s authorized officer xxx. 18
The CA stressed that Guy, being a partner in QSC, was bound by the
summons served upon QSC based on Article 1821 of the Civil Code. The CA
further opined that the law did not require a partner to be actually involved in
a suit in order for him to be made liable. He remained “solidarily liable
whether he participated or not, whether he ratified it or not, or whether he
had knowledge of the act or omission.”19
Aggrieved, Guy filed a motion for reconsideration but it was denied by the CA
in its assailed resolution, dated March 5, 2013.
Hence, the present petition raising the following
ISSUE
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN HOLDING THAT PETITIONER GUY IS SOLIDARILY LIABLE
WITH THE PARTNERSHIP FOR DAMAGES ARISING FROM THE
BREACH OF THE CONTRACT OF SALE WITH RESPONDENT
GACOTT.20
Guy argues that he is not solidarily liable with the partnership because the
solidary liability of the partners under Articles 1822, 1823 and 1824 of the
Civil Code only applies when it stemmed from the act of a partner. In this
case, the alleged lapses were not attributable to any of the partners. Guy
further invokes Article 1816 of the Civil Code which states that the liability of
the partners to the partnership is merely joint and subsidiary in nature.
In his Comment,21 Gacott countered, among others, that because Guy was a
general and managing partner of QSC, he could not feign ignorance of the
transactions undertaken by QSC. Gacott insisted that notice to one partner
must be considered as notice to the whole partnership, which included the
pendency of the civil suit against it.
In his Reply,22 Guy contended that jurisdiction over the person of the
partnership was not acquired because the summons was never served upon
it or through any of its authorized office. He also reiterated that a partner’s
liability was joint and subsidiary, and not solidary.
The Court’s Ruling
The petition is meritorious.
The service of summons was flawed; voluntary appearance cured the defect
Jurisdiction over the person, or jurisdiction in personam – the power of the
court to render a personal judgment or to subject the parties in a particular
action to the judgment and other rulings rendered in the action – is an
element of due process that is essential in all actions, civil as well as
criminal, except in actions in rem or quasi in rem.23Jurisdiction over the
person of the plaintiff is acquired by the mere filing of the complaint in court.
As the initiating party, the plaintiff in a civil action voluntarily submits himself
to the jurisdiction of the court. As to the defendant, the court acquires
jurisdiction over his person either by the proper service of the summons, or
by his voluntary appearance in the action.24
Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure,
when the defendant is a corporation, partnership or association organized
under the laws of the Philippines with a juridical personality, the service of
summons may be made on the president, managing partner, general
manager, corporate secretary, treasurer, or in-house counsel. Jurisprudence
is replete with pronouncements that such provision provides an exclusive
enumeration of the persons authorized to receive summons for juridical
entities.25
The records of this case reveal that QSC was never shown to have been
served with the summons through any of the enumerated authorized persons
to receive such, namely: president, managing partner, general manager,
corporate secretary, treasurer or in-house counsel. Service of summons
upon persons other than those officers enumerated in Section 11 is
invalid. Even substantial compliance is not sufficient service of
summons.26 The CA was obviously mistaken when it opined that it was
immaterial whether the summons to QSC was served on the theory that it
was a corporation.27
Nevertheless, while proper service of summons is necessary to vest the
court jurisdiction over the defendant, the same is merely procedural in nature
and the lack of or defect in the service of summons may be cured by the
defendant’s subsequent voluntary submission to the court’s jurisdiction
through his filing a responsive pleading such as an answer. In this case, it is
not disputed that QSC filed its Answer despite the defective summons. Thus,
jurisdiction over its person was acquired through voluntary appearance.
A partner must be separately and distinctly impleaded before he can be
bound by a judgment
The next question posed is whether the trial court’s jurisdiction over QSC
extended to the person of Guy insofar as holding him solidarily liable with the
partnership. After a thorough study of the relevant laws and jurisprudence,
the Court answers in the negative.
Although a partnership is based on delectus personae or mutual agency,
whereby any partner can generally represent the partnership in its business
affairs, it is non sequitur that a suit against the partnership is necessarily a
suit impleading each and every partner. It must be remembered that a
partnership is a juridical entity that has a distinct and separate personality
from the persons composing it.28
In relation to the rules of civil procedure, it is elementary that a judgment of a
court is conclusive and binding only upon the parties and their successors-in-
interest after the commencement of the action in court.29 A decision rendered
on a complaint in a civil action or proceeding does not bind or prejudice a
person not impleaded therein, for no person shall be adversely affected by
the outcome of a civil action or proceeding in which he is not a party. 30The
principle that a person cannot be prejudiced by a ruling rendered in an action
or proceeding in which he has not been made a party conforms to the
constitutional guarantee of due process of law.31
In Muñoz v. Yabut, Jr.,32 the Court declared that a person not impleaded and
given the opportunity to take part in the proceedings was not bound by the
decision declaring as null and void the title from which his title to the property
had been derived. The effect of a judgment could not be extended to non-
parties by simply issuing an alias writ of execution against them, for no man
should be prejudiced by any proceeding to which he was a stranger.
In Aguila v. Court of Appeals,33 the complainant had a cause of action
against the partnership. Nevertheless, it was the partners themselves that
were impleaded in the complaint. The Court dismissed the complaint and
held that it was the partnership, not its partners, officers or agents, which
should be impleaded for a cause of action against the partnership itself. The
Court added that the partners could not be held liable for the obligations of
the partnership unless it was shown that the legal fiction of a different
juridical personality was being used for fraudulent, unfair, or illegal
purposes.34
Here, Guy was never made a party to the case. He did not have any
participation in the entire proceeding until his vehicle was levied upon and he
suddenly became QSC’s “co-defendant debtor” during the judgment
execution stage. It is a basic principle of law that money judgments are
enforceable only against the property incontrovertibly belonging to the
judgment debtor.35 Indeed, the power of the court in executing judgments
extends only to properties unquestionably belonging to the judgment debtor
alone. An execution can be issued only against a party and not against one
who did not have his day in court. The duty of the sheriff is to levy the
property of the judgment debtor not that of a third person. For, as the saying
goes, one man's goods shall not be sold for another man's debts.36
In the spirit of fair play, it is a better rule that a partner must first be
impleaded before he could be prejudiced by the judgment against the
partnership. As will be discussed later, a partner may raise several defenses
during the trial to avoid or mitigate his obligation to the partnership liability.
Necessarily, before he could present evidence during the trial, he must first
be impleaded and informed of the case against him. It would be the height of
injustice to rob an innocent partner of his hard-earned personal belongings
without giving him an opportunity to be heard. Without any showing that Guy
himself acted maliciously on behalf of the company, causing damage or
injury to the complainant, then he and his personal properties cannot be
made directly and solely accountable for the liability of QSC, the judgment
debtor, because he was not a party to the case.
Further, Article 1821 of the Civil Code does not state that there is no need
to implead a partner in order to be bound by the partnership liability. It
provides that:
Notice to any partner of any matter relating to partnership affairs, and
the knowledge of the partner acting in the particular matter, acquired
while a partner or then present to his mind, and the knowledge of any other
partner who reasonably could and should have communicated it to the acting
partner, operate as notice to or knowledge of the partnership, except in
the case of fraud on the partnership, committed by or with the consent of that
partner.
[Emphases and Underscoring Supplied]
A careful reading of the provision shows that notice to any partner, under
certain circumstances, operates as notice to or knowledge to the partnership
only. Evidently, it does not provide for the reverse situation, or that notice to
the partnership is notice to the partners. Unless there is an unequivocal law
which states that a partner is automatically charged in a complaint against
the partnership, the constitutional right to due process takes precedence and
a partner must first be impleaded before he can be considered as a judgment
debtor. To rule otherwise would be a dangerous precedent, harping in favor
of the deprivation of property without ample notice and hearing, which the
Court certainly cannot countenance.
Partners’ liability is subsidiary and generally joint; immediate levy upon the
property of a partner cannot be made
Granting that Guy was properly impleaded in the complaint, the execution of
judgment would be improper. Article 1816 of the Civil Code governs the
liability of the partners to third persons, which states that:
Article 1816. All partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into in the name
and for the account of the partnership, under its signature and by a person
authorized to act for the partnership. However, any partner may enter into a
separate obligation to perform a partnership contract.
[Emphasis Supplied]
This provision clearly states that, first, the partners’ obligation with respect to
the partnership liabilities is subsidiary in nature. It provides that the partners
shall only be liable with their property after all the partnership assets have
been exhausted. To say that one’s liability is subsidiary means that it merely
becomes secondary and only arises if the one primarily liable fails to
sufficiently satisfy the obligation. Resort to the properties of a partner may be
made only after efforts in exhausting partnership assets have failed or that
such partnership assets are insufficient to cover the entire obligation. The
subsidiary nature of the partners’ liability with the partnership is one of the
valid defenses against a premature execution of judgment directed to a
partner.
In this case, had he been properly impleaded, Guy’s liability would only arise
after the properties of QSC would have been exhausted. The records,
however, miserably failed to show that the partnership’s properties were
exhausted. The report37 of the sheriff showed that the latter went to the main
office of the DOTC-LTO in Quezon City and verified whether Medestomas,
QSC and Guy had personal properties registered therein. Gacott then
instructed the sheriff to proceed with the attachment of one of the motor
vehicles of Guy.38 The sheriff then served the Notice of Attachment/Levy
upon Personalty to the record custodian of the DOTC-LTO of Mandaluyong
City. A similar notice was served to Guy through his housemaid at his
residence.
Clearly, no genuine efforts were made to locate the properties of QSC that
could have been attached to satisfy the judgment − contrary to the clear
mandate of Article 1816. Being subsidiarily liable, Guy could only be held
personally liable if properly impleaded and after all partnership assets had
been exhausted.
Second, Article 1816 provides that the partners’ obligation to third persons
with respect to the partnership liability is pro rata or joint.1âwphi1 Liability
is joint when a debtor is liable only for the payment of only a proportionate
part of the debt. In contrast, a solidary liability makes a debtor liable for the
payment of the entire debt. In the same vein, Article 1207 does not presume
solidary liability unless: 1) the obligation expressly so states; or 2) the law
or nature requires solidarity. With regard to partnerships, ordinarily, the
liability of the partners is not solidary.39 The joint liability of the partners is a
defense that can be raised by a partner impleaded in a complaint against the
partnership.
In other words, only in exceptional circumstances shall the partners’ liability
be solidary in nature. Articles 1822, 1823 and 1824 of the Civil Code provide
for these exceptional conditions, to wit:
Article 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partnership or with the authority of
his co-partners, loss or injury is caused to any person, not being a partner in
the partnership, or any penalty is incurred, the partnership is liable therefor to
the same extent as the partner so acting or omitting to act.
Article 1823. The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is
misapplied by any partner while it is in the custody of the partnership.
Article 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823.
[Emphases Supplied]
In essence, these provisions articulate that it is the act of a partner which
caused loss or injury to a third person that makes all other partners solidarily
liable with the partnership because of the words "any wrongful act or
omission of any partner acting in the ordinary course of the business," "one
partner acting within the scope of his apparent authority" and "misapplied
by any partner while it is in the custody of the partnership." The obligation is
solidary because the law protects the third person, who in good faith relied
upon the authority of a partner, whether such authority is real or apparent. 40
In the case at bench, it was not shown that Guy or the other partners did a
wrongful act or misapplied the money or property he or the partnership
received from Gacott. A third person who transacted with said partnership
can hold the partners solidarily liable for the whole obligation if the case of
the third person falls under Articles 1822 or 1823.41 Gacott’s claim
stemmed from the alleged defective transreceivers he bought from QSC,
through the latter's employee, Medestomas. It was for a breach of warranty
in a contractual obligation entered into in the name and for the account of
QSC, not due to the acts of any of the partners. For said reason, it is the
general rule under Article 1816 that governs the joint liability of such breach,
and not the exceptions under Articles 1822 to 1824. Thus, it was improper to
hold Guy solidarily liable for the obligation of the partnership.
Finally, Section 21 of the Corporation Code,42 as invoked by the RTC, cannot
be applied to sustain Guy's liability. The said provision states that a general
partner shall be liable for all debts, liabilities and damages incurred by an
ostensible corporation. It must be read, however, in conjunction with Article
1816 of the Civil Code, which governs the liabilities of partners against third
persons. Accordingly, whether QSC was an alleged ostensible corporation or
a duly registered partnership, the liability of Guy, if any, would remain to be
joint and subsidiary because, as previously stated, all partners shall be
liable pro rata with all their property and after all the partnership assets have
been exhausted for the contracts which may be entered into in the name and
for the account of the partnership.

WHEREFORE, the petition is GRANTED. The June 25, 2012 Decision and
the March 5, 2013 Resolution of the Court of Appeals in CA-G.R. CV No.
94816 are hereby REVERSED and SET ASIDE. Accordingly, the Regional
Trial Court, Branch 52, Puerto Princesa City, is ORDERED TO
RELEASE Michael C. Guy's Suzuki Grand Vitara subject of the Notice of
Levy/ Attachment upon Personalty.

SO ORDERED.
 Title IX. - PARTNERSHIP
CHAPTER 1
GENERAL PROVISIONS
Art. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund, with
the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a
profession. (1665a)
Art. 1768. The partnership has a judicial 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. (n)
Art. 1769. In determining whether a partnership exists, these rules shall
apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such-co-owners or 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;
(4) The receipt by a person of a share of the profits of a business is prima
facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits
of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise. (n)
Art. 1770. A partnership must have a lawful object or purpose, and must be
established for the common benefit or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree, the profits
shall be confiscated in favor of the State, without prejudice to the provisions
of the Penal Code governing the confiscation of the instruments and effects
of a crime. (1666a)
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. (1667a)
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. (n)
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. (1668a)
Art. 1774. Any immovable property or an interest therein may be acquired in
the partnership name. Title so acquired can be conveyed only in the
partnership name. (n)
Art. 1775. Associations and societies, whose articles are kept secret among
the members, and wherein any one of the members may contract in his own
name with third persons, shall have no juridical personality, and shall be
governed by the provisions relating to co-ownership. (1669)
Art. 1776. As to its object, a partnership is either universal or particular.As
regards the liability of the partners, a partnership may be general or limited.
(1671a)
Art. 1777. A universal partnership may refer to all the present property or to
all the profits. (1672)
Art. 1778. A partnership of all present property is that in which the partners
contribute all the property which actually belongs to them to a common fund,
with the intention of dividing the same among themselves, as well as all the
profits which they may acquire therewith. (1673)
Art. 1779. In a universal partnership of all present property, the property
which belongs to each of the partners at the time of the constitution of the
partnership, becomes the common property of all the partners, as well as all
the profits which they may acquire therewith.
A stipulation for the common enjoyment of any other profits may also be
made; but the property which the partners may acquire subsequently by
inheritance, legacy, or donation cannot be included in such stipulation,
except the fruits thereof. (1674a)
Art. 1780. A universal partnership of profits comprises all that the partners
may acquire by their industry or work during the existence of the partnership.
Movable or immovable property which each of the partners may possess at
the time of the celebration of the contract shall continue to pertain exclusively
to each, only the usufruct passing to the partnership. (1675)
Art. 1781. Articles of universal partnership, entered into without specification
of its nature, only constitute a universal partnership of profits. (1676)
Art. 1782. Persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership. (1677)
Art. 1783. A particular partnership has for its object determinate things, their
use or fruits, or specific undertaking, or the exercise of a profession or
vocation. (1678)
CHAPTER 2
OBLIGATIONS OF THE PARTNERS
SECTION 1. - Obligations of the Partners Among Themselves
Art. 1784. A partnership begins from the moment of the execution of the
contract, unless it is otherwise stipulated. (1679)
Art. 1785. When a partnership for a fixed term or particular undertaking is
continued after the termination of such term or particular undertaking without
any express agreement, the rights and duties of the partners remain the
same as they were at such termination, so far as is consistent with a
partnership at will.
A continuation of the business by the partners or such of them as habitually
acted therein during the term, without any settlement or liquidation of the
partnership affairs, is prima facie evidence of a continuation of the
partnership. (n)
Art. 1786. Every partner is a debtor of the partnership for whatever he may
have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific
and determinate things which he may have contributed to the partnership, in
the same cases and in the same manner as the vendor is bound with respect
to the vendee. He shall also be liable for the fruits thereof from the time they
should have been delivered, without the need of any demand. (1681a)
Art. 1787. When the capital or a part thereof which a partner is bound to
contribute consists of goods, their appraisal must be made in the manner
prescribed in the contract of partnership, and in the absence of stipulation, it
shall be made by experts chosen by the partners, and according to current
prices, the subsequent changes thereof being for account of the partnership.
(n)
Art. 1788. A partner who has undertaken to contribute a sum of money and
fails to do so becomes a debtor for the interest and damages from the time
he should have complied with his obligation.
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he converted
the amount to his own use. (1682)
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. (n)
Art. 1790. Unless there is a stipulation to the contrary, the partners shall
contribute equal shares to the capital of the partnership. (n)
Art. 1791. If there is no agreement to the contrary, in case of an imminent
loss of the business of the partnership, any partner who refuses to contribute
an additional share to the capital, except an industrial partner, to save the
venture, shall he obliged to sell his interest to the other partners. (n)
Art. 1792. If a partner authorized to manage collects a demandable sum
which was owed to him in his own name, from a person who owed the
partnership another sum also demandable, the sum thus collected shall be
applied to the two credits in proportion to their amounts, even though he may
have given a receipt for his own credit only; but should he have given it for
the account of the partnership credit, the amount shall be fully applied to the
latter.
The provisions of this article are understood to be without prejudice to the
right granted to the other debtor by Article 1252, but only if the personal
credit of the partner should be more onerous to him. (1684)
Art. 1793. A partner who has received, in whole or in part, his share of a
partnership credit, when the other partners have not collected theirs, shall be
obliged, if the debtor should thereafter become insolvent, to bring to the
partnership capital what he received even though he may have given receipt
for his share only. (1685a)
Art. 1794. Every partner is responsible to the partnership for damages
suffered by it through his fault, and he cannot compensate them with the
profits and benefits which he may have earned for the partnership by his
industry. However, the courts may equitably lessen this responsibility if
through the partner's extraordinary efforts in other activities of the
partnership, unusual profits have been realized. (1686a)
Art. 1795. The risk of specific and determinate things, which are not fungible,
contributed to the partnership so that only their use and fruits may be for the
common benefit, shall be borne by the partner who owns them.
If the things contribute are fungible, or cannot be kept without deteriorating,
or if they were contributed to be sold, the risk shall be borne by the
partnership. In the absence of stipulation, the risk of the things brought and
appraised in the inventory, shall also be borne by the partnership, and in
such case the claim shall be limited to the value at which they were
appraised. (1687)
Art. 1796. The partnership shall be responsible to every partner for the
amounts he may have disbursed on behalf of the partnership and for the
corresponding interest, from the time the expense are made; it shall also
answer to each partner for the obligations he may have contracted in good
faith in the interest of the partnership business, and for risks in consequence
of its management. (1688a)
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. (1689a)
Art. 1798. If the partners have agreed to intrust to a third person the
designation of the share of each one in the profits and losses, such
designation may be impugned only when it is manifestly inequitable. In no
case may a partner who has begun to execute the decision of the third
person, or who has not impugned the same within a period of three months
from the time he had knowledge thereof, complain of such decision.
The designation of losses and profits cannot be intrusted to one of the
partners. (1690)
Art. 1799. A stipulation which excludes one or more partners from any share
in the profits or losses is void. (1691)
Art. 1800. The partner who has been appointed manager in the articles of
partnership may execute all acts of administration despite the opposition of
his partners, unless he should act in bad faith; and his power is irrevocable
without just or lawful cause. The vote of the partners representing the
controlling interest shall be necessary for such revocation of power.
A power granted after the partnership has been constituted may be revoked
at any time. (1692a)
Art. 1801. If two or more partners have been intrusted with the management
of the partnership without specification of their respective duties, or without a
stipulation that one of them shall not act without the consent of all the others,
each one may separately execute all acts of administration, but if any of them
should oppose the acts of the others, the decision of the majority shall
prevail. In case of a tie, the matter shall be decided by the partners owning
the controlling interest. (1693a)
Art. 1802. In case it should have been stipulated that none of the managing
partners shall act without the consent of the others, the concurrence of all
shall be necessary for the validity of the acts, and the absence or disability of
any one of them cannot be alleged, unless there is imminent danger of grave
or irreparable injury to the partnership. (1694)
Art. 1803. When the manner of management has not been agreed upon, the
following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one of them
may do alone shall bind the partnership, without prejudice to the provisions of
Article 1801.
(2) None of the partners may, without the consent of the others, make any
important alteration in the immovable property of the partnership, even if it
may be useful to the partnership. But if the refusal of consent by the other
partners is manifestly prejudicial to the interest of the partnership, the court's
intervention may be sought. (1695a)
Art. 1804. Every partner may associate another person with him in his share,
but the associate shall not be admitted into the partnership without the
consent of all the other partners, even if the partner having an associate
should be a manager. (1696)
Art. 1805. The partnership books shall be kept, subject to any agreement
between the partners, at the principal place of business of the partnership,
and every partner shall at any reasonable hour have access to and may
inspect and copy any of them. (n)
Art. 1806. Partners shall render on demand true and full information of all
things affecting the partnership to any partner or the legal representative of
any deceased partner or of any partner under legal disability. (n)
Art. 1807. Every partner must account to the partnership for any benefit, and
hold as trustee for it any profits derived by him without the consent of the
other partners from any transaction connected with the formation, conduct, or
liquidation of the partnership or from any use by him of its property. (n)
Art. 1808. The capitalist partners cannot engage for their own account in any
operation which is of the kind of business in which the partnership is
engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common
funds any profits accruing to him from his transactions, and shall personally
bear all the losses. (n)
Art. 1809. 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 circumstances render it just and reasonable. (n)
SECTION 2. - Property Rights of a Partner
Art. 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management. (n)
Art. 1811. A partner is co-owner with his partners of specific partnership
property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement
between the partners, has an equal right with his partners to possess specific
partnership property for partnership purposes; but he has no right to possess
such property for any other purpose without the consent of his partners;
(2) A partner's right in specific partnership property is not assignable except
in connection with the assignment of rights of all the partners in the same
property;
(3) A partner's right in specific partnership property is not subject to
attachment or execution, except on a claim against the partnership. When
partnership property is attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner, cannot claim any right
under the homestead or exemption laws;
(4) A partner's right in specific partnership property is not subject to legal
support under Article 291. (n)
Art. 1812. A partner's interest in the partnership is his share of the profits and
surplus. (n)
Art. 1813. A conveyance by a partner of his whole interest in the partnership
does not of itself dissolve the partnership, or, as against the other partners in
the absence of agreement, entitle the assignee, during the continuance of
the partnership, to interfere in the management or administration of the
partnership business or affairs, or to require any information or account of
partnership transactions, or to inspect the partnership books; but it merely
entitles the assignee to receive in accordance with his contract the profits to
which the assigning partner would otherwise be entitled. However, in case of
fraud in the management of the partnership, the assignee may avail himself
of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive
his assignor's interest and may require an account from the date only of the
last account agreed to by all the partners. (n)
Art. 1814. Without prejudice to the preferred rights of partnership creditors
under Article 1827, on due application to a competent court by any judgment
creditor of a partner, the court which entered the judgment, or any other
court, may charge the interest of the debtor partner with payment of the
unsatisfied amount of such judgment debt with interest thereon; and may
then or later appoint a receiver of his share of the profits, and of any other
money due or to fall due to him in respect of the partnership, and make all
other orders, directions, accounts and inquiries which the debtor partner
might have made, or which the circumstances of the case may require.
The interest charged may be redeemed at any time before foreclosure, or in
case of a sale being directed by the court, may be purchased without thereby
causing a dissolution:
(1) With separate property, by any one or more of the partners; or
(2) With partnership property, by any one or more of the partners with the
consent of all the partners whose interests are not so charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if any,
under the exemption laws, as regards his interest in the partnership. (n)
SECTION 3. - Obligations of the Partners
With Regard to Third Persons
Art. 1815. Every partnership shall operate under a firm name, which may or
may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the
firm name, shall be subject to the liability of a partner. (n)
Art. 1816. All partners, including industrial ones, shall be liable pro rata with
all their property and after all the partnership assets have been exhausted,
for the contracts which may be entered into in the name and for the account
of the partnership, under its signature and by a person authorized to act for
the partnership. However, any partner may enter into a separate obligation to
perform a partnership contract. (n)
Art. 1817. Any stipulation against the liability laid down in the preceding
article shall be void, except as among the partners. (n)
Art. 1818. Every partner is an agent of the partnership for the purpose of its
business, and the act of every partner, including the execution in the
partnership name of any instrument, for apparently carrying on in the usual
way the business of the partnership of which he is a member binds the
partnership, unless the partner so acting has in fact no authority to act for the
partnership in the particular matter, and the person with whom he is dealing
has knowledge of the fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of business of
the partnership in the usual way does not bind the partnership unless
authorized by the other partners.
Except when authorized by the other partners or unless they have
abandoned the business, one or more but less than all the partners have no
authority to:
(1) Assign the partnership property in trust for creditors or on the assignee's
promise to pay the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the ordinary
business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority shall bind the
partnership to persons having knowledge of the restriction. (n)
Art. 1819. Where title to real property is in the partnership name, any partner
may convey title to such property by a conveyance executed in the
partnership name; but the partnership may recover such property unless the
partner's act binds the partnership under the provisions of the first paragraph
of article 1818, or unless such property has been conveyed by the grantee or
a person claiming through such grantee to a holder for value without
knowledge that the partner, in making the conveyance, has exceeded his
authority.
Where title to real property is in the name of the partnership, a conveyance
executed by a partner, in his own name, passes the equitable interest of the
partnership, provided the act is one within the authority of the partner under
the provisions of the first paragraph of Article 1818.
Where title to real property is in the name of one or more but not all the
partners, and the record does not disclose the right of the partnership, the
partners in whose name the title stands may convey title to such property,
but the partnership may recover such property if the partners' act does not
bind the partnership under the provisions of the first paragraph of Article
1818, unless the purchaser or his assignee, is a holder for value, without
knowledge.
Where the title to real property is in the name of one or more or all the
partners, or in a third person in trust for the partnership, a conveyance
executed by a partner in the partnership name, or in his own name, passes
the equitable interest of the partnership, provided the act is one within the
authority of the partner under the provisions of the first paragraph of Article
1818.
Where the title to real property is in the name of all the partners a
conveyance executed by all the partners passes all their rights in such
property. (n)
Art. 1820. An admission or representation made by any partner concerning
partnership affairs within the scope of his authority in accordance with this
Title is evidence against the partnership. (n)
Art. 1821. Notice to any partner of any matter relating to partnership affairs,
and the knowledge of the partner acting in the particular matter, acquired
while a partner or then present to his mind, and the knowledge of any other
partner who reasonably could and should have communicated it to the acting
partner, operate as notice to or knowledge of the partnership, except in the
case of fraud on the partnership, committed by or with the consent of that
partner. (n)
Art. 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partnership or with the authority of
co-partners, loss or injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act. (n)
Art. 1823. The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is
misapplied by any partner while it is in the custody of the partnership. (n)
Art. 1824. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823. (n)
Art. 1825. When a person, by words spoken or written or by conduct,
represents himself, or consents to another representing him to anyone, as a
partner in an existing partnership or with one or more persons not actual
partners, he is liable to any such persons to whom such representation has
been made, who has, on the faith of such representation, given credit to the
actual or apparent partnership, and if he has made such representation or
consented to its being made in a public manner he is liable to such person,
whether the representation has or has not been made or communicated to
such person so giving credit by or with the knowledge of the apparent partner
making the representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he were an
actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata with the other
persons, if any, so consenting to the contract or representation as to incur
liability, otherwise separately.
When a person has been thus represented to be a partner in an existing
partnership, or with one or more persons not actual partners, he is an agent
of the persons consenting to such representation to bind them to the same
extent and in the same manner as though he were a partner in fact, with
respect to persons who rely upon the representation. When all the members
of the existing partnership consent to the representation, a partnership act or
obligation results; but in all other cases it is the joint act or obligation of the
person acting and the persons consenting to the representation. (n)
Art. 1826. A person admitted as a partner into an existing partnership is liable
for all the obligations of the partnership arising before his admission as
though he had been a partner when such obligations were incurred, except
that this liability shall be satisfied only out of partnership property, unless
there is a stipulation to the contrary. (n)
Art. 1827. The creditors of the partnership shall be preferred to those of each
partner as regards the partnership property. Without prejudice to this right,
the private creditors of each partner may ask the attachment and public sale
of the share of the latter in the partnership assets. (n)
CHAPTER 3
DISSOLUTION AND WINDING UP
Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on
as distinguished from the winding up of the business. (n)
Art. 1829. On dissolution the partnership is not terminated, but continues until
the winding up of partnership affairs is completed. (n)
Art. 1830. Dissolution is caused:
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking specified
in the agreement;
(b) By the express will of any partner, who must act in good faith, when no
definite term or particular is specified;
(c) By the express will of all the partners who have not assigned their
interests or suffered them to be charged for their separate debts, either
before or after the termination of any specified term or particular undertaking;
(d) By the expulsion of any partner from the business bona fide in
accordance with such a power conferred by the agreement between the
partners;
(2) In contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of this
article, by the express will of any partner at any time;
(3) By any event which makes it unlawful for the business of the partnership
to be carried on or for the members to carry it on in partnership;
(4) When a specific thing which a partner had promised to contribute to the
partnership, perishes before the delivery; in any case by the loss of the thing,
when the partner who contributed it having reserved the ownership thereof,
has only transferred to the partnership the use or enjoyment of the same; but
the partnership shall not be dissolved by the loss of the thing when it occurs
after the partnership has acquired the ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a and 1701a)
Art. 1831. On application by or for a partner the court shall decree a
dissolution whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown
to be of unsound mind;
(2) A partner becomes in any other way incapable of performing his part of
the partnership contract;
(3) A partner has been guilty of such conduct as tends to affect prejudicially
the carrying on of the business;
(4) A partner wilfully 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;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest under Article 1813
or 1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest
was assigned or when the charging order was issued. (n)
Art. 1832. Except so far as may be necessary to wind up partnership affairs
or to complete transactions begun but not then finished, dissolution
terminates all authority of any partner to act for the partnership:
(1) With respect to the partners:
(a) When the dissolution is not by the act, insolvency or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a partner, in
cases where article 1833 so requires;
(2) With respect to persons not partners, as declared in article 1834. (n)
Art. 1833. Where the dissolution is caused by the act, death or insolvency of
a partner, each partner is liable to his co-partners for his share of any liability
created by any partner acting for the partnership as if the partnership had not
been dissolved unless:
(1) The dissolution being by act of any partner, the partner acting for the
partnership had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvency of a partner, the partner
acting for the partnership had knowledge or notice of the death or insolvency.
Art. 1834. After dissolution, a partner can bind the partnership, except as
provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership affairs or completing
transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if dissolution had not
taken place, provided the other party to the transaction:
(a) Had extended credit to the partnership prior to dissolution and had no
knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had nevertheless known of the
partnership prior to dissolution, and, having no knowledge or notice of
dissolution, the fact of dissolution had not been advertised in a newspaper of
general circulation in the place (or in each place if more than one) at which
the partnership business was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall be satisfied out
of partnership assets alone when such partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business
reputation of the partnership could not be said to have been in any degree
due to his connection with it.
The partnership is in no case bound by any act of a partner after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry on the
business, unless the act is appropriate for winding up partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up partnership affairs; except
by a transaction with one who:
(a) Had extended credit to the partnership prior to dissolution and had no
knowledge or notice of his want of authority; or
(b) Had not extended credit to the partnership prior to dissolution, and,
having no knowledge or notice of his want of authority, the fact of his want of
authority has not been advertised in the manner provided for advertising the
fact of dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under Article 1825 of any person
who, after dissolution, represents himself or consents to another representing
him as a partner in a partnership engaged in carrying business. (n)
Art. 1835. The dissolution of the partnership does not of itself discharge the
existing liability of any partner.
A partner is discharged from any existing liability upon dissolution of the
partnership by an agreement to that effect between himself, the partnership
creditor and the person or partnership continuing the business; and such
agreement may be inferred from the course of dealing between the creditor
having knowledge of the dissolution and the person or partnership continuing
the business.
The individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was a partner, but subject to
the prior payment of his separate debts. (n)
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully
dissolved the partnership or the legal representative of the last surviving
partner, not insolvent, has the right to wind up the partnership affairs,
provided, however, that any partner, his legal representative or his assignee,
upon cause shown, may obtain winding up by the court. (n)
Art. 1837. When dissolution is caused in any way, except in contravention of
the partnership agreement, each partner, as against his co-partners and all
persons claiming through them in respect of their interests in the partnership,
unless otherwise agreed, may have the partnership property applied to
discharge its liabilities, and the surplus applied to pay in cash the net amount
owing to the respective partners. But if dissolution is caused by expulsion of
a partner, bona fide under the partnership agreement and if the expelled
partner is discharged from all partnership liabilities, either by payment or
agreement under the second paragraph of Article 1835, he shall receive in
cash only the net amount due him from the partnership.
When dissolution is caused in contravention of the partnership agreement
the rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution
wrongfully, to damages breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all
desire to continue the business in the same name either by themselves or
jointly with others, may do so, during the agreed term for the partnership and
for that purpose may possess the partnership property, provided they secure
the payment by bond approved by the court, or pay any partner who has
caused the dissolution wrongfully, the value of his interest in the partnership
at the dissolution, less any damages recoverable under the second
paragraph, No. 1 (b) of this article, and in like manner indemnify him against
all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second
paragraph, No. 2, all the rights of a partner under the first paragraph, subject
to liability for damages in the second paragraph, No. 1 (b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this
article, the right as against his co-partners and all claiming through them in
respect of their interests in the partnership, to have the value of his interest in
the partnership, less any damage caused to his co-partners by the
dissolution, ascertained and paid to him in cash, or the payment secured by
a bond approved by the court, and to be released from all existing liabilities
of the partnership; but in ascertaining the value of the partner's interest the
value of the good-will of the business shall not be considered. (n)
Art. 1838. Where a partnership contract is rescinded on the ground of the
fraud or misrepresentation of one of the parties thereto, the party entitled to
rescind is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership
property after satisfying the partnership liabilities to third persons for any sum
of money paid by him for the purchase of an interest in the partnership and
for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the
place of the creditors of the partnership for any payments made by him in
respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the
representation against all debts and liabilities of the partnership. (n)
Art. 1839. In settling accounts between the partners after dissolution, the
following rules shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the
liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this
article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount
necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the
court shall have the right to enforce the contributions specified in the
preceding number.
(6) Any partner or his legal representative shall have the right to enforce the
contributions specified in No. 4, to the extent of the amount which he has
paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the
contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners
are in possession of a court for distribution, partnership creditors shall have
priority on partnership property and separate creditors on individual property,
saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the
claims against his separate property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution. (n)
Art. 1840. In the following cases creditors of the dissolved partnership are
also creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when
any partner retires and assigns (or the representative of the deceased
partner assigns) his rights in partnership property to two or more of the
partners, or to one or more of the partners and one or more third persons, if
the business is continued without liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a
deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of
partnership affairs, either alone or with others;
(3) When any partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this article, with the
consent of the retired partners or the representative of the deceased partner,
but without any assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay the
debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and the remaining
partners continue the business under the provisions of article 1837, second
paragraph, No. 2, either alone or with others, and without liquidation of the
partnership affairs;
(6) When a partner is expelled and the remaining partners continue the
business either alone or with others without liquidation of the partnership
affairs.
The liability of a third person becoming a partner in the partnership
continuing the business, under this article, to the creditors of the dissolved
partnership shall be satisfied out of the partnership property only, unless
there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any
conditions set forth in this article the creditors of the dissolved partnership, as
against the separate creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior right to any claim of the
retired partner or the representative of the deceased partner against the
person or partnership continuing the business, on account of the retired or
deceased partner's interest in the dissolved partnership or on account of any
consideration promised for such interest or for his right in partnership
property.
Nothing in this article shall be held to modify any right of creditors to set
aside any assignment on the ground of fraud.
The use by the person or partnership continuing the business of the
partnership name, or the name of a deceased partner as part thereof, shall
not of itself make the individual property of the deceased partner liable for
any debts contracted by such person or partnership. (n)
Art. 1841. When any partner retires or dies, and the business is continued
under any of the conditions set forth in the preceding article, or in Article
1837, second paragraph, No. 2, without any settlement of accounts as
between him or his estate and the person or partnership continuing the
business, unless otherwise agreed, he or his legal representative as against
such person or partnership may have the value of his interest at the date of
dissolution ascertained, and shall receive as an ordinary creditor an amount
equal to the value of his interest in the dissolved partnership with interest, or,
at his option or at the option of his legal representative, in lieu of interest, the
profits attributable to the use of his right in the property of the dissolved
partnership; provided that the creditors of the dissolved partnership as
against the separate creditors, or the representative of the retired or
deceased partner, shall have priority on any claim arising under this article,
as provided Article 1840, third paragraph. (n)
Art. 1842. The right to an account of his interest shall accrue to any partner,
or his legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date of
dissolution, in the absence of any agreement to the contrary. (n)
CHAPTER 4
LIMITED PARTNERSHIP (n)
Art. 1843. A limited partnership is one formed by two or more persons under
the provisions of the following article, having as members one or more
general partners and one or more limited partners. The limited partners as
such shall not be bound by the obligations of the partnership.
Art. 1844. Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state -
(a) The name of the partnership, adding thereto the word "Limited";
(b) The character of the business;
(c) The location of the principal place of business;
(d) The name and place of residence of each member, general and limited
partners being respectively designated;
(e) The term for which the partnership is to exist;
(f) The amount of cash and a description of and the agreed value of the other
property contributed by each limited partner;
(g) The additional contributions, if any, to be made by each limited partner
and the times at which or events on the happening of which they shall be
made;
(h) The time, if agreed upon, when the contribution of each limited partner is
to be returned;
(i) The share of the profits or the other compensation by way of income which
each limited partner shall receive by reason of his contribution;
(j) The right, if given, of a limited partner to substitute an assignee as
contributor in his place, and the terms and conditions of the substitution;
(k) The right, if given, of the partners to admit additional limited partners;
(l) The right, if given, of one or more of the limited partners to priority over
other limited partners, as to contributions or as to compensation by way of
income, and the nature of such priority;
(m) The right, if given, of the remaining general partner or partners to
continue the business on the death, retirement, civil interdiction, insanity or
insolvency of a general partner; and
(n) The right, if given, of a limited partner to demand and receive property
other than cash in return for his contribution.
(2) File for record the certificate in the Office of the Securities and Exchange
Commission.
A limited partnership is formed if there has been substantial compliance in
good faith with the foregoing requirements.
Art. 1845. The contributions of a limited partner may be cash or property, but
not services.
Art. 1846. The surname of a limited partner shall not appear in the
partnership name unless:
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became such, the business has
been carried on under a name in which his surname appeared.
A limited partner whose surname appears in a partnership name contrary to
the provisions of the first paragraph is liable as a general partner to
partnership creditors who extend credit to the partnership without actual
knowledge that he is not a general partner.
Art. 1847. If the certificate contains a false statement, one who suffers loss
by reliance on such statement may hold liable any party to the certificate who
knew the statement to be false:
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time before the statement was relied
upon to enable him to cancel or amend the certificate, or to file a petition for
its cancellation or amendment as provided in Article 1865.
Art. 1848. A limited partner shall not become liable as a general partner
unless, in addition to the exercise of his rights and powers as a limited
partner, he takes part in the control of the business.
Art. 1849. After the formation of a lifted partnership, additional limited
partners may be admitted upon filing an amendment to the original certificate
in accordance with the requirements of Article 1865.
Art. 1850. A general partner shall have all the rights and powers and be
subject to all the restrictions and liabilities of a partner in a partnership
without limited partners. However, without the written consent or ratification
of the specific act by all the limited partners, a general partner or all of the
general partners have no authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on the ordinary
business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in specific partnership
property, for other than a partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right so to do is given in
the certificate;
(7) Continue the business with partnership property on the death, retirement,
insanity, civil interdiction or insolvency of a general partner, unless the right
so to do is given in the certificate.
Art. 1851. A limited partner shall have the same rights as a general partner
to:
(1) Have the partnership books kept at the principal place of business of the
partnership, and at a reasonable hour to inspect and copy any of them;
(2) Have on demand true and full information of all things affecting the
partnership, and a formal account of partnership affairs whenever
circumstances render it just and reasonable; and
(3) Have dissolution and winding up by decree of court.
A limited partner shall have the right to receive a share of the profits or other
compensation by way of income, and to the return of his contribution as
provided in Articles 1856 and 1857.
Art. 1852. Without prejudice to the provisions of Article 1848, a person who
has contributed to the capital of a business conducted by a person or
partnership erroneously believing that he has become a limited partner in a
limited partnership, is not, by reason of his exercise of the rights of a limited
partner, a general partner with the person or in the partnership carrying on
the business, or bound by the obligations of such person or partnership,
provided that on ascertaining the mistake he promptly renounces his interest
in the profits of the business, or other compensation by way of income.
Art. 1853. A person may be a general partner and a limited partner in the
same partnership at the same time, provided that this fact shall be stated in
the certificate provided for in Article 1844.
A person who is a general, and also at the same time a limited partner, shall
have all the rights and powers and be subject to all the restrictions of a
general partner; except that, in respect to his contribution, he shall have the
rights against the other members which he would have had if he were not
also a general partner.
Art. 1854. A limited partner also may loan money to and transact other
business with the partnership, and, unless he is also a general partner,
receive on account of resulting claims against the partnership, with general
creditors, a pro rata share of the assets. No limited partner shall in respect to
any such claim:
(1) Receive or hold as collateral security and partnership property, or
(2) Receive from a general partner or the partnership any payment,
conveyance, or release from liability if at the time the assets of the
partnership are not sufficient to discharge partnership liabilities to persons
not claiming as general or limited partners.
The receiving of collateral security, or payment, conveyance, or release in
violation of the foregoing provisions is a fraud on the creditors of the
partnership.
Art. 1855. Where there are several limited partners the members may agree
that one or more of the limited partners shall have a priority over other limited
partners as to the return of their contributions, as to their compensation by
way of income, or as to any other matter. If such an agreement is made it
shall be stated in the certificate, and in the absence of such a statement all
the limited partners shall stand upon equal footing.
Art. 1856. A limited partner may receive from the partnership the share of the
profits or the compensation by way of income stipulated for in the certificate;
provided that after such payment is made, whether from property of the
partnership or that of a general partner, the partnership assets are in excess
of all liabilities of the partnership except liabilities to limited partners on
account of their contributions and to general partners.
Art. 1857. A limited partner shall not receive from a general partner or out of
partnership property any part of his contributions until:
(1) All liabilities of the partnership, except liabilities to general partners and to
limited partners on account of their contributions, have been paid or there
remains property of the partnership sufficient to pay them;
(2) The consent of all members is had, unless the return of the contribution
may be rightfully demanded under the provisions of the second paragraph;
and
(3) The certificate is cancelled or so amended as to set forth the withdrawal
or reduction.
Subject to the provisions of the first paragraph, a limited partner may
rightfully demand the return of his contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate for its return has arrived, or
(3) After he has six months' notice in writing to all other members, if no time
is specified in the certificate, either for the return of the contribution or for the
dissolution of the partnership.
In the absence of any statement in the certificate to the contrary or the
consent of all members, a limited partner, irrespective of the nature of his
contribution, has only the right to demand and receive cash in return for his
contribution.
A limited partner may have the partnership dissolved and its affairs wound up
when:
(1) He rightfully but unsuccessfully demands the return of his contribution, or
(2) The other liabilities of the partnership have not been paid, or the
partnership property is insufficient for their payment as required by the first
paragraph, No. 1, and the limited partner would otherwise be entitled to the
return of his contribution.
Art. 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as actually made and that
stated in the certificate as having been made; and
(2) For any unpaid contribution which he agreed in the certificate to make in
the future at the time and on the conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as contributed by him, but which
was not contributed or which has been wrongfully returned, and
(2) Money or other property wrongfully paid or conveyed to him on account of
his contribution.
The liabilities of a limited partner as set forth in this article can be waived or
compromised only by the consent of all members; but a waiver or
compromise shall not affect the right of a creditor of a partnership who
extended credit or whose claim arose after the filing and before a
cancellation or amendment of the certificate, to enforce such liabilities.
When a contributor has rightfully received the return in whole or in part of the
capital of his contribution, he is nevertheless liable to the partnership for any
sum, not in excess of such return with interest, necessary to discharge its
liabilities to all creditors who extended credit or whose claims arose before
such return.
Art. 1859. A limited partner's interest is assignable.
A substituted limited partner is a person admitted to all the rights of a limited
partner who has died or has assigned his interest in a partnership.
An assignee, who does not become a substituted limited partner, has no right
to require any information or account of the partnership transactions or to
inspect the partnership books; he is only entitled to receive the share of the
profits or other compensation by way of income, or the return of his
contribution, to which his assignor would otherwise be entitled.
An assignee shall have the right to become a substituted limited partner if all
the members consent thereto or if the assignor, being thereunto empowered
by the certificate, gives the assignee that right.
An assignee becomes a substituted limited partner when the certificate is
appropriately amended in accordance with Article 1865.
The substituted limited partner has all the rights and powers, and is subject
to all the restrictions and liabilities of his assignor, except those liabilities of
which he was ignorant at the time he became a limited partner and which
could not be ascertained from the certificate.
The substitution of the assignee as a limited partner does not release the
assignor from liability to the partnership under Articles 1847 and 1848.
Art. 1860. The retirement, death, insolvency, insanity or civil interdiction of a
general partner dissolves the partnership, unless the business is continued
by the remaining general partners:
(1) Under a right so to do stated in the certificate, or
(2) With the consent of all members.
Art. 1861. On the death of a limited partner his executor or administrator shall
have all the rights of a limited partner for the purpose of setting his estate,
and such power as the deceased had to constitute his assignee a substituted
limited partner.
The estate of a deceased limited partner shall be liable for all his liabilities as
a limited partner.
Art. 1862. On due application to a court of competent jurisdiction by any
creditor of a limited partner, the court may charge the interest of the indebted
limited partner with payment of the unsatisfied amount of such claim, and
may appoint a receiver, and make all other orders, directions and inquiries
which the circumstances of the case may require.
The interest may be redeemed with the separate property of any general
partner, but may not be redeemed with partnership property.
The remedies conferred by the first paragraph shall not be deemed exclusive
of others which may exist.
Nothing in this Chapter shall be held to deprive a limited partner of his
statutory exemption.
Art. 1863. In setting accounts after dissolution the liabilities of the partnership
shall be entitled to payment in the following order:
(1) Those to creditors, in the order of priority as provided by law, except
those to limited partners on account of their contributions, and to general
partners;
(2) Those to limited partners in respect to their share of the profits and other
compensation by way of income on their contributions;
(3) Those to limited partners in respect to the capital of their contributions;
(4) Those to general partners other than for capital and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent agreement,
limited partners share in the partnership assets in respect to their claims for
capital, and in respect to their claims for profits or for compensation by way
of income on their contribution respectively, in proportion to the respective
amounts of such claims.
Art. 1864. The certificate shall be cancelled when the partnership is dissolved
or all limited partners cease to be such.
A certificate shall be amended when:
(1) There is a change in the name of the partnership or in the amount or
character of the contribution of any limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or insane, or is
sentenced to civil interdiction and the business is continued under Article
1860;
(6) There is a change in the character of the business of the partnership;
(7) There is a false or erroneous statement in the certificate;
(8) There is a change in the time as stated in the certificate for the dissolution
of the partnership or for the return of a contribution;
(9) A time is fixed for the dissolution of the partnership, or the return of a
contribution, no time having been specified in the certificate, or
(10) The members desire to make a change in any other statement in the
certificate in order that it shall accurately represent the agreement among
them.
Art. 1865. The writing to amend a certificate shall:
(1) Conform to the requirements of Article 1844 as far as necessary to set
forth clearly the change in the certificate which it is desired to make; and
(2) Be signed and sworn to by all members, and an amendment substituting
a limited partner or adding a limited or general partner shall be signed also
by the member to be substituted or added, and when a limited partner is to
be substituted, the amendment shall also be signed by the assigning limited A limited partnership formed under the law prior to the effectivity of this Code,
partner. until or unless it becomes a limited partnership under this Chapter, shall
continue to be governed by the provisions of the old law.
The writing to cancel a certificate shall be signed by all members.

A person desiring the cancellation or amendment of a certificate, if any

person designated in the first and second paragraphs as a person who must
execute the writing refuses to do so, may petition the court to order a
cancellation or amendment thereof.

If the court finds that the petitioner has a right to have the writing executed by
a person who refuses to do so, it shall order the Office of the Securities and
Exchange Commission where the certificate is recorded, to record the
cancellation or amendment of the certificate; and when the certificate is to be
amended, the court shall also cause to be filed for record in said office a
certified copy of its decree setting forth the amendment.

A certificate is amended or cancelled when there is filed for record in the

Office of the Securities and Exchange Commission, where the certificate is
recorded:

(1) A writing in accordance with the provisions of the first or second

paragraph, or

(2) A certified copy of the order of the court in accordance with the provisions
of the fourth paragraph;

(3) After the certificate is duly amended in accordance with this article, the
amended certified shall thereafter be for all purposes the certificate provided
for in this Chapter.

Art. 1866. A contributor, unless he is a general partner, is not a proper party

to proceedings by or against a partnership, except where the object is to
enforce a limited partner's right against or liability to the partnership.

Art. 1867. A limited partnership formed under the law prior to the effectivity of
this Code, may become a limited partnership under this Chapter by
complying with the provisions of Article 1844, provided the certificate sets
forth:

(1) The amount of the original contribution of each limited partner, and the
time when the contribution was made; and

(2) That the property of the partnership exceeds the amount sufficient to
discharge its liabilities to persons not claiming as general or limited partners
by an amount greater than the sum of the contributions of its limited partners.